Who’s investing in e-sports - and what are they looking to achieve?
Companies across technology, media and telecommunications (TMT) are pursuing sponsorship agreements, acquisitions, advertising deals, and team creating in eSports.
Competitive computer gaming, as eSports is sometimes referred to, is a rapidly evolving and growing industry. For companies in the TMT space, a presence in eSports can lead to a range of synergies – and data shows an uptake in their eSports-related activity.
While some goals and strategic considerations overlap, investment analysis and BDO expert insight illustrate that companies in the TMT industries have different reasons for investing in eSports.
A booming industry
eSports is having a strong 2019. Tournaments, led by the Fortnite World Cup’s $30 million prize pool, have garnered much media attention. At the same time, revenues are growing rapidly, on pace to reach $2.4 billion by 2020, in part driven by increased viewership. By 2022 eSports could have more people tuning in than many traditional sports.
Some eSports are using franchise models, known from leagues such as the NFL and NBA, and the price tags are growing. Some are sold for up to $10 million. That may sound like a lot, but some franchises are already valued at between $50 million and $80 million, representing up to a fivefold value increase in just a year.
Analysis of M&A data shows that eSports-related acquisitions and investments are on the rise. 2018 set a high watermark for the number of deals and combined deal value.
Data: MergerMarket, Graph: BDO International
When breaking down M&A geographically, the USA is seeing more activity than any other market. That applies to both inbound or national deals (deal targets) and US-based companies making acquisitions in the space (acquisitions made). Global eSports M&A is evenly balanced between domestic and cross-border deals.
Data: MergerMarket Graph: BDO International
Analysing investor activity across industries shows that VC/PE, media and technology companies are particularly active, followed by deals within the eSports space itself. The latter may be a sign of increased maturity, with companies in the space using M&A to solidify their market position and add new solutions to their portfolio. M&A activity distribution has remained stable throughout the period, with 2018 and 2019 mirroring previous years’ spread.
Data: MergerMarket Graph: BDO Global
Funding is also on the rise. Crunchbase research shows a 73% increase in funding deals’ combined value between 2017 and 2018, with VCs leading the funding charge. An interesting trend is that several of the world’s most famous athletes are also getting involved, mainly through funding eSports teams. ‘Analogue’ sports teams are also increasingly active, incorporating or creating eSports teams that play the digital version of their sport (for example in the NBA (NBA 2K teams) and across Europe’s biggest soccer leagues (FIFA teams)).
Companies Rush to eSports
eSports is also seeing increased activity in other ways. Sponsorship activity is on the rise, as are other ways that companies are trying to engage with eSports. As detailed in a previous article about developments in eSports, companies generally pursue one or more of the following avenues:
- Sponsorship: sponsoring teams, events, and product placements, as well as using players and game-specific elements brand marketing strategies. A new focal point is unique on-location content at eSports events, such as VR or AR experiences.
- Advertising: covers ads shown during live streaming on online platforms like Twitch, ads during video-on-demand, and other eSports-related advertising. A growing niche is in-game advertising and product placement.
- Franchising or funding: purchasing the right for a city or country franchise for a given eSport, guaranteeing that your organisation will be the sole entity to compete in a league. Companies are also acquiring existing eSports teams or founding their own.
Each avenue has seen high watermarks within the last 12 months. For example, for sponsorships, where Intel signed a $100 million three-year sponsorship deal with the eSports company ESL. In total, there have been more than 600 eSports sponsorship agreements signed since 2016. Splitting them by industry shows that there have been around 360 IT/computer sponsorships, followed by retail companies (over 100 deals), online services (60+), non-alcoholic drinks (50+) and online media (40+).
Advertising is also showing progress, with Emarketer analysis predicting a 25% year-on-year growth in US advertising spend on eSports. Statista predicts brand spending on eSports to reach $1.2 billion in 2020. As is the case for sponsorships, advertising companies come from a diverse set of industries.
Why companies are getting involved
Almost all companies, no matter their industry, have overlapping reasons for increasing their engagement with eSports. One is to connect with younger customers who are becoming increasingly difficult to reach through traditional channels. Furthermore, many companies see advantages of being first movers in a booming space.
Companies in the TMT each have extra incentives to increase a presence in eSports.
Tech companies can use eSports as a sandbox for trialling new solutions. As indicated by the number of sponsorship deals, technology companies also see eSports fans as a core audience for their products. It should also be noted that eSports forms part of a broader battle for the future of gaming. The gaming industry is currently moving towards the cloud and subscription platforms. Many of the biggest technology companies are busy launching cloud gaming platforms, and eSports is a means to win the hearts and minds of young gamers.
Media companies view eSports and associated new media platforms as direct competitors to their existing business models. Furthermore, gaming and gaming-related news are viewed as media content types of the future. As a result, media rights deals represent one of the fastest-growing revenue streams for eSports, and their combined value is set to reach $400 million by 2021. The buyers are a mix of online platforms such as Twitch and traditional media companies. The level of competition can be gauged by Twitch paying $90 million in 2018 for the exclusive distribution of the Overwatch league last year, the biggest in eSports history.
For telecommunication companies, eSports is an ideal platform to trial new solutions and technology. That is particularly true for 5G. Gamers and eSports fans are also likely to be amongst the first-movers when it comes to consumer investing in 5G. They will be looking to take advantage of the new networks’ increased speed and lower latency. While telecommunications companies have been active signing sponsorship deals and backing eSports leagues, there have been few outright M&A plays outside of MTS’ acquisition of Gambit Esports. However, that is likely to change in the near future.