Stephen Hays

@stephenhays

Why Invest in Esports? Common Questions about Esports: Answered

As previously discussed in The Birth of a Venture Capital Investment Thesis, I’ve become passionate about investing in seed stage esports startups.

When I tell people (family, friends, other investors, etc.), I usually get a pretty tight shot-group of questions about esports. Often the questions are accompanied by a look that conveys what I call “nerd shaming.” You know that look, when people feel sorry for you because you are just not cool, oh wait, maybe you don’t.

Esports is filling arenas worldwide, a truly global phenomenon

Video games aren’t just for nerds in their parents’ basements. These competitions often take place in arenas such as the one shown here, full of 50,000+ fans, just like a professional sports event you may be more familiar with already.

While there are a number of investors who have and will invest in the space, we are one of few actively deploying capital into esports startups pre-Series A. At the bottom of this post is information on who else is investing in the space, as well as great educational resources on the market.

Here are the questions people keep asking me who are new to the space:

“What is Esports?”

Esports — a multiplayer video game played competitively for spectators, typically by professional gamers.

“Are you saying there are ‘professional’ video game players?”

Yes, that’s exactly what I’m saying. I’m surprised that people don’t know this (considering the size of the viewership market), just as people are surprised at the answer I give. These players make money from sponsorships, streaming (subscriptions to their streams), and by competing in and winning high level tournaments.

Yes, a professional esports league is already thriving

There is already a professional organization, Major League Gaming, hosting professional competitions in addition to the championship matches hosted by the game-makers as well (Riot Games, Blizzard Entertainment, etc.)

“People pay, to watch others play video games online?”

Yes, in fact, according to an industry report by NewZoo (which I will reference a few times in this note), the market for streaming is huge.

Fun factoid: More people watched the world finals of League of Legends in 2016, than watched the NBA Finals game 7 that year. 43 million viewers watched the LoL finals while 31 million tuned in for Game 7 of the 2016 NBA finals according to Nielson (with an average across all 7 games of closer to 20 million).

This is the main page of Twitch on a random Monday night around 6 PM PST

If you were to log in to Twitch (a streaming site acquired by Amazon for nearly $1 billion, where gamers can stream their video game play) at any time (literally try it on a Tuesday at 11 AM) there will be millions of people online watching others play. Login at midnight on a Friday night and you’ll see what I’m getting at here.

“Do non-gamers actually watch video game streams online?”

42% of people watching streaming video game play, aren’t playing the game themselves — So it’s not just nerds like me who want to get better at game play, this space is turning into a legitimate entertainment market. Here is some game specific data on this topic by NewZoo that can give you more context with respect to three of the biggest games in the world (based on playing and viewing data):

Source: NewZoo (link to source here)

“How can it be fun to just watch other people play a game online?”

Just give it a try, go watch a few highly followed gamers, Dr. Disrespect, or Josh OG (this guy is legit good), or Ninja or Viss from Team Solo Mid. Players such as Dr. Disrespect have tens of thousands of viewers at any given time and have had tens of millions of unique views. I call him the shock jock of esports. You will enjoy seeing this guy play a few games.

When you view a stream on Twitch, you get to watch a picture-in-picture image of the player, overlaid on top of the same view he has on his screen while he plays. The players comment while playing and often the commentary is worth watching for. Dr. Disrespect is hilarious, go check him out for a half hour one day between 10 AM PT and 6 PM PT. Often I have this on in the background now while I’m working instead of ESPN or CNBC.

“Why Invest in Esports?”

Huge market — The video games market is just over a $100 billion market in 2016 (source: NewZoo 2017 Gaming Market Report) and esports specifically is a large and growing niche within that space. In 2017 the market size for esports is expected to be $696 million. (source: NewZoo 2017 Esports Market Report).

Unparalleled growth — in the last year the esports market has grown over 43% year over year. By 2020, the market is expected to be over $1.5 billion per year while the broader gaming space will be over $128 billion by 2020 (source: NewZoo reports listed above). Those are conservative estimates; this report references a projection for a $5 billion esports market by 2020 (Tech Crunch Esports Article). Any way you slice it, this is a high growth market.

Extremely high user engagement — The number of people spending multiple hours per day playing and / or watching video games is staggering. Here is an article citing a survey result showing that the average gamer spends over 6 hours per week engaged with a game. This is an impressive average and indicates there are a lot of extremely engaged users, more so than many other markets (professional sports fans, etc.).

Under monetized usersAccording to this article in Venture Beat (which references this other report by NewZoo), “ Traditional sports leagues such as basketball monetize fans at about $15 per person. Esports right now is monetizing at $2.83 per person.” This screams opportunity to me.

Global audience — There are no borders, or boundaries or stadium restrictions. Anyone with an internet connection can be the best player in the world in any game and connect with and play with anyone. The potential of the market is understated in these reports I’ve linked throughout this blog due to the global nature of the market.

So, to recap, why invest in this space: Large, high growth market, with intense user engagement where monetization has yet to be realized. Tell me where to mail my wallet.

Want to learn more about esports?

I have compiled some resources that I find helpful when trying to understand what esports is, why people are investing in the space and why people even care to watch others play video games:

  1. The Guardian did a video that takes about 11 minutes to watch. It will explain who some of the players are, how the sport has grown and give you a sense of the global nature of the sport: https://www.theguardian.com/sport/video/2017/jun/16/e-sports-the-digital-revolution-has-arrived-video
  2. NewZoo Esports 2017 Market Report — go flip through this, you will be shocked at some of the statistics: http://resources.newzoo.com/2017-newzoo-global-esports-market-report-light
  3. As I was finishing this blog post up, I saw this article come across the wire, very helpful as well on, “Why Competitive Video Gaming is the Hot New Thing
  4. Great article here in Tech Crunch by Minard Hamilton (Partner at BITKRAFT, the first esports only VC fund) on the LA esports scene. Some great content here on who is investing in esports, and who the major players (pun intended) in the space: https://techcrunch.com/2017/06/13/in-la-some-investors-wish-they-all-could-live-in-an-esports-world/
  5. The BITKRAFT blog is a great read too: http://www.bitkraft.net/blog
  6. Digits to Dollars is a blog that has picked up coverage of the esports space. Their blog post on the economics of esports (here) is a great read and links to several of their other esports write-ups. Definitely worth a read.
  7. Streamers I’ve been watching lately: Dr. Disrespect, Ninja, TSS_Viss (these will gives you a sense of what is drawing people).
  8. Who to follow on Twitter: FNATIC, ESPN Esports, NEWZOO.
  9. Tech Crunch article on the importance of streaming to esports, explaining how and why this phenomenon has come about and what is next for esports: https://techcrunch.com/2017/02/17/the-importance-of-streaming-to-e-sports/

Deep Space Ventures is a VC fund based in Dallas, TX. Stephen Hays is the founder and managing partner. DSVC can be contacted here.

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