Friendly Advice
Dec 18, 2020

The Right Way to Invest in Esports

by
Nicolas Lucente

Esports is one of, if not the fastest growing sports in the world. In 2017, the total audience for esports was around 335 million viewers, 143 million of those being esports enthusiasts while the others were only occasional viewers. Only two years later, the total number has grown to 454 million viewers with 201 million of them being esports enthusiasts. By 2022, the total number of viewers is expected to reach 645 million. The esports industry does not have a ceiling as of right now and the limits of the industry is unforeseeable. As esports continue to grow, it is a smart idea to invest now and stand by to witness the industry’s explosion in popularity over the next decade or two.

How Does the Esports Industry Make Money?

How does any other sports league make money? Well, that is the same way the esports industry makes money including broadcast licensing deals, merchandise, event ticket sales, sponsorships, advertising, and in several other ways. Companies also sponsor specific esports teams and events, just like how companies sponsor college football teams or NBA broadcasts.

When it comes to live events, especially in the Asia-Pacific region which accounts for 57% of esports enthusiasts in 2019, tickets sell out and pack the house with fans who are excited to watch their favorite players compete. Certain companies that produce popular equipment and the most popular games amongst esports athletes also reel in a lot of profit. So as you can see, there are several ways the esports industry makes money and it is not as complicated as it may seem.

Even big companies such as Red Bull see the potential esports has and the company has begun to sponsor events. Image courtesy of Andrew.

Open a Brokerage Account

Without a brokerage account you will not be able to buy and trade esports stocks. Opening this kind of account is easy though. You simply open a brokerage account with an online broker, “most online brokerage firms allow you to open an account from the comfort of your home.” This process takes only minutes, and after the first deposit you will be able to begin purchasing and trading stocks. However, in order to trade stocks, most online brokerage firms will have you fill out an order ticket. There is no limit on the amount of accounts an investor can have and there is no limit on the amount of money that you can deposit into such accounts.

Evaluating Esports Companies

Before you decide on what companies to invest in, it is important to know how to evaluate each company. The esports market is still very young and will see some interesting twists throughout its growth. There are however a couple things to look out for in order to find an esports company that should be productive. One of these strategies is looking out for the revenue and earnings growth of the company. Comparing a company’s revenue and earnings over a certain time frame can show the speed of which a company is growing compared to its competitors. A company’s performance in this field will also reveal its stock’s performance over a longer period of time.

Another way to evaluate an esports company’s potential success is through its price-to-earnings ratio. This method is proven helpful through the gauging of how expensive a stock is by comparing the stock price to the company’s profit it is reeling in. Dividing a company’s stock price by its estimated earnings over a year shows its price-to-earnings ratio.

The last way we will discuss that helps evaluate an esports company’s potential is its price-to-sales ratio. Sometimes this evaluation process may not be as accurate as the others since some companies have small or irregular earnings, making its price-to-sales ratio look lackluster. Another way to go about this is by dividing a company’s valuation by its annual revenue. You can then take that number and compare with other similar companies.

Types of Companies to Invest in

Developers

These are the companies that are involved with producing the video games that top esports athletes play competitively. Really, this industry starts with them--without video games there would not be an esports industry to invest in.

The first developer to look into is Take-Two Interactive. This company owns studios like Rockstar Games and the company behind the 2K franchise, Visual Concepts. With globally popular games such as Grand Theft Auto, Red Dead Redemption, and NBA 2K, Take-Two Interactive is heavily involved in the esports community. The company has even teamed up with the NBA to launch an NBA 2K league, which is “the first esports league sanctioned by a pro sports organization.” 17 NBA teams launched their own esports team to compete in this league’s first season in 2018, four more teams have joined since then with an online viewership of 243 million. Take-Two Interactive profits from both NBA 2K games and from its 50% stake in the NBA 2K league, which makes this company a powerhouse in the esports world.

Activision Blizzard’s Call of Duty League holds competitive tournaments around the world. Image courtesy of Fortune.

The second developer that definitely deserves attention is Activision Blizzard. The company that brought you games like Call of Duty, World of Warcraft, and Overwatch is also involved in two well known, profitable gaming leagues. The Overwatch League was the first professional esports league to build teams with a franchise, city-based model. With several teams in North America, Asia, and Europe, the company “sold franchise slots for $25 million in year 1, and increased to more than $30 million for year 2.” Activision Blizzard also signed a two-year deal with Twitch for exclusive streaming rights that was worth $90 million. The company also started the Call of Duty League that began in 2020 with 12 teams, following the same format they used for the Overwatch League.

Hardware Companies

You can’t play video games without the software to do so and the companies creating that hardware are great to invest in as well.

Companies like Nvidia Corp. are very popular in the esports community. Nvidia creates powerful chips that help power everything from artificial intelligence technology to high-performance gaming equipment. For the most part, the top esports competitors in the world use PCs that run on an Nvidia chip. The company is now actually the go-to hardware provider by most esports leagues.

Logitech’s gaming equipment is some of the most trusted in the esports industry. Image courtesy of Engadget.

Logitech is another company that has had a huge impact on the esports community. The company has gained popularity through its high quality keyboards, mice, streaming equipment, and headsets. At this point, gamers all around the world swear by Logitech products and they feel that the quality of its products gives them an edge over competitors. The company’s “gaming segment revenue rose 32% last quarter (early 2019) and now the largest by revenue.” Logitech will continue to be a powerhouse in esports hardware for years to come and is worth investing in.

Razer is another company that is worth taking a look at in the gaming hardware industry that lives within the esports industry. While Razer does produce an array of products including keyboards and mice, the company’s real attention grabber is its lifestyle brand approach. The company’s tagline is “for gamers, by gamers,” attracting and assuring other gamers that its products are the real deal. The company’s Razer Huntsman Elite was the best selling gaming keyboard in the United States in 2019 and the Razer Blade is the best selling high-end gaming laptop. Razer is also known for its sponsorship of 18 professional esports teams around the world.

Media

Streaming platforms, live events, and esports teams are all important pieces to the esports industry that help make it as successful as it is and will continue to be. This makes media elements in the esports industry just as lucrative to invest in.

Huya and its sister company Douyu are the two biggest live streaming platforms in China. Focusing mostly on esports, both platforms allow for watching and interacting with streamed content. Combined, the companies bring in about 310 million monthly active users. Huya also owns a League of Legends team that goes by Royal Never Give Up and an Overwatch team that goes by Chengu Hunters. Douya focusses more on content creators than Huya does by signing streamers to 3-5 year contracts. Douya also has exclusive streaming rights to 29 major esports tournaments in China including League of Legends, PUBG, and Dota 2.

This is the Dreamhack esports festival held by Modern Time Group, it is an extremely popular event to go to amongst avid gamers. Image courtesy of Dreamhack.

Modern Times Group is another media company involved in the esports community that deserves some attention. The Sweden-based company has stakes in Turtle Entertainment, Dreamhack, Innogames, and Kongregate. This makes Modern Times Group a powerful company when it comes to organizing esports tournaments, events, and festivals-- while also being involved heavily in online gaming through Kongregate.

Time to Invest!

The esports industry may be young, but the potential for the industry is actually incredible. The industry will continue to grow, with or without your participation. At this point, video games themselves continue to get more and more popular every year. It would be a smart decision to invest into the esports industry one or the other, hopefully this guide helped you understand how and where to invest a little better.

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