From Square to $wag - The Businessman's Guide to esports
The 40,000-seat stadium is full; spectators are wearing the names of their favorite players on their T-shirts, war-paint on their faces, waving the flags of their team. Excitement peaks as the lights go out and the players appear on the jumbotrons; they take their seats behind the screens followed by the hurricane-like cheering of the crowd...
What is this all about?
According to the most common definition, electronic sports, or esports is defined as professional players competing in video games in an organized manner.
The mechanics of esports are not so different from traditional sports. Professional players are competing in different games and viewers get what has been the foundation of entertainment for thousands of years: community experience.
As expected, based on traditional sports, a lot of money is poured into esports. Business players are starting to figure out how they can tap into this immense market. According to Newzoo esports has grown globally to a $655 million business in 2017, with an expectation to increase by another 38% in 2018, reaching up to $1.5 billion by 2020. According to eNet's research, the Hungarian esports market is small, but is developing dynamically. With EUR 48 million, the expenses of esporters make up about one-third of total revenue of the domestic video game industry. This amount is spent on hardware, games, in-game purchases and merchandise.
The most common video games associated with esports are real-time strategy (RTS) games, fighting games, first-person shooters (FPS), multiplayer online battle arena (MOBA), or electronic versions of classic sports like football or Formula1.
Is it a sport though?
Just as chess, darts and poker are classified as sports, esports can be also categorized as mental sport. Competitors are exposed to mental stress up to 16 hours a day and have excellent reflexes and motor skills. Endurance and strategic understanding are just as important as with real-world, and players usually have to deliver outstanding performance as part of a team.
Esports share a number of factors from traditional sports that helps its acceptance as a sport: players are grouped into teams led by professional managers, trained by coaches and psychologists, have a strict practice, diet and training plan that determines their everyday lives. Thousands, sometimes even millions of spectators follow the games while judges supervise the games’ integrity.
The recognition of esports as official sport is at different stages in each country. There are more than 60 countries where esports are officially recognized as a sport. In legal terms, Hungary currently does not recognize esports as an official sport. The lack of recognition prevents clarity around certain legal issues (like fraud and doping) and makes access to funding more difficult. However, a positive trend is showing: NAV (National Tax and Customs Administration) has recently released a resolution on virtual gaming taxation, which shows that the regulatory bodies are focusing on this area, with further guidance most likely on the way. Another clear sign of the government’s commitment to esports is the ongoing development of the National Esports Strategy by the Digital Welfare Program.
Political decision-makers worldwide have also recognized the opportunity to hit two birds with one stone: by supporting esports they can contribute to the growth of the economy and they can also effectively reach a significant young voter segment. Even Angela Merkel has incorporated esports support in her latest election program.
The development of esports is also evidenced by the fact that it will be a medalist event in the Asian Games in 2022. Subsequently, the esports scene is buzzing about the question whether it will be possible to be recognized as an Olympic sport for the 2024 Paris Olympic Games, which would send a clear message to any skeptics.
Traditional sport clubs and esports
The number of traditional sport clubs that are directly or indirectly involved in esports is already over 200 with their number continuously growing. A few weeks ago, Barcelona announced that it will participate at the first Pro Evolution Soccer esports championship in 2018. It is expected that many smaller clubs will follow.
The growth of Hungarian esports is also strengthened by the grassroot movement of the Egymillióan a magyar esportért Association. They not only will organize the V4 Future Sports Festival starting this week. but also are responsible for the establishment of the Hungarian Esports Association. This Association will soon join the International Esports Federation.
How did we get here from my friend Peti’s CS parties in college?
Today's esports were actually born in the 1990s, with trends diverging in different directions in the East and West. In the East, South Korea became the central force of esports, largely thanks to the rapid growth of Internet bandwidth speeds. In the West, Europe and the US became the center of development, but at a slower rate than the East. Today, the US and China are ahead of the South Korean esports market, both in viewer numbers and market revenues.
In Hungary the first esports related TV show actually aired in 1990, called Elektor Kalandor. Players had to call Uncle Tibi Dévényi (a famous Hungarian TV personality) over the phone and would play Super Mario on an NES console (Nintendo Entertainment System) via a player in the studio being instructed by the caller. Nowadays putting Hungary on the map of esports is an explicitly stated national strategic goal, backed by a subsidy of up to 2 billion Forints ($8 million).
But why is this interesting for the business players?
Newzoo market research shows that esports is as popular as hockey or baseball among men aged 21 to 35 (with a 22% rating). The global viewership this year can reach up to 380 million people!
According to PwC’s Global Media Outlook survey the average age of people interested in esports is 28 years (across both spectators and players), with 69% of them in the 18 to 34 years bracket. Members of the group typically have higher purchasing power, own multiple smart devices, using them to follow or play esports themselves. The viewership and their interests can therefore be well defined, resulting in a highly efficient marketing channel for brands targeting this demographic.
According to eNet's research, esports in Hungary had more than 223,000 individual viewers in 2016, projected to increase to 331,000 at the end of 2017.
PwC’s upcoming social listening research also supports the increasing domestic interest towards the subject: almost 110,000 publications were published online in Hungary in 2017 alone, which is very significant compared to 28,000 mentions of equestrian sports – another strategic sport in Hungary with long standing traditions.
The esports market is constantly growing. According to Newzoo data, sponsorships and ads generate most of the revenue. Compared to last year's data, sponsorship revenue grew by more than 50%, with ads revenue growing by more than 20%.
From 2016 until mid-2017 more than 600 sponsorship agreements were signed, with over 100 of these involving non-endemic (non esports-related) brands. The telco sector (Vodafone, T-Mobile, SK Telecom), for example, sees esports as a potential gold mine, with other investors coming from automotive, food, body care and financial sectors. What’s in it for them? Investing in esports is an excellent way to reach younger customers who are no longer watching TV and use ad-blockers to filter out more traditional online advertisements. Furthermore, these companies are trying to position themselves as digital players rather than simple service providers.
It is expected that esports legal rights owners and brands will come up with customized strategies that will help develop and efficiently run esports communities and events at local and regional levels. One strategic direction we are starting to observe is business players collaborating with to esports influencers - commentators, ex-players or social media celebrities who are trusted by generation Z, allowing the brands to approach the consumers and remain relevant.
Are esports the sports of the future?
The esports market is steadily growing, and as more and more countries begin to recognize it as official sport, it is expected that social interest levels will reach new highs allowing esports to become more attractive to major sponsors and investors.
In the future, cities and countries will begin to be represented, using existing and brand-new stadium facilities for these events. With the development of technology, new tools will be available for esports innovation, like Virtual Reality or Augmented Reality, which will take the spectator experience to a whole new level. We have high expectations for the application of these technologies in the mid-term, further accelerating the expansion of the market.
For more information on this topic, read our study coming in April, where we delve deeper in the mechanics of esports and include interviews with key industry stakeholders. Until then, I will also speak about this subject at the V4 Future Sports Festival in Budapest on March 23rd (this Friday). See you there in person or online! (Live english broadcast link on the event's website)
