Trend Report: eSports
InvestorSarfari Comments:
A question often asked: What is the criteria for how stocks are selected for this website?
Rule #1 Seek emerging trends.
Rule #2 Search for affordable companies poised to take the most advantage of Rule #1.
The following report is our overview of a trend and a company closely associated with it.
A Covid catastrophe for businesses (except for some)
Across all sectors, businesses grappled with rapid transformation during the Covid pandemic. Many businesses saw their supply chains interrupted, demand for their products and services decline, shortages in supplies and government-mandated closures. Remarkably, some sectors managed to remain relatively unscathed and continued their upward trajectory. They thrived in good times past, grew during the pandemic panic, and continued to blossom in the current unstable economy. In our trend-watch, we were curious to analyze businesses meeting this criterion, and one came out a clear winner.
A sector set to boom (faster than you expect)
Esports was the clear winner - a winner that the average North American investor is largely unaware of. Esports are becoming increasingly popular and are currently the fastest growing sport worldwide. You read that correctly: the fastest growing sport! Experts say that eSports is likely to become the fifth most popular sport in the world. But keep in mind that there is no single type of eSports.
For those unfamiliar with the term, eSports is an umbrella category for competitive video games such as Fortnite, Rainbow Six Siege, League of Legends, and Call of Duty. Most are multiplayer tactical shooter or battle arena games designed to be played against other online users. Other eSport games like Madden Football, FIFA22 Soccer and NBA2K22 Basketball simulate traditional sports in ground-breaking “hyper-motion” gameplay. Dare to take a glance at a game screen to be fooled that players are not real in-the-flesh.
New social connections (without borders or fear)
While the lockdown mandates forced many people indoors, it rapidly gave rise to a new way of playing sports and connecting socially with others. Starved for alternative sources of entertainment and connections to the outside world, eSports blasted new thresholds during the pandemic – both in participation and viewership - as traditional sports team matches were put on pause.
In filling the void of craving sports content during the pandemic, eSports confirmed its inclusivity reputation. The eSports space is extremely accepting and inclusive of gender, age, race, culture and experience level. Skills are the only relevance. This allows competition against players with different backgrounds, who have a similar desire to play and win - regardless of how they got there. Simple peer-to-peer platforms like Compete.gg break barriers and make developing new friends effortless, no matter what a person’s skill level. Research is showing that there’s a strong sense of community forming and that peer-to-peer interactions, including wagering, are on the rise, most notably in Asia and Europe.
Where eyeballs hang (advertising soon follows)
Given the lack of opportunities in the broadcast television space, advertisers are warming up to the chance to reach eSports fans. There’s a lot of interest in using eSports events to market to the right audience. It’s a way to connect with young people who are hard to reach. The fact that eSports can be done online and doesn’t require a lot of expensive equipment is another great advantage. Several esports games have even found ways to embed advertising directly into games.
As more people become involved, major organizations have begun to focus on eSports as a way of boosting their business and making money. In 2012, the global market revenue of eSports specifically was around $130 million total. Merely 10 years later, this number is already above the $1 billion mark. If the trend continues, it’s projected to reach 1.6 billion by 2024. Considering that this industry was little affected during the global pandemic, these numbers are all the more bewildering.
A reminder that we are scoping on eSports numbers which have been steadily increasing. eSports covers the competition aspect of video games. This is not about video game hardware and software sales (which have fluctuated over the years). It’s important to note the distinction. That market - the global video game market - is expected to be worth over 200 billion by 2023!
The “sportification” of eSports (it’s a whole different game)
Technology has elevated graphics and motion to such realism that the challenges of eSport athletes are virtually closing the skills gap to those playing on real ground. Although some may debate whether eSports can be classified as a “sport” (and if its players can be treated as traditional “athletes”) it’s undeniable that mental toughness plays a huge role in attaining elite status for both.
That said, this is not just fun and games - it can be a lucrative career choice for young men or women who enjoy video games and competitive gaming. ParabellumESports.com is one such pro team that has amassed over $100K in winnings. They compete in the Rainbow Six Siege League where players face intense close-quarters combat (on screen). The league is composed of 28 teams, divided into two conferences. The league is one of the most popular eSports leagues in the world, and it has seen rocket success.
How many people watch eSports? (more than you think)
Talented, high-performance eSport players are commanding eye-popping corporate sponsorships and, in many cases, have fans surpassing traditional pro sports players. Considering its niche beginnings, eSports recently surpassed American football viewership numbers. Viewership is already above 500 million. Half of them are occasional viewers, while the other half are eSports fanatics who watch every tournament. Pause for a second to consider this… These are numbers of people watching OTHER people play games! It’s this growth in viewership and prize pools that has led to the development of professional teams competing in regular professional eSports leagues - that in turn spinning more growth in viewership.
Major international tournaments are commonplace, both in stadiums and online, as the worldwide prize pool is expected to reach over 543 million dollars by 2023. The rapid rise of eSports has been spurred by these massive professional competitions in dazzling arenas dangling dope prize money. These tournaments draw thousands in live audiences while making millions through streaming rights deals with networks.
The introduction of betting (eSports, meet your match)
Like in traditional sports, eSports fans follow teams, watch matches and place bets on who will win. Betting behavior is a natural extension of all competitive games, and the betting industry is capitalizing on it. Even the uninitiated are attracted to popular platforms like Loot.bet since they are dedicated to eSports, bypassing traditional sports and casino games. The appeal of such specialty websites has to do with their simple onboarding, multi-language support and free live Twitch streams on their betting pages. (Twitch has become the platform of choice for game streaming). With more friends and other online players placing informal wagers on the outcome of games between themselves, social betting is now widely accepted in the eSports community.
Metaverse madness (fun beyond your imagination)
How much more realistic can these games get? Scary realistic. The latest games using open-source creation tools like UnrealEngine 5 have resulted in mind-boggling 3D photo-real visuals and immersive experiences. This will only hook players that much more to gaming. Now add the eventual ‘metaverse’ to the mix, and the resulting hyper-arousal games will cement a solid source of viewership. The metaverse will be a place where people can interact with each other in virtual reality. This will allow for a whole new level of gaming that will be extremely popular - more immersive, more personal and more financially rewarding – establishing the sector as a major form of entertainment and attracting buckets of advertising revenue.
The criteria
In considering the eSports landscape as an investment, Investor Safari looked specifically at companies diversified in their operations - those aiming to create an entire entertainment ecosystem within the eSports industry. This includes actively organizing tournaments, sponsoring games, and ideally owning a champion professional eSports team. And because the relationship between wagering and eSports is becoming very lucrative, a company that also operates multiple popular gaming and betting platforms is ideal. Stock price affordability and solid management round out the requirements. These criteria narrow the field considerably.
React Gaming Group
Our chosen stock to follow landed on React Gaming Group (TSXV: RGG). It’s no coincidence that Compete.gg, Loot.bet and ParabellumESports.com were mentioned earlier in this analysis. All are subsidiaries of React Gaming, along with other significant assets not covered here. Needless to say, we will continue to follow the company and report on their progress.
With new games being released regularly, the popularity of eSports can only grow. It’s only a matter of time until it overtakes some of the bigger traditional sports. The concept of video game tournaments still remains unknown to large portion of the population. Investors who see this trend early will be rewarded.
- InvestorSafari.com