eSports: A Unique Opportunity for Traditional Sport?

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Traditional sport is dipping its toe into eSports. In June 2016, Valencia CF, one of Spain's biggest and most successful football clubs, announced its entry onto the scene by establishing its own eSports team that will reportedly be participating in competitive FIFA, Hearthstone, Rocket League and League of Legends over the course of the year. While the first of its kind in the La Liga, Valencia CF is not the first professional football team to secure eSports professionals on its roster. In May 2016, West Ham United announced the signing of its first official eSports player who will represent the club at all official eSports events wearing the club colours. Earlier still in 2015, VfL Wolfsburg became the first professional football team to enlist the services of a professional gamer among its ranks. Why have businesses built around traditional sport grown interested in the world of eSports?

A growth market with immense potential

While gaming competitions have existed for years, the popularity of eSports has undoubtedly surged due to the availability of online streaming media platforms. This in turn has harnessed eSports' potential as a spectator sport and given the genre much wider reach and availed itself to more lucrative opportunities. Recently published figures indicate that the global eSports market is projected to grow from US$325 million in 2015 to US$463 million in 2016, a year on year growth of 42%, entertaining an audience of around 131 million eSports enthusiasts and another 125 million occasional viewers; with the market anticipated to generate US$1.1 billion by 2019, it would not be unthinkable that eSports could one day grow to become as lucrative as traditional sport.

Similarities and synergies

So why are football clubs, in particular, getting involved? Perhaps eSports represents a potential complementary revenue stream in a particularly valuable demographic: 55% of eSports enthusiasts are between the ages of 21 to 35, 70% of whom are men, 53% of whom have full time jobs and 30% fall within a high income bracket. One might hazard that the business models are not entirely dissimilar – monetizing through advertising, merchandising and commercial partnerships are, after all, applicable to both. In addition, football clubs are in a unique position to accelerate the commercial success of eSports though their industry expertise and by tapping on existing commercial partners. This is not to mention the opportunities in the eSports secondary markets of betting and fantasy leagues.

Limitations and challenges

Before one gets carried away with the dizzying prospects of eSports, it should be noted that in terms of revenue, the market still lags far behind conventional sport. In 2016, it is reported that European football will generate US$30 billion in revenue, while the National Football League in the US is expected to generate US$11 billion; eSports makes a mere fraction of those figures. One might also consider the challenges of investing in an eSports team or in eSports players – unlike in traditional sport, newer games or updated versions are being released frequently, displacing the popularity of older games and with them the dominance of certain teams or players. Constantly building successful teams, maintaining a steady market share, and securing longer and more lucrative commercial deals are therefore extremely challenging. Whether the eSports market will grow to become as popular as today's mainstream sport is also unclear – unlike a conventional sport which is fairly easy for a casual observer to understand and gain an interest in, eSports tend to be more difficult to explain and can be overwhelming to a newcomer.

M&A in eSports

With eSports' popularity on the rise, growth opportunities have quite naturally translated to M&A activity. In August 2014, Amazon acquired Twitch, an online streaming media platform that is hugely popular among spectators of eSports, for US$970 million. In July 2015, Swedish media company Modern Times Group purchased a 74% stake in ESL, the oldest eSports company in the world, for US$87 million. In March 2016, Singapore eGaming and eCommerce company Garena raised US$170 million in a fundraising round led by Malaysia's state investment arm, Khazanah Nasional Bhd, valuing the company at around US$3.75 billion. Notably, Garena has partnerships with game developers including Riot Games and Electronic Arts, and exclusively distributes game titles such as League of Legends and Heroes of Newerth.

For football clubs, technology companies or the bold investor looking for the next big thing, eSports looks like a fairly interesting bet. With eSports still in a relatively early stage of growth, an early mover's advantage might just pay a healthy dividend in the long term.

This article was co-authored by Christopher Kang, who is an Associate at Holborn Law LLC, which is an independent Singapore law practice that works in association with Olswang Asia.