The popularity of esports has grown exponentially over the past couple of years as gamers and viewers increase. A good example is at the end of 2021, the League of Legends World Championship Finals brought together a record audience of 4 million people.
With the increase in esports audiences and players, investment opportunities are also increasing. According to Clayton Larcom, chief investment officer (CIO) at PAC Capital, the esports and gaming industry is experiencing tailwinds that will continue for many years to come.
He said the way people interact, work and play with each other are some of the reasons the esports industry is growing. There are three key trends driving the growth of esports, namely mobile and cloud technology, streaming and gaming as a platform, Larcom said.
According to Larcom, across the world, the costs of mobile devices have steadily declined while performance and cost have improved.
“Along with this, game developers are increasingly looking to create device-independent games and especially compatible games on mobile devices. This frees up previously underserved markets, especially in regions such as Latin America and Africa,” he said.
Improvements in connectivity and gaming equipment have facilitated the rise of live video game streaming. In 2021, there were about 729 million live game viewers, and that number is expected to grow 9% annually, Larcom said.
Gaming platforms are increasingly seen as an alternative to traditional social media platforms by primarily engaging young audiences, Larcom said.
“Platforms like Twitch and Steam attract huge amounts of eyeballs and are built around games and game-related content. Metaverse platforms such as Roblox aim to create virtual worlds where people can play, interact and explore and even make purchases using virtual currency.”
In the fourth annual esports survey from Foley, 88% of executives surveyed said they expect increased investment and transactions in the first six months of 2022. This is a jump from the 73% who expressed the same sentiments in 2020.
Bobby Sharma, Special Advisor to Foley’s Sports and Entertainment Group, said: “What we are seeing may be a recognition that esports is complex. — a different and in some ways more complicated ecosystem than traditional sports.”
“As such, it has taken a while, but the major space investment vehicles have started to develop a very specific level of expertise and portfolio, and it seems the market is acknowledging and understanding this better. “Sharma said.
Currently, the industry is larger than the film, music, and television industries combined.
“Since 2011, the majority of this growth has come from mobile gaming and more recently from esports. The esports industry now continues to exceed US$1 billion per year in gross revenue, with that figure expected to increase by 11 % per year over the next 4 years,” according to Larcom.
The audience for gaming and esports is huge and growing rapidly. It is estimated that by 2024 there will be 3.32 billion video game players worldwide. The live gaming audience is expected to grow from 728 million in 2021 to 920 million by 2024.
“The huge growth in engagement creates opportunities for developers, advertisers, equipment manufacturers, betting platforms, teams and other providers of related goods and services, which in turn creates opportunities for investors,” he said.
It’s not just mainstream investors and gamers who want a slice of the esports pie, Larcom said he’s seen sports organizations put their hats in the ring to invest in esports. By creating either their own esports league such as the NBA 2K league or their own sports team such as Manchester United’s FIFA team.
“Similarly, traditional video game developers and publishers have made esports a key part of their strategy and have invested in leagues to support their games,” he said.
Individual investors and investment managers have invested in esports by taking exposures to companies directly and indirectly engaged in esports, Larcom said.
“For more experienced investors, this can be achieved by taking an equity stake in a private or publicly traded company, while for less experienced investors, they can leverage the expertise of investment managers and invest through the through exchange-traded funds (ETFs) and managed funds that focus on Esports and gaming,” he said.
For Australian investors who want to be part of this lucrative industry, there are some downsides as opportunities are limited according to Larcom.
“Most investment opportunities are concentrated in the United States, Asia and Europe. That being said, there are big Australian companies in the space. Our favorite is Picklebet, a private company of which we are a major shareholder.”
“Picklebet is an Australian esports betting platform that has grown tremendously over the past few years. The company facilitates betting on who will win professional console and PC video game competitions,” he said.
Over the next 12 months, Larcom expects to see a further intensification of industry consolidation as companies seek to strengthen their competitive position by acquiring or merging with competitors.
Already in 2022, the largest technology contract in history was concluded with the purchase of Microsoft Activision Blizzard for $68.7 billion.
The only real barrier for investors to get involved in the esports industry is understanding esports itself, Larcom said.
“This is why investing through a managed fund such as the PAC Global Esports Fund and taking advantage of the expertise of professionals is in our opinion the best alternative”, he concludes.