Investments in esports and other competitive-gaming activities are certain to grow despite the economic uncertainty triggered by the current pandemic, speakers said at this year’s inaugural Esports BAR+ Americas, the totally digital B2B event for the industry.
Despite the Covid-enforced shutdown of lucrative live physical venues-based tournaments, the sector remains healthy. Most events successfully shifted online, previously uninterested parents forced to work from home discovered gaming from younger family members, and the capitalisation value of games companies listed on the stock exchanges has soared.
In a series of panel discussions and presentations, Esports BAR+ Americas attendees learned what esports investors want, why those investors remained optimistic, what made competitive gaming attractive, where future advances will come from, and why esports benefits from the dynamic growth of the global US$160bn video-gaming business.
During the panel called “The VC Perspectives In Esports”, Malte Barth, Founding General Partner at the pioneering esports-investment fund BITKRAFT Ventures, summed up how most investors were responding to the Covid-19 almost year-long crisis.
“We’re still alive. The world didn’t end. And it obviously is not going to end. Over the summer we have seen investment activity pick up quite a bit. I would almost say it is back to normal,” he said.
“I think there is more interest; more investors joined the party. We saw a few more mainstream-oriented investors, who didn’t normally touch our space. We’re seeing a few non-endemic investors play around, which I think increased activity.”
Esports BAR+ Americas – The Investment Numbers
In this analysis of esports investments deliberated during Esports BAR+ Americas, we start with the numbers quoted before delving into the key four related sessions.
We learned that Quantum Tech Partners, a leading mergers-and-acquisitions advisory firm, concluded that investors injected US$1bn into the still evolving esports sector in 2019.
In addition to seeing 33 exit deals yield US$500,000 for investors that year, Quantum Tech also predicted esports would generate a “very optimistic” US$4bn in revenues in 2022, Venture Beat journalist and Esports BAR+ Americas moderator Dean Takahashi remarked.
Other investment figures quoted during included the US$1.95bn spent on disclosed investments during 2019 alone, which leaped to US$4.3bn for the first eight months of 2020, according to The Esports Observer (TEO).
“This shows us the impact the ongoing Covid-19 pandemic had on the esports just from last month (August), including Epic Games’ US$1.78bn funding round,” noted moderator TEO’s Tobias Seck.
Industry research specialist Newzoo stated that the growth of esports audiences, the foundation on which the industry has developed and will continue to progress, remains steadfast.
“The total esports audience nears 500 million in 2020, 223 million of those being fans that watch events at least once a month,” said Remer Rietkerk, Newzoo’s Head of Esports. “That is projected to grow to 647 million as early as 2023, 295 million of those being fans who watch events once a month.”
This explains why total revenue in 2020 will still grow by 1.7% to US$974m, despite 70% of esports tournaments and other events in physical venues (according to Newzoo) being forced to shift to online streaming as quarantines and social distancing made it impossible for fans to be physically present.
Esports BAR+ Americas panel: The VC Perspectives In Esports
In addition to seeing investment activity going back to normal by the summer of this Covid-inflicted year, the situation forced investors to slow down and think through strategies more efficiently, BITKRAFT’s Barth proclaimed.
Kevin Baxpehler, Managing Director of Reimagine Ventures (which includes digital-first content creator Minute Media in its portfolio of investments), agreed:
“Every VC fund’s first order of business was to make sure all its companies are in good shape.”
Investors had time to observe which ventures were coping (esports organisations shifting their events to the internet) and which ones were feeling the heat (media-centric companies).
Esports ventures able to migrate in-real-life activities online benefited from the adults working from home who started seeing how gaming had significantly permeated their children’s leisure activities. This confirmed the longevity that made esports worthy of investors’ attention, Baxpehler argued.
“When the lockdown came and kids were not able to meet their friends, they were still able to connect via games. There is a huge social element to this which I believe created a big shift in the minds of consumers around the world and made games, gaming and esports much more acceptable,” he said.
Instead of causing chaos, the shutdown led to times of reflection for investors, added Peter Levin, Managing Director of US-based Griffin Gaming Partners, which includes the gaming-dedicated communications platform Discord and multiplayer competition service Skillz in its investment portfolio.
Investors were realising that the rapid growth rate associated with esports and other competitive-gaming businesses could no longer be taken for granted.
“A lot of businesses hunkered down early and decided to make sure that they had back-up capital as we were not sure how this Covid-19 was going to play out,” he said. “This could be an opportunity in a chaos, if you are disciplined and focused. And some folks probably didn’t have that and found themselves a little bit behind.”
To attract more funding, esports ventures have to learn to be ruthless about the economic downturn’s potential negative impact on business, Barth recalled about advice his company gave about job cuts.
“Two companies let half of the workforce go. And funnily enough, those guys are doing better than ever now. With half the workforce, they achieved double the outcome and we never thought that would even be possible.”
Another investor panellist, Arnd Benninghoff, Executive Vice President, Esports & Gaming at MTG, pointed out that he works for a publicly listed company (on the NASDAQ Stockholm stock exchange).
As one of the world’s biggest esports investors, with controlling stakes in tentpole-event organisers ESL Gaming and DreamHack, MTG could have seen its interests collapse as one physical tournament after another was cancelled.
But as Benninghoff reminded delegates, the company had no choice but to be conscientious in its response to the pandemic.
“Playing the long game is a really important point. Being a listed company, our challenge is to balance the quarterly reports where you want to show progress and live up to expectations. You need to deliver profitability and probably do the right thing and even under invest,” he said.
“For us, it is about translating the esports story, which is still very early, into a long-term growth story.”
Esports BAR+ Americas panel: How Can Esports Attract Potential Investors?
Entrepreneur Brian Zwerner, co-founder of Beyond The Game Network, the professional-athletes investment group, spoke about what appeals to him as an investor.
He referred to Fade2Karma (F2K), a Germany-originated international team of diverse esports and gaming streamers that Beyond The Game Network took a stake in during June this year. F2K content is frequently cited among the Top 10 most-minutes watched on giant streaming platform Twitch every month.
Explaining what made F2K attractive, Zwerner said the venture showed it could defy and grow during the current pandemic.
“People are coming to Twitch and other streaming platforms looking for entertainment content, looking to find things that they like. They are trying new content, they are staying longer, they are engaging more than they ever have before while people are stuck at home.”
The challenge will be to see how start-ups like F2K sustain their success.
“It will be interesting to see how those groups that do a great job building an affinity with those audiences and how many can make this permanent when we eventually see a resurgence, and staying at home watching streaming content becomes less attractive at some point.”
Matthieu Dallon, CEO of France-based Trust Esport Ventures, agreed that his company’s strategy included “hedging”, as pointed out by co-panellist Spike Laurie, Venture Director at London-based VC firm Hiro Capital.
Hedging is the type of investment strategy designed to reduce risks and losses when the unforeseeable happens.
Dallon admitted that one of Trust Esport’s firms EVA.gg, the French Virtual-Reality (VR) esports pioneer, was struggling as physical VR venues were being shut down because of Covid-19.
While he still believes in EVA.gg’s long-term prospects, he has seen the business of easylive.io, another Trust Esport investment, flourish because of the pandemic.
As a cloud-based content-production platform, easylive.io has prospered by supplying the required secure tech infrastructure to esports organisations forced to transfer tournaments online while retaining competitive integrity.
“Easylive.io increased their business by 100% during the Covid lockdown,” Dallon said.
Laurie offered that esports continues to be a good investment because the definition of the word ‘esports’ was being redefined as investors learned more about it and understood its place under the colossal international video-games industry umbrella.
“The games industry is up 72%. A lot of (gaming) public companies like Activision are up 72% this year. You have VC funds that started off purely as esports funds that are now moving into the games space and investing in games. There has been acceleration in esports, in the pure sense of multi-player competitive gaming.”
Now is the time for founders seeking funds to look into their long-term prospects, advised Adam Salim, a mentor at Mentorcruise, the education platform that connects mentors with aspiring entrepreneurs.
Sometimes, that means attempting to predict what will be competing for the esports fans’ attention in the future.
“I am asking: ‘What is this fan going to be doing three to five years from now, when they are no longer going to have an esports tournament on their computer or their handheld devices or mobile gamer? Are they going to be using Virtual Reality or be using a different type of platform that can engage in esports events?’”
Esports BAR+ Americas session: Learnings From Sports
We were reminded that high-profile traditional-sports athletes are among the most ardent esports investors during the Fireside chat with former American footballer Andre Fluellen, the NFL veteran and co-founder of Beyond The Game Network.
Some of the celebrity sportspersons backing competitive gaming include veteran NBA basketball titans Michael Jordan and Shaquille O’Neal, NFL giant Odell Beckham Jr., and heavyweight boxing champion Mike Tyson.
However, in his conversation with ESPN journalist Michael Rothstein, Fluellen reminded athletes with investment ambitions in the esports arena to look beyond the hype.
“I think esports has a super high upside for growth. It is only going to expand. I legitimately really get excited in this space. Esports is sexy, it is in the limelight, and it doesn’t stop with pandemics,” Fluellen said.
“The only issue is some people don’t understand the business behind it. Realistically, that’s the thing that scares me with an athlete getting into it,” he stated.
“You have to know that a lot of the revenue is predicated on individuals and personalities in teams. Some investors will look at the entire team instead of looking at the individual people on the team who are bringing in the eyeballs and the revenue.”
Esports BAR+ Americas panel: Study The Past, Understand The Present, Predict The Future
In his presentation, Newzoo’s Remer Rietkerk brought the investment community further down to earth by drawing a real picture of what happens in the esports business and why understanding that matters for long-term positive prospects.
“Esports is after all still very much in the growth phase, often depending on investment capital to continue to drive the industry forward. It is also dependent on consumer-brands marketing spend,” he noted.
“This means that the current Covid market conditions could leave many players in this space in a fairly precarious position. And unfortunately, we might see some exciting young enterprises fall before this is all over.”
That, however, was no reason for investors to shun the industry. He highlighted why everyone in the media and entertainment spaces has been excited about organised competitive gaming in the first place.
He said the sector had been energised mainstream consumers quickly adopting gaming for fun during the Coronovirus shutdown. He was convinced this was not a temporary fad because parents had finally discovered how the once-vilified video-gaming preoccupied the next generation in a wholesome way.
The growing popularity of mobile esports games, like PUBG Mobile and Garena Free Fire, in emerging markets in Asia, Africa, and Latin America equally energised the industry’s growth, he added.
“These titles are bringing in new young audiences and act as entry points for the industry in regions where there were no esports, such as India, Egypt, other parts of the Middle East and North Africa.”
Esports investment – The Future
When it comes to long-term investment opportunities, Esports BAR+ Americas participants urged optimism and patience.
As Newzoo’s Rietkerk emphasised in his presentation:
“We have such an authentic connection to our fans. We’re digital-first and they are digital natives. We interact with them directly on a daily basis. We know our fans like no other sport in the history of sports. That is truly the golden egg of esports.”
And the constant analogy with traditional sports prompted Hiro Capital’s Spike Laurie to point out why taking risks could really pay off.
Speaking about the very affluent English Premier League soccer club Manchester United Football Club, he asked:
“If you had the chance to buy Manchester United 60 years ago, at 20 times what it was worth at the time, would it be a good investment? And the answer is, of course, yes. But at the time, you would probably have said there is no way I am going 20 times over the odds for that. That is the interesting puzzle around today’s teams in esports.”
You can watch Esports BAR+ Americas’ sessions on our Twitch channel now.