Financial services company Goldman Sachs has published a comprehensive report on the esports industry, projecting annual revenue to grow from $655M in 2017 to $2.96B by 2022.
According to the report, the total global gamer population in 2018 is 2.2B, out of a total online population of 3.65B. Esports viewership only accounts for 5% of the total online population today. Even among active gamers, the esports industry appears to be far from saturated.
The report also covers a wide range of topics from the potential growth of media rights to the impact of Fortnite and the Overwatch League on the future of the industry.
Transitioning from Sponsorships to Media Rights
Media rights currently account for 14% of esports revenue, while sponsorships make up 38%. While Goldman Sachs expects sponsorship opportunities to continue to grow, it sees more growth potential in media rights, projecting the category to reach 40% of total revenue. This figure is comparable to the percent of total revenue generated by media rights deals in traditional sports leagues.
Recently, there has been an explosion of media rights deals in esports, with Twitch’s $90M Overwatch League deal leading the way. As more streaming platforms look to compete with Twitch, the fight for exclusive broadcast rights has escalated, with Facebook locking down streaming deals with ESL and Gfinity.
The globalization of esports has also lead to leagues selling off their broadcast rights to different regions and languages. Chinese livestreaming platform Huya purchased the rights to broadcast the LCK, Korea’s professional League of Legends league, in China.
Traditional broadcasting companies are also looking to recapture the younger, cord-cutting demographic with esports content such as NBC Sports’ Rocket League tournament and ESPN’s recent League of Legends deal.
The Fortnite Effect
Fortnite has broken multiple records this year, first with viewership numbers, and then with its $100M esports prize money announcement. Executives from Ubisoft, Activision Blizzard, and Turtle Beach have all commented on the game’s positive effect on esports and gaming as a whole.
According to Goldman Sachs, Fortnite’s impact on esports mirrors the rise of professional poker. In a notable comparison, the World Series of Poker prize pool grew by $10M in just three years following Chris Moneymaker’s win in 2003. Moneymaker was an amateur player who qualified through an online tournament. When he proved that amateur online poker players could win the sport’s biggest event, as the report describes, “it sparked a meteoric rise of both online and live poker across the world.”
Fortnite has provided a similar feeling to esports enthusiasts. In most esports, there is a massive barrier to entry for a casual player looking to turn pro. There are only 12 professional Overwatch teams in the game’s most important league and just 10 for the NA LCS. The path to becoming a pro is long and complex. Even single player games like Starcraft II and Street Fighter limit the average player’s aspirations by clearly denoting where you rank compared to other players.
As the report describes, Fortnite and the battle royale genre offer the amateur player a wholly unique competitive experience. A weaker player can sometimes outlast a top pro by hiding well, or by teaming up with a squad to overcome someone more talented who is playing alone. This means that players of much lower skill can experience the feelings of success and competition that they rarely get in other esports titles. As a result, more inexperienced and first-time players are drawn to Fortnite, increasing the total population of competitive gamers.
Geolocation is the Future
In traditional sports, local revenue accounts for an average of 54% of total revenue between ticket sales, regional broadcast and brand deals, and merchandise. The four largest traditional sports leagues in the United States—the NFL, NBA, MLB, and NHL—generate 23% of their revenue from ticket sales alone. While esports has benefitted from its globalized audience by attracting viewers all over the world, esports leagues have historically done little to capitalize on the potential of local revenue.
This year, both the Overwatch League and the NBA 2K League have used their geolocated (at least in branding) teams to begin to introduce local revenue to esports. Teams have implemented brand activations in their local region and some NBA 2K League teams like Pacers Gaming have even signed regional sponsors. NRG Esports chairman and co-founder Andy Miller told Goldman Sachs that the bulk of San Francisco Shock merchandise is purchased in Northern California. By creating geolocated teams, these leagues have opened the door to revenue streams that are unavailable to generalized leagues like the NA LCS.
In 2020, the OWL will take local revenue a step further by introducing home games in each team’s local region. Goldman Sachs projects that the OWL’s local revenue will grow by 108% to $3.7M in 2020, reaching $7.6M by 2022.