Online Gaming (Photo by Peter Vo)
There are many ways to go about assessing the investment quality of an industry, and there is no standard checklist to provide a binary definition of “safe” or “risky” for an investment. With that said, it makes sense to assess the risk facing esports with the same toolbox used for any other start-up business or industry. This is because, despite the strong state of esports discussed in part two of this series, esports is still a relatively immature industry, with only one of the top 12 most valuable companies being cash-flow positive. The tool that seems appropriate for this assessment is SWOT, because it provides a clear, and succinct, overview of an industry’s risk-reward proposition in a single article.
Esports' most obvious strength is its accessibility. For someone to go from knowing nothing about esports, to becoming a regular viewer, very little is needed. The person must want to watch the game, know the rules of the game, know how to watch the game, and have access to something that let them watch the game. When virtually all esports are free to play, watch, learn and can run on any computer, the barrier of entry is much lower than one would think, thus giving esports massive growth potential.
To help emphasize the difference in accessibility of esports compared to traditional sports would be looking at the consumer journey of watching either. For the NFL, to watch a game, legally, requires a tv/streaming/cable package that costs about $100 (pre-tax). Meanwhile, referring back to the first article in this series, Twitch is free. Anyone can use it, with no costs at all. This difference in consumer journey, which is created by this difference in accessibility, means esports has a growth potential that is only restricted by the world’s access to the internet. This strength creates additional factors in favor of the industry. This includes, but isn’t limited to, a high growth ceiling, low upstart costs for investors, and an ability for a fan to be just as much a player of the esport as they are a spectator, which can increase buy-in for the spectators.
Esports suffers from a perception that it is unapproachable and underinclusive. Esports is frequently thought to be a source of entertainment for computer whizzes and basement dwellers, when in fact the demographics making up esports are far more diverse than stereotypes suggest and the value gained from watching an esport as compared to a traditional sport is virtually the same. This poor external perception does act as a limiting factor to esports potential growth.
While the poor perception of the esports industry, and its approachability, is a clear weakness, the reality of its diversity presents a unique opportunity for not just the immediate return on an esports investment, but also the long-term growth of the industry at large. With an audience that is young, employed and passionate, esports has the perfect recipe to maintain consistent, sustainable, growth for decades to come. While traditional sports struggle to attract younger fans, esports has been able to tap into this demographic, essentially guaranteeing sustained income for decades to come.
Esports’ primary threat is cannibalization happening within the industry. This is because esports primary source of income is viewing time and micro-transactions. While total viewing time is increasing in the industry at a very rapid rate, there should be concern about the growth rate of viewing time per broadcast. To explain this threat another way, it is all but guaranteed that the total value of esports will continue to rise at a very profitable rate for the foreseeable future, but the question remains as to whether this growth will concentrate such that companies and leagues proportionally grow in value, or if it will just be a larger pot split among too many players.
Are esports a safe investment? Most likely, yes. Are esports a safer investment than other entertainment industries? It’s hard to give an exact “this or that” comparison between industries that have been in business for over 80 years and an industry that’s oldest major brand is only 12 years old. However, if you are looking for a new opportunity to invest in, which has impressive growth and is most likely not near its peak potential, esports seems to be a five-star investment. As for how to invest in this industry, that is a question for article three in this series, which you can read here.
This article is part two of a four-part series on the esports industry. For advice on how to get involved in esports, please read part three.