Written by Connor Greig
In the past several years, there has been a meteoric rise in a new kind of athletic competition. Its largest events have seen tens of millions of live viewers, its participants endure hours of daily training, and it has even been broadcasted numerous times on ESPN (Schudey et al., 2023). Instead of being contests of brute strength or traditional athletic ability, these competitions center on reaction time, strategic understanding, and often collaboration, as they are conducted through video games – earning the name esports. The industry, having seen consistent growth since the turn of the millennium, was further boosted closer to the mainstream during the recent Covid-19 pandemic, and could one day come to rival the cultural and economic behemoth that is traditional sports entertainment.
In the 1970’s, a new and revolutionary type of entertainment began to emerge throughout the world in the form of video games. It is natural, then, that with the release of such games, competitive scenes would begin to pop up. This proved especially true early on with arcade games, with so-called high score competitions becoming popular, especially for classic games such as Donkey Kong, Tetris, and Space Invaders. As video games moved primarily online, developers could implement dynamic competitive multiplayer modes whereby players could compete with one another from across the world. Following this internet catalyst in the late 1990’s, esport events are now taken much more seriously, as competitors are no longer bounded by geography and competitions are based more purely on skill. As the prestige of these competitions grows, so too do their prize pools, with the first $1 million prize pool taking place during the Cyberathlete Professional League World Tour in 2005 (Larch, 2023). More recently, however, major competitions have been providing 8-figure prize pools, with the highest being that of The International 2021, which paid out over $40 million among the top 18 teams in Dota 2 (Heath, 2023).
The financial side of these esport events can be quite complex, as most games lack a centralized competitive authority to run events. Therefore, the community surrounding a game must organize, fund, and ultimately run these events. Such grassroots scenes are often found surrounding older and lesser known games and are completely independent of the developers. Game developer Nintendo, however, famously restricts the operating ability of tournaments featuring their games, setting strict upper limits of 200 participants and $5000 prize pools (Nordland, 2023). This is in contrast to the developers of popular games like Fortnite, League of Legends, and Dota 2, who host their own esport competitions and are thus able to make a decent return (Schudey et al., 2023). Developers, who already have the eyes of a games community on them at all times, can effectively promote events through social media or within the game itself. Major publishers also have the industry connections to secure the necessary sponsorship funding for large, in-person events.
This compares to the business of traditional professional sports entertainment which is run exclusively by established federations that earn the majority of their revenue from broadcasting rights. Because esports are generally streamed for free on sites like YouTube and Twitch, they rely primarily on revenue from sponsorships (Schudey et al., 2023). This difference is likely a function of the size of each industry, however, where if esports had viewership akin to, say, the NFL, they too would be negotiating major television deals. Regular athletic competitions also necessarily rely on massive, expensive arenas as host locations, whereas esports have the unique advantage of being able to exist entirely decentralized. Many competitions do take place in person, however, with the largest being the 2017 Intel Extreme Masters event in Katowice, Poland, which attracted 173,000 live spectators (Armstrong, 2017).
Without the absolute necessity of expensive in-person competition, the startup costs for an esport team are almost zero. Any group of high-level players can work their way up to professional play with no overhead, though eventually most players are recruited to organized teams. The largest professional esports teams are impressive operations, with coaches, media departments, pr departments, etc. They are structured almost identically to traditional sports teams, though with the added benefit of being able to represent multiple teams playing different games at once. For example, the American groups Cloud9 and FaZe Clan have established teams in over 10 games each. Another avenue that esport clubs often take is that of content creation, where they will recruit and partner with well-known streamers and gaming entertainers to try to build more of a traditional community and brand image. This diversification allows for lower financial risk in running such a large operation, and has led to the 10 highest valued clubs being worth over a combined $3 billion (Schudey et al., 2023). While it doesn’t quite compare to the average NFL team value of around $5 billion, it’s still quite impressive for an emerging industry.
The past and current growth of the esport industry is also impressive when compared to that of traditional sports, and it looks as though it should continue. In 2022 alone, the industry was estimated to have expanded 10%, and future projections put esport revenue at a compound annual growth rate (CAGR) of 13.8% for the next five years (Geyser, 2023). This is shocking when compared to the almost nonexistent growth of traditional sports entertainment from 2014-2021, with the NFL at 0% and the NBA at a -3% CAGR (Schudey et al., 2023). The high estimates of expansion for the esport industry come partially from the coming of age of a relatively young fan base. An estimated 38% of esport fans are between the ages of 16-24, and as they age and enter the workforce, they will be able to financially support the industry (Schudey et al., 2023). Another major contributor to both current and past growth is the continued popularity of video games in general. The size of the industry doubled to almost $240 billion between 2017 and 2022, led strongly by mobile games (Read, 2022).
The esport industry is a rapidly emerging cultural phenomenon that has grown out of a newer generation’s combined love for video games and watching great competition. It offers a fresh form of entertainment that appeals to an increasingly global audience, and has the potential to generate significant revenue over the coming years. As it continues to attract more investors, new innovations will shape the future of esports and live entertainment. And while the industry still stands in the shadow of traditional sports entertainment, it holds immense potential to someday rival it.
References
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