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Shooting to the Top: HUGE Growth Numbers for Esports

Jeff Nielson Jeff Nielson, Stockhouse
0 Comments| January 28, 2019


Esports are surreal, on multiple levels. At the most literal level, esports are surreal because (by their nature) they are all simulations of one form or another. For investors, however, esports are also surreal – in terms of size and growth numbers that may look like misprints to those new to this space.

When news came out last year that organizers of the Paris Olympics in 2024 were considering making esports a demonstration “sport” in the Olympics, for sports purists this may seem to cross the line between “surreal” and absurd. But consider the facts.

A leading source for esports data is Newzoo. In its 2018 Global Esports Market Report, Newzoo lays out the dimensions of this sector.

  • Total “Esports Enthusiasts” will reach 165 million in 2018 (15.2% y-o-y growth)
  • The total Esports Audience will reach 380 million in 2018 (13.5% y-o-y growth)
  • Total prize money for esports events reached $112 in 2017, breaking $100 million for the first time
  • Brands will invest $694 million in esports in 2018, projected to rise to $1.4 billion by 2021, accounting for 84% of total revenues

Unbelievable? For just one event (Valve’s 2017 “Dota 2” Championship), total prize money was in excess of US$25 million. That compares to a paltry US$11 million in total prize money for the 2018 Masters golf tournament. While tennis currently offers richer purses (US$53 million for the 2018 US Open), it’s only a matter of time until esports leaves tennis in its dust as well.

In May 2018, Epic Games announced it was providing US$100 million in funding for its “Fortnite” tournaments, for the 2018-2019 season. With both its current scale and enormous growth rate, esports has become too large to ignore for tech investors looking for exceptional growth opportunities.

Note that Newzoo has redefined its definition of Esports Enthusiasts. Previously, it also included participants in amateur online leagues and tournaments because such individuals represented “highly engaged competitive gamers”. However, as esports goes Big League (in every way), Newzoo’s estimate of 165 million “enthusiasts” are only those who compete in professional leagues/tournaments.

Click to enlarge
Performance City esports competition

Put another way, there are now more professional participants in esports than in any real-world sport on the planet. And with a worldwide audience that already measures in the 100’s of millions, a lot of people already treat these “sports” very seriously.

This raises the question as esports is perhaps about to enter the Olympics: can these games actually be considered sports? It’s a question that will undoubtedly generate strong opinions, on both sides of the fence. Consider this.

Hundreds of millions of “motorsports” enthusiasts consider automobile racing to be a sport. What’s the difference between motorsports and esports? The automatic response of many readers is that motorsports are “real”, while esports participants operate off of video screens that provide virtual displays of the action.

However, pilots who operate large commercial aircraft and sophisticated military aircraft already rely almost completely on “instrument flying”, operating aircraft primarily through reliance on gauges and virtual displays rather than on merely looking through a cockpit window. As race cars become increasingly sophisticated, it would not be surprising to see automobile racing also evolve into reliance upon virtual displays. For the record, the total prize money for the 2018 Indianapolis 500 was only US$13 million.

The debate as to whether esports represents “sports” or will be forever defined as “gaming” will rage on for many years. What is absolutely beyond dispute is the growth potential of this industry.  As a legitimate competitor (in terms of scale) for all major sporting events already, and with a CAGR that would make major sporting leagues drool with envy, esports are here to stay as a major revenue-producer.

For investors pondering entering this space, the demographics of this industry are intriguing, to say the least. There is currently a single, dominant player on the landscape, China-based Tencent Holdings Ltd. A Bloomberg article provides some context.

Esports is taking off globally but nowhere more so than in China: a nation of over 400 million gamers fueling viewership comparable to U.S. pro sports. At the heart of the world’s biggest gaming market is Tencent Holdings Ltd., which is betting a billion yuan ($150 million) a year that slugfests like Honour of Kings will ensure its primacy in the burgeoning market.

For its part, Bloomberg describes esports as a “$13 billion arena”. While other media and gaming giants like Walt Disney Co, Amazon.com and Electronic Arts are now moving into this space, according to Newzoo the esports sector remains highly fragmented outside of Tencent.

For investors, that equates to opportunity as many players vie for a share of this rapidly growing market. The revenue forecasts from Newzoo will certainly whet investor appetites. Total esports revenues rising to US$1.650 billion by 2021 (CAGR of 27.4%), up from US$493 million in 2016.

This is broken down into the following categories:

  • Sponsorship - US$359.4 million (40%)
  • Advertising - US$173.8 million (19%)
  • Media rights - US$160.7 million (18%)
  • Game publisher fees - US$116.3 million (13%)
  • Merchandise and tickets - US$95.5 million (11%)

Big League, in every way. Is it Big League sports or Big League gaming? Irrespective of how investors answer that question, esports is a big opportunity.

For investors wanting to get a better understanding of this space and some of the publicly listed companies in Canada that are targeting this sector, opportunity knocks – this week. Starting tomorrow (in Toronto) is Cantech 2019.

Click to enlarge

Running for two days (January 29th and 30th), this is Canada’s most dynamic conference for small-cap technology companies. Cambridge House’s Cantech Investment Conference has been growing every year since its inception in 2013.

This year’s event will host over 100 leading technology companies, with 3,500+ investors projected to be attending this year’s conference (representing more than $1 billion in technology investing). For cannabis investors, cannabis tech is one of the themes of this year’s show.

Stockhouse will be there as usual. Come by to visit us (Booth #300). For Stockhouse investors, we won’t be the only familiar name at this show. In attendance are the following small-cap tech companies that have already been introduced to the Stockhouse audience:

1933 Industries Inc. (CSE: TGIF, OTCQB: TGIFF, Forum)  Booth #315
BLOCKStrain Technology Corp. (TSX: V.DNAX, OTCQB: BKKSF, Forum)  Booth #523
Cannara Biotech Inc. (CSE: LOVE, Forum)  Booth #604
Cannvas Medtech Inc. (CSE: MTEC, Forum)  Booth #622
DMG Blockchain Solutions Inc (TSX: V.DMGI, OTCQB: DMGGF, Forum)  Booth #628
Graph Blockchain Ltd. (CSE: GBLC, OTCQB: REGRF, Forum)  Booth #711
ProMIS Neursciences Inc. (TSX: PMN, OTCQB: ARFXF, Forum)  Booth #503
YDX Innovation Corp. (TSX: V.YDX, OTCQB: YDRMF, Forum)  Booth #113

Esports is new. Esports is hot. But this is a description that is always applicable to a number of new-and-developing spheres of technology. For investors looking to stay abreast of new developments in technology and new opportunities in the tech space, Stockhouse is your small-cap destination.

Read up on our coverage of Blockchain and other industries in the world of tech. Network with Canada’s largest Community of small-cap investors on our Bullboards. And (for those in the GTA), stop by Cantech 2019 (at the Metro Toronto Convention Centre) and accelerate your due diligence on these companies.



 
FULL DISCLOSURE: 1933 Industries Inc., BLOCKStrain Technology Corp., Cannara Biotech Inc., Cannvas MedTech Inc., DMG Blockchain Solutions Inc., Graph Blockchain Ltd.,  ProMIS Neurosciences Inc., and YDX Innovation Corp. are paid clients of Stockhouse Publishing.



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