With COVID-19 causing the cancellation of major sporting events worldwide, many of the people locked down at home have turned to esports – competitive video gaming at a professional level.

Traditional sports, including F1 motor racing, have turned to esports to fill the void. Viewership of esports titles that simulate real racing events has increased as professional drivers participate in esports events.

Before the internet, video gamers had to meet physically to compete and tournaments were thus local events, few in number with participants often having to bring their own computers. Players competed for fun rather than large prizes, though some games companies organised contests across the US, bringing winners together for a grand final where a champion was crowned.

As internet access became commonplace, competitions moved from local to global. Players saw that there were people around the world who had similar, or better, skills for the games they enjoyed playing. With the emergence of multiplayer online games, esports was poised to reach scale.

One of the critical differences between Esports and traditional games is that people not only play video games competitively, they also watch them.

Esports is often viewed as an industry of explosive growth with millions of viewers and large prize pools. From a top-down perspective, this may be the case: about 400m people are estimated to have watched professional esports content in 2018, occasionally or regularly. But little attention is paid to the fundamentals of the industry and its profitability.

Unfortunately, there is limited data available: some estimate global esports revenues in 2018 were USD865 million but others double that.

This year’s pandemic lockdown has seen some tournaments postponed but it has increased viewing figures. Investors are thus beginning to focus on esports, looking at teams, the events-management firms that organise competitions, streaming platforms that show games, or the video-games publishers that own the intellectual property. But each esports title, team and events-management firm can have widely different revenue streams, profitability and audience demographics.

Part of the complexity is that esports was historically viewed as a marketing tool to attract players to the video-game titles themselves. Now the industry is moving towards a self-sustaining business model.

Revenues can come from the events themselves, plus sponsorship, advertising and merchandise – anything from t-shirts to sponsored gaming chairs. But a big challenge will be monetising media rights: even the world’s largest Esports tournaments are streamed for free. And with profitability still to be reached, investment will be required.

Pre-COVID-19, advertising and media rights should have been major drivers for the industry this year. Since the pandemic, there is still continued interest from sponsors looking to reach the esports audience. The esports industry hopes to convert some of the cyclical benefits into one that is structural.

First published 28 May 2020.

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