Depending on how old you are, you will have heard off esports, played it, maybe just watched some on a streaming platform like Twitch or YouTube, or you are a parent and your kids are obsessed with playing & watching eSports online. Maybe your kids have already spent a few dollars on “skins” and other virtual goods. Maybe you have not heard about it at all…in which case there are plenty of articles out there describing the phenomenon.
We at Remagine Ventures love eSports. We play & watch, have bought skins and on a rare occasion even won a chicken dinner. We also like eSports from an investment perspective. Its quickly becoming a global phenomenon, thanks to the battle royal format, with roughly 200 Million “enthusiasts” playing frequently with friends and another 200 Million or so occasional viewers, according to eSports research firm Newzoo. The way we define “eSports” is not just through the professional formats, where teams of 5 play against each other in tournaments. We believe that there is more to it, a cultural trend that will become one of the most popular sports and forms of entertainment in the world.
Prize money is escalating quickly. The largest prize pool for any tournament was $25 million for “The International 2018”. Team OG ranked 1st and earned over $11m. To put that into perspective, Wimbledon’s prize pool is $44m. The most popular game currently, Fortnite, has announced a prize pool of $100 Million spread across multiple tournaments. Below is a table of total price money paid to-date, Nov. 27th, 2018, by game. Fortnite is still trailing because its relatively new, only around 140 tournaments counted, compared with 1030 for Dota 2, according to the Esports Observer, an esports business & analytics platform.
Prominent names are investing or buying eSports teams and creating new leagues. Some are coming from the old sports world, like Robert Kraft, owner of the New England Patriots, Andy Miller, owner of the Sacramento Kings or Michael Jordan investing in Team Liquid. Media companies around the world are getting involved, as sponsors, trying to launch leagues themselves or broadcasting live. One of our investors, ProSiebenSat.1 Media, started broadcasting three years ago with a dedicated TV show, commentators and analysts and is committed to do a lot more in the space.
Although accurate numbers are hard to come by and all stats should be taken with a grain of salt, the pictureis clear. Viewership is expected to grow at 15.5% CAGR until 2021 according to Newzoo – and we believe that these numbers could grow even higher. Specific tournaments can draw huge viewership numbers. The MSI Mid-Season Invitational in 2018 was streamed in 15 languages, across 14 different digital platforms, 60 Million unique viewers watched the finals and fans consumed over 360 Million hours of content over the 12 days of competition – according to the League of Legends European Championship (LEC).
The two tables below show viewership grew by 28% year-on-year and that is not counting the month of December.
The game that has become a global phenomenon is Fortnite. There are many articles about its rise to fame, driven largely by millennials and generation Z. The game is free-to-play but generates sales of around $300 Million or more per month by selling virtual clothing items called “skins” and has inspired dances all around the world. Its creator Epic Games recently raised $1.25Bn from KKR and others at a valuation of almost $15BN. That said, recent stats indicate that the popularity of Fortnite may have peaked.
Naturally we are interested in investing in a space this exciting. Our focus is Israel & London and as usual we are looking for tech-related investments. London is already home to a few great teams and tournaments, so we wanted to highlight a selection of interesting startups coming out of Israel in this post.
Two startups that lead the pack in terms of maturity are Overwolf, the app store for games with over 10 million monthly active users which recently raised $16m, and StreamElements, provider of tools for for streamers on Twitch used by top streamers like Shroud or TimTheTatMan and many others.
Other interesting startups are tackling the engagement challenge between esport fans & games/streamers. Quarterback, which raised money from local and international investors, including BitKraft, enables fans to directly engage with games in real time, creating an active audience and unlocking new monetization channels. InTheGame & ShapeShift are working on overlays that will allow users to bet on outcomes in real-time.
Other startups go after the analytics space, e.g. Sentinel, which is analyzing game behaviour to then better match players with each other and help discover others. Blink was formed out of a previous startup, Elastic Media, and has excellent video recognition and cutting technology to automatically detect highlights and turn them into stories. Lootbear, formerly ZenGaming, is led by an experienced team to create a marketplace that lets users buy, sell and even rent skins.
Another startup we like is Novos, which is building an online training platform based on a mix of behavioural analytics, video analysis, input from professional coaches and a coaching methodology to improve game-play for everyone who wants to get better.
eSports is only at the very beginning of its evolution, representing roughly 1% of the overall gaming market. It’s still a bit like the wild-wild-west out there, where new leagues are being formed, games and streamers rise to fame but can fall quickly, rights are still affordable, new team franchises are popping up weekly and many challenges remain. Currently not many stakeholders in this ecosystem are making money – mainly the publishers like Riot Games (Tencent), Activision Blizzard and Valve. We believe that eSports will become the 2nd most popular sport in the world (after football, Soccer, that is). It will become mainstream on TV, online on streaming platforms, more and more brands will engage and sponsor and eventually may even become an Olympic discipline.
We look forward to announcing our first eSports investment soon. If you are part of the eSports ecosystem, or starting to work on a startup in the space and want to exchange notes and get some feedback, we would love to hear from you: kevin@remagineventures.com
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Huge potential! Looking forward to hearing more about your “plays” in this arena.