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  • Brett Schafer

eSports has Grown Up Fast, but This is Just the Beginning

Let’s travel back ten years. Gaming, as we knew it then, was a niche industry with a somewhat fringe user base. Most of you, if asked to picture someone playing video games, would have pictured a lonely guy glued to his basement television.

Everyone (well, mostly just suburban parents) gave video games a bad rap because they wrongly believed it caused obesity and violence in kids. Like television, radio, and books before them, video games got unjustified negativity because they were new and different. Nobody thought they were for anything but a leisurely activity for teenage boys to play in their free time. Even hardcore fans would have been skeptical if you told them mainstream culture would ever embrace gaming. Well, that’s exactly what’s happening right now.

Gaming, specifically competitive gaming (also called eSports) has started to grow at an astounding rate. Traditional sports franchises and even Netflix are worried about this new competitor, as live streaming and in-person events continue to encroach on their territory.

By the Numbers

According to Statista, the global eSports market is projected to grow to $1.8 billion in 2022. This may seem like a relatively small number, but remember that this same industry was worth less than $200 million in 2014.

This means if the projections are correct, eSports will grow at an annual rate of 22.3%, which is considerably higher than international GDP growth or the CAGR of any stock index. But don’t think that growth won’t continue past 2022.

Assuming the eSports market continues its 22% CAGR, by 2030 the industry should be worth around $9 billion annually. That’s no chump change, but I honestly think it can be worth many multitudes of that in 12 years.

Let’s look at traditional sports as a guide. In 2017 the National Football League generated $13.5 billion in revenue. Now, I know what you’re thinking, and I agree that no individual eSports league will be bringing in even close to the same amount of money as the NFL does every year. But you’re also forgetting how many different video games there are. Overwatch, Madden, Call of Duty, Fortnite, NBA 2k, Apex Legends, FIFA, these are all insanely popular games with millions of fans around the world. It’s just a matter of time until the ads and sponsorships follow suit.

Who Wins From the eSports Boom?

There are a few companies who will benefit from this eSports boom. Some obvious (like game studios), others, a little less. I’ve highlighted some of my favorites below.

Activision Blizzard: The largest American gaming studio owns the content rights to Call of Duty, Candy Crush, Overwatch, World of Warcraft, and a ton of other franchises. They already have the popular Overwatch league, and hope to establish international organizations for every title they have. Here is what CEO Bobby Kotick had to say about it on their latest earnings call:

“Following the blueprint, we established and validated with the Overwatch League we’ve now started the team sales process for our professional Call of Duty eSports league, and we’re seeing strong demand for teams.”

Turtle Beach Corporation: Think of Turtle Beach as the potential Nike for eSports. The small-cap stock produces microphones, headsets, and other gaming gear, and hopes to become the trusted brand for eSports players. Look for them to continue to grow in tandem with the overall gaming industry.

EA: The gaming studio behind the popular franchises Madden NFL, FIFA, Battlefield, and the Fortnite copycat Apex Legends. Like Activision, they are starting up their own international leagues, which will grow immensely over the next decade.

Amazon: Probably someone you didn’t expect to see on this list, but are you really that shocked Amazon is about to benefit from another burgeoning industry? The e-commerce giant owns Twitch, the most popular live streaming site for gamers (you can check out an interview I did with one of their executives here). As leagues and individual gamers gain popularity, so will the popularity of Twitch, which will help Amazon grow its revenue.

Microsoft: The software giant (and newly minted trillion-dollar stock) is the maker of the Xbox console, and also has its own gaming studio. I don’t see them being a giant winner from the eSports boom per se, but they definitely will benefit from the overall growth of the gaming market.

Whatever you think of eSports personally, you cannot deny how big it has gotten, and will become. We are still in the early stages of this new industry, one that should continue to grow over the next two decades. It could pay off handsomely for any investor that decides to get in early.

Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed.

#eSports #VideoGames #EA #ActivisionBlizzard #gaming #Investing

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