Why I’m Betting The House on eSports – Part I

After last Wednesday’s post on why I think the Daily Fantasy Sports market is largely locked up, I thought it would be interesting to compare it with the eSports market – one which I’m actively looking to place some real venture bets in. Part I is basically a primer on eSports whereas Part II (to be published on Thursday) will define some theses around the space and examine its underpinnings from a betting perspective.

From a venture perspective, eSports is by almost all definitions, nascent. But given the speed at which consumer and especially millennial/Gen Z targeted industries have proven to develop (in fashion and food, for instance), I don’t expect that nascency to last long.

Some quick background stats on eSports as an industry. First, market size:

So by all accounts, eSports is actually kind of small. In an age of unicorns, it’s hard to build a billion dollar business in an industry barely the size of half a unicorn.  All the more so, when the majority of eSports interest is in Asia.

The largest exit to date in the eSports world is Twitch, with trailing twelve month funding to eSports companies barely cracking $50M (Vulcun, Alphadrat, Unikrn, Mobcrush, Kamcord, Skillz, Battlefy, DingIt, Kickback, and I’m sure I missed a few.) By comparison, in the same time frame, a dozen or so daily fantasy sports companies have raised over $750M (13x eSports).

And yet, eSports has the potential to be the largest gaming industry to date, across fantasy sports, casino games, and mobile gaming. Here’s why: using North America as a proxy, engagement across games currently looks like –

  • Fantasy Sports: 41M players
  • eSports: 28M
  • Online Poker: 10M
  • Mobile Gaming: 48M

** For clarity sake, traditional eSports are defined by bulge bracket desktop/console gaming such as League of Legends, DOTA2, CS:GO, Call of Duty, Halo, and Minecraft, as opposed to known mobile games like Clash of Clans by publishers such as Zynga or King Digital.

Even though eSports isn’t (yet) the largest category, here are a few reasons I’m extraordinarily bullish:

  • New eSports enthusiasts entering the market are growing at over 20% per year versus 11% year/year for fantasy sports. Online poker is contracting significantly year/year (approximately 10-15%).
  • Gamers are becoming more engaged with time spent playing up nearly 25% from 2011-2013 from 5.1 to 6.3 hours/week.
  • Consumption of eSports amongst spectators has grown 300% over two years from 1.3Bn hours/year to 3.7Bn hours/year. It’s worth noting that while overall viewership in aggregate has increased 3x in 2 years, the majority of that increase is driven by power engagement of existing enthusiasts as average time watching eSports/enthusiast has risen from 22.4 hours/year to 41.6 hours/year. This likely reflects that content is improving, distribution is improving, and channels are becoming stickier.

  • There is also a growing degree of overlap between traditional eSports enthusiasts defined above and mobile gamers, especially as quality of the latter continues to improve and trend more towards MMO (Massive Multiplayer Online Games) than RPGs (Role Playing Games).

Consider that a good primer on eSports and why despite its small size (from a revenue perspective), I believe it will open up massively in the next 24-48 months. I’ll leave you with some additional good resources to get up to speed on eSports and we’ll do Part II on Thursday:

Why The Next Sports Empire Will Be Built on eSports

eSports: The Biggest Sport You’ve Probably Never Heard Of

eSports is Massive and Growing…

eSports: The Future of Entertainment

About the author

Ezra Galston
Ezra Galston

Consumer focused hustling @Chicago Ventures, Young Entrepreneur @Foundation Capital, Class 18 @Kauffman Fellow, and Chicago Booth MBA. Former professional poker player, with 4 years experience doing marketing/biz dev in the online gaming industry. Launched a "poker hedge fund" in 2011, a record label in College, and produced a festival screened short film in 2006.

  • I think you’re completely correct Ezra. eSports are going to explode as an industry.

    Now we need more investors to notice the opportunity and less investors thinking eSports is FIFA/Sportbook apps. Maybe raising seed/A rounds will become easier, enabling many more interesting teams to boost the space.

    • Funding to eSports has taken off since the Twitch acquisition. 24 deals from Q4 ’14 to Q2 ’15.

      Among the most notable deals in e-sports and game-streaming since 2014 include a $12M Series A to fantasy league platform Vulcun, which raised from Sequoia Capital, Battery Ventures, and Universal Music Group. Raptr, a PC gaming video-capture service, raised a $14M round led by Accel Partners in March.

      More data/charts over here on our research blog:

      • egalston

        good link, hadn’t seen that one & yes, I forgot to note Raptr, thanks for pointing that out.

    • egalston

      Totally, and I hope so…watching the space very closely.

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