Esports uncovered – Part 1: an overview of the ecosystem
This article aims to demystify the eSports ecosystem, its structure and landscape, as well as map out some of the present and future trends, and risk factors associated with it.
The article is split into three parts:
- Part 1 (below) – looks at the current esports ecosystem, including: facts, figures and forecasts for the sector; what has fuelled the recent expansion;and who the key stakeholders are.
- Part 2 (available here) – gives a snapshot into the key participants in the sector and compares them to those in the football industry.
- Part 3 (available here) – looks at the biggest risks currently facing esports, and again offers a comparison to the football industry.
There have been numerous articles and comment pieces written on the esports industry, so we wanted to do something different, and to compare the growth of esports and its recent success story with the world’s biggest global sport, namely football. This is not for the purpose of measuring esports against football's commercial value, but instead to identify where and how esports can be proactive in its collective approach to (i) key regulatory issues (so, cheating to win (doping and software hacking), cheating to lose (match and spot fixing, and linked betting), disciplinary and governance matters; and (ii) commercial matters (so, the streaming, broadcasting and sponsorship, in particular). Equally, we will also look at the lessons football, and other "traditional sports" can learn from eSports.
This approach will hopefully make the piece accessible to sports (and, in particular, football fans as football is the focus) who want to understand the esports ecosystem in more detail and who already benefit from a "baseline" appreciation of the football industry.
A key, overarching, message is opportunity: esports stakeholders have an opportunity to learn lessons from traditional sport, and shape its industry for the better. Esports is, for example, playing “catch-up” in relation to certain commercial aspects, and from the regulatory and governance perspective, both of which we will explore but the potential for esports is monumental.
To provide some context, and for those readers who are not necessarily immersed in the esports industry, the piece will first introduce the esports concept, and provide an industry-wide overview. In order to do that, we will focus predominantly on professional, elite level esports, although it is important to be clear that grassroots esports is a part of the industry pyramid, just as is the case with traditional sport. We will then endeavour to ‘map out’ the key stakeholders (which do vary, quite significantly, from traditional sport) and setting out some of the major opportunities and challenges facing the industry. Throughout the piece, we will seek to compare and contrast with football.
At a basic level, esports is the competitive playing of video games. Some commentators will tell you that esports represents the professional elite level; others take the view that esports encompasses competitive gaming, in whatever guise. We support the latter definition. Football is still football whether you are playing in the local park, or Wembley and we believe the same principle applies to esports.
It is also important to bear in mind that esports is a media friendly term; indeed, you could even argue that it is a media invented term. When stripped back it is simply an umbrella term. For example, in the esports context, you might be a Counter Strike: GO and Dota fan; but you might not be a League of Legends and Hearthstone fan, just as you might be a football and a cricket fan; but not a rugby and golf fan. It is also important to be aware that esports has not just appeared from nowhere, although you could be forgiven for thinking this is the case given the media hype that has surrounded the industry over the last 18 months or so. In fact, esports dates back as far as the video games industry itself, albeit it was the advent of the internet and PC gaming which was the major catalyst for growth, followed by the advent of digital streaming platforms, which opened the industry up to tens of millions of eye balls. Indeed, it is the advent of digital media which is the reason the industry has such commercial potential.
As set out in the introduction, we will be focusing on the professional side of esports. Whilst the scheduling can be hard to follow and at times confusing, there are numerous global leagues involving professional teams that compete for millions of dollars in prize money. The most significant esports game titles tend to be first-person shooter (FPS), multiplayer online battle arena (MOBA) or real time strategy (RTS) games. Esports audiences are projected to top 385 million in 2017 allied with commercial revenue growth estimated to hit $696m in the same year. What was once a novelty is now very much mainstream.
There is a varied array of esports organisations which host events and run leagues for participants and fans. These organisations include the likes of ESL, FACEIT, Riot Games, ELeague (IMG/WME and Turner), and GFinity Major tournaments (most notably the International Dota 2 Championships and the League of Legends World Championships, plus many others) take place at stadium venues with tens of thousands of live attendees, streamed to millions of viewers online, with millions of dollars in prize money at stake.
Facts, figures and forecasts
- There are an estimated in the world.
- The global gaming market (which is made up of videogame hardware and software sales across all physical and digital platforms, mobile games, virtual reality hardware and software, esports and game related toys, merchandise, books, movies, soundtracks and live game-based events) is said to have generated approximately $99.6bn (£79bn) in revenue in 2016 and global esports revenue is valued at $696m.
- Over 70m people worldwide watch esports over the internet or, increasingly, traditional television.
- According to ESPN, there are 28m esports fans in Europe and North America alone, a number which is growing by 21% per year.
- ESL had 173,000 attendees at a tournament held across two weekends (the Intel Extreme Masters) in Katowice, Poland, making it the biggest live event in esports history.
- Newzoo, the leading global market intelligence firm which specialises in games, esports, and mobile, has estimated that there will be 145m global esports enthusiasts (a group that consists of frequent viewers and active participants) by 2017 (almost treble the number
- Only 60% of enthusiasts actually compete in organised gaming tournament on or offline. The signs are there that it is becoming a spectator sport of the masses.
What has fuelled the recent expansion?
The esports market has evolved and expanded rapidly throughout the past decade. Many have attributed the surge to a number of factors including:
- The growth in the games industry, due to a combination of increased consumer spend on games; the exponential rise of mobile and digital games; and the highly successful launch of a new wave of gaming consoles (such as the PlayStation 4 and Xbox One).
- The growth in levels of participation, due to the number and scope of professional competitions.
- Crucially, and set out above, firstly development of the internet and fast broadband, and the emergence of online streaming platforms, such as Twitch (acquired by Amazon in 2014), HitBox, and YouTube Gaming. Twitch is, however, where the majority of the content is distributed. It is the 4th highest trafficked site in the U.S., behind only Google, Apple and Netflix and attracts 45 million viewers watching 13 billion minutes of gaming a month. It streams popular esports competitions and videos of professional games, match ups and practice sessions, which in turn creates unprecedented levels of access for fans. This has become a lucrative source of revenue for gamers, allowing them to become content businesses and "broadcasters" in their own right, to monetise advertising, subscription fees and donations.
- The rise of a more technology savvy, "cord cutting" audience that are regular uploaders and downloaders and are used to consuming content on demand.
- Increased prize money, sponsorship and product commercialisation, and in particular the influx of non-endemic sponsors such as Audi, Coca Cola, Samsung, Visa Mastercard, attracted by the opportunity to infiltrate that "hard to reach" millennial demographic.
The key stakeholders
Identifying the key stakeholders is not as straightforward as it is for traditional sports, principally because esports is so digitally native. However, the basic "structure" of the professional esports industry revolves around:
- Publishers - like Riot and Valve;
- Developers - creators of the games, like NetherRealm, who are sometimes also publishers in their own right;
- Events organisers - like FACEIT; ESL; Dreamhack;
- Leagues and competitions - like FACEIT’s ESports Championship Series (ECS) and ESL’s Pro League;
- Media and streaming platforms - like Twitch and YouTube Gaming;
- "Traditional" broadcasters - such as ESPN and Turner Sports;
- Sponsors/partners - such as Intel,RedBull, Samsung, Coke Zero, Audi;
- Teams - such as Fnatic, Astralis, H2K, SK Gaming, Luminosity, Splyce, Godsent, Epsilon) many of which are major brands in their own right;
- Players - including Fatal1ty, NaDeSHoT and UNIVeRsE, many of whom are also streamers, who generate significant revenue over and above salaries and prize money).
- Betting companies - including endemic betting companies, such as Unikrn and, increasingly, non endemic betting companies such as Bet365 and SkyBet.
Esports has, for obvious reasons, always attracted a strong array of endemic sponsors. Crucially, however, we are now starting to see major non endemic brands entering the market. These brands, see value in a market that engages the "famed" millennial demographic in a way that many traditional sports do not, or at least struggle to do so.
With the exception of the publishers and developers, all of the stakeholders listed above are very much present in professional football. As will be explained in more detail below, there are a variety of nuances which set the two industries apart but both are underpinned by generally similar economic models.
That concludes Part 1 of the article. Part 2, which gives a snapshot into the key participants in the sector; and Part 3, which looks at the biggest risks currently facing the industry, will be published in the following weeks.
The Esports Team at Sheridans is comprised of: Andrew Nixon, Daniel Geey, Chris Paget, Jonny Madill, Tim Davies and Rahul Gandhi
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- Tags: ELeague | ESL's Pro League | Esports | FACEIT’s ESports Championship Series (ECS) | Governance | Regulation
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Andrew Nixon is a Partner in the Sport Group at Sheridans. Referred to in this year's Legal 500 as a “very bright and talented sports lawyer” Andrew's practice focuses principally on regulatory, governance, disciplinary, arbitration and dispute resolution within the sport sector. Andrew's clients include governing bodies, sports clubs, sports agencies and individual athletes.
Daniel is a Partner in the Sport Group.
Daniel’s practice focuses on helping clients in the sports sector, including rights holders, leagues, governing bodies, clubs, agencies, athletes, sports technology companies, broadcasters and financial institutions.
Chris acts for a broad range of clients within the entertainment sectors. He advises clients on a range of commercial issues related, in particular, to the sports and music industries. He has experience acting for musicians, athletes, talent agencies, independent recording and publishing companies and sports governing bodies.
Tim specialises in advising clients on the various commercial and intellectual property issues, including brand protection and enforcement of intellectual property rights, within the interactive entertainment, digital media and creative sectors.