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Takeaway: While many still overlook the industry’s potential, we believe that e-sports will prop up the broader gaming space for years to come.

MARKET WATCH: What’s Happening? Esports is becoming a big business, with the global industry surpassing $1 billion in revenue for the first time in 2018. Everyone from advertisers to traditional sports team owners to Big Tech firms are scrambling to establish an esports presence. This diverse set of players sees esports as a prime opportunity to reach Millennials, who are streaming esports matches and attending in-person events in record numbers.

Our Take: The conventional narrative still treats esports as a fad destined to fade into obscurity. But we believe that esports’ growth is a bellwether for the growth of the gaming industry at large. Generational change is a major factor: Esports (and gaming in general) fits neatly into the sociable, optimization-driven Millennial worldview. In fact, this generation’s connection with gaming runs deep. Young adults don’t see gaming platforms as just another entertainment option, but rather as a way of life—a place to connect, meet new friends, develop career skills, and explore their passions.

Each year, the nation’s top high school athletes compete on the gridiron with the dream of landing a college scholarship. But increasingly, that competition is happening online: Carl Albert State College (CASC) in Oklahoma will now offer scholarships to esports recruits.

CASC is hardly the only option for aspiring collegiate esports athletes. In fact, dozens of schools nationwide offer some form of scholarship for top esports players. In total, according to the National Association of Collegiate Esports, colleges handed out a record $15 million in scholarship money for the 2018-19 school year.

Parents are doing everything they can to help their kids compete for this growing pile of cash—hiring Fortnite coaches in the same way that one might hire an algebra tutor. (See: “Did You Know? Have You Practiced Your Video Games Yet?”)

What’s going on? In the pages below, we dive into an industry that has emerged seemingly overnight—and explore the implications for investors.


Before we begin, let’s talk about why esports matters to investors. After all, as we’ll discuss below, it’s not (yet) a large industry, with just $1.1 billion in annual global revenue. And there aren’t many pure-play esports companies out there in which to invest.

But the massive growth we’ve seen in esports says something important about the broader gaming industry—which is both large and highly investable. Gaming companies have a huge stake in esports, and not just because they happen to own many esports entities. It’s also because they are in the business of producing and marketing the games that are featured in esports events as well as the consoles on which these games are played. Thus, as esports goes, so goes the entire gaming industry. We’ll return to this idea later.

First of all, let’s define the esports industry. When we talk about “esports revenue,” we mean only the revenue generated by professionally organized esports teams, leagues, and events. We take this definition from Newzoo, the industry’s main dedicated market research firm. Constraining the industry in this way allows us to most accurately gauge its size and growth. Of course, this definition does leave out an important part of the equation: individual gamers streaming on their own outside of a competitive setting. Though this segment is difficult to quantify, it will factor into our analysis.

Now, a concession and a caution: Newzoo has been criticized in the past for releasing headlines that generate interest but are based on unconfirmable statistics—since most of the esports industry is privately owned. According to Kotaku editorialist Cecilia D'Anastasio, the analytics firm “does not have visibility into the data of game publishers, which, crucially, makes it difficult to discern the financial realities of the esports industry from the gaming industry at large.” All of this is true, but beside the point. Nobody doubts the magnitude or the trends of Newzoo’s viewership figures, which are universally considered the most accurate in the industry.

When we first wrote about esports nearly five years ago (see: “Esports Ups Its Game”), the industry was just beginning to emerge on the scene. Since then, it has surged. According to Newzoo’s latest annual market report, global esports revenue will cross the $1 billion plateau for the first time in 2019, growing 26.7% YoY to $1.1 billion (again, for professionally organized leagues and tournaments only). In fact, esports is growing more than twice as fast as the broader global gaming industry—which Newzoo expects to rise 12.6% YoY to $151.9 billion in 2019.

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Who finances this $1.1 billion in annual esports revenue? Brands constitute the single-largest category of esports buyers. (See: “Did You Know? Brands Battle for Esports Enthusiasts.”) Brands act as everything from tournament sponsors to team owners to ad buyers to media rights holders. Think of a company like Coca-Cola, which pays for the right to put its name on esports tournaments, or Comcast, which owns its very own esports team. Traditional media companies like ESPN (owned by Walt Disney) are even purchasing the media rights to top esports tournaments. What do brands get out of this arrangement? Quite simply, they see esports as a way to tap into a passionate, disproportionately young audience.

Also integral to esports industry revenue are streaming sites like Twitch and YouTube Gaming, which pay for the right to stream official tournament matches on their platforms. These sites see esports as a huge driver of traffic growth, which pays off in the form of lucrative advertising deals. Consumers who spend on esports merchandise and tickets are the next-largest category of esports buyers. Finally, we have “game publishers,” who pay fees to independent esports organizers for hosting events. These fees are worth it to publishers, who want to get their games in the hands of consumers and value the publicity generated by an official tournament.

When we break down the $1.1 billion in annual esports revenue into individual segments, we see that the industry doesn’t operate much differently from traditional sports leagues like the NFL, where lucrative media rights deals and sponsorships drive most of the revenue growth. All of the following figures refer to Newzoo’s 2019 projections:

  • Sponsorship: $456.7 million (up 34.3% YoY)
  • Media Rights: $251.3 million (up 41.8% YoY)
  • Advertising: $189.2 million (up 14.8% YoY)
  • Merchandise & Tickets: $103.7 million (up 22.4% YoY)
  • Game Publisher Fees: $95.2 million (down 3.0% YoY)

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Of course, revenue figures are just one way to measure the esports industry’s growth. We can also look at investment and viewership, both of which point to a thriving industry. There were 74 separate deals worth $1.5 billion involving esports companies in 2017, up from six deals worth $34 million in 2008. This cash has led to some lofty valuations for the top teams: Late last year, Cloud9—an organization that fields professional teams competing in eleven different gamestopped the list of the world’s most valuable esports franchises at $310 million. Teams like Cloud9 compete for a lucrative $150 million prize pool (as of 2018).

Esports is also surging in terms of total viewership. Newzoo estimates that the number of global viewers will grow 14.9% YoY to 454 million in 2019. The most popular events generate some eye-popping numbers: The 2018 iteration of the annual League of Legends World Championship, a month-long event coordinated by Riot Games, attained a peak audience of 200 million viewers. For perspective, that’s more than double the number of viewers who tuned in to watch Super Bowl LIII. (To be sure, this isn’t an apples-to-apples comparison: Nielsen’s Super Bowl viewing metrics report the average number of viewers who watched the entire program rather than the peak audience at any one time.)

The comparisons between esports and traditional sports don’t end there. Robert Kraft, owner of the New England Patriots, is also the new owner of a Boston-based esports team that competes in Activision Blizzard’s Overwatch League. And last year, NBA all-time great Michael Jordan joined the ownership group of top esports organization Team Liquid. Esports may even be on its way to becoming an official Olympic event. The Olympic Council of Asia announced in 2017 that esports will be a medal sport at the 2022 Asian Games. Could the 2024 Olympic Games in Paris be next?


Let’s dive a little deeper into the business side of esports and gaming in general. (As you’ll see, it’s difficult to unpair the two, since most companies do a little bit of everything.) There are two broad types of companies involved in the industry: game publishers and tech companies.

Game publishers. Firms like Activision Blizzard (NASDAQ: ATVI), Ubisoft, and Epic Games are the ones most people think of when they hear “gaming company.” And rightly so: Game publishers are involved in every segment of gaming and esports, from game development and publishing to league management and tournament sponsorship.

Let’s start with the “big three” U.S. exchange-traded game publishers: Activision Blizzard, Take-Two Interactive (NASDAQ: TTWO), and Electronic Arts (NASDAQ: EA).

Activision Blizzard publishes top titles including Overwatch, StarCraft, and HearthStone, all of which are mainstays on the competitive circuit. The firm also operates the highly successful Overwatch League. Take-Two owns two major labels, Rockstar Games and 2K, which publish titles including BioShock, Grand Theft Auto, and NBA 2K. Electronic Arts specializes in sports titles like FIFA and Madden. The company recently launched its own FIFA esports league in conjunction with the Premier League, and just announced a new state-of-the-art esports broadcast studio that will be used for top tournaments.

Other game publishers include subsidiaries, privately held entities, and foreign exchange-traded firms. Ubisoft, a Canadian firm, owns titles including Assassin’s Creed and Tom Clancy’s, the latter of which features prominently on the pro circuit. Privately held Valve Corporation publishes Counter-Strike and Dota, runs its own esports tournaments, and operates the Steam software distribution platform. Japan-based Capcom runs its own esports league centered around its popular Street Fighter title. Riot Games and Epic Games (both majority-owned by the Chinese tech giant Tencent) publish the wildly successful League of Legends and Fortnite titles, respectively, and also manage their own tournaments.

What sets game publishers apart (aside from their unique titles) is their philosophy on league management. Riot and Valve illustrate the two prevailing approaches: The former is an authoritative, hands-on manager, while the latter is an accommodative, laissez-faire manager. Each side has its advantages and disadvantages. The Riot approach imposes some much-needed structure and order on a nascent industry—but its lack of transparency about rules can be a turn-off to gamers. The Valve approach enables individual stakeholders to emerge and thrive organically—but its lack of emphasis on structure can lead to cheating scandals and a loss of competitive integrity.

Tech companies. Within the tech space there are two types of players: those with their own console and those without one. The former are legacy gaming companies that have started to push into esports. The latter, for the most part, are new entrants to gaming that have virtually no esports presence—yet.

Let’s start with the console companies. Microsoft (NASDAQ: MSFT) holds a unique position among this crowd. Unlike its competitors, Microsoft already produces a console and owns the rights to popular games. The company’s Xbox Game Studios publishes top franchises including Halo, Gears of War, and Minecraft. This impressive portfolio gives Microsoft a particular leg up when it comes to the nascent “cloud gaming” space, in which firms use their cloud data centers to run game servers remotely, enabling users to play without a console or high-performance PC. Microsoft also sponsors the Halo Championship League, giving it a direct esports presence. Some analysts even speculate that the firm could eventually become the “Ticketmaster of esports” should it ever decide to start its own league.

Nintendo is another winning console firm. The company’s Switch console became a massive success and a major revenue growth driver quickly after launching in 2017. After a brief slowdown, Switch sales promise to be boosted by a new distribution deal that would allow the company to sell the consoles in China. Intellectual property is a major Nintendo asset, as the company owns the rights to an iconic library of characters that includes Mario, Pikachu, and Donkey Kong. The company has been hands-off when it comes to esports, though it did sponsor an official tournament to promote its Super Smash Bros. title. Rounding out the “big three” console companies is Sony (NYSE: SNE), which makes the PlayStation console. The company has been a bit more active than the other two in its esports push, acting as a co-sponsor for FIFA and NBA 2K tournaments. In a more experimental effort, Sony recently filed a patent that would turn its PlayStation VR headset into a 3-D esports viewing arena.

Now for the non-console companies. Leading the way, especially when it comes to esports positioning, is China’s Tencent. The firm owns two of the most successful game publishers in Riot Games and Epic Games, giving it a strong foothold in the competitive gaming scene. The firm is also breaking ground on a new cloud gaming service called Start, which could compete with similar offerings from Amazon, Apple, Google, and Microsoft. The company will also carry out sales of the Nintendo Switch console within China’s borders.

To be sure, the state-owned Tencent has a unique headwind: a government-imposed video game bottleneck. China froze all new game titles last year as it implemented a new approval process that would flag and censor content deemed to be inappropriate. But late last year, officials announced that they would lift the ban, approving 80 new game titles and giving top game publishers like Tencent hope that the bottleneck would begin to work its way through.

When it comes to U.S. non-console firms, Amazon (NASDAQ: AMZN) stands alone for one reason: Its 2014 purchase of Twitch, which would eventually become the world’s leading livestreaming platform. Amazon also has its own in-house game publishing arm, Amazon Game Studios (which, to be sure, has yet to turn out a hit esports title).

There’s perhaps no better illustration of the surge in esports viewership than Twitch. The platform is the go-to destination for game streamers and esports fans alike. As of March 2019, there were 4.5 million unique streamers actively broadcasting on Twitch, up 20.8% YoY. Twitch viewers watched nearly 1 billion hours of content that month alone, up 33.9% YoY. (Do the arithmetic: One billion hours is the equivalent of 2 hours daily from 17 million viewers!) Twitch is leaps and bounds ahead of its nearest competition, averaging more than four times the amount of concurrent viewers compared to second-place YouTube Live. How vital are top esports titles to Twitch’s success? The top 10 most popular video games account for roughly 10% of all the content watched on Twitch in a given month.

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Finally we must mention Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG). Both companies exert unique control over the mobile gaming universe with their App Store and Play Store, respectively. What’s more, both have ambitions in the cloud gaming sphere. Google has a leg up because of its streaming efforts: The company owns YouTube Live, which sits in second place (albeit a distant second) to Twitch when it comes to game streaming. Google also invested $120 million in Chinese livestream platform Chushou last year.


What do brands, game publishers, and tech companies find so attractive about the esports space? Quite simply, esports offers the rare opportunity to establish a connection with young adults which could last a lifetime.

We’ve discussed before how most traditional sports are failing to gain full traction among Millennials. (See: “The Generational Future of Pro Sports.”) According to new figures, esports has stepped in to fill that void. A recent survey by LEK Consulting shows that 40% of Millennials either “significantly” or “slightly” prefer their favorite esport over their favorite traditional sport—nearly identical to the share who say they prefer their favorite traditional sport over their favorite esport (42%). Older Americans, by contrast, prefer traditional sports by more than 2:1 (56% to 26%).

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Even Millennials who do play traditional sports also dabble in esports. See this ESPN profile of Jonas Jerebko, an NBA power forward who spends 10 hours per week playing CounterStrike and owns his own esports franchise. In fact, major sports franchises have complained that players are losing sleep over games like Fortnite. (See: “Pro Sports Teams Worried About Video Game Addiction.”)

Why are Millennials so attracted to video games in general, and to esports in particular? Here are a few reasons.

High-touch access and relatability. For Millennials, one of the biggest drawbacks to traditional sports is that star athletes exist on another stratosphere than the fans who adore them. While the rise of direct player-fan interaction on social media has closed the gap a bit (you can tweet directly at LeBron James, for instance), most fans still have little or no face time with their favorite athletes.

Esports is a different story. Fans can interact with their favorite streamers via live chat in real time; lucky fans may even get an on-screen shout-out. “When was the last time you heard LeBron James tweet, ‘Hey, I’m going to be at the Y this weekend practicing and shooting hoops; come on down and shoot hoops with me’?” asks sports marketer Dan Ciccone. “That doesn’t happen in traditional sports, but it happens all the time [in esports].”

The appeal goes beyond access to pro gamers. Due to the very nature of esports, it’s easy for enthusiasts to believe they could become pro gamers. E-gaming doesn’t take any special physical gifts or intense conditioning like traditional sports. In the words of EA’s Joe Lynch, “If you watch an NFL game, there are very few sane people who believe they can beat Tom Brady, but when you’re home and watching Madden or FIFA, a lot of people think, ‘I could beat that guy.’” Casual gamers even have the chance to test their thesis in events like the Fortnite World Cup, an open competition in which anyone can enter to compete for a $30 million prize pool.

Optimization. Millennials are optimizers who use all the tools at their disposal to achieve peak performance. Many see video games as a tool that can help them improve everything from their focus to their problem-solving skills.

Some are using games to improve their mental health and overall well-being. A survey of 18- to 30-year-old gamers found that 55% believe video games help them “unwind and release stress.” Furthermore, nearly half of survey respondents (47%) said gaming has a positive impact on their lives offscreen. More than one-quarter even said gaming had helped them process or deal with a mental health issue in the past. Separate research found that the video game Tetris can be used to achieve targeted goals like wiping out bad memories or reducing food cravings.

Many Millennials increasingly realize that their gaming habit could help them land a job. And we’re not just talking about a job within esports, either. A growing number of hiring managers are using video game experience as a proxy for hard-to-measure qualities like problem-solving, collaboration, and trainability.

Even for Millennials serious about their traditional sport, watching esports is a way to learn more about the game they love. Tom Brady, Kobe Bryant, and Tiger Woods each became an all-time great not only because of their athletic talents and mastery of fundamental skills but also because of their relentless dedication to learning and analyzing the smallest details of the game. Each poured over film and engaged in virtual, situation-based training exercises to reach the top. Similarly, watching esports gives gamers access to the strategies, tactics, and skills of the most advanced players in the world. It offers the opportunity to learn directly from the best as well as the ability to quickly and easily implement what they see into their own game.

Indeed, gaming is so obviously structured to encourage optimization, benchmarking, and competition that Millennials who game just to decompress need to go out of their way to avoid the temptation. Jaya Saxena turned to an old-school Game Boy in search of simplicity: “I can’t screenshot my progress, and I don’t walk away from the experience with extra knowledge about the world. I can’t turn any of this skill, if you can call it that, into a side business on Etsy.”

For Millennials like Lana Rafaela Cindric, gaming is about improving one’s mental state, not competing to win. Real life, she says, is enough of a competition: “After starting a career where it’s all competition all the time, it’s fun to just unwind when you’re playing.”

Sociability. Older generations see games as antisocial, a way to disconnect from the “real world.” Millennials see games as social, a way to connect with friends.

When researchers asked 14- to 21-year-olds why they play and watch video games, the second-most common reason cited (behind “for entertainment and fun”) was “enjoying time with friends,” with 54% citing it as a major reason. By comparison, just 36% cited “enjoying the competition” as a major reason. Nearly half of these young adults (45%) said they’ve become friends with someone they met playing or watching competitive online video games.

This research paints a portrait that looks nothing like the age-old stereotype of the lonely gamer. According to a Washington Post piece covering the survey, lifelong friendships are a byproduct of gaming culture: “The medium hardly matters. Many of these friendships deepen for years, until the bone knife duels and deathmatches that enabled them are nearly forgotten, and only bonds between people remain.” Even some parents are changing their mind about video games for this reason, acknowledging that the medium “serves as a virtual social bridge.”

This sociability is often enabled and encouraged by the games’ very design. Many role-playing games require players to choose from a set of archetypal characters, each one of which comes with its own strengths and weaknesses. Teaming up with someone whose character augments your strengths and masks your weaknesses is key to in-game success. Furthermore, many games feature pre- and post-game lobbies in which gamers can interact with each other and team up for future matches.

To be sure, livestreaming is sometimes about cut-throat competition. But far more often it is about socializing. E-gaming exists alongside a communal network that allows young people to share anything from music to recipes. It’s a one-stop spot for Millennials to mix and talk.

Gamification. Optimization and sociability aren’t the whole story. Something bigger still is going on. Esports perfectly complements a world in which everyone’s interaction with their environment is taking place through a gamified interface. Just look around. Virtually every sphere of life—from the classroom to the workplace to the shopping mall to the battlefield to the home—is adopting the look and feel of a video game.

In general, Millennials approve of this trend and believe they can thrive in it. And even those who don’t like it figure it’s pretty much inevitable.

In the classroom, teachers are implementing point systems that reward students for everything from following rules to correctly answering questions during in-class discussions. At work, companies are gamifying the hiring, onboarding, and training processes; Marriott, for instance, asks job candidates to virtually perform various hotel service tasks via a mobile app. Retail brands like Nike are creating games that enable shoppers to “try out” various items before buying. Consumers are using gamification to help them tackle household chores, eat healthy, and save money on electricity.

No sector has been as quick to adopt gamification as the military. In 2008, the U.S. Army pledged $50 million over five years toward the development of gaming systems designed to prepare soldiers for combat. Gamified training is becoming essential in the military, when prior experience (whether real or simulated via a first-person shooter simulator) can mean the difference between life and death. In fact, the military has been using video games to identify and recruit promising talent since 1999. Every major new weapons system now assumes a digitized battlespace: When it is introduced, it typically comes with an accompanying videogame that helps operators train to use it.

Millennials have bought in fully to this gamified world. Allow us to quote from our 2013 report (see: “Gamification: Welcome to the Next Level”): “The generation that grew up playing The Sims and Call of Duty isn’t merely accustomed to playing games. They’ve helped shape a generational worldview in which the structure, quick feedback, achievement metrics, and sense of community offered by the best games constitute the new Millennial standard for reality itself.”

Gamification, in other words, resonates with Millennials not just because they have grown up playing video games. Gamification fits into this generation’s rules-based, objective-driven worldview.


Older generations don’t grasp the full extent of esports’ appeal. They see the genre as yet another entertainment option at best and a diversion from reality at worst. The idea that someone would go to a livestreaming platform or even a stadium to watch another person play video games is unfathomable to most older adults.

This marks an interesting generational reversal. Consider that it was young Boomers and (even more) Gen-Xers who powered the rise of gaming back in the ‘70s and ‘80s. At that time, gaming was a niche pursuit for techies only. Indeed, ownership of an Atari or NES or Sega console was once a signal that you were a card-carrying member of the counterculture.

Back then, gaming had a distinctly “Xer” feel, lacking the gloss and glamor of today’s industry. It took place in dingy arcade parlors and dark basements, not convention halls. There was little money in it and was a mostly solo pursuit, with any co-op activity limited to split screens or small-scale LAN parties. In this 2013 piece describing the early video game arcade scene, Laura June writes: “These are rarely family-friendly institutions… Your mom wouldn’t want to be there, and nobody would want her there, anyway.”

Gaming has since taken on a distinctly Millennial feel. Rather than being fodder for bullies, a gaming habit is now socially acceptable, even the norm. (The mainstreaming of nerd culture has undoubtedly been a major factor here.) Gaming is done almost exclusively online in large groups. Safety is paramount: When unseemly behavior like cyberbullying occurs, platforms can extinguish it with AI-powered chat filters and in-game moderators. And gaming is big business for everyone involved, whether game publishers or Big Tech firms or gamers themselves. In short, today’s Millennial version of gaming is accessible, social, and scrubbed clean.

Of course, it bears mentioning that the Boomers and Xers who grew up on Atari are still playing video games. They are just doing it differently than Millennials. Adults age 55 and older represent more than one-quarter (26%) of all gamers, according to the Entertainment Software Association. Separate research has found that the 55+ represent the largest segment of mobile gamers. But according to Pew Research, older adults are less likely to play video games or to describe themselves as “gamers” compared to Millennials. And they don’t subscribe to the all-encompassing, “games-as-reality” worldview that many Millennials do.

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In addition to being dominated by the young, gaming is also a predominately male pastime. The same Pew Research report shows that more than three-quarters of 18- to 29-year-old men (77%) play video games, compared to just 57% of 18- to 29-year-old women. Even among those who play video games, men are more serious about their habit: Fully one-third of 18- to 29-year-old men (33%) call themselves “gamers,” compared to just 9% of 18- to 29-year-old women.

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Let’s now turn to the broader, society-wide effects of the esports explosion.

We’ll start by addressing one common complaint that many people have about video games, which is that they are holding Millennials back. Critics say that young adults, particularly young men, are too attached to video games—and that this gaming addiction is keeping them out of the labor market.

This isn’t a fringe argument. Labor economists have been puzzling over declining prime-age male labor force participation for some time. (See: “The Missing Male Worker.”) And many have pinpointed video games as the root cause. A recent NBER paper found that hours spent at work plunged 12% among 21- to 30-year-olds from 2000 to 2015, while falling just 8% among 31- to 55-year-olds over the same period. The researchers explicitly mention that rising time spent with technology “explains” most of this gap, the implication being that Millennial men are playing video games instead of working.

But this reasoning may be confusing correlation with causation. There’s little to suggest that most Millennials are choosing to play games instead of work, only that they’re filling their newfound leisure time with video games. Factors like structural shifts in the economy away from (male-dominated) blue-collar professions and the rise in DI benefit payouts are far more plausible explanations for the drop-off in hours worked.

Moreover, the issue of low Millennial labor force attachment itself is rapidly turning into a moot point. As of March, the U.S. age-adjusted employment-to-population ratio has risen significantly above its pre-recession peak, with the 25- to 34-year-old ratio hitting its highest level since June 2008. (See: “Millennials Get Back to Work.”)

In fact, rather than holding us back, video games may be making us smarter. Recall the famous Flynn effect—the discovery that IQ scores tend to rise with each successive birth cohort. One possible explanation, floated by James Flynn himself, is that society today demands far stronger cognitive problem-solving and reasoning skills than it did a century ago. In conjunction with (and in response to) the increasing gamification of our world, humanity is getting steadily better at interacting with the world in a left-brained, menu-driven, task-oriented manner.

Video-game culture may be especially helpful to Millennial men. Gaming and esports may ultimately help today’s young males rediscover a collective sense of self-worth and competence. Much has been written about how modern manhood has been thrown into crisis by factors such as the decline of the manufacturing economy, the rise of “victim culture,” and the growing mismatch between manhood and acceptable social norms. The world of online gaming may end up becoming a haven in which Millennial men can express their emotions, enjoy their passions, and (for the high-skilled) even make a living.

Of course, not everyone will see it that way. One growing criticism of the gaming industry—and the “gaming culture” it fosters—is that it is dominated by men and therefore promotes or at least condones rampant misogyny and sexism. Women made up less than one-quarter of game developers in 2016. And those who do hold prominent positions within the industry have been the target of online trolls: Consider the much-publicized “Gamergate” controversy of 2014, in which female game developers and journalists were the victims of harassment, doxing attacks, and even death threats.

Companies are beginning to act on these threats. Sony recently imposed stricter limits on sexually explicit content for future PlayStation games. Meanwhile, streaming sites like Twitch and YouTube Gaming have taken steps to eradicate misogyny on their platforms by improving their moderation technology. These companies understand their customer base: Most Millennial men do not want to join sites that tolerate abusive putdowns that target a player’s real-world identity. In gamer space, only one thing should matter: your performance.

Still, there’s no denying that if esports showcases the cutting edge of gamer enthusiasm, that cutting edge is mostly masculine. And to that extent, esports may indeed provide the essential ingredients—guys willing to dedicate their lives to competitive excellence—that have historically been necessary for a new sport to attract big money from fans, sponsors, and gamblers.

Only time will tell if esports does someday become as popular as today’s “major league” professional sports. But if it does, it may say something interesting about how our society is changing.

Think about it. Across the centuries, a society’s most popular sporting obsessions tend to reflect its civic culture and the values of its people. Sports can reveal everything from a society’s moral fiber to its economic standing.

The Olympic Games in ancient Greece was an aristocratic competition in which a prize or “athlos” was awarded to the most excellent “athlete,” in line with Aristotelian theory of virtue ethics. The violent spectacle of gladiatorial combat (“gladius” meant sword) showcased the martial prowess of Rome’s unstoppable legions, which recruited fighting talent in every corner of the empire. In late-medieval Europe, the jousting tournament enabled the landed feudal nobility to display their “chivalric” skills as armored cavalry.

By the twentieth century, popular sports became more democratic, less directly tied to warfare, and more nationalistic. In postwar America, the iconic sport of choice is professional football, a game that prioritizes teamwork, planning, territorial acquisition, and frontally battering your opponents. In the NFL, it is said, one can find everything that makes America what it is-- “the good, bad, loud, violent, ugly, and beautiful.”

Viewed through this lens, what would the rise of e-gaming suggest about how our national priorities are changing?

It would point to a society that cares less about strength, stamina, or physical violence. And more about intellect, creativity, and fine motor skills. That’s the nerds-over-jocks dimension. Teamwork and practice will continue to matter as much as they ever have. Ditto, apparently, for masculinity. As for the connection to warfare, this seems to be growing stronger again. Indeed, for a generation that seldom hunts and that has never seen subject to the military draft, Millennial males—thanks to video games—are astoundingly knowledgeable about weaponry (See “A New Generation Takes Aim in the Gun Debate.”)


Here’s how we expect the esports industry to evolve over the next few years.

Youth leagues and scholarships will create a reliable pipeline of talent. Many of today’s top esports athletes got into professional gaming by sheer luck or happenstance at a time when there was no formal mechanism for identifying and recruiting top talent. That is now changing. In the future, most gamers looking to join the pro circuit will need to rise through the ranks from an early age.

Super League Gaming, an esports company founded in 2014, runs national esports leagues for players in elementary and middle school. In the summer months, young gamers can ship off to an esports “summer camp,” where they will get firsthand tutelage on everything from player skill development to social-emotional learning. Once gamers get to high school, they can even attend sponsored networking events designed to match high school esports athletes with college programs.

Esports is coming to college campuses as well in the form of scholarships and regimented training programs. Ohio State University recently announced an esports program for its upcoming fall semester, accompanied by a new Bachelor of Science degree in game design and esports. Higher-ed institutions in countries from China to Norway have added esports to their official curricula. The NCAA’s Division II Peach Belt conference even announced a TV partnership with the College League of Legends. Of course, the NCAA’s strict rules on amateurism may make a more ambitious esports partnership a nonstarter—for now. Given the growing clout of esports, the NCAA may be forced to accommodate the esports industry, not the other way around.

Esports performance training will become big business. Not long ago, life as a budding esports star looked a lot like an episode of Silicon Valley, with team members living in hacker house-like bunkers and subsisting on fast food. Today, the leading esports teams offer accommodations and services that meet or exceed the standard set by traditional sports teams.

We’re not just talking about video game practice. Each member of Team Liquid is served personalized meals cooked by an in-house chef. To achieve peak performance, Spanish esports team Origen requires its players to participate in grueling physical workouts, travel by bicycle, and steer clear of unhealthy foods. Team members engage in trust-building exercises and attend sessions with a sports psychologist, no computers required. Origen also uses personality tests to ensure that recruits would be emotionally compatible with the rest of the team. At Frisco, Texas-based CompLexity Gaming, team members will soon train in an 11,000 square foot facility alongside the Dallas Cowboys.

In-person fandom will thrive. In-person esports events comprise just a small slice of the action today, with merchandise and ticket sales accounting for just 9.4% of total esports revenue. Moreover, most of these events take place not in dedicated esports stadiums, but in rented-out traditional sports stadiums.

But that may be changing. Comcast recently announced plans to build the first dedicated “home field” for an esports team, the (Comcast-owned) Philadelphia Fusion. The team, which competes in the Overwatch League, will soon host matches in a $50 million, 60,000 square foot arena situated in the heart of the Philadelphia Sports Complex—right next to stadiums belonging to the Eagles, Phillies, Flyers, and 76ers. Live esports has already become a staple attraction at casinos like the Luxor Las Vegas, which last year opened the Esports Arena Las Vegas, a 30,000 square foot complex that seats up to 1,500 spectators.

Esports and gambling are a perfect fit. The possibilities of in-person esports are endless—especially when combined with sports betting. At $6.7 billion annually as of 2018, the amount wagered on esports has already surpassed that of golf, tennis, and rugby. And experts estimate that this amount will more than double in just two years, hitting $13.5 billion by 2020.

To put that in perspective, the esports market itself just cracked $1 billion for the first time in 2018, making its gambling space more than six times the size of esports itself. This contrasts hugely with traditional sports, where total global revenue ($1.3 trillion) dwarfs its associated betting market (of around $200 billion). So anything that boosts sports gambling in general is likely to disproportionately benefit esports.

That “anything” may have just happened this spring, when the Supreme Court repealed the federal ban on online sports betting. Since the high court’s ruling, 15 states have already chosen to legalize it. By the end of 2021, Action Network projects that this number will rise to 35. The growth of online betting over the next few years offers a highly profitable opportunity to cement gambling as a crucial part of the esports experience.

Gambling is the perfect match for esports. It is conducted online, alongside the streaming of the event. And it attracts the same demographic: predominantly tech-savvy younger men with disposable income and competitive drive. In traditional sports, a long and rich history drives the excitement of teams competing for the biggest prizes. Fandom often stretches several generations and is deeply intertwined with a city’s identity and its families. Esports is different. The large viewer base finds its extra excitement in betting on popular athletes and teams.

Esports will increasingly compete with traditional sports and streaming entertainment. Questioning the dominance of battle-tested multibillion-dollar sports leagues like the NFL or the Premier League is rarely a good idea. But as we’ve often mentioned, advertising—which is how these leagues earn most of their revenue—is a zero-sum game. The amount that brands are willing to spend on all forms of advertising is inextricably tied to GDP growth.

Advertisers will increasingly ask themselves: If our target young-adult demo is as enthusiastic about esports as it is about traditional sports, why aren’t we shifting our ad buys? Last year’s YoY ad revenue decline shows that not even the NFL is immune to ad budget cutbacks. In addition to its disproportionate Millennial appeal, esports offers something else that traditional sports do not: year-round coverage. A brand that spends on esports advertising can get its ad copy in front of audiences all year. It doesn’t have to wait for the sport to be “in season.”

If traditional sports leagues are esports’ obvious competitors, streaming companies are its dark-horse competitors. In addition to competing for ad dollars, esports also competes for eyeballs and hours of the day. The time that consumers spend watching an esports match is time that they aren’t spending watching Netflix. The company recognizes as much: In its annual earnings report for 2018, Netflix executives remarked that, “We compete with (and lose to) Fortnite more than HBO.”

With so much money at stake, look for pro sports leagues and streaming companies to team up with, or even acquire, esports companies. The NBA is already riding the esports wave, partnering last year with Take-Two Interactive to launch the NBA 2K League, the first-ever esports league to be managed by a traditional sports organization. In the league, each of the 17 teams (which are affiliated with real NBA franchises) “draft” esports athletes to fill out certain roles on a virtual roster. The NBA raised plenty of eyebrows with its initiative. But in a few years, the organization’s strategy may look prescient.


The bad news for investors aiming to bet on esports is that many of the best pure plays are high-flying privately held companies (like Valve) with all the usual disadvantages such companies--high risk, no liquidity, cash-flow crises, negative earnings, and insider advantage. Or they are small divisions of larger public firms (such as Riot Games and Epic Games).

But that doesn’t mean there’s no way to invest in the space, only that investors need think strategically in terms of the positive and negative impact of e-gaming by industry.

In the table below, we classify the industry’s main players into four different categories according to their gaming exposure.

It’s Game On for Esports - chart9

The first category is direct positive impact. These companies are the closest one can get to a pure-play investment, as they are directly involved in esports and earn most (if not all) of their revenue from gaming. Here we find the big three U.S. exchange-traded game publishers: Activision Blizzard, Take-Two Interactive, and Electronic Arts. If you believe in the long-term future of esports and gaming, then these firms are worthy investments. Four gaming ETFs make this an easy option: ESPO, BJK, VIDG, and NERD. (A new ETF, HERO, says it’s an “eSports ETF,” but it holds basically the same firms as the others.)

The second category is indirect positive impact. While these companies do stand to benefit from the growth of esports, they are larger firms that earn most of their revenue elsewhere. Here we find console manufacturers Microsoft and Sony, as well as tech giants Amazon and Apple. Obviously, betting on any of these firms solely for their gaming businesses would be unwise—but gaming could be a tiebreaker for those debating whether to go with one of them.

The third category is mixed impact. The only firm in this category is Google, which stands at a unique crossroads. On the one hand, the company owns YouTube Gaming, a streaming platform that would benefit from esports growth. On the other hand, any time that consumers spend gaming (or watching game streams) is time that they aren’t spending on YouTube proper.

The final category is indirect negative impact. These are entertainment firms that profit from consumers’ attention and lose out when their attention is pulled elsewhere. This category includes Netflix and Disney (the latter of which owns Hulu, as well as other streaming services like ESPN+ and the upcoming Disney+). One could also extend this category to include social media giants like Facebook and Twitter, which are equally reliant on attention dollars.