What do you think about when you hear the word athlete? You probably think of Usain Bolt, Ronaldo or Serena Williams. We think of individuals who push their physical bodies to the peak of performance and undertake feats of amazement to win prizes in sports that have been a cornerstone of our societal culture and entertainment. What you probably didn’t think of was a gamer, sitting in a comfy chair and mashing buttons strategically to win huge multi million dollar prize pools. Sounds absolutely crazy right? But this is actually the way gaming has changed sporting culture around the globe. E-sports has had a meteoric rise in our lives over the past several years and a whole separate culture has developed around it. Let’s take a deeper look at the trends driving this growth, and where we might go.
Written by: Tanay Sonawane and Jonathan Ouyang
Increased Popularity and Mainstream Acceptance
Long gone are the days when gaming was seen as a nerdy fringe element of society. Gaming has now become a key element to the childhoods and adolescents of millions of people around the globe. Viewership of E-sports has been on an upwards trajectory for years and is expected to grow even more. By 2025 the Compound Annual Growth Rate (CAGR) for eSports enthusiasts will be approximately 8.0%.
Such growth has propelled E-sports to a key entertainment source for millions around the globe. While a significant portion of this growth is driven in Asia, especially China, we also have seen the rise of E-sports startups in the UK which have reached global prominence. For example, Fnatic has built one of the largest E-sports brands in the world; FACEIT has been a major facilitator of gaming leagues across the world and Midnite has carved out a highly successful betting firm specialising in E-sports.
Increased Investment
The amount of funding provided by investors to eSports firms has seen encouraging growth globally with $4.5 billion invested in 2018, as well as 103.1% growth delivered between 2014 and 2018. VC Involvement within the sector has been significant too and has even been instrumental in creating VC firms that specialise in gaming and esports, such as BITKRAFT and Dune Ventures.
Such growth in Investment across E-sports has transformed what it means to be an E-sports player, with multi million dollar prize pools and huge brand deals. In 2021 the largest E-sports prize pool of all time of 40 million dollars in the international Dota 2 championship was awarded, and brand deals between players, teams and companies - including big names such as Mercedes Benz, RedBull and Intel. This increased investment certainly looks very promising, and investors should pay real attention to this sector because of it.
Regional Growth
With the rise of entertainment technology and popularity in video games, it is no secret that the E-sports industry in the UK has embarked on a remarkable growth trajectory, with all markers pointing to a bright 4K UHD future. By the end of 2023, it is expected that the UK E-sports market will reach US$202.3M, with a CAGR of 8.43% from 2023 to 2027. Subsequently, this would result in a projected market volume of US$276.9M by 2027.
A large portion of this growth can be attributed to E-sports betting, standing as the largest segment within the E-sports market. It is estimated that E-sports betting in the UK alone is expected to reach a market volume of US$152.1M by the end of 2023. However, the UK betting market is dwarfed when compared to the US, where it is projected that the market volume will hit US$8710M in the same period. Startups in this vertical like Unikrn and Midnite are performing especially well.
In addition to betting, the user base for the industry in the UK is also on the rise. By 2027, the UK user base will reach 22.9 million users. To put it another way, the user base penetration rate will increase from 27.1% in 2023 to 33.2% in 2027. This encapsulates an exciting prospect for the industry, since the average revenue per use (ARPU) is expected to grow to US$110.4. With a sky-rocketing user base, one should expect good news to ensue for the overall industry. Such growth provides significant profit opportunities in a market which is yet to be fully explored and is in its infancy. The possibilities are endless and it will be very interesting to see how sports betting evolves differently in E-sports compared to more traditional sports.
Regulation and Governance
Growth is not without its barriers though. The recent investments, especially by foreign governments outside of the West, have brought about some challenges of ethical considerations and governance.
In particular, the Saudi Arabian government’s monumental investment in the E-sports industry, acquiring major tournament operations such as ESL and Faceit, have provoked some debates within the overall community. To provide a little more information before we dive into the debate: the deal, worth US$1.5B is expected to be the beginning of Saudi Arabia’s ambitious investment in the E-sports universe. The kingdom is planning to invest a total of US$3.8B in order to transform the nation into a global E-sports hub by 2030.
Debates arose when political dynamics came into play, especially some concerns from western nations regarding Saudi Arabian political activities. To be specific, Saudi Arabia has been criticised of “sportswashing”, in which they utilise a strategy to invest heavily in popular sports in order to divert attention away from other existing issues. It is perhaps fair to say that the E-sports world is divided on this issue, with some welcoming the investment as a catalyst for growth, while others, especially those who invest with certain lenses in place, avoid involvement.
Needless to say, the industry will need to aptly address these issues if sustainable long-term growth is desired, whether that be facilitating healthy dialogue with the host countries, or putting in place adequate regulations and other rules of law able to ensure a level of confidence, inducing participation.
Conclusion
E-sports certainly looks promising, its increasingly mainstream nature, growth in investment and especially growth in the UK makes it an attractive area to invest in. While political and regulatory tensions might be causing flex in the industry, it certainly should still be one to watch out for! We foresee E-sports being a significant cultural turning point across the world and even in the UK. The market opportunities that are present give investors and founders the chance to really make a mark not just on a very infant industry, but to really make a mark on society too.
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