Gaming Outlook 2020: Esports Teams Looking for Branding Profits

- December 31st, 2019

INN turned to experts in the market to get a sense of what’s in store for investors looking to plug into the gaming industry in the new year.

Click here to read the latest gaming outlook.

Gaming and the esports industry — characterized by massive video game tournaments — saw unprecedented growth in 2019 as investors recognized opportunity.

Now, heading into 2020, the gaming sector is poised to further shift into a lucrative market as increased interest supports the growth of players in the space.

Here the Investing News Network (INN) turns to experts in the market to get a sense of what’s in store for investors looking to plug into the esports industry in the new year.

Gaming outlook 2020: A closer look at the numbers

The esports industry is looking to capitalize on a successful 2019 moving into 2020 and beyond.

In its 2019 global games market report, gaming research firm Newzoo states that the international gaming market could be worth US$196 billion by 2022.

Mobile games in particular are projected to generate US$95.4 billion by 2022, driven primarily by smartphone activity. Cross-platform titles such as Mario Kart Tour on iOS and Android, a general increase in smartphone users and improvements to hardware and infrastructure are factors that will lead to the projected growth, according to the firm.

The console segment, on the other hand, is set to reach US$61.1 billion in 2022, Newzoo estimates, boosted by the upcoming generation of Xbox and PlayStation systems, created by Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE,TSE:6758), respectively.

PC gaming will be a bit slower in the coming years, according to the researchers, though it is gaining traction and could be valued at US$39.5 billion over the next two year period.

In a previous interview with INN, Erik Dekker, senior vice president and portfolio manager with Dekker Hewett Group at Canaccord Genuity, said, “Gaming is bigger than film box offices, bigger than television, bigger than digital music. I think it’s about a US$116 billion market at this time.”

Gaming outlook 2020: The growth of team organizations

In esports, organizations like Team Liquid and OG are big generators of cash for the industry. Team Liquid, which has teams in many of the top esports leagues, currently has a merchandise collaboration with Marvel, and OG just announced a Counter Strike: Global Offensive team following its big Dota 2 win.

Team support and attachment have been reflected in the sheer amount of interest in gaming tournaments, another important revenue stream for esport companies.

In August, the Dota 2 The International 9 tournament had the world’s largest prize pool in history at a whopping US$34.3 million in winnings, and OG took home the top prize.

But organizations are evolving to rely on more than just their athletes and tournaments — instead, they’re taking a holistic approach to branding and maintaining a public image.

“It’s going to ultimately come down to teams that can create brand lifestyles, create great content programming and diversify the revenue streams to find more profitability,” Daniel Mitre, CEO of New Wave Esports (CSE:NWES), told INN via email.

Mitre said the impressive growth of the sector has already led heavy hitters in gaming to throw their hats into the ring. The executive explained that companies like Activision Blizzard (NASDAQ:ATVI) and Riot Games, a subsidiary of Chinese conglomerate Tencent (HKEX:0700), have carefully crafted plans attached to their esports franchises and leagues.

“None of this movement around big games, AAA publishers and developers is coming to a slow,” said Mitre. “In fact, it’s just going to start picking up further.”

This sentiment was shared by another expert in gaming who is optimistic about the market’s trajectory.

Haywood Securities investment banker Sean MacGillis said the skill of the gaming industry is in the flexibility of its revenue channels, which include everything from merchandise and ticket sales to advertising and sponsorship revenue.

“The ability to monetize games is an order of magnitude larger than the ability to monetize traditional forms of content,” MacGillis explained.

Gaming outlook 2020: Possible concerns in the new year

Some experts have noted possible pitfalls for the industry, despite its recent levels of success.

For Nick Mersch, associate portfolio manager at Purpose Investments, the biggest risks for the space could come with the hypothetical collapse of the Overwatch League, one of the biggest leagues in the sector. Mersch said a downturn for the league could turn off existing and prospective investors.

“A lot of traditional sports owners wrote huge checks into teams in this league, and if they get burned here it will be difficult to attract capital back to the space,” Mersch told INN.

According to a report from Variety, viewers for the Overwatch League Grand Finals grew by 16 percent in 2019, with the event reaching 1.12 million average viewers.

Mersch said he’s also keeping his eye on the overvaluation that has plagued esports, pointing to a recent Forbes list ranking “the most valuable companies in esports” that still seems to exaggerate the values of some organizations on it, according to the expert.

Other concerns have larger political implications. The ongoing US-China trade war dampened the growth of the sector, according to Trevor Doerksen, CEO of ePlay Digital (CSE:EPY), and could continue to do so into 2020, especially given China’s place as one of the world’s largest hubs for gaming.

In 2019, it was projected that US$36.5 billion was spent on gaming in China, according to Newzoo.

“Geopolitical forces and the US-China trade war muted global collaboration and access to markets, and important data that would help better understand and grow esports in 2019,” said Doerksen.

The executive said there could be better access to content, games and data across both markets if the relationship between the two countries improves in 2020.

Gaming outlook 2020: Investor takeaway

Mersch said moving forward, the most important factor for gaming will be the work done by data firm Nielsen, owned by The Nielsen Company (NYSE:NLSN), in its esports division, which works to get accurate information on engagement and viewership data.

In his view, Nielsen’s work could help close the existing gap between how the industry is growing and how it’s monetizing that growth, Mersch told INN.

“To close this gap, Fortune 500 companies need actionable return of investment metrics in order to justify more (spending) in the space. Nielsen and other data analytic companies can provide this.”

In terms of the overall health within the sector, Mitre told INN that the increasing popularity of gaming and its viewership will help in building a strong foundation for an interesting investment market.

“We’ve always had this propensity to watch people play better than us, whether it’s standing at the arcade and watching someone play Street Fighter, or the emergence of a Twitch and YouTube influencer space watching other people play video games,” said Mitre.

Don’t forget to follow us @INN_Technology for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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