Why I'm not worried about the future of esports
An arms-race to attract the next generation of gamers is the ultimate incentive for game publishers to divert their immense revenue into esports.
The iTero Update
On Wednesday night we hit our 100,000th download! A crazy achievement given the small team and the fact we’ve only been live for 6 months.
We’ve been making some initial design decisions for the AI Coach. We’re not committing to anything just yet as it’s important we understand more about the model architecture first, however that doesn’t stop us choosing some colour schemes and designing a few likely graphs and graphics.
I spent far too many hours last week watching code run. A full start-to-end update can take over 30 hours. Imagine how hard I kick-myself when I realise I made a mistake and need to start it again.
Why I'm not worried about the future of esports
Esports is dying. A wounded soldier on the battlefield of industry, slowly bleeding out towards its inevitable end. A fate the same as those abandoned NFT projects of 2021. If you are still in doubt, look at the facts:
FaZe went from a market cap of over $1 billion to a measly $33 million in less than a year (source).
TSM, a legendary organisation within esports, is rumoured to be selling their League of Legends spot (source).
Many teams have begun considerable lay-offs this year, such as 100 Thieves (source).
All looks bleak and hopeless for the future of esports.
…or, does it?
You see, there’s one small, tiny, little aspect that often gets ignored. Esports is immensely profitable. To demonstrate this point, I will draw comparisons to the most obvious link. The economic benefit of primary school teachers.
Countries are sort of like companies. They want to be as profitable as possible, which they sort of measure through Gross-Domestic Product (GDP) growth. Let’s say that a UK-based tech consultancy sold a $10 million contract to a US-based company. There are some very tangible benefits to the UK. It’s $10 million out of the US and into the UK, great. The company pays taxes on the profits, and the employees working the contract will get paid, part of that will also be taxed and a good portion of the rest they’ll spend at home.. with tax. It’s all very real and measurable.
Now, let’s take a primary school teacher. A job that is grossly underappreciated, both financially and socially, in the UK. The problem is, their entire economic benefit is intangible. Due to some (probably sensible) labour laws, we as a country can’t yet juice these 8 year olds for economic gain. However, it should be quite obvious to everyone that having 18 to 21 year olds entering the work force with the ability to read, write, socialise, debate, colour-in and occasionally code is beneficial to the country.
Primary schools, like esports, run at an apparent loss. You build schools and pay teachers, yet these kids can’t even build one iPhone between them? On paper, this is a terrible investment. Similarly, you host tournaments, pay players, and apart from some marginal advertising revenue, this whole esports business is completely in the red.
Except that those 8-year olds are turning into economic workhorses, eventually paying far more in taxes than their poor teachers ever get to see. Equally, those gaming tournaments are driving engagement and spending within those games far beyond what the teams will ever get out of it!
The video game industry is a behemoth. A $300 billion behemoth at that. Although not publicly available, Riot’s revenue is reported to be in the range of $1.8 billion (https://levvvel.com/riot-games-statistics/). That will be mostly attributed to either of their competitive titles; League of Legends (including Wild Rift, the mobile version) or Valorant.
Although I cannot justify it statistically, I know anecdotally that esports is the reason that I have come back to their games year after year. I became invested in the stories of the teams and players; I watch the games, and my desire to play the game is reignited. I have a friend currently backpacking across South America who watches esports from his phone in the evenings and says he has to fight off the temptation to fly home just to join us for a Clash tournament.
Now, if I make the bold assumption that this is a feeling that is more widespread than just my group of friends, then we can start to argue that esports deserves a much larger slice of the gaming pie than it currently gets.
Up until now, publishers haven’t had to do too much to correct this gross imbalance. The whole industry has been propped up with investment money that assumes that eventually it’ll work out a path to profitability. The reason we’re seeing a sudden influx of the “esports is dying” narrative has nothing to do with the real growth of the industry. Investors both overinflated the valuations and blurred the Profit & Loss statements, which slowed what would have been a natural shift for game publishers to invest in esports themselves by giving the industry a cut of the benefit on their own revenue.
If anything, the decrease in free-flowing investment capital will be beneficial for esports. At a minimum, it’ll become easier to see what is actually working. My hope, however, is that it will force a seismic change in how the industry operates. A move from “gaming” here and “esports” there to a combined industry where one supports the other.
I am, in fact, confident that this shift will occur. The rationale for this, brings us back to schools. When I was growing up in the UK I had a choice between two sports; rugby or football. I chose “World of Warcraft”, but most of my friends went with football. For this, I believe there are three main reasons.
Football is the most-watched sport.
It has the best grass-roots scene.
Football players live glamorous lives.
You get home from school and watch Chelsea play Manchester United with your dad. Your friends do the same, and you talk about it the next day. On the weekend, you go to your local football club to play for the under-11s team. You see Ronaldo in the news with his model girlfriend and sports car. Which game am I going to ask my (underappreciated) teacher to play at Physical Education on Monday? What type of ball am I asking my parents to buy me for my birthday? What do me and my friends do on the weekends? These early decisions will drive a lifetime of behaviours. Rarely does a 30-year old hang up their favourite team’s football jersey and say “Football just isn’t for me, I really quite fancy getting into hockey”.
This is something that game publishers are coming to appreciate. Which brings us back to the main point. I am confident in the future profitability of esports because we’re entering into the ultimate gaming arms race. League of Legends and its fellow MOBAs have likely had their day and I would make a sizeable bet to say in five-years time the most played competitive game will be either Valorant or Counter-Strike, if we measured purely as the size of the active player base. The type of gamer they are looking to attract is almost identical. It’s one hell of a prize, and they’re both fighting tooth and nail to get it.
It is my belief that the winner of this head-to-head will be the title that best leverages esports. The game that gets the most eyes watching their events on the weekends, builds the best grassroots ecosystems, and tempts the most influential players over to their side. They are the one who will go on to dominate this multi-billion dollar market for years to come.
This is a trend we are already seeing. CS:GO allows teams to create their own skins and profit off the sales, while Valorant sold Championship bundles and contributed the revenue to the prize pools. I still believe this is only the start and there is much, much more to come.
However, there is somewhat of a Catch-22. If we are collectively optimistic for esports because we believe game publishers will start diverting some of their revenue towards it, then investors are again incentivised to return en masse. If investors return, the requirement for publishers to divert revenue decreases since everything seems to once again float on its own accord. So, instead, I suggest we all remain publicly bearish yet privately bullish. If I were an investor, I’d be 80% invested in publishers to then hedge a 20% bet on esports; expecting that latter part to be a loss-maker to the benefit of the former.
As a final note, even if I am entirely wrong about everything; there is one undeniable fact. An industry only dies when there is no demand left for it. So, as long as we all continue to want it - esports will always be there for us.