- Lockdown has fuelled short-term growth for esports, while devastating real sports
- But the video-gaming boom is likely to continue after the pandemic, as traditional sports leagues invest in esports to draw in younger fans
Ibai Llanos is not like other football pundits. The 26-year-old social media star has little professional experience in the sport; instead, he rose to fame commentating on video-game tournaments, known as esports.
But Llanos was the voice that Spanish football fans heard when they tuned in to last week’s clash between local rivals Real Sociedad and Athletic Bilbao, the first La Liga match to be shown live on Twitch – an Amazon-owned (US:AMZN) video-streaming platform that usually broadcasts esports competitions.
The decision by Spain’s top football division to hand match coverage to Llanos, who has 5.7m followers on Twitch, was the latest sign that sports leagues are increasingly worried about losing the next generation of fans; they know that many kids today are more interested in professional gaming than football.
Although watching other people play computer games may not seem entertaining to most, there is a rapidly expanding market for esports. In 2019, about 443m people watched esports across the world, according to data provider NewZoo. Most of them were under the age of 35.
Growth in the sector has only accelerated during lockdown, as people kill time by playing and watching video games. Typically taking place in huge stadiums in front of thousands of fans, international tournaments have transitioned seamlessly to streaming on Twitch and Alphabet-owned (US:GOOGL) YouTube. Some 22,311 games were played on Twitch last week, compared with 15,397 during the first week of April 2020 and 12,928 for the first week of April 2019, according to TwitchTracker.
It has been a very different story for real-life sports. From the Olympics to Wimbledon, the world’s biggest tournaments have been cancelled or postponed since the outbreak of the pandemic, prompting the sponsors that many organisations depend on to withdraw spending. Last week, the Premier League, the Lawn Tennis Association, the Rugby Football Union and others sent a letter to politicians warning of a “financial crisis” in sport. With no clear return to normal in sight, has esports emerged as a better bet for retail investors?
Esports stocks race ahead
The diverging fortunes of esports and real sports have played out dramatically on the markets. Shares in top-flight football teams plunged as fans were locked out of stadiums, squeezing income from ticket sales; the share prices of Manchester United (US:MANU), Celtic (CCP), Borussia Dortmund (DE:BVBX) and many more have each fallen at least 17 per cent since the start of last year.
The market value of companies linked to the burgeoning esports market, meanwhile, has soared. Shares in Activision Blizzard (US:ATVI), which produces games including Call of Duty and World of Warcraft, are up almost 60 per cent. The share price of Sea (US:SE), which publishes one of the most popular esports games, League of Legends, has surged 444 per cent. Companies like these have capitalised on both the rise of esports and the broader gaming boom during lockdown; as well as selling video games, they also own the international tournaments for their respective titles.
The range of companies benefiting from the burgeoning esports market is broad; a Global Video Gaming and Esports index compiled by MV Index Solutions includes businesses from video-game producers to console-maker Nintendo (JP:7974) and graphics-chip firm Nvidia (US:NVDA). Fund manager VanEck sells an ETF that tracks the index; it is up 58 per cent over the past year.
“The concept to me was initially strange. Why would you watch someone play a video game?” said Martijn Rozemuller, head of Europe at VanEck. “But [my sons], they really appreciate someone being able to play that game at a higher level than they can... To them this is just as real.”
Despite the huge growth during lockdown, esports’ popularity remains minuscule compared with real sports. Data compiled by VanEck found that just 3 per cent of the world’s population watch the former, compared with at least 61 per cent for the latter. But that only makes esports a more attractive investment, according to Rozemuller, as there is “more potential for growth”.
Playing to stay relevant
Many traditional sports leagues, unable to compete with esports over the past year, have jumped on the bandwagon.
Barely a week after the World Health Organization declared a pandemic, Formula One launched a Virtual Grand Prix series, in which real-life drivers lined up against celebrities on the F1 video game. A month later, Wolverhampton Wanderers were named winners of the ePremier League, after Wolves striker Diogo Jota defeated Liverpool’s Trent Alexander-Arnold on the Fifa video game, in a final watched by nearly 237,000 people on YouTube. Fifa itself reported that 60 per cent of its income in 2020 came from brand licensing, a key source of which is the game produced by Electronic Arts (US:EA). That compares with just 21 per cent in 2019.
The market share will shift back to real sports once the pandemic ends. But as the younger generation comes of age, the sports establishment is likely to continue investing and fuelling growth in esports for years to come.
“The idea of watching other people play video games was laughable for the mainstream. It is no longer a joke,” said Carleton Curtis, executive chairman of Guild Esports (GILD), an esports team co-owned by David Beckham. Traditional sports leagues are investing in esports “mainly because they are terrified of their current audience ageing out. It is a play to stay relevant”.
