The eSports and video gaming market have already outpaced their contemporaries in the film and music businesses with what is expected to be a $300 billion annual industry by 2025. So, it seems ironic that investors are slow to catch on.
That’s according to portfolio managers who think the industry has plenty of room to run. Especially since it continues to grow in the double digits. Or more simply put, market watchers believe that the growth and success of video gaming and eSports is not just another bubble.
The eSports industry is being dominated by big companies looking to develop the industry’s reach and player interaction such as Allied Esports Entertainment, NetEase and Electronic Arts Inc., alongside other companies that are aggressively building platforms and infrastructure.
Innovative new companies in the industry, like Versus Systems Inc., are adopting changes that are helping to transform the business. Versus Systems has set its mission to offer real-world product prizing for players in-game. The company operates a business-to-business software platform that game developers and publishers use to create prize-based matches to players. The Vancouver-based company is establishing a niche unlike anything in the marketplace.
Just How Big is Big?
It’s hard to get a grip on just how big the eSports and gaming market has become. As an example, the world championship finals for the online battle arena video game League of Legends attracted twice as many viewers as Super Bowl 52 in 2018. Likewise, the fan base is enormous, with the massive gamer audience for the Amazon-owned video streaming service Twitch second only to Netflix, based on minutes per user watched.
It makes sense then that the industry would be attracting all kinds of investors. The thing is, it’s really not – at least it hasn’t been so far. Portfolio managers and analysts have pointed out that investors, like most of us, are “newbs” in this space, and so we have little or none of the experience that would allow us to invest in the growth companies.
“To me, it’s one of the most asymmetrically priced risk profiles in a lot of equities right now. Just because there’s not a lot of attention being paid to it,” states Nick Mersch, a manager of a global investment portfolio heavy into the eSports and gaming space.
“There are so many future monetization possibilities that it just has nowhere to go but up.”, he says.
The pros have pointed to three main areas where investors can position themselves in this dynamic and fluid market; through publishers, through teams and via the technology.
“If you can gauge community interest around the titles and look at the release schedule, you can tie in some of their earnings,” Mersch said.
For most, that would mean backing giants like Chinese juggernaut Tencent. They are the owner of such monster franchises as League of Legends and Fortnite, as well as the mass Chinese messaging, social media and payment app WeChat. Of course, Tencent is already capitalized at over $400 billion, so you are hardly looking at early stage.
On the other hand, investors could seek eSports team play. These are like traditional sports franchises, complete with sponsorship deals, advertising and player contracts, as well as media agreements. Getting a piece of these players is much more complex for the average investor thanks to the significant private ownership that dominates the group.
Technology a Simple Play in Gaming
The technology that drives eSports and gaming may be one of the easy entry points for early investors. Companies like Versus Systems are using new approaches, such as the company’s WINFINITE platform to kick up revenue. Game developers and publishers can now use the Unity engine to offer players in-game contests, as well as sweepstakes. Versus System stands to generate returns on signing licensing deals as the platform continues to elicit strong demand with game publishers and developers.
One of the early adopters is HP, Inc., who just announced they will integrate WINFINITE technology into their products. Versus is powering OMEN Rewards, a real-world prizing platform built into OMEN Command Center and available for download by any Win10 PC via the Windows Store.
Versus Systems has also inked a strategic partnership with Ludare Games Group. In its agreement, Ludare plans to integrate WINFINITE platform on its upcoming games, including popular augmented reality games.
Versus expects to expose WINFINITE to as many developers and publishers as possible. That’s why they entered into a marketing agreement with Los Angeles based Radley Studios. The high-profile marketing partner is responsible for introducing the WINFINITE technology to major entertainment, media and advertising adopters.
Finding Niches May Also Mean Thinking Outside the Box
Portfolio manager Mersch also suggests that investors may have a larger range of options as an influx of gaming properties from the United States follow in the footsteps of U.S. cannabis producers. That group had successfully used reverse takeovers to list on Canada’s junior exchanges with the strategy to up-list to a larger board.
There are also a number of existing companies, like Versus Systems, that originate in Canada and then co-list over the counter in the U.S. This is a great place to seek out competitive new brands and technology companies that have captured the interest of the larger gaming industry.
If eSports and eGaming reach the kind of massive revenue numbers the current data suggests, some of these newcomers may become the future giants of the industry that come to define the future of gaming, game play and monetization models. Companies already seeking to take the active lead in this sector include:
Allied Esports Entertainment, the creator of esports venues and live events for both video games and poker, has gone public in a transaction with Black Ridge Acquisition Corp. Allied Esports International and WPT Enterprises, will become Allied Esports Entertainment. Allied Esports Entertainment is known for creating the Esports Arena at the Luxor Hotel with MGM Resorts International in Las Vegas, and for its World Poker Tour events.
NetEase plans to invest over $ 725 million in building an e-sports park in Shanghai, according to an announcement at the 2019 China Digital Entertainment Congress (CDEC) on Saturday, effectively doubling down on efforts to develop a complete e-sports ecosystem to rival Tencent.
Electronic Arts Inc.’s game portfolio strength has been its major growth driver in recent times. The company has a strong slate of game releases lined up for the fall game rush including the recently unveiled Need for Speed Heat. The latest title in the popular racing franchise is scheduled to be available from November on PC, PlayStation 4 and Xbox One.