eSports: Show me the money

Everyone agrees: eSports is going to be the future of entertainment and it's going to be enormous. Every day we hear of yet another investment based on the premise that those pesky Millennials and their odd media consumption behaviors will finally be seduced.

But where is the money?

Let me rephrase that: after a slow and steady climb to general popularity, the enthusiasm around competitive gaming has accelerated recently. Games like League of Legends, CS:GO, Hearthstone, Dota 2 and Star Craft II have propelled things to the foreground, exposing publishers, platforms, and teams to sponsorship dollars. We're seeing a frenzy of activity but what, exactly, is the revenue model?

As an industry, we're going through a period of increasingly irrational exuberance: mostly without a clear path, a growing number of companies are sinking money into eSports. Recent reports from across the industry all point to the golden mountains just around the corner, which we will allegedly miss out on if we don't invest n-o-w.

Part of it comes from the moves taking place at the top. Overwatch has landed with a bang and managed to quickly penetrate the closed circle of gaming culture. With an array of additional content and cross-platform activity, audiences have taken a liking to the new game, resulting in 25 million registered players. Our own estimates show that across console and PC, the game has 11.4 million monthly active players. What makes the game unique is the accompanying ambition to become a leading eSport.

"eSports suffers from a data problem. The top of the market is held by a handful of companies that have never been eager to share any information"

Confronting declining viewership in traditional sports leagues and a broader exodus of especially young audiences from good old-fashioned television, brands and sponsors are eager to get in the pool. And given that among eSports viewers, one-in-four does not have basic cable, it is clear that there is something to be gained from making competitive gaming the new thing to watch. The headlines practically write themselves. But in a burgeoning, volatile market like eSports more than a few things are obfuscating the difference between hype and honesty.

First and foremost, eSports suffers from a data problem. The top of the market is held by a handful of companies that have never been eager to share any information. As a publicly traded firm, it is never in the interest of a company like Activision Blizzard to unnecessarily share information. Twitch similarly distributes only piecemeal information because of its market position--it would be illegal, for instance, to provide an audit on major competitions hosted by event organisers--and because it, too, suffers from some reporting inaccuracies. Viewbotting continues to be a huge problem for streaming platforms.

More broadly speaking, gaming videos and eSports are relatively new for platforms like Facebook and YouTube, and we've only recently started the conversation about how to define the key metrics in the space. What constitutes a viewer or a viewing session, to name an obvious example, depends greatly on whom you ask.

Secondly, as the financial interests around eSports grow, so too will companies be incentivized to create a picture of the market that serves their own interests. Precisely because eSports is still pretty much nascent, there isn't a lot of oversight and it is entirely possible that companies seek to maximize their returns without much care for the long-term repercussions on the overall industry. Insiders from the industry are increasingly speaking out.

From experience I know that financial firms are incredibly excited about eSports: many analysts find themselves able to personally re-connect to gaming and combine it with their day job. Culturally speaking, the people tasked with evaluating eSports at large financial firms and media companies are disproportionately incentivized to see its future as too rosy. Obviously an emotional connection isn't a strict conflict of interests, but it can make you overly optimistic. Playing and the cultural habits around games have always been a deeply irrational human activity.

Yeah, sure, but what about all those famous athletes investing? Besides the fact that a few million (if that) isn't a big deal to them, professional athletes tend to be highly competitive in almost everything they do and many of them are avid gamers. So buddying up with an eSports team is a natural fit: they think alike. More so, considering the disproportionate amount of press that these investments receive in mainstream media, it is a great way for retired athletes to stay relevant and increase the value of their endorsements. Remember: the life-cycle of a professional athlete is really short, and following retirement it can be a continuous downhill slide. Latching on to something that reinvigorates their presence in exchange for lending validity to a new phenomenon is a clever way to stay relevant and keep those ad dollars coming.

So, what then?

eSports isn't emerging in a vacuum. It should be thought of as a component of a broader shift in the way that audiences consume digital content. In the games industry the revenue coming from traditional product sales is decreasing rapidly. Instead, game companies are exploring traditional viewing models to acquire, retain, and monetize their audience. No fewer than 666 million people worldwide regularly watch gaming video content.

"The current revenue model is still largely meaningless and investments focus on short-term gain. After several decades of slow and steady growth, it's only just now started to come into the mainstream"

Despite this, the current eSports landscape continues to be modeled after a homogeneous notion of what constitutes a gamer. Among the various available channels where people watch gaming-related videos and live streams, the ones that center on eSports still largely skew male.

Another key question that hasn't been answered yet is whether eSports is going to be a business all of its own, or serve as a complement to the existing service-model games business. Does a $120 billion industry really need to make a profit off a segment that is currently worth less than $1 billion? Why not leverage the broadcasting of tournaments as a way to deepen the relationship with the playerbase? Particularly since publishers hold all the cards, it is their interests that will have priority over everyone else's. And what's best for publishers is a happy and engaged consumer audience.

So the correct path for eSports and all of the commercial energy behind it, should be a focus on the fans--not the teams, not the publishers, not the platforms, not the brands. Because all of them will earn exactly zero if they manage to suck the life out of the ecosystem before eSports truly catches on.

The answer to the question "Where is the money?" is that the real value of eSports sits with the fans and therefore has to be slowly cultivated and grown. If this is going to become a long-term sustainable industry, we will have to invest in it with a long-term vision. More so, it cannot be engineered with a massive injection of cash: give the fans the opportunity to take ownership, not just by buying a jersey, but by being able to connect with their idols and each other. As headlines carry a message of enormous global digital audiences, the heart of eSports beats in the events in between the majors.

The current revenue model is still largely meaningless and investments focus on short-term gain. After several decades of slow and steady growth, it's only just now started to come into the mainstream. And that just means that the real work is beginning.

Now comes the true test of how we maintain integrity in this industry. Only by emphasizing the experiences for the player and spectator will we be able to capture the value that eSports promises.

So for the love of the game, don't let the money men main Hanzo.