Like most people, you may not have been aware that one of the most anticipated and biggest eSports tournament, the League of Legends World Championship Finals (LoL Finals) happened just this past weekend. In comparison to its inception in 2011 where the LoL Finals attracted a little over 1.6 million viewers, the 2017 LoL Finals was held at Shanghai's "Bird's Nest" National Stadium (where the 2008 Olympics were held) and attracted over 73 million viewers. The eSports industry is taking the world by storm as it crowns itself as being one of the fastest growing industries in the world.
What are eSports?
eSports are multiplayer video game competitions that have grown in recent years to attract tournament and league sponsors like T-Mobile, HP and Intel and drive companies like ESPN and Activision Blizzard to form an eSports division. Leading market researcher on eSports, Newzoo, valued the eSports industry to reach US $696 million this year and grow to US $1.5 billion by 2020. Goldman Sachs' valuation of the industry is similar and they expect the eSports market to grow at 22% annually compounded over the next three years.
To put the popularity and growth of eSports into perspective, more people watched the LoL finals in 2016 at 43 million viewers than the 2016 NBA Finals Game 7 at 31 million viewers. Furthermore, the prize pool for Dota 2's 2017 championship tournament grew to almost US $25 million compared to their initial pool prize of US $1.6 million back in 2011 and earlier this year, the NBA announced a partnership with Take-Two Interactive, a distributor of video games, to launch the eSports Basketball League for the NBA 2K game in 2018.
With growth comes opportunities
According to Newzoo, North America is the largest eSports market with revenues reaching $257 million in 2017 and forecasted to be more than double to $607 million by 2020. eSports M&A volume in 2016 year-to date more than doubled that in all of 2015 and Capital IQ's transaction data indicates that most of the activity happen in North America and Asia/Pacific (specifically in China). Some noteworthy transactions in the previous year include Microsoft's purchase of game-streaming service Beam Interactive Inc., Twitch's acquisition of communication platform Curse Inc. and their recent purchase of ClipMine Inc., and Activision-Blizzard's purchase of eSports digital network Major League Gaming Inc.
M&A transactions spread across several categories such as streaming and broadcasting platforms and services, content news, analytics, chat and voice communication services, eSports oriented social networks, league and tournament organizers and talent management. The success of eSports is largely attributable to its ability to capitalize on social trends (e.g. Millennials' hobby in playing video games and watching online content) and utilizing various established industries (e.g., brands, media, and entertainment companies) as pivot points to build its ecosystem.
Steven Bornstein, former CEO of ESPN and NFL network and current chairman of Activision Blizzard's eSports division believes "eSports will rival the biggest traditional sports leagues in terms of future opportunities and between advertising, ticket sales, licensing, sponsorships and merchandising, there are tremendous growth areas for this nascent industry."
The author would like to thank Jenny Ng, Articling Student, for her assistance in preparing this legal update.
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