Listen: Next in Tech | Episode 118: eSports and sports markets

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Eric Hanselman

Welcome to Next in Tech, an S&P Global Market Intelligence podcast where the world of emerging tech lives.

I'm your host, Eric Hanselman, Chief Analyst for Technology, Media and Telecom at S&P Global Market Intelligence, and today, we're going to be discussing esports with returning guest Richard Berndes, media analyst for technology, media and telecom.

Richard, welcome back to the podcast.

Richard Berndes

Hi, Eric. Great to be back with you again. Looking forward to speaking about esports.

Eric Hanselman

And it's a topic in which there's been a tremendous amount going on in looking at this market and how it's evolved, but I guess, before we get too far in, can you give us a background in terms of really what makes up the esports market? What's it composed of?

Richard Berndes

Sure. I think it's really important to say at the start that esports is not what a lot of people watch on YouTube, people streaming Fortnite and things like that, characters like Ninja and DanTDM. And also the term gaming. Gaming encapsulates everything, all computer games really. I think esports is best described as competitive gaming at a professional level. And it's in an organized format like a league or a tournament with a specific goal about winning a title. And there are sort of clear definitions between the teams, of who they compete against and the games they actually play.

The teams that play are really highly paid professionals. They're treated very much in the same way as NFL stars like Tom Brady or soccer stars like Lionel Messi. They have training camps, psychologists and managers and big brand sponsors like BMW and DHL. And the most successful esports team in the world is a team called Team Liquid, who've have earned over $43 million in prize money. And the biggest individual prize fund in esports so far has been $18 million that Team Spirit won in 2021.

Eric Hanselman

It's interesting when you call out the personalities and identifying it just like any big sports personality. I was actually at a technology conference earlier this week. And one of the aspects of the event was that you could actually play on this super new whizbang hardware against some of these celebrity players from the esport world who were turning up and signing autographs. And you could play them, and not surprisingly, there wasn't a lot of winning going on outside of their side of the game.

Richard Berndes

No. That's to say these guys -- within the esports world, these guys are like absolute legends. I mean Faker is one of the biggest names in the esports world playing League of Legends. They are really world famous within esports.

I think it's important to sort of spit out. There's probably 4 main genres within the esports world. The first one is called multiplayer online battle arenas, which is probably the most famous of all. And here you've got 2 teams of 5 players who basically control a character, and the object of the game is to defeat the enemy. Examples of this are Dota 2 and League of Legends. The other one is shooter games, which is Call of Duty and Counter-Strike. And they're just simply games where you run around the screen, shooting people.

The other genre is sports and this is where you have FIFA and NFL Madden. And the last one is real-time strategy, which is similar to chess in their strategic gameplay, but they're the 4 main genres within esports.

Eric Hanselman

It's interesting that you also bring out the strategy games, but I guess again these are arenas in which that, as long as you can put the competitive environment together, there's a capability to be able to build a market around it.

Richard Berndes

Absolutely. I think the amount of people around the world who identify they're gamers is 3.5 billion will be estimated by 2025. And the gaming market alone is worth $184 billion in 2022. And that's games bought, downloaded across consoles like PlayStation, PCs. And Asia is not surprisingly the dominant market, heading 48% of that.

Eric Hanselman

Wow. Well, if you think about what that market looks like, people see the gaming side of things, but don't actually really understand the -- really the industrial side of like the gaming industry that is just much like sport and built much that same way. We're talking about Asian dominance. In terms of who's actually producing a lot of that content, is it something where we're getting to a point at which that the consumption you're talking about, those who are watching it over YouTube and Twitch and those sorts of environments, what's that market dynamic look like in terms of who's actually producing it, who's watching, and how that starts to maybe parallel with other entertainment form?

Richard Berndes

I mean if you look at some of the big companies involved in these, it's Tencent, Sony, Apple, Microsoft. They're the top 4 companies involved in the gaming and esports world. And in terms of the actual sort of like the size of the actual sort of market, in terms of esports numbers, the revenue in 2019 was $957 million. By 2024, you're looking at $1.6 billion in terms of esports revenue around the world, so they're not insignificant numbers, really. So that's quite a stark growth in terms of the way that esports is going. I think it's important to sort of say that they -- there's -- without those gamers, it's -- within that gaming world and that the esports players, that's the sort of the key theme to sort of bear in mind.

Eric Hanselman

So are we getting to a point at which we've got esports carried on what is the traditional media, something that's along the lines of linear TV, getting to Monday night esports?

Richard Berndes

Yes. I think esports, at the moment, it's as you sort of pointed out. Twitch is where you see a lot of it, but you are seeing sort of esports moving on to the sort of linear TV screens. In -- and within the U.K., you're seeing TV companies like the BBC have shown esports. Comcast's own Sky had an esports channel. So there are existing esports channels that are operating around the world. There's GINX TV in the U.K., Esports TV in Germany -- eSPORTS1 in Germany, ESTV in the U.S., ESR in the U.S. and eGG in Australia. These are all purely esports platforms.

It is growing, but they're obviously just purely on sort of the pay TV thing. I think, moving on to the linear TV, that's going to be the real battleground, and it is growing. What we're seeing also is ESL Gaming are providing esports to company around the North American network G4. And they've also signed deals to export content out of Israel, Spain and the Netherlands. And they've also -- I think to a certain extent, we have seen esports on the Disney network and on Fox Sports as well.

And we'll -- hopefully, we'll touch on this in a little bit more detail later, but I think the thing with esports, the challenge for me, is how do you present it in a way that sports fans would want to watch it? If you think about, say, like a basketball game or a soccer game, it's a clearly defined 90-minute slot.

An esports game can go on for hours and hours. So how do you present that in a linear format? And how do you put advertising around it? So I think that is the real challenge in getting esports into that linear TV world. And in that linear TV world, that is where the big revenue comes from for sports. And that's the challenge for esports: How do you get those big money in that basketball, NFL, soccer generates, and that comes from linear TV? So how does esport present itself in that linear format? That is the challenge.

Eric Hanselman

That's a really interesting point because that time bounding of what the viewing experience is all about is something, of course, in the States, we're facing right now with baseball, in which this is a new season in which there now are time clocks on the various activities to try and speed the game up, again, to try and time bound baseball.

There are various proposals to potentially shorten soccer or football in its various formats even though, from a soccer perspective, football, and the rest of the world, you do have a time-bound 45, 45 and 15 until it gets you there. I guess, is there more to the dynamic of between traditional sports leagues and esports? You talked about advertising and some of that. How does that check out?

Richard Berndes

I think the other thing to bear in mind is that, when you're presenting esports and you compare it to other sports, esports players are static. And I think that's quite a hard sell as a sport sometimes. Obviously esports guys are just sitting there on the screen, tapping away, whereas if you're looking at, say, basketball players or soccer players or American football players, they're running and jumping and doing athletic things.

So that again is the sort of like a -- it's how do you present that as a televisual experience is the real challenge. How do you make that entertainment and comparable to other sports? But let's not forget that the recent Fortnite World Cup sold out the Arthur Ashe Stadium in 2021, I think it was, within minutes. So you had 25,000 fans watching the Fortnite World Cup.

Eric Hanselman

So it raises the question of maybe that viewing experience is different because, as you said, it's -- you'd -- watching people grimacing and working hard on a controller. And it's certainly interesting, but not as dynamic as players who are all over the pitch, the field and moving around the same level.

Richard Berndes

Absolutely. And I think that's a kind of a perception thing. It is a very dynamic thing. And I do know that a lot of rugby players who has been -- probably the same for NFL, is very much hand-eye coordination. A lot of these players play computer games with that fast reaction because they see the ball so quickly. And they look -- do that using computer and sort of speed up that reaction. So there is some crossover there as well in terms of the technology and training from computer games into traditional sports.

Eric Hanselman

Well, that's interesting. I wonder if that -- because again it is supposed to be good for improving reflex response times, but it would be interesting to see whether or not we actually start to get transitions. In fact, one of the celebrity players who was at this event that I was at this week was a celebrity in his own right in a traditional sports environment. So interesting.

Richard Berndes

Yes. No, I mean, as you touched, I mean, in terms of like the celebrities that are involved in this, one of the big traditional sponsor has crossed over into esports and vice versa. It's Formula 1 motor racing. The Formula 1 driver, Lando Norris, is a big exponent of esports. He drives for McLaren but competes competitive in the esports world. I know he uses some of his skills and hones them using esports systems outside the race world. So again these -- because of that technology -- and actually the gaming as a Formula 1 is you're driving using a proper steering wheel in that environment. There is a lot of crossover from Formula 1 to esports and vice versa.

Eric Hanselman

Wow. So -- well, let's have to see how he does on the real track. Well, it's an interesting point at which you -- when you get the games that are sufficiently good simulations of the real thing and especially like Formula 1, presumably you don't have quite the same, all of the heat, the intensity, the weather or the actual vibration in the car, but you get close to it. And it's interesting to see how it translates.

Richard Berndes

Yes. I think, even if you look at, say, there are some like cinemas now, you're going to see these 4D cinemas experiences where the seat moves and you have the smoke coming out and you go up, the cinema goes cold. So you do get that vibration in the chair to simulate the whole process of driving a car. So you can see this technology coming outside esports and even to cinemas to a certain extent.

Eric Hanselman

Wow. But there's more to the regular sports and esports integration. One of the things we've talked about on previous episodes was this transition in the sports leagues themselves becoming more engaged. And I guess it starts to get into this complex dance of who owns the rights to the games, to the players, to the actual -- the performance of the game itself. It's even extending out to the Olympics.

Richard Berndes

Yes. The Olympics is a big boon for the esports. I mean it starts in Singapore next month. And it would be a really interesting thing to see how that develops, I mean, in terms of how it's perceived. Just being, like, associated as a [ lengthy exposure ] gives you so much catch-eye.

I think it is interesting to sort of dial back a little bit and just look at the sort of relationship between sports and esports now, how it's actually owned, to be honest here. If you look at sort of -- the key thing is, the game publishers or the person who owns the game, for example, Riot Games who owns League of Legends, they effectively control that game. They own the IP. They own the sport. They own the media rights. They define the rules. They have format rules. And they host the events themselves. So Riot Games owns League of Legends.

Whereas if you look at, say, something like soccer, nobody owns soccer. It's just this free thing. FIFA, for example, the international body, they sort of organize tournaments. And you have teams within it. But this -- but nobody actually owns the sport itself. So within esports that's the difference because, whoever owns that particular title, say, League of Legends or Dota, they control everything and own that sport. And they can define the rules. That's quite a clear definition between esports and traditional sports in terms of who actually owns it and controls it. If you own the title, you own everything and you define how that sport is played.

Eric Hanselman

Yes. Because that is that situation where you really are defining the game. You're defining the play space. You're -- you've really got a much more complete control, although I think FIFA would probably make some claims that they own at least the games -- or the league structure. And that actually, I think, is something that's interesting in terms of Electronic Arts and some of the games and transitions of ownership of who actually owns the games because you've seen -- this is a case where the league is actually trying to claw back ownership of the game.

Richard Berndes

That's right, Eric. I mean it's been one of the biggest stories in esports in the last year or so. The game FIFA, this year, I speak for '23, is owned by a company called Electronic Arts or EA. And they specialize in sports games. They also make the NFL Madden game as well which is hugely popular. And they do these games very well. They've been doing it for 20 years. They've had a relationship with FIFA, which is the world governing body for football. And it's been a very successful relationship. But what's really sort of come to the fore now is the monies being earned by EA compared to FIFA.

Now FIFA in a World Cup year can earn something like $4.6 billion. But outside that, they'd make something in the region of like $750 million per year. So it's every 4 years, they make big money. Now if you look at something like EA, they are making something in the region of $5.5 billion roughly, so let's call it roughly $5 billion every year from their games.

And that is driven, a lot of it, by, for example, Ultimate Team and Live Services. Ultimate Team is an element of FIFA where you can play other teams around the world. And Live Services is where you can buy extra players, make more value to your team. So if you're thinking of it in that sense, EA is making more money every year than FIFA does, than who own the sport. And that's the dynamic.

Eric Hanselman

Even in their best year, which is a World Cup year, is when they...

Richard Berndes

Even their best year. Yes.

Eric Hanselman

They've got to wait every 4 years to get to that revenue, but EA does it every year.

Richard Berndes

Every year. Every year. And it's not just FIFA, but that's just the -- within that set. And that's just -- that's the reason why that relationship has now broken this year. And FIFA '23 were their last year made by EA. Now EA are going on their own way to make a thing called EA SPORTS FC, so they will continue. And FIFA are now doing their own thing called AI League.

And now AI League is more of a sort of a cartoonish 4-versus-4 sort of game, and it would be interesting to see how they develop it because EA have made such a good job. It's the benchmark of sports gaming really, and -- but they also still have contracts with -- for example, with the big domestic leagues around the world and UEFA that runs the European game. So they can pretty much still present themselves doing the same thing but without the FIFA element of World Cup.

So it would be interesting to see how it plays out. But yes, it was a huge surprise to see with FIFA, for example, in terms of like how much money EA were making when they don't even own the sport. And I think this is one of the reasons why FIFA are really pushing outside events like the Women's World Cup now. And also they're trying to set up a World Club Championship. They recognize they now need to just try and get to that revenue every year rather than waiting for every 4 years.

Eric Hanselman

And then try and intersperse events to generate the big-revenue event, but managing rights at the same time. I mean it does seem like it -- we get right back to the same kinds of questions that we get in traditional sports, which are who owns the rights, where is it actually going to play, the markets that are associated with that. And that starts to get right back into all the complexities of these big, complicated engagements.

Richard Berndes

Absolutely. And I think it's the same with the Olympics as well, the IOC. Obviously, they make a huge amount of money every 4 years, but they are also looking to sort of try and increase awareness around their other events around the world, just try and build up that revenue base.

Eric Hanselman

Well -- and the natural thing, I guess, looking at esports and that ongoing, continuous revenue stream, as opposed to something that's tied to the individual events. And hey, maybe the esports events start to become a part of what that larger equation happens to be for any of the league engagements as well.

Richard Berndes

Yes, yes. No, absolutely. The interesting thing with esports, it's a continuing thing. It's not -- it has no season. It's -- there's no way that an esports event can be mowed off, for example, or rained out or whatever, because it's held inside. So I'd say the esports thing is 24-hour-a-day thing around the world.

Eric Hanselman

Wow. Well, so what do you think the future holds for esports? I mean clearly some of the things we've been talking about in terms of expansion of rights and those sorts of aspects, but where do you see this going?

Richard Berndes

I think it's undoubtedly here to stay. The number of people playing esports is increasing. And the people are now -- it's increasing that it's becoming a part of sports conversation. And I think also it's not just -- I think a lot of people think of esports as like a sort of a young, sort of 20s, teen, guy sport.

It's not just that. There are women-only teams. There's also a team that's all over 65. So it's -- esports isn't just for everyone, it's a wider thing. But outside that, I think, there's -- as been said before, there's 284 million esports players out there. There's professional teams earning millions of dollars and global brands like Tencent and Apple, and it's now an Olympic sport. But I think there are still some issues to be resolved around it. I think there's concern around the finance supporting the teams.

Sponsorship is the biggest driver around esports. I think it was around 60% of a team's revenue. But I think these sponsors are going to be saying soon, "Where is my return on investment on this? Where are my rights? How is this growing?" And there has been some problems in the past. There's an American team called FaZe Clan, who just shed 40% of its staff and actually were recently delisted from the NASDAQ. So there are sort of challenges around esports and keeping that finances right. But when you've got game publishers like Epic Games or Riot Games that make Fortnite and League of Legends, they are big companies who can support it.

But I think, for me, as we touched on earlier, I think -- for me, to esports really, really grow, it needs to nail that TV exposure in the same way as basketball, athletics or soccer. And that's probably, for me, trying to find a way to get the content exposure on mainstream TV and platforms. And this is not easy because there are so many sports out there, so many sports. Say like, for example, soccer is now 12 months a year. And TV companies know these sports can deliver and they spend a lot of their budget on it, so why would they take some of their budget away for something that might not work?

So it's a challenge. For me -- to make it work, for me, it's going to be both sides. The esports world and the TV world need to collaborate to find a right way forward. The opportunity for esports is it provides digitally aware audience that's been deserting traditional broadcasting for a long, long time. Now that's what they can bring for broadcasters for them to sort of like advertise to.

And that's an extremely attractive proposition. If esports could be presented and hosted by a sort of a seamless production company who can tell your story, it could be a really authentic, new thing than newer TV. The other great thing obviously is the emergence of the metaverse. It's a huge opportunity for esports as a digitally based sports and could be an ideal platform to make it flourish.

So for me it's -- yes, it's here to stay. I think the challenge for esports is, given the numbers and the money involved in it and the brand, it's making that crossover into that mainstream TV world where it can sit comfortably with the basketballs, the NFLs of this world. And that is a challenge, but exposure via the Olympics, Olympics prestige, it's a fantastic opportunity. But I think that, for me, is a challenge. There's a lot of people involved in it. There's a lot of profits. And it's not going away. I think that is the challenge, getting it across on linear TV in a way that people consume it and understand it, because there's a huge audience out there.

Eric Hanselman

Well -- and as you're pointing out, an audience that's particularly valuable and one that, hopefully, from an advertiser perspective would be enough of a draw that will actually pull this all together. Well, we'll have to see how that shakes out. This has been great. Thank you, Richard.

Richard Berndes

Thank you, Eric. It had been great talking to you again. And let's see what happens. We might even get a game on PlayStation together one time.

Eric Hanselman

Sounds like a plan. Well, to that end, we actually will be digging into the metaverse a couple episodes from now. I -- and so I'll have to get Ian Hughes and Neil Barbour and get their thoughts about where that integration fits and where that goes.

Richard Berndes

They're great guys. They know their stuff.

Eric Hanselman

Well, unfortunately, we are at time. We could get a game on, but we've got to wrap for now, at any rate. Maybe we'll do a future episode and throw down the gauntlets. Thanks for being on, Richard.

And that is it for this episode of Next in Tech. Thanks to our audience for staying with us. And thanks to our production team, including Caroline Wright; Ethan Zimman on the marketing and events teams; and our agency partner, One Nine Nine.

Join us for our next episode, where we're going to be talking about digital deficiencies in the world at large and some of the things that we can do to maybe address the marginalized communities. So I hope you'll join us then because there is always something Next in Tech.