Before we ask ourselves how we should be investing in esports, first we should become familiar with the topic. If you don’t know what esports is, then ask a millennial. Or instead imagine this scenario: you can travel back in time to 1992 and invest in a top football club at the exact moment that the launch of the Premier League unlocked lucrative television rights deals and set the best soccer clubs on a path to become lucrative global mega-brands, would you invest? Because esports is currently in a similar trajectory on a worldwide scale.
The worldwide ‘esports’ competitive gaming phenomenon has taken the world by storm. As the global audience of esports grows toward one billion, revenues from sponsors and licencing deals are pouring in, and so are ‘big name’ investors. New England Patriots owner Robert Kraft. Basketball star Michael Jordan. Musician Drake. These are all invested in esports teams. I have personally invested in the private Rewired.gg Esports Venture Fund, which has poured €34m of investment into one of Europe’s most prominent esports team brands.
Investing in esports
So how can you invest in the growth of esports? And should you? The answer to the first question is simple: not easily. 2019 was a record year for private esports investment in the UK and Europe. But the number of listed entities is very limited. The answer to the second question is not so simple. Esports investor and NBA owner Mark Cuban calls esports an “awful business”. However, clearly investors sense great upside potential from getting in early.
The only esports stock in the UK at the moment is Gfinity, which provides experiences and solutions for playing, watching and following esports. The company came to the London market very early in esports terms, in 2015. It has a £68m market cap, but has since had to repeatedly raise new funds and today has a market cap of just £7m. It serves as a cautionary tale against investing too early in an esports space that is changing rapidly.
NASDAQ Nordic-listed Astralis Group became the first esports team to list in Europe after its November 2019 IPO. The company is the owner of three esports teams and best known for its Counter-Strike gaming team. Esports teams like Astralis offer a more attractive investment opportunity, because revenues are driven by media rights, advertising and sponsorships. Astralis is ‘one to watch’ over coming months.
Importantly, across global esports, monetisation per fan by esports teams currently stands at around $5. This compares to $54 in the NFL, $33 in the NBA and $90 in the NHL. As the global esports fan base starts to exceed that of established sports, expect to see monetisation growing substantially.
There are, of course, other routes to gain exposure to the global esports phenomenon. A professional esports team has to pay a fee to ‘buy-in’ to the franchise and compete in the leagues for the most popular games. These ‘buy in’ fees can be in the tens of millions. Videogame developers with a strong catalogue of video game franchises can do very well indeed. The likes of Activation, Tencent, Take-Two and Electronic Arts are all doing well from regional videogame franchises and the increasing popularity of their games that esports helps, in part, to engender.
But my advice to an investor is to focus on esports teams and to wait for the next tranche of esports team IPOs. Especially so, if you’re looking for long-term exposure to the esports phenomenon. I predict that before the end of 2020 we will start to see more IPOs by esports teams in both the UK and Europe. I also predict that these IPOs by esports teams will take novel measures to ensure that their fans do not get disenfranchised. One example may be discounted shares available to their registered fans or to their social media followers.
So for me, the lack of availability means the time is not yet right to invest in a listed esports team. However, it is a good time to choose an esports team to support whilst waiting for its IPO.
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Tej Kohli owns shares in Take-Two Interactive. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.