State of the Industry: The 4th Annual Esports Survey
To learn more about the state of the esports industry, download the 4th Annual Esports Survey here.
In November of last year, an esports viewership record was set when more than 4 million people watched the 2021 World Championship for League of Legends. The high mark, which came despite the exclusion of Chinese platforms, surpassed the previous peak set two years earlier and allayed fears that pandemic fallout would negatively affect audience size. Indeed, esports viewership is up, even with the return of some in-person events, and revenues are projected to reach $1.1 billion this year.
These high-flying numbers – as well as occasional viewership climbing to 220.5 million and dedicated viewership up to 215.3 million globally – are likely behind the bullish sentiment in the 4th Annual Esports Survey. Conducted by Foley & Lardner LLP, Sports Business Journal and The Esports Observer, the survey finds that nearly 9 out of 10 esports professionals expect esports investment and deal activity to increase in the first six months of 2022.
But that optimism should be tempered by the fact that esports’ ability to grow its audience hasn’t translated to an equal boon in monetization. At least, not yet."
The perception continues to be there must be more ways to make money out of a continually growing esports audience of this magnitude, globality, and appealing demographics,” said Bobby Sharma, special adviser to the Sports & Entertainment Group at Foley. “But it’s more than just hope – it’s a very logical progression. We just haven’t seen it fully bear out yet.”
To learn more about the state of the esports industry, download the 4th Annual Esports Survey here.
A Logical Progression for Monetization – and What’s Driving It
Eighty-eight percent of the more than 400 executives surveyed expect investment and deal activity to increase in the first six months of the year, up from 74% who answered that way in 2020. Not only that – this year’s gains in positive sentiment came from the percentage of respondents who anticipate significant or moderate increases, possibly a sign that industry officials see an inflection point on the horizon.
Much of respondents’ bullish sentiment stems from relatively new, but still uncommon, esports-dedicated investment funds. That group saw a 20-percentage-point increase in our latest survey and was selected by respondents as most likely to increase its investment in esports this year. That spot in 2020 was held by traditional sports teams and leagues, athletes and celebrities – a group that dropped 13 percentage points in this year’s survey compared with the previous. Private equity and venture capital firms also fell slightly compared with 2020, down 6 percentage points.
“What we’re seeing may be a recognition that esports is complex – a different and, in some ways, more complicated ecosystem than traditional sports. As such, it’s taken some time, but the primary investment vehicles in the space have begun to develop a very specific level of expertise and portfolio, and it seems the marketplace may now be recognizing and understanding that better,” said Sharma.
When it comes to the primary drivers of esports investment, industry members are most focused on online streaming platforms, while advertising and sponsorships – for a fourth consecutive year – are expected to be the greatest revenue drivers. Notably, events and competitions moved up two spots to second on the list of revenue drivers, a sign that industry officials expect esports to significantly benefit from the continued return of in-person events as the pandemic ebbs. The return to in-person events is expected to provide greater visibility for advertising and sponsors, and concordantly, renewed opportunities for revenue growth.
To learn more about the state of the esports industry, download the 4th Annual Esports Survey here.
Cybersecurity, IP Licensing Top Legal Concerns
Cybersecurity and intellectual property (IP) rights/licensing issues were respondents’ top legal concerns. Continuing cybersecurity worries make sense given web app attacks have skyrocketed since the beginning of the pandemic, and after 2021’s series of high-profile DDoS and ransomware incidents, it is clear even big-name publishers are vulnerable to cyberattacks.
The IP concerns might stem from the growing popularity of non-fungible tokens (NFTs) and smart contracts. Multi-million-dollar prices for digital tokens are expected to increase concerns over fraud and copyright issues, especially after NFT scandals, such as Evolved Apes NFT creator Evil Ape disappearing with $2.7 million, rocked the videogame industry.
Other matters, including cyberbullying, a lack of adequate player protections in contracts, labor and employment issues, and lack of diversity across the industry were also concerns.
Another top concern was match-fixing, but esports executives’ worries there appear to be wrapped up in broader concerns about a general lack of adequate detection systems and monitoring tools for fraud and cheating. In January 2021, for example, developer Valve suspended 37 Counterstrike: Global Offensive coaches for cheating activity related to bug exploits. Meanwhile, natively digital media consumption platforms continue to be seen as a significant opportunity for growth in the esports betting market, as they more readily facilitate integration with publishers’ core products.
A Desire for an Overarching Regulatory Body Amid Growth
At such a high-risk, high-reward moment, 72% of esports executives agree or somewhat agree that esports needs a single overarching governing body for regulation and rule setting, up from 45% in 2020. This appears to be an acknowledgement that an organization like the International Olympic Committee could provide more overall structure to better provide commercial comfort for additional mainstream brands and outside investors.
Simultaneously, it appears the pandemic will mostly be a net-positive when it comes to the growth of esports, as total revenue has recovered after a slight drop in 2020. “COVID-19 has helped accelerate the wider public consciousness of esports and placed it higher on the priority list for many industry stakeholders,” said Michael Wall, a member of Foley’s Transactions Practice Group and Sports and Entertainment Group.
But whether that will translate into more monetization is still the big question. The following report further analyzes this year’s survey findings to assess what lies ahead for esports, as those across the industry look for ways to align monetization with viewership – and as the world fully emerges from the worst health crisis in a century.
To learn more about the state of the esports industry, download the 4th Annual Esports Survey here.
