While e-sports, which is basically competitive video gaming, has had an uphill struggle to become accepted as a ‘physical sport’ there is less debate over the similar commercial and marketing opportunities it offers compared to some of the world’s biggest sporting teams, such as football team Manchester United and the NBA’s LA Lakers.
In the face of the doubters and sceptics who cried “nerds” and ‘it’s not a real sport”, and just like snowboarding and skateboarding which have made the Olympics and won credibility, e-sports keeps on rising and Denmark’s Astralis is now set to become the first team to go public.
Astralis is ranked the world’s number one in Counter-Strike: Global Offensive, a popular first-person shooting game, and has won millions of dollars in tournament prizes. The success has earned it commercial endorsements with brands such as Audi and Logitech, according to a Bloomberg report. Now operating as a media company, the Astralis Group has expanded with teams competing in League of Legends and EA’s Fifa.
Astralis wants to capitalise on this success with a planned listing on December 9 on Nasdaq’s Copenhagen exchange for small companies. According to its prospectus, Astralis plans to raise 125 to 150 million kroner (US$18-22 million), with shares priced at 8.95 kroner each. The global e-sports market will generate almost US$2 billion in 2022 with viewership expected to reach 595 million that year, according to research by video games and e-sports analytics firm Newzoo.
“In many ways, traditional sports and e-sports teams have similar business models. They both fundamentally operate as sports media products, meaning the traditional monetisation of viewers and fandom [sponsorships, media rights, merchandise] are very similar,” said Remer Rietkerk, Newzoo’s head of E-sports. “One advantage that esports has is that the audience is digitally native, which means they have more direct touch-points with their fans outside of match days.”
As with physical sports – talent is a top priority. How to develop and retain top players is critical to the commercial success and sustainability of both regular sports and e-sports teams. The Astralis prospectus states that highly-skilled employees are its “engine and largest assets” and future success depends upon “the ability to attract, retain, and motivate them.”
So whether it is Kuro Takhasomi of Team Liquid or LeBron James of the LA Lakers – the same rules apply.
The celebrity factor is also important and although professional e-sports is in its infancy, the success of superstars has attracted a broader audience in recent years. In July this year, hundreds of thousands of fans went online to watch 16-year-old Kyle “Bugha” Giersdorf from Pennsylvania, win US$3 million at the Fortnite World Cup video game tournament.
Superstar players can help to build audience retention and fan loyalty – not to mention royalties from merchandise. Big audiences also mean more sponsorship, which serves as the main profit driver for both traditional sports and e-sports.
On the back of its Audi and Logitech deals, sponsorship is expected to represent the main revenue stream for Astralis in 2020 and 2021, said the team in its prospectus, with sponsorship accounting for more than half of its total revenue in the nine months ended September.
Get the business strategy wrong and the same pitfalls apply – profits will tank and the share price will fall.
“If we are unable to maintain and enhance our brand and reputation, particularly in new markets, or if events occur that damage our brand and reputation, our ability to expand our follower base, sponsors, and commercial partners or to sell significant quantities of our products may be impaired,” said Manchester United in its earnings release. It posted record revenue of 627 million pounds for the year to July – with 60 per cent of its commercial sales coming from sponsorship.
Although e-sports shares business model similarities with big sporting franchises - many US sports teams in the NBA and NFA remain in the private hands of billionaires. Generally it is not the motivation of a sports team owner to make a profit [and most do not] but to have their franchise increase in value over time.
The boom in e-sports has also boosted Amazon.com’s Twitch game-streaming service, Google’s YouTube and China’s Douyu and Huya game-streaming platforms. Censorship [of violent content] and regulatory change is a key risk factor for the industry though – one that traditional sports do not generally face.
“The introduction of new legislation has the capacity to impact operations … This includes, but is not limited to, legislation that seeks to censor certain video games,” said Astralis in its prospectus.
E-sports has become a hot growth area in Asia. Chinese video gamers crushed a team from Europe last month who were hoping to break the domination of Asian players in the world championship finals of online game “League of Legends”. With more than US$1 million up for grabs, China’s FunPlus Phoenix (FPX) swept the tournament, beating Europe’s G2 e-sports in all three games before a crowd of over 15,000 fans in Paris.
South Korea has won five of the six previous championships, with Chinese team Invictus Gaming winning last year. E-sports made its multi-sport debut at the 2018 Asian Games in Jakarta. However, it only enjoyed exhibition status and did not count towards final medal tallies.
World e-sports officials are trying to convince the Olympic movement to accept e-sports as part of its roster but International Olympic Committee president Thomas Bach has insisted that violent titles will never be accepted.
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