Video Games and eSports: How Investors Can Tap into This Growing Industry
By Thomas Kettner, Managing Director, MV Index Solutions
Upon the release in 1970 of the very first home video game console, the Magnavox Odyssey, few would have guessed that its arrival heralded the birth of an entirely new multibillion-dollar industry. And yet, humble and crude though its technology seems by today’s standards—it could only render three dots and a line—the Odyssey was nothing short of revolutionary. It presaged the introduction of Atari’s smash-hit Pong in 1973, which laid the foundation for increasingly advanced, user-friendly and powerful video games.
Today the video game and eSports (competitive video gaming) industry is an economic powerhouse. In 2017, video game industry revenues grew 10.7%—even faster than expected—reaching a staggering $116 billion. eSports, a still-nascent entertainment category, has been registering explosive growth—averaging 40% revenue growth per year since 2015—and is estimated to reach an audience of 380 million people worldwide in 2018.
Source: Sports Media Watch, Statista.com, dotesports.com, lolesports.com, Newzoo Global eSports Market Report 2018, 2017. Newzoo The Global Growth of eSports 2014. Past performance is not indicative of future results; current data may differ from data quoted.
A Rapid Rise
But what exactly are eSports, and what does their growth portend for the video game industry overall? Collectively, the term “eSports” refers to professional competitive gaming. Players can participate in contests for prize money (Kuro Takhasomi, the world’s highest-earning player, has already earned $3.5 million) and, increasingly, viewers are tuning in to follow their favorite gamers.
Although some of the first video game tournaments took place in the ’80s and ’90s, many consider the dawn of modern eSports to have been the 1997 Red Annihilation tournament for the first person shooter (FPS) “Quake,” where 2,000 participants competed for a Ferrari previously owned by the lead developer. Major League Gaming (MLG) launched in 2002, was the first gaming network to be broadcast on American television (a Halo II tournament, in 2006), and today is the largest and most successful gaming league in the world. A 2013 MLG tournament awarded gamers more than $170,000 in prizes.
Incredibly, the League of Legends 2014 world finals attracted more viewers than the deciding games of the MLB World Series, and NBA Finals. eSports received a further credibility boost in June 2018, with the International Olympic Committee’s announcement that it would host an eSports forum to examine whether or not the category might find a place in future Olympic games.
Clearly eSports are here to stay. Though still in its infancy, the eSports industry is growing at a breakneck pace, and it’s likely the sector will take in approximately $900 million in revenue in 2018, an astonishing 38% increase over 2017’s $655 million. By 2021, revenues could range as high as $1.65 billion. In the context of all of this growth, the future certainly looks bright for the video game and eSports markets, which are projected to reach as high as $143.5 billion in revenue by 2020, with mobile gaming accounting for $72.3 billion of the total.
Capturing The Space
Investors looking to measure this important, growing sector of the entertainment industry have limited choices. The MVIS Global Video Gaming and eSports Index (MVESPO) is based on MVIS’ unique pure-play concept, and as such, will only include companies generating 50% or more of revenues from video gaming and eSports, ensuring exposure to the target sector.
MVIS Global Video Gaming & eSports Index
Source: MV Index Solutions.
Although companies like Microsoft (Xbox) and Amazon (Twitch.tv) are both heavily involved in video games and eSports, they do not derive 50% or more of their revenue from these sources, and so would not be included. By using a modified market-cap weighting, the index also ensures that no single video game company dominates the index. The result is a portfolio of at least 25 companies, selected from a global universe of equity securities, representing companies with substantial exposure to the growing video game industry.
Although by some standards the video game and eSports industries remain in their nascent stages, it is clear that their momentum is likely to continue on an upward trajectory in the years to come. With strong demographics featuring a relatively young and affluent audience, eye-popping revenue growth, and growing acceptance and recognition beyond a niche audience, the future certainly looks bright for video games and eSports.
Copyright © 2018 by MV Index Solutions GmbH (“MVIS”). All rights reserved. MVIS is a registered trademark of Van Eck Associates Corporation that has been licensed to MV Index Solutions GmbH. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission. All information provided by MVIS is impersonal and not tailored to the needs of any person, entity or group of persons. MVIS receives compensation in connection with licensing its indices to third parties. You require a license from MVIS to launch any product that is linked to an MVIS index to use the index data for any business purpose and for all use of the MVIS name or name of the MVIS index. Past performance of an index is not a guarantee of future results.
It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. MVIS does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. MVIS makes no assurance that investment products based on the index will accurately track index performance or provide positive investment returns. MVIS is not an investment advisor, and it makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this document.
Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by MVIS to buy, sell or hold such security, nor is it considered to be investment advice.
These materials have been prepared solely for informational purposes based upon information generally available to the public from sources believed to be reliable. No content contained in these materials (including index data, ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse-engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of MVIS. The Content shall not be used for any unlawful or unauthorized purposes. MVIS and its third-party data providers and licensors (collectively “MVIS Indices Parties”) do not guarantee the accuracy, completeness, timeliness or availability of the Content. MVIS Indices Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content. THE CONTENT IS PROVIDED ON AN “AS IS” BASIS. MVIS INDICES PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall MVIS Indices Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.