Given the popularity of esports, it makes sense that investors might be wondering how to invest in esports. If you want to learn more about this expanding industry, keep reading. In this article, we'll look at esports’ growth prospects and potential pitfalls to help you make the right investment decision for your portfolio.
Overview of the Esports Industry
Ever had a parent say that video games would rot your brain? If so, you should tell them about Johan Sundstein, the Danish pro gamer who earned more than $7 million before his 28th birthday playing games like Dota 2 and Heroes of Newerth. And he's not alone.
Esports is a fast-growing and competitive market sector, with global revenues expected to surpass $1.6 billion in 2024. Advertising and sponsorships make up the bulk of this revenue, but esports betting is rising in popularity and professional gamers can earn millions in tournaments.
Making video games has always been big business, but playing games is now becoming a well-compensated career. Esports turns gaming into a spectator sport, and the rewards for players and sponsors have been huge. Thanks to live-streaming and broadcasting services, living rooms, bars and restaurants can host parties where people can watch competitions in real time.
In addition to Dota, some of the most popular – and lucrative – games include League of Legends, Overwatch, Fortnite and Rocket League. Professional players even have tournaments with old-school games like StarCraft, CounterStrike and World of Warcraft.
Market Size and Growth Projections
The growth of esports has been rapid and isn't expected to slow down anytime soon. In 2022, globally, esports companies took home nearly $1.3 billion in revenue, and that number is expected to balloon up to over $1.8 billion by 2025. In 2021, the League of Legends World Championship pulled in an astonishing 73.9 million viewers, placing it on par with events like the Super Bowl and World Cup. In 2022, more than 530 million people viewed at least one esports event, and more than 260 million of those viewers consider themselves esports enthusiasts who watch multiple events.
While the following isn't a complete list of all esports streaming platforms, the following five services are the main competitors for attention among esports fans. If you're watching an online video game competition, it's likely through the lens of one of these networks. Live streaming networks are often offshoots or subsidiaries of dominant tech companies.
- Twitch: Owned by Amazon Inc. NASDAQ: AMZN, Twitch is one of the most popular streaming services for esports, offering live content or video-on-demand content. The network broadcasts high-level esports competitions in games like League of Legends, Dota 2 and Rocket League. Additionally, Twitch has partnerships with professional sports leagues like the NFL and NBA. Some of the industry's most recognized pro gamers, like Richard "Ninja" Blevins, have millions of followers on the Twitch platform.
- YouTube: If you can stream it, you can bet it'll show up on YouTube. YouTube's gaming platform has some of the world's most-watched streams and a seemingly endless supply of content creators. Owned by Alphabet Inc. NASDAQ: GOOG, YouTube has vast resources to add to its esports features.
- Discord: Many professional gamers have Discord channels dedicated to fan interaction, and now the company has made strides to enter the world of esports streaming services.
- Facebook Gaming: While the parent company is known now as Meta Platforms Inc. NASDAQ: META, Facebook Gaming remains one of the most watched esports streaming services available. Facebook Gaming has agreements with esports league organizers like ESL Gaming to broadcast exclusive tournaments and competitions.
- Caffeine: One of the newest entrants, Caffeine, has received millions of dollars from venture firms like Andreessen Horowitz and commitments from celebrities like Drake. In addition to streaming esports competitions, Caffeine also wants performing artists to build audiences on their platform.
Other streaming platforms include Steam, Game Launchers, DLive and good old-fashioned cable TV. That's right, cable channels like ESPN and TBS have recently started broadcasting esports competitions. Free online cable networks like Pluto TV also have channels dedicated to esports streaming.
Types of Esports Investments
Despite the industry's growth, the opportunities for pure-play esports investments aren't plentiful. For example, Twitch's streaming platform, arguably the most synonymous with esports, is a subsidiary of Amazon and accounts for a relatively small portion of its revenue. Here are the types of securities you'll encounter when researching how to best invest in esports.
Direct Investments
The top esports organizations are spread across the world and compete in a number of different games and tournaments. In the United States, the Evil Geniuses team has racked up more than $28 million in winnings since becoming active. But this still pales in comparison to Europe's Team Liquid, which is approaching $50 million in lifetime winnings.
Venture capital investors can fund private esports organizations, but like picking stocks, picking winning gamers can be difficult. Investing privately in esports gamers and teams involves significant risk, as due diligence is harder to perform, and the market landscape can change quickly. Due to the risk and information asymmetry, only accredited investors can access these markets.
Indirect Investments
The easiest way to invest in esports is through public securities like stocks and exchange-traded funds (ETFs). While you can't sponsor professional gamers or organizations through public markets, you can gain exposure to the companies that make, publish and distribute games, as well as the firms that stream tournaments and make the equipment for the pros.
Video Game Developers and Publishers
The companies that design and publish video games are some of the industry's largest and most well-known companies. Activision Blizzard Inc. NASDAQ: ATVI has made the biggest push into esports thanks to titles like Overwatch, Call of Duty and World of Warcraft. Other big players in the development and publishing industry are Electronic Arts Inc. NASDAQ: EA and Take-Two Interactive Software Inc. NASDAQ: TTWO, plus international giants like Nintendo Co. Ltd. OTC: NTDOY and Tencent Holdings Ltd. OTC: TCEHY.
Larger companies own streaming platforms like Twitch and YouTube, while others, like Discord, remain privately owned. But some streaming and online entertainment channels are publicly traded, such as Roblox Corp. NYSE: RBLX, Esports Entertainment Group Inc. NASDAQ: GMBL and Allied Esports Entertainment Inc. NASDAQ: AESE.
Hardware and Software Makers
Not only do gamers need hardware for their consoles and equipment, but streaming networks and esports companies also need software and infrastructure. Few companies are more highly-regarded in this area than microchip monster NVIDIA Corp. NASDAQ: NVDA, although Microsoft Inc. NASDAQ: MSFT and Sony Group Inc. NYSE: SONY also make plenty of gaming hardware and software.
Esports ETFs
ETFs allow market participants to invest in a basket of securities through a single stock traded on a public exchange. Unlike mutual funds, ETFs can trade from the opening bell to the close of the trading session. Many ETFs have themes based on company size or industry (like the tech sector), and the esports industry is no different.
Yes, esports ETFs already exist, including the appropriately titled Roundhill Video Games ETF NYSE: NERD. Other gaming and esports ETFs included the VanEck Video Gaming and Esports ETF NASDAQ: ESPO, the Global X Video Games and Esports ETF NASDAQ: HERO and the Roundhill Sports Betting and iGaming ETF NYSE: BETZ — some great ticker symbols in this group of securities.
One advantage of using ETFs to invest in esports is the exposure to many international companies that are difficult to access through exchanges in the United States. For example, the VanEck Video Gaming and Esports ETF have exposure to domestic giants like NVIDIA and Activision Blizzard and Japanese firms like Capcom, Bandai Namco and NEXON Co. Investors can add pure-play esports ETFs to their portfolios and ETFs that combine exposure to other industries like sports betting.
How to Start Investing in Esports
If you're asking, "How can I invest in esports?" or "How best to invest in esports?" here's a quick checklist of steps to take when deciding on an esports investment. Remember that esports is still a relatively new industry, and while growth prospects are strong, the path to profitability may be complex.
Step 1: Determine your investment type.
First, you need to outline the parameters and goals of any potential esports investment. Are you investing for long-term growth potential or merely looking to buy in for a few months or years? How much risk are you willing to take with your esports investments? And what types of securities would be ideal, stocks or ETFs? Answering these questions allows you to have a proper investment thesis to consult should you need to rebalance your positions in the future.
Step 2: Research companies or ETFs that fit your investment goals.
Once you've got a blueprint for your esports investment, you need to perform due diligence on the stocks or ETFs you want to invest in. When buying individual stocks, consider where the companies reside inside the sector.
Are you looking to invest in the companies that make hardware and software, or do you want exposure to online streaming services and entertainment networks? And with ETFs, what investment theme does the portfolio follow, and how much are the expenses compared to similar funds?
Research the securities in the industry and select the ones that best fit your risk tolerance and investment goals.
Step 3: Carve out capital for esports investments.
Treat your entire esports investment as a portion of your overall portfolio. How much capital will you devote to a new and volatile industry like esports? Here's where you'll need to revisit your investment goals and assess the risk of your portfolio. If you want to minimize the volatility of esports stocks, use a small amount of your available capital to build your investment. A single stock should never hold an outsized position in your account, nor should an up-and-down sector like esports control too big a percentage of your overall portfolio.
Step 4: Buy shares and track your investments.
Once you select your stocks or ETFs and determine the capital you want to allocate, look for good entry points and buy your shares. Since esports stocks can be volatile (especially pure-play companies like streaming networks), you must regularly monitor your investments. If a stock you buy drops below your predetermined level for acceptable losses, don't hesitate to exit the position. Always follow the parameters you've laid out beforehand to avoid overly emotional trading.
Future Trends and Predictions in Esports Investing
The esports sector's growth prospects are strong, but it's far from a frenzy like the artificial intelligence niche. It's also a constantly evolving industry, so investors will need to stay on top of current events, trends and regulations.
Emerging Markets and Technologies
Esports technology should continue to improve as more immersive ways of playing games become mainstream. Headsets from Apple and Meta Platforms are bringing virtual reality into the homes of gamers everywhere, and gaming equipment continues to get faster, cheaper and more efficient.
Streaming services are another part of the industry with significant tailwinds. Not only are esports viewers watching millions of hours of competitions online, but traditional sports fans continue to cut the cable cord as sports proliferate to streaming.
Long-Term Investment Strategies
Early projections peg esports at a 20.9% compound annual growth rate (CAGR) through 2032. And if streaming viewership and increasing prize pools are any indications, this trend shows no signs of slowing as the next generation grows up idolizing gamers the same way their parents idolized Michael Jordan and Derek Jeter.
Thankfully, investing in e sports has never been easier due to the market's growth, the diversity of companies in the sector and the advent of esports ETFs. You can build an esports investment portfolio tailored to your personal risk tolerance with a variety of companies on both the hardware and software side.
Not-Always-Linear Industry Growth
Investing in esports certainly has its benefits and drawbacks. The industry is primed for growth and is capturing the attention of important age demographics. Kids and young adults who used only to watch football and basketball are now tuning into video gaming live streams, and professional players are making boatloads of money. The arrow certainly points up for most areas of this nascent market sector.
However, despite the increase in popularity and revenue growth, profitability isn't always linear. Esports companies like online streamer Roblox have struggled since going public, and many esports ETFs are currently languishing well below their all-time highs.
High interest rates and inflation aren't exactly good ingredients for companies with such a heavy tech focus, either. Esports investments require risk tolerance and due diligence, so always weigh the pros and cons before buying.
FAQs
Here are a few of the most frequently asked questions about how to invest in esports:
Can you invest in e-gaming?
Yes, many esports companies are publicly traded. Additionally, esports ETFs allow investors to gain exposure to the sector by buying a single tradable security.
Is it worth investing in esports?
Investing in esports depends on your personal investment goals and risk assessment. Esports is a new and growing industry with promise for returns, but also a high chance for volatility.
Are there any esports stocks?
Yes, several esports entertainment and streaming services are publicly traded, as are video game developers and gaming hardware and software manufacturers, including several blue-chip companies like Amazon and Microsoft.
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