There’s no question that the business community is going a bit crazy for esports right now. It’s rare that more than a couple of days pass without some huge esports investment being announced. Last Friday it was Intel announcing it would be putting another $100 million in to the ESL pro league in Europe. A few weeks ago PlayVS raised $30 million for its high school esports platform. Michael Jordan and Drake are now helping teams close $20+ million funding rounds.

Even in the local esports scene here in Vancouver, things have changed in the past few months. Every esports event I’ve been to recently has been packed with unfamiliar faces, most of them people from the financial world who would not have been around if the same event had been held last year. A friend who’s on the executive of the esports program at a university here recently told me he gets multiple calls a week from investors and hedge funds asking to buy him lunch so they can learn more about the industry. Everyone wants to know how they can get involved with the hot new thing.

As more and more investors continue pouring ever larger sums of money into esports, the question of whether the these investments are financially sound, based on where the industry is at, is starting to loom larger and larger and larger.

Today, Ben Fisher of Sports Business Journal published an article noting how the revenues of many of these entities aren’t keeping up with the hype, and a “market correction” may be coming (Ben pointedly avoids the word “bubble,” but I have fewer scruples about using clickbaity titles, so bubble it is). In response to Ben’s article, a lot of industry people on Twitter raised similar concerns how they’ve been talking about the same thing internally the past few months.

I think people are right to be concerned. Whenever a new technology or idea like esports hits the mainstream, there seems to be a bit (or a lot) of irrational exuberance that kicks in as everyone tries to get in on the ground floor, leading people to make decisions they probably shouldn’t.

A lot of what’s happening now reminds me of what happened with cryprocurrency around this time last year, when blockchain technology finally started getting attention in the media. Crypto events were packed with new faces, people were starting new companies in the space left and right, existing companies were adding “blockchain” to their name and seeing their stock price quadruple overnight, and the price of Bitcoin surged from around $3,500 USD at the start of August to $20,000 USD by December.

Where is crypto now? The hype has dissipated, the price of Bitcoin is back down to around $3,500 USD, and a lot of the people who put money in last year are taking a sober second look at their investment and not liking what they see. That doesn’t mean that blockchain technology isn’t still going to change the world. I’m sure it will. Eventually. But it certainly hasn’t yet, and there’s no telling whether, when it finally does, the companies people invested in during the rush last year are going to be the ones to do it.

If esports was Bitcoin, I’d say it’s getting close to the $20,000 mark right now. People are excited. They don’t want to miss out. And as a result they seem to be willing to invest large sums of money into the space, even though they may not understand quite what they’re getting themselves into. And just like with crypto, it’s very likely that a year or two down the road a lot of these people will be taking a look at their investment and regretting their decision.

The assumption everyone seems to be going off right now is that esports is destined to continue growing at its current pace until it reaches the same level as traditional sports (or replaces it). People investing in Cloud9 or Team Liquid probably think they’re bying into the future esports versions of the LA Lakers or Manchester United. That’s a pretty big assumption to make. While esports could certainly reach that level, there’s nothing that guarantees it will. For all we know it could conceivably follow the trajectory of something poker, and flatten out into a niche sport with a limited audience after an initial meteoric rise, or end up somewhere in between.

There’s still a lot of questions that need to be answered before we can say with any certainty that esports will reach the heights people assume it will. Will esports ever be able to meaningfully cross over to a non-gamer audience? Will it ever have success on TV? (and does that matter?) How exactly do you market esports athletes, and will someone like, say, Faker ever be a household name like a Steph Curry? Even if esports succeeds, will the game publishers be the ones reaping all the rewards? None of these questions have answers yet, and I’m not sure that we’re going to be finding out the answer to many of them anytime soon.

Despite all these concerns, I, like most people in the industry am pretty confident that esports will not follow the path of poker, and that it will succeed… in the long term. Whatever other issues esports may be facing, the core, inescapable fact remains that huge numbers of people currently exist who are extremely passionate about it, that the majority of these people are young, and that their numbers are only growing. Just based on that foundation, if nothing else, I have every confidence that in the long run people will figure out how to make massive sums of money off esports, just like I’m pretty sure blockchain technology will eventually change how we all live our lives in some way.

What I’m definitely not sure about is when that will happen, or whether the companies people are putting money into now will necessarily be the ones to make it happen. And if I was an investor today thinking about putting money into an esports team at a +$100 million valuation, or paying $40 million for an Overwatch League franchise, I would definitely take a second, breathe, and look carefully at how I can expect to see a return on that money, beyond platitudes like “well, esports is on its way up.”

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