For Investors: eSports Data is Too Hyped

Example #1 (Viewership): “More people watch eSports than watch the World Series or NBA Finals.” (Source)

My Assessment: False.

In this example, the eSport referenced was League of Legends. The statement would be true if it stated, “there were 27 million viewers globally who watched the 2014 League of Legends World Championship online, which was more than the 15.5 million viewers (on average) who watched the five-game NBA Finals series on television in the United States, or the 18 million viewers who watched the clinching Game 5.”

This original statement is a faulty comparison because it compares global digital viewers versus U.S. television viewers. If you want to talk about NBA global viewership, you can’t ignore China, the NBA’s number one international market. While the NBA Finals viewership numbers in China are not disclosed, we can get a sense of the scope by looking at viewership numbers for the Chinese New Year NBA games. In 2013, there were 107 million viewers. In 2014, 116 million. If you add even a fraction of that figure, plus viewers in other international markets, the global viewership for the NBA Finals will almost certainly exceed 27 million viewers.

The more important question to ask is how much are the viewers worth? That depends on the value of the broadcast rights. The NBA’s U.S. broadcast deal is valued at $24 billion over 9 years, according to The New York Times. The NBA’s Chinese digital broadcast deal with Tencent is worth at least $500 million over 5 years. There are no publicly available eSports broadcast rights figures but my sources stated that the largest broadcast deals in eSports are in the low-six figure range.

Example #2 (Sponsorship): “As eSports continues to grow at a record pace, Warman believes it’s just a matter of time before big leagues like the NFL begin worrying about eSports as serious competition to sponsors.” (Source)

My Assessment: False.

Currently, the largest corporate sponsorship for an eSports league is in the low six-figure range annually. The NFL has between 25–30 eight to nine-figure multi-year national-level sponsorships (source: IEG). On an annual basis, NFL sponsorships are estimated to be worth $1.15 billion.

Neither the NFL nor any other major professional sports league needs to worry about eSports being a serious competitor to sponsors anytime soon because the infrastructure in eSports sponsorships doesn’t exist. Let’s look at one brand working with sponsorships in sports (State Farm) versus another brand working with sponsorships in eSports (HTC).

In the business of sports sponsorships, there are properties (leagues, teams, players), rights holders (brands), advertising agencies, and sports agencies (IMG, Octagon) that help rights holders activate their properties and help properties sell their rights to rights holders.

State Farm wants to use NBA stars like Stephen Curry, the point guard for the Golden State Warriors, for their commercials. They would start off by contacting his sports agency, Octagon. Octagon’s job is to find the best and the “right” deals for their clients. Once State Farm secured the commercial rights for the NBA stars they wanted, they used the advertising agency Translation to create the Born to Assist campaign.

HTC, a Taiwanese smartphone maker, wants to use eSports teams for their digital advertising. There is no prominent broker or adviser like Octagon to help HTC explore the options. HTC has to make a deal with team owners directly. Since there isn’t an advertising agency working in the eSports space, HTC has to use the eSports team’s video production resources or contracts out the work to freelance crews.

Example #3 (Prize Pools): “Dota 2 champs will be paid way more than Super Bowl, World Series winners.” (Source)

My Assessment: Selective Metric

The chart below shows that the winning team for the International, the final competition for the game Dota 2, received almost as much money as the 2015 Super Bowl champions. The five members of the Dota 2 winning team, Newbee, shared a portion of the $5,025,029 whereas each participating member (63) of the Super Bowl winning team (the Seattle Seahawks) received $92,000, which adds up to $5,796,000 (Source: CNBC).

Prize pools are often used to compare eSports to other sports but it also highlights the deep gaps in infrastructure of eSports.

$5 million is a lot of money, but what about the people who don’t win? Where is the player’s union, the collective bargaining agreement that provides for player minimum salaries, the draft and revenue sharing mechanisms to maintain parity and competitiveness between teams? The NFL and other sports have all of the above. Dota 2 has none.