Asia’s rapid market growth
In 2020 China became the world’s largest esports market, with revenue estimated at $385m (c.10% YoY growth, with almost 500 million users/participants) – in comparison to $252.2m in the US – showing China as the dominant force in
competitive gaming [2].
This is, in part, due to the support of a strong gaming infrastructure that incorporates innovation in technology, media, culture and merchandising.
Companies that moved quickly in this space are reaping the benefits in the market. Tencent, initially a social media company, saw this potential and has now established itself as a powerhouse in the industry worldwide. Their reach not only concerns domestic sub-sectors and infrastructure, e.g. streaming platforms, but also extends to stakes in many international publishers including Supercell and Riot [3].
This success demonstrates the opportunities that can be seized by becoming an early adopter in the market and considering all aspects of the gaming ecosystem.
More recently, the rise of mobile gaming has dominated the Chinese market at an estimated $10bn in value in 2020, with publishers introducing mobile versions of successful titles, or developing specic titles for mobile gaming eg Honor of Kings [4].
A few key trends that would push the growth of the esports market in Asia even higher:
- esports will become an Asian Games medal sport for the first ever time at Hangzhou 2022, after the approval from the Olympic Council of Asia General Assembly in 2020. Such ‘official’ recognition will further boost the esports market in the region and likely trigger a new round of investment and M&A activity
- Shift to online – while offline sports events were largely postponed in 2020 due to Covid-19, esports have shifted online and gained unprecedented popularity, and is expected to last
- Proliferation of technology enablers, such as 5G, VR/AR and streaming platforms all of which would enhance the mobile end user experience
- Key content IP development such as the launch of esports based on popular movies, comic books and even tourism destinations have proven very successful
Culture and lifestyle adoption
The movement of esports into the ‘mainstream’ market has meant that it has started to expand beyond the models set by traditional sports. In China and southeast Asia, esports is becoming a part of pop culture, as brands and publishers diversify their offering, creating an intersection of esports, music, and fashion. This extension of the sector has been adopted by players, teams and competitions to create a booming industry that includes Nike, Louis Vuitton and, most recently, Ikea as partners [5].
While it is traditionally difficult to monetise the popularity of esports, Chinese companies have made successful attempts by combining online with offline commercial activities. One good example of this is the well-known sports product brand Li-Ning, which has been exploring new ways to gain exposure to the sector; their co-branded running shoes ‘V8’, together with top esports club EDG, was sold out in seven minutes after launch and the co-branded hoodie sold out in a mere 10 minutes, during an esports event. Li-Ning has also made long-term strategic moves in esports, such as acquiring Snake, a leading Chinese esports team, and renamed it LNG (Lining Gaming).
Investment and capital raise
This momentum has sparked a wave of investment and M&A activity, as funds begin to understand and identify the opportunities in the domestic market. Start-ups and companies that are multi-faceted and have multiple touch points in esports are raising capital across Asia. For example, in 2020 Chinese esports solutions provider VSPN raised almost $100m in a Series B financing [6] round led by giant Tencent.
Ampverse, a southeast Asian start-up that not only owns and operates several teams but also creates content and gaming communities, completed a pre-Series A funding round that will allow them to expand and develop further original technology [7].
The knowledge of the esports ecosystem is essential when it comes to investment and while early movers carry more risk, we have seen significant rewards, as demonstrated by Tencent and NetEase.
What can Europe and other expanding markets take from this?
It is evident from the success and maturity in Asia that the recent uptick in the popularity of esports is here to stay. It is likely that Europe will follow similar trends of early stage funding in the form of series A/B capital raises, some capital markets activity (for example, Guild esports IPO) with the majority of M&A mainly reserved for the games publishers. As the market matures with more institutional capital involvement, then it is likely to fuel wider M&A activity.
References
[1] How Europe’s Tech Hubs are Pushing Esports to the Next Level, BDO Global, December 2020
[2] Five trends shaping the Chinese esports landscape, SportsPro, July 2020
[3] Realizing the phenomenal opportunity of esports in China, SRI, June 2020
[5] China's esports sector set to see continued growth in 2021, CGTN, February 2021
[6] VSPN Raises $100m Series B Financing Round, The Esports Observer, October 2020