Here’s a question...
Has anyone heard of FAKER?
Do you know any SK TELEKOM fans?
Those over 30 won’t have the slightest idea of what I’m talking about...
I’m talking about one of the famous players of League of Legends.
League of Legends, also known as LOL due to its initials, is one of the most successful
video games in the World.
You head that right.
Many may think that video games are simply a domestic entertainment.
We buy the game, we play at home, alone or with our friends and that’s it, right?
Well, my dear friends of VISUALPOLITIK, nothing could be further from the truth.
Blizzard will open its first U.S. esports stadium in Los Angeles next month
You heard that right.
Nowadays, video games have become a mass sport, almost on the same level as football or formula
Formula 1
To give you an idea, only in 2017, esports, that is, electronic sports, moved more than
1.5 billion dollars through sponsorships, merchandising and investments.
Yes, that’s still little in comparison to the 8 billion dollars that Formula 1 moves,
for example, but it
isn’t bad if we consider that this new mass sport isn’t 10 years old.
To give you an idea, the first League of Legends world championship was held in 2011 and had
an audience
of about 200,000 spectators.
7 years later, in 2016, more than 14 million people from around the world saw the final
match.
These figures are a little lower than the ones we could find in an NBA final, without
going much further.
In fact, League of Legends broadcasts even have their own commentators in various languages.
And where do you think esports are the most popular?
Of course!
In Asia.
Countries like China or South Korea account for more than 60% of the video games audience.
Unlike Formula 1, which never really took hold in this part of the world, esports have
really stuck.
And logically, this has led to an uproar in the investors’ world.
Intel, HP Announce 'Record' Investment In Esports Industry
However, the internet and new technologies have always been the perfect breeding ground
for generating financial bubbles that explode in a rather big way.
We've all heard about the dot-com crisis at the beginning of the 21st century, or the
downturn companies like Snapchat took.
So the question is...
Are we really talking about a new sport?
Or is this just another bubble?
Can a mass sport be created from nothing, just by investing money?
We’ll answer these questions today, but first, a bit of history.
WHO INVENTED FORMULA 1?
In 2015, a group of investors called LIBERTY MEDIA bought Formula 1.
You may be wondering: How could someone buy a sport as such?
Well, the truth is that Formula 1, in addition to being a sports competition, is also a company.
See, car racing is as old as cars themselves.
After the Second World War, with the car’s democratization, a massive public emerged
who loved seeing the fastest cars in the world.
And car manufacturers were happy to participate in these races.
Competitions gave them the perfect excuse to test their latest engines.
To give you an idea, a Formula 1 car can cost millions of dollars, even if it’s not intended
for the consumer market.
However, the technology it uses ends up being implemented in utilitarian cars.
For example, disc brakes (Steel Disc Brakes) or Active suspension were innovations born
in Formula 1.
Throughout these years, the only entity in charge of regulating and dictating the competition
rules was the International Automobile Federation, also known as the IAF.
However, the real business didn’t emerge until the 70s, when this guy on the screen
came up: BERNIE ECCLESTONE, the Ayatollah of speed.
Ecclestone was the owner of a Formula 1 team.
He immediately realized that this sport was a real money-making machine.
But the business was neither in the prizes nor in the car companies.
The real fortune was in selling TV emission rights around the world.
And what do you think Bernie did?
Well, he partnered with the other teams, went to the IAF headquarters and told them “either
you give us the emission rights so that we can manage them or we stop running and you’re
out of races”.
And that's how what we now know as the FORMULA 1 GROUP was born, that is, the sport that
became a company that is even listed on the New York Stock Exchange.
In other words, on the one hand we have the IAF, which is in charge of organizing the
races and creating
the regulations so that everyone competes on equal terms.
But the one who really moves the money is FORMULA 1 GROUP
And we’re not talking about a few bucks!
Just in 2011, they made a profit of over 1.5 billion dollars.
To give you an idea, a building like the BURJ KALIFA in Dubai could be built with that kind
of money.
And as you can imagine, both organizations aim to kill each other, and it’s quite normal
for them to have all kinds of legal conflicts.
You may now be wondering, how does Formula 1 make money?
Well pay attention because this will help us analyze esports better.
Most of the money comes from emission rights and from the payments municipalities and different
governments make to host any of the races in their cities.
Only these two account for 60% of the income.
The rest is made with company sponsorships, that is, advertising, and merchandise sales.
In other words, the answer is Yes: a company can create a mass sport and make millions
form it.
Now the question is, can esports replicate this business model?
Let’s see!
FROM PIXELS TO LEGENDS
Just like car racing, video game competitions are as old as video games themselves.
The first major tournament was held in 1972, at the Stanford University.
More than 10,000 people gathered to see the best Spacewar players.
Spacewar was one of this old
videogames with big pixels and 8 bits music.
In those years, video games hardly had multiplayer systems and Internet connections barely existed.
In other words, it was very hard to organize any competition that was worth seeing.
So, just as interest in Formula 1 came about when most people started having cars, interest
in esports came when most people started having high-speed Internet connections.
And can you guess the first country in which competitions were held?
Exactly, South Korea!
In 2006, South Korea was the country with the fastest Internet on the planet.
And half of the population had broadband connections.
In other words, this was the perfect breeding ground for the first big HALO or Starcraft
players to emerge.
And how did they become famous?
Well, through streaming platforms such as YouTube or, above all, TWITCH.TV.
And that's how the esports fever broke out in South Korea.
Seoul’s getting a new dedicated eSports stadium come March 2016
You may now be wondering...
Who would be the Bernie Ecclestone of esports?
And the answer is RIOT GAMES.
This is the company that created the most successful game of all time, LEAGUE of LEGENDS,
which was released in 2009.
We’re talking about a video game that seems to have been made for competitions.
Check this out.
To that date, online games were...
How to say it?
A bit rudimentary.
Of course, there were titles like WOW, which had fantastic graphics and a great story.
But these were role-playing games, in which one can play for hours and neither win nor
lose.
Also, you have to pay a monthly fee to play, and not everyone can afford that.
However, League of Legends is free, has graphics and an unbeatable game mode and games last
for about an hour, and have a winning and a loser team.
In a very short time, this video game gained millions of players around the world.
And since they were connected by the Internet, the teams that were created were completely
international.
For example, one of the best-known groups, known as ORIGIN, has Spanish, French and Finnish
players.
The truth is that by the year 2011, they had a critical mass of users.
And to celebrate it, they went to a festival of the industry that was being held in Sweden.
They had an audience and a place to celebrate the championship.
Allowing their players to share their screens on YouTube or TWITCH was enough to offer a
show on an international scale.
And, as we always say in VisualPolitik, so it was said and done.
Season One Championship Reaches 900,000 Viewers
One thing was clear: there was an audience that wanted to watch matches from their favorite
game on their computer screens.
From the initial 900,000 spectators, we have now surpassed more than 14 million spectators.
And the players, who are now professionals, travel around different tournaments with high
competition athlete visas.
This means that, from the institutional point of view, League of Legends is now considered
a rightful sport.
And the same goes for other games such as Call of Duty or DOTA.
And where there’s an audience, there are also companies willing to pay for publicity.
Don’t forget we’re talking about video games, a perfect environment to sell computers,
graphic cards, screens or even high-speed Internet connections.
In other words, every technology company has recently decided to sponsor esports events.
And... as you can imagine, that’s where the gains come from, as there are also huge
investors willing to invest.
Zacks Investment Research highlights three esports stocks to watch It’s clear, esports
are a business that is growing by leaps and bounds.
But how far can it go?
Could we be talking about the new formula 1?
Well... if you remember, we mentioned that most of Formula 1’s income comes from the
rights sold to TV networks.
But, for now, esports are broadcasted openly, through free streaming platforms.
Therefore, there doesn’t seem to be a big business there.
On the other hand, no governments or municipalities are willing to pay to host a tournament.
In other words, Formula 1 has a diversified business, with different income streams, which
means that, even in times of crisis, the company continues to make an income.
However, at the moment it looks like the bulk of esports’ income depends on their sponsors.
And sponsor-based businesses are, by definition, unstable.
If not, listen to the media itself.
But, above all, the biggest problem with this type of sports is variety.
There’s only one Formula 1.
There’s only one football.
But there are lots of esports, and we don’t know which ones will last and which ones won’t.
League of Legends has achieved an undeniable success, but it was created in 2009.
Will it still be fashionable in 10 years?
Or will a new electronic sport emerge, and come with its
developer company, to pick up the baton?
Make no mistake: esports are here to stay.
The question is, which one is worth investing in the long run?
Of course, these are all reasonable doubts for any new industry.
And under no circumstances do we want to underestimate this phenomenon.
But, as we always say in VISUALPOLITIK, not everything is as it seems, and the devil is
in the details.
And having said that, I leave you with this question...
Would you invest in an esports company right now?
Do you think we’re facing a new mass sport that will generate billions of dollars?
Leave your answer in the comments.
And if you want to know more about another emerging economic industry, in this case,
that of electric cars, we’ll tell you all about the battle between TESLA and BMW
in this other video.