Field of screens: why eSports are the next frontier in global sport
The economics team at Payden & Rygel, manager of GSFM’s Payden Global Income Opportunities Fund, delves into the world of eSport, potentially the next great driver of consumer markets.
It’s Friday night at Madison Square Garden—one of the most venerated entertainment venues on Earth. Sponsor banners adorn the packed arena. Inside the stadium a sell-out crowd cheers, stomps, and fist-pumps for one of the greatest players of all time.
But the legions of spectators haven’t worked themselves into a frenzy for LeBron James. Or Serena Williams. The target of their undying admiration? Lee ‘Faker’ Sang-hyeok, the king of StarCraft.
StarCraft. It’s a video game. And Faker? He is, well, the Michael Jordan of StarCraft. Faker excels as an ‘eSports’ athlete. StarCraft, a game released in 1998 by California video game producer Blizzard Entertainment as a follow-up to WarCraft, is a team-based strategy game. And eSports, a term coined in the 1990s for competitive video gaming, will most assuredly be the next big thing in sports.
That’s right, the next big thing in sports struggles and strives somewhere other than a tennis court, football field, basketball court, or soccer pitch. Try a sofa. Or, more appropriately, a high-tech desk chair. The next sporting superstar may just be positioned in front of a computer screen, hands expertly working the gaming keyboard and mouse, rather than behind the centre on Sunday. Look for the tell-tale signs of callouses on wrists and fingers.
Oh, sure, scoff and roll your eyes. Protest petulantly that eSports athletes “are not athletes!” But do so at your peril. A closer look at the next generation of sports provides a glimpse into the future of sports and entertainment.
A brief history of eSports
eSports is not just video games but video games played in a competitive format, such as one-on-one (like a tennis match), team-versus-team (like a soccer game) or against a clock or point system (like an Olympic sledding or figure skating event). Gaming competitions have been around almost as long as video games themselves. Atari organised one of the first in 1981 (see Did You Know? box for more details).
But it was the internet that made competitive gaming possible on a much larger scale. Before internet connections, lonely gamers pitted themselves against home computers or invited friends over to join in the fun. With the growth of broadband internet connections, gaming popularity surged. The internet connection allowed players to faceoff against friends and faceless foes around the country—and the world—in real-time. South Korea, of all places, featured prominently in this transition.
Suffering a financial crisis in the late 1990s the government was forced to scramble for solutions to generate growth. Deregulation in the telecom sector led to better broadband capacity and the ‘multi-user game mania’ took off. Television stations sprung up to focus on gaming competitions, fostering a national culture of gaming and spawning heroes not unlike sports heroes in more traditional sports. eSports were born.
But they aren’t athletes!
Let’s next tackle a common objection: eSports aren’t real sports, and the players are not real athletes. In fact, you may be asking yourself, what could be less athletic than a video-game-playing teenager? Images of Cheetos scattered messily across a sofa and unhealthy sleeping and shaving habits come to mind. None other than ESPN President John Skipper opined: “[eSports are] not a sport — it’s a competition. Chess is a competition. Checkers is a competition. Mostly, I’m interested in doing real sports.”
We disagree. First off, few complain that those folks ambling around manicured lawns, chasing little plastic and rubber balls on Sunday afternoon, are not athletes. Many aren’t. Still, millions tune in to watch. It’s called golf.
Second, when Skipper says ‘real’ sports, he seems to mean activities that require physical skills—something not obviously present in, say, checkers. But a professional video game player requires as much physical skill as an Olympic archer or sharpshooter. The ‘actions per minute’, or APM, required in gaming rivals that of concert pianists in its quantity and precision. More remarkable, unlike a concert pianist who memorises and practices exact sequences until performance read, an eSport athlete remains improvisational throughout—since a video game and a tournament by its very nature is lengthy and unpredictable.
Third, eSports operate just like many ‘real’ athletic competitions, just like the World Cup or the World Series. In competitive gaming, the best eSport athletes and teams duke it out in the League of Legends tournaments. Between 2013 and 2015 in the North American League of Legends, tournament games lasted on average from 34 to 42 minutes each. South Korea, China, and countries in Europe have similar organisations. The teams have agents, unions, coaches, trainers, living quarters, recruiting, and farm leagues.
Another thing eSports have in common with real sports is physical injuries: instead of ankle sprains or ligament tears that plague football players, eSport players face chronic wrist, finger and hand pain. An eSports veteran, Hai ‘Hai’ Du Lam, recently announced his retirement due to his inability to play more than a few games on the Xbox without his “hands end[ing] up killing [him] that entire week.” 
There are even doping scandals. One player confessed to using the stimulant Adderall to enhance performance during tournament play.
Spectators, players and consumers drive markets
Whether or not eSports players are athletes matters little to the growing legions of eSports fanatics. Spectators are showing up en masse at events around the world. “In person” eSports event attendance already rivals that of many “professional” sports activities. At the finals of the StarCraft Pro League at Gwangalli Beach in Busan, South Korea, in 2004, more than 100,000 fans showed up. Not quite Woodstock, but an impressive gathering nonetheless.
How big is the audience for eSports? The League of Legends 2015 Final drew an online audience of 15 million. In comparison, the average Monday Night Football audience is 13.3 million, while the 2015 Stanley Cup Finals garnered an audience of 6 million (see Figure 1).
How do you ‘view’ a video game tournament? One popular eSports ‘venue’ is Twitch.tv (originally called Justin.tv), a streaming-video site.
Commentators, called ‘shoutcasters’ in eSports, play a key role in the viewing experience. Passionate analysis (some might call it shouting) seems to be the key element when listening to many eSports streams.
Riding this wave, Amazon purchased Twitch.tv in 2015 for nearly $1 billion. Lest you still think eSports exist only on the fringes of society, Twitch.tv boasts more traffic than WWE.com, MLB.com, and ESPN.com combined.
Importantly, the potential viewership numbers are dizzying. Newzoo, a market research firm, estimates that 93 million Americans are active in sports, but more than twice as many—194 million—regularly play video games. That’s more than half the US population.
Sure, a subset of the aging adult population, like my brother-in-law, faces off in Sunday ‘rec leagues’ of basketball, softball, and soccer, but eSports playing and spectating attracts far more eyeballs and enthusiasts who may or may not have an interest in traditional sports. Just as many gamers are over age 50 as are under 18. Among US men ages 21 to 35—a crucial advertising demographic—eSports are as popular as baseball and ice hockey.
Globally, 148 million people are occasional viewers of eSports events and that audience should expand to over 200 million viewers worldwide by 2019.
Where fans go, the money doth flow
Will popularity start translating to revenue? Time will tell. But the “competitive gaming fan demographic . . . is a marketer’s dream: upper-middle-class males, ages 18 to 34, with free time and disposable income.”  It’s not just for boys. “Ninety-four percent of girls under the age of 18 play computer and video games regularly.”  What makes them even more valuable is that most eSports fans don’t already watch traditional sports—so advertisers may have uncovered an untapped market.
Already, computers, video games, and software have surpassed outdoor sporting equipment as a share of US consumers spending on recreational activity (see Figure 2). Indeed, spending on computers, video games, and software has jumped from 1% of total recreation spending in 1980 (US$618 million) to 13% (US$116 billion) in today’s escalating cyber world. Back in 1980, outdoor sporting equipment commanded 17% of US consumers’ spending on recreation (US$14 billion). Today, consumers spend only 12% of their recreation dollars on outdoor sporting equipment (US$103 billion). 
A key difference between eSports and ‘real’ sports
While many critics focus on sports fields and physical challenges as the differences between eSports and real sports, the real key difference is far more mundane: intellectual property rights. There is no ‘game developer’ behind tennis who can control the rules of the game and who must be paid—at least in some form—by a league organisation that wants to organise sporting competitions.
The owner of a video game used in an eSports tournament could change the terms and conditions of its software licenses and end the tournament overnight. In that way, “the game, developers are in a position of absolute power over the development of public competitions that depend on their products.”
Alternatively, one could argue that current, traditional sports leagues have less incentive to refresh the game, which is why rules change at a glacial pace. As a result, real sports fail to keep up with 21st-century developments.
So there you have it: eSports require substantial physical talent and training, hold gruelling matches and tournaments, and have garnered fans and spectators that rival ‘real’ sports leagues. Advertisers are taking notice, and the business of TV, entertainment, and recreation face disruption from digital upstarts. Even traditional sports teams are getting in while they can. At the Closing Ceremony of the Summer Olympic Games in Rio, Japanese Prime Minister Shinzo Abe appeared as Super Mario—a video game character. Tokyo hosts the next Summer Olympic Games in 2020. Maybe, then, everyone will realize that eSports have arrived?
 Dawn Chmielewski (Sept 2014). “Sorry, Twitch: ESPN’s Skipper Says ‘Esports Not A Sport.’” Recode.
 “How does a StarCraft player’s APM compare to a pianist’s APM?” Quora
 Stewie McRubbins (May 2015). “League of Stats: Game Lengths of Every NA LCS Match-Up.” Gamurs eSports Network
 Natalie Shoemaker. “eSports Injuries Are On the Rise, Ignored at Gamers’ Peril.” The Big Think
 Yoon Sung-won (Aug 2014). “StarCraft II Ignites Hope For Revival.” The Korea Times
 Young, Henry (May 2016). “Seven-figure salaries, sold-out stadiums: Is pro video gaming a sport?” CNN
 Newzoo eSports (Oct 2016). “Why Sports & Brands Want To Be in eSports: Featuring a Comparative Analysis of American Sports and eSports.”
 Stephanie Apstein (Oct 2015). “E-sports nation: How competitive gaming became a flourishing sport.” Sports Illustrated.
 The Entertainment Software Association
 Bureau of Economic Analysis
 The Professional eSports Association