Why eSports are a genuine threat to pro sports leagues

Look no further than March 2016 when more than 100,000 fans descended upon Poland’s Spodek Arena for the Intel Extreme Masters World Championship, which calls itself the “longest running global pro gaming tour in the world,” and included gamers playing the likes of StarCraft 2, League of Legends and Counter-Strike: Global Offensive.

Per Pieter van den Heuvel, head of eSports at Newzoo, a market intelligence firm focused on games, eSports and mobile, in the last two to three years, fans have increasingly started watching gamers play competitive games.

“They want to…watch others compete to see who is the best at certain games,” he said.

Indeed, per a new study from Newzoo, gaming has become much more of a spectator sport as 40% of the more than 200 million eSports enthusiasts and occasional viewers worldwide do not even play the games they watch.

And this burgeoning eSports market is actually starting to muscle in on traditional spectator sports.

This is not to say eSports should necessarily start making NFL Commissioner Roger Goddell sweat either, but, unlike, say, football, it’s easy for fans to both watch and compete in eSports because they don’t have to round up enough friends to play and can instead simply find other gamers online, van den Heuvel said.

Further, Newzoo projects the audience of eSports enthusiasts will grow from 148 million in 2016 to 215 million in 2019 while revenue is expected to grow from $493 million to $1.1 billion in the same time period.

Digital – and paywall-free

And, as is so often the case now, Millennials are the primary cause.

In fact, per Newzoo’s findings, 56% of American football viewers are over the age of 35 versus 27% for eSports.

“Right now, the iPad at home is the first screen for a lot of kids who become increasingly digital and eSports is a phenomenon that plays into the hands of this increasingly digital younger audience,” van den Heuvel said.

What’s more, eSports content is frequently livestreamed via platforms like Twitch for free unlike traditional sports broadcasts, which are often hidden behind paywalls, he added.

This, too, appeals to a younger crowd.

‘A very immature market’

But, like a moody teen, eSports doesn’t have everything figured out. In fact, Newzoo notes that if eSports generated as much revenue per fan as the NBA, it would be a $2.5 billion business, which is five times what it is worth.

That translates to about $3.30 per fan per year as a result of merchandise and ticket sales, etc. The average NBA fan, on the other hand, generates about $15 in revenue for the league.

“A lot of the [eSports] footage is owned by game developers who don’t monetize a lot of the content yet. They don’t sell it as media rights packages, so it’s not being monetized as well as the NBA or the NFL,” he added. “It’s a very immature market and we see as [they mature], a lot of organizations become better at monetizing and teams sell more merchandise.”

At the same time, he noted this digital generation “kind of expects a lot of things for free,” so there are many variables when it comes to future revenue growth.

‘Definitely a threat for traditional sports’

But it might be time for professional leagues and teams to start paying closer attention to eSports -- particularly those in hockey and baseball.

That’s because Newzoo found eSports is equally as popular as these two sports among US men ages 21 to 35, with 22% watching eSports frequently.

But perhaps most tellingly, Newzoo said 76% of eSports enthusiasts say their eSports viewing is taking away from hours they used to spend watching other sports. And so there’s a potential risk eSports could cannibalize the audiences of traditional spectator sports.

“We don’t have trending data so far back we can say there is a significant shift, but we have asked respondents that when you started watching eSports, has this dug in to traditional sports — and, yes, they watch less traditional sports, especially in the future because traditional sports are behind paywalls, so it’s easier for younger kids browsing YouTube or Twitch to get in touch with eSports,” van den Heuvel said. “It’s definitely a threat for traditional sports – it takes time from those who watch sports and younger people have lower barrier of entry.”

As a result, van den Heuvel said he believes every traditional sports club and media company can learn from the gaming industry.

“The games industry in general is very good at monetizing people with…cosmetic in-game items, or purchases that make the experience slightly better…that is at least something [sports brands] can learn [in terms of] how to appeal to the digital community,” he added. “[I don’t know] whether the NHL needs to look into an eSports team, but they definitely need to look at this space and try to learn how to appeal to [digital natives].”

And some professional sports brands are doing precisely that.

Just a few weeks ago, NBA franchise the Philadelphia 76ers announced it acquired controlling stakes in UK-based eSports team Team Dignitas and North American eSports team Team Apex to “create a powerhouse competitor in the booming business of eSports.”

“We see our entrance into eSports as a natural extension of our expanding interests in traditional sports and entertainment and are confident that our involvement will accelerate the already rapid pace of growth in eSports as a whole,” said Philadelphia 76ers Managing General Partner Josh Harris in a statement.

Soon thereafter, eSports franchise Team Liquid sold a controlling interest to an ownership group including Peter Guber, executive chairman of the NBA’s Golden State Warriors, and Ted Leonsis, the majority owner of the NHL’s Washington Capitals, the NBA’s Washington Wizards, the WNBA’s Washington Mystics, the AFL’s Washington Valor and the Verizon Center. The deal also included former NBA player Magic Johnson, who is part of the group of investors that purchased the MLB’s LA Dodgers and the WNBA’s LA Sparks.

These moves are undoubtedly at least in part to appeal to Millennials and to stay ahead of trends. In other words: Disrupt rather than be disrupted.

However, van den Heuvel noted these deals are still quite new, so it’s hard to tell how exactly the eSports brands will be leveraged by the professional sports organizations behind them.

At the same time, van den Heuvel noted eSports fans are incredibly hard for brands to reach via traditional means and it is also a young industry, which marks a huge opportunity for brands to get involved and reach these consumers while sponsorship costs are still relatively low.

“I believe this is the best moment for brands to start looking at eSports before making the plunge,” he added.