Investing in the ESports Industry
What Investors Should Consider Before Investing in the Esports Industry
Stocks of esports companies are benefitting from rising investor attention. The dramatic growth of esports as a spectator sport, entertainment, and even a gaming outlet makes the attention they’re getting justified.
Recent statistics on electronic sports (sometimes written e-sports or esports) show the events attract more than 500 million viewers worldwide. For those less familiar, esports is defined as organized video gaming. The games may consist of individual or multiplayer teams. Participants train and compete against other players or teams in an organized contest under standard agreed upon rules. The competitions attract large audiences both at the venue and across social media sites such as Twitch.tv. A reported 1.8 billion hours of esports, were watched in 2019, this is a 125% increase from hours reported the previous year. The trend has been positively impacted by the closure of traditional gambling outlets and sports in 2020.
Like any fledgling market with fast-growing revenue, there’s a rush of companies vying for a slice. Coverage of other people playing video games has demonstrated that it has tremendous and growing pull and is able to find an increasing number of followers —the audience is expanding rapidly and appears to have far more potential to the upside.
How Do Esports Profit?
Esports companies are primarily licensing companies, they sell access to branded events similar to other sports business models. This could include broadcast licensing deals, merchandise, live-event tickets, sponsorships, advertising, and clothing. Companies have also sold rights to operate esports teams and officiate organized leagues.
As with many young industries gaining popularity, there is only so much room at the top. So, although this segment within sports entertainment is growing, investor evaluation of the individual companies and their prospects is highly recommended.
What to Look For
When evaluating if esports is a fit for your portfolio and what stock or stocks provide the best risk/return opportunity, start with the basics you look for in other industries and companies.
Measure trends – Data for a number of esports companies including GMBL, GAME:CA, MLLLF, and others can be found under the COMPANY Data section in Channelchek. This could serve as a good place to find key ratios, charts, insider activity, and other statistical trends.
Company strength relative to peers – Every company has advantages and disadvantages relative to the others. Brand recognition, contractual agreements, unsettled legal disputes, and sheer size, to name a few. Learn about the competing companies. This is especially important when a market segment is new and the future looks positive for the segment — there is always a swarm of companies elbowing their way in. There are usually fewer over time as survivors benefit from outcompeting other entrants. Familiarize yourself with the companies you may be interested in by catching up with the news on the tickers. The COMPANY Data section of Channelchek is also a source for news feeds on many of the stocks.
Management Effectiveness – Most investors don’t have the luxury of sitting down with management and understanding the merits of their strategy and ability to implement. Detailed information can still be garnered from the explosion of online conferences and roadshows, many of these can be accessed on “replay” on YouTube and other video sites. Professional research should not be overlooked when evaluating management. Up-to-date research and analysis by FINRA licensed analysts can be invaluable for understanding management and the well-being of a particular company. If research isn’t available on all the companies you’re comparing, it helps to read reports that are available to best understand what a Wall Street professional looks for in this segment. A current example is Esports Entertainment Group (GMBL) covered by Noble Capital Markets.
The popularity of watching online and in-person (most venue events are on hiatus due to COVID-19) professionals play video games is on the rise. This segment of the sports licensing, gaming, and broadcasting industry is in its infancy and yet to be fully defined. Infancy is when the potential for reward is usually greatest, but at the same time risk of loss can also be high. Know as much as you can before deciding to be involved and in which companies. Read what true research analysts think, predictions on where the segment is headed vary greatly. However, most expectations point to increased popularity and acceptance. Esports and gaming video content already have a large audience, the opportunity to further expand into more mainstream acceptance and becoming even more lucrative while other sports entertainment is struggling, make it an interesting business to evaluate, and perhaps weave into a diverse portfolio.