How to invest in esports?
Esports, a form of organized, multiplayer video game competition, is extremely popular today. In 2019, it is estimated that the total audience of esports will grow to 454 million viewers and that revenues will increase to over $1 billion. Therefore, it is attracting the interest of investors all over the world.
Sponsorships and brand deals are projected to bring in more than a third of the total revenue for the industry this year, according to research firm Newzoo. But the main driver of revenue in esports will ultimately come from businesses that are centered around enthusiastic fans. Media companies are also enhancing their presence in the field, fighting for advertising and broadcasting rights.
At the same time, many investors are still incredulous about the potential of esports. Therefore, those who aren’t, have even more investment opportunities. Targeting industries that are growing in major global markets, but are relatively under-invested in the Midwest, is a bold, yet promising, strategy. Consider the fact that the number of League of Legends viewers beats every sporting event except for the Super Bowl.
How to invest in esports
There are several ways you can invest in esports.
- VC funding. Institutional investors are organizations that pool together funds on behalf of others, and invest those funds in a variety of different financial instruments and asset classes. The most active and popular institutional investors are Venture Capital (VC) Funds. Those manage the money of investors who seek private equity stakes in startups and small to medium-sized enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities.
The most prominent fund fully concentrated on the industry is Bitkraft. Deep Space Ventures, Index Ventures, March Capital, Catalyst Sports, and many others fund some kind of esports too. However, most VCs fund only 1 or 2 startups. You can use these funds for institutional investment.
- Private market. Another alternative is to invest directly into early-stage esports startups yourself. Private equity is an alternative investment class, and consists of the capital portion which is not listed on a public exchange. Funds and investors that directly invest in private companies, or that engage in buyouts of public companies, bring out the delisting of public equity. If you want to make a quality investment privately, you have to be an expert in the field. Moreover, be ready that startup valuations may go skyrocketing. There is currently a flood of capital-chasing deals in the esports area.
- Stocks. Stocks are an equity investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets. A common stock gives shareholders voting rights, but no guarantee of dividend payments. Preferred stocks provide no voting rights, but usually guarantees a dividend payment. Stocks are usually publicly traded and can be bought and sold online via public platforms and apps.
If you’re not confident enough in your personal ability to find hot esports deals, invest in the public market. The public companies that have the greatest percentage of their revenue linked to esports are Tencent, Activision Blizzard, Electronic Arts, Nintendo, NetEase, TakeTwo. The downside to investing in these public stocks, is the lack of pure-play esports exposure.
- Esports-related businesses. Companies that develop and sell products for gaming purposes can bring significant benefits to investors as well. Thus, NVIDIA is the most obvious example, with 86% of gamers using its chips. There’s also other hardware to consider. For instance, companies like Microsoft and Logitech International could also become profitable from the growing popularity of esports. Investing in their stocks would be a nice indirect way to gain from esports.
- ETF. An exchange-traded fund (ETF) is a collection of securities, including stocks, commodities, bonds, or a mixture of investment types, that tracks an underlying index. ETF is marketable security, meaning it has an associated price.
Since esports is still at its early development stage, there aren’t any pure-play esports ETFs on the market. However, if you’re looking for at least some exposure, the Video Game Tech ETF is an option to consider. Most of its 68 holdings are technology-related, but not pure esports companies. Nevertheless, it’s a viable option to consider amongst others.
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