Our last two reports highlighted the rapidly expanding prevalence of gaming in people’s lives (especially in the Middle East), and the unprecedented opportunities this opens for the industry overall. Professional competitions are a natural extension of every game. Video games are no exception, with the first esports tournaments dating back to the early 1990s. From there, it was only a matter of time for them to move from arcades to arenas, and the stakes to grow from bragging rights to millions in prize money. This report explains what esports is, where it differs from traditional sports, and how to best leverage its potential both globally and in the Middle East.
This report addresses key questions, painting the picture of a vibrant new sector bursting with opportunity:
Esports gets inspiration from traditional sports in many respects, but differs in 3 important ways:
Firstly, competition is built around video rather than physical games. While this may sound easy or even trivial, the intensity of an esports tournament can match that of a football final. Esports athletes experience significant stress and surge in their heart rate,
Even today, the likelihood of success in competitive esports is scarce for casual gamers. As with traditional sports, participating at a professional level demands full commitment and dedication from players, who spend 70-80 hours per week training to be the best in their game. Teams/players often live together to optimize their training schedule, sharpen team strategy, tactics, and communications, and develop their individual skills by playing daily against other great players. Complex systems emerge around players to ensure they are ready for important matches. Training schedules include developing new tactics, perfecting current ones, and sparring with other teams and players to evaluate skills and identify gaps. Although they play video games, esports athletes find that physical and mental health are critical for success, so many teams embed nutrition, physical training, and psychological support in their daily routines.
Secondly, esports is embedded in a dedicated ecosystem (Exhibit 1) that includes 2 stakeholders not present in physical sports – game publishers and licensing partners:
At a high level, esports competitions are similar to sports, with qualifying matches, playoffs and finals. They are also hosted in stadiums with live broadcasting through (mostly) digital media such as Twitch or YouTube. However, differences between game genres and complexity of the ecosystem influence esports operations significantly.
Therefore, while esports has many similarities with physical sports, it has a more complicated ecosystem. This drives innovation in many directions to cater to all ecosystem participants (especially game publishers, athletes, and audiences).
Not surprisingly, given the ecosystem complexity and relative nascency of the industry, esports is quite fragmented compared to mature traditional sports markets. This section will provide an overview of the esports market based on key metrics (audience numbers, prize levels, ticket sales) and explore the feasibility of scaling further.
Esports is still far from achieving the popularity of major traditional sports, but it is moving quickly in this direction. Even leading esports events like League of Legends attract just a fraction of the viewership achieved by their sports equivalents like the FIFA World Cup (76 million viewers by media estimation vs. 3,500 million, and 0.2 billion hours watched vs. 35 billion). However, esports has hit multiple milestones over the past 30 years, with especially strong growth in the last 8-10. For instance, several esports tournaments have exceeded the 100 million hours watched threshold. Moreover, where it took 8-9 years for the first comers like League of Legends Worlds and The International for Dota 2 to reach that number, ML:BB achieved it in just 4 years (Exhibit 2). Overall, esports viewership keeps growing, while that of leading sports is stagnating or even decreasing.
Fans are attracted by the level of skill and competition they see at esports tournaments. For example, IEM Cologne attracts 15-20 thousand people to watch leading teams competing for a $1 million prize pool live in a stadium, comparable to many physical sports events. Nevertheless, the audience is younger than for major sports leagues, tech savvy, and relatively wealthy (Exhibit 3). These characteristics make esports a promising marketing channel for many brands.
The audience is also passionate and loyal in its demand for specific games. In 2013, tickets to the League of Legends world championship final in Los Angeles sold out the 17,000-seat venue in less than an hour.
This demand continues to drive esports market growth. There are now 300 tournaments with prize pools exceeding $100,000. Approximately 30,000 professional esports athletes competed in 2022, compared to 14,000 in 2015. Moreover, the median tournament prize pool has significantly increased: from $270,000 to $600,000 between 2018 and 2021 for professional events.
Leading esports have reached a significant scale across multiple game genres: Multiplayer Online Battle Arena (MOBA) (e.g., League of Legends, Dota 2), First Point Shooters (e.g., CS:GO), Battle Royale (e.g., PUBG, Fortnite), and Collectible Card Game (e.g., Hearthstone). Leading tournaments offer $1 million plus prize pools, with The International’s $40 million 2021 prize pool approaching that of Wimbledon ($50 million).
While the esports audience is still smaller than that of leading traditional sports such as football, it has a unique advantage – high growth potential. Today, only ~15% of the gaming audience also follows esports.
But as more games create a strong foundation, that number is likely to grow. Newzoo estimates that there are approximately 3 billion gamers in the world today, with ~500 million esports fans, indicating a current untapped potential of 2.5 billion people.
One of the reasons for esports’ great potential is that this growth has been driven by just a handful of titles. In 2022, five games accounted for 70% of total esports hours watched: League of Legends (23%), CS:GO (14%), ML:BB (13%), Dota 2 (12%) and Valorant (10%).
Of these, 42 titles have active esports competition today, including 27 with promising potential in the next several years. They can be classified into four key groups:
While the list of top games seems unlikely to change in the foreseeable future, there is significant untapped potential for mobile games in esports:
Video games are more complex than traditional sports. Only a few genres, sport simulators or racing, do not require special knowledge. For example, League of Legends and Dota 2 (both MOBA games) have >140 and >120 playable characters respectively, each with its own special abilities, statistics, upgrades. Hearthstone (CCG) has >1000 cards to create card decks from. Esports events for such games attract mostly active players, as real gaming experience is required to understand what is going on in an esports match.
Thus, while 42 games have growth potential, it is likely that esports scaling will also require other games to emerge. Existing games will account for some audience growth in the future. However, their potential is limited by popular relevance, accessibility to a wide audience of multiple skill levels, and ethical concerns (e.g., the level of aggression in First Point Shooters).
Esports’ growing scale is attracting attention from all stakeholders in its ecosystem. Each has a distinct role in shaping esports’ future:
Its rising popularity is spurring esports to become more professionalized, closer to what we see in traditional sports. Game publishers are creating esports leagues that closely parallel their professional sports counterparts.
Government support is crucial for such a young industry as esports, recognizing that traditional sports have benefited from government investments in infrastructure, subsidies, and tax benefits. While esports could reach traditional sports’ level in the future, it will require government nurturing.
Some countries are starting to acknowledge esports as an industry, which is a critical first step. In France, for example, esports is an official sport, with its players recognized as athletes under the country’s new Digital Republic Bill. Denmark has integrated esports into the curriculum in 70 schools across age ranges throughout the country. China recognizes esports professionals (players and organizers) as official occupations, although it has started to regulate gaming hours for children which may impact esports’ growth and athlete development.
Olympic committees are also exploring esports to boost the popularity of the Olympic games. The International Esports Federation (IeSF) has submitted a request for the International Olympic Committee (IOC) to recognize as an official sport. IOC has responded by providing IeSF with the necessary steps for such recognition, acknowledging that, someday, esports may feature in the Olympic Games. In 2021, the Olympic Council of Asia announced which titles would be added to the 2022 Asian Games (to be hosted in September 2023) as medaled events: League of Legends (MOBA); Dota 2 (MOBA); Hearthstone (Card); Street Fighter V (Fighting); Arena of Valor (MOBA); Dream of the Three Kingdoms 2 (MOBA); FIFA (Sports); and PUBG Mobile (BR).
It is interesting to look more closely at how these titles were selected. Of the eight, four are MOBA (multiplayer online battle arena), primarily due to this genre’s popularity within the esports community. We also see titles included that specifically appeal to a regional audience. For example, Dream of the Three Kingdoms is popular with the Chinese audience (and less known outside of China), while FIFA has a strong presence in the Middle East and parts of Europe. The absence of a shooter title is also notable – in particular, Valve’s CS:GO, a quintessential esports title and one of the few that offers fairly unrestrictive licensing requirements for event organizers. In general, the selection of titles comes down to the popularity of the games, but also the restrictions publishers may place on their titles being used for such competitions and possible social sensitivities.
It is worth highlighting that as esports is still at the early stage of development, national games seem to be a bit premature for the industry. Over 60% of the top 8 esports teams are multi-national, while national events in esports not yet common (e.g., compared to football, where national competitions are the most anticipated events). These factors incentivize players to focus on the success of their esports clubs, leaving limited bandwidth for national games. While IeSF hosts the World Esports Championship, so far its viewership is 30-35x lower than for leading team-based esports competitions (Exhibit 6).
Esports federations are building on government interest and starting to develop programs that nurture talent and help athletes pursue careers in the field. Japan’s JeSU now offers financial guarantees for players, with minimum annual salaries in esports leagues. Some Chinese regions provide support to esports players to acquire real estate and pursue higher education. KeSPA in South Korea introduced multiple supporting levers for esports athletes years ago (from event organization to post-career support and compensation) and is extending them further. For example, it now offers legal advice to teams/players on visas, taxes, etc. Private entities are also following the trend, including universities in the USA and Europe now awarding scholarships to esports players.
A supporting ecosystem is emerging, with further growth expected as popularity and the willingness to spend on esports continue to rise. Many of the elements of professional sports are making their way into esports. Already, we have managers, coaches, training centers, nutrition specialists, sports psychologists, and other experts working with professional esports athletes. Online competitive gaming platforms are the functional equivalent of YMCAs and other community recreation centers, where young talent can begin to hone their skills and make a name for themselves. This was critical early in the COVID pandemic as events went completely virtual, proving esports could continue in a largely online format.
Brands have started leveraging esports as a key marketing channel to reach their target audience and build brand awareness and loyalty. Today 45% of sponsorships already come from companies outside the gaming industry (Exhibit 7).
Sponsorship can take multiple forms, for example:
Media companies are leveraging the esports trend to enrich their content and differentiate from the competition, especially in the digital space:
Clearly this is an exciting time in the world of esports. The industry is enjoying rapid growth, innovation, investment, and popularity. But several challenges will need to be resolved if it is to deliver on its promise, primarily related to:
The esports industry’s top challenge is to figure out its business model. The analogous sports franchise business model is built on creating content for a wide audience and monetizing it through media rights. However, esports’ relatively limited viewership makes such monetization challenging. Most tournament prizes are distributed among players directly (not to the esports clubs that hire them) to sustain their careers. This leads other stakeholders, mainly esports event organizers and esports clubs, to rely on sponsors (Exhibit 8). A more sustainable business model will be critical to realizing the full promise of esports – one that provides financial stability to clubs and players, expands audience reach, and allows organizers to invest in the production and marketing of top-quality events.
While multiple media players are already experimenting in this space, the trend is in its early days. YouTube is very active in acquiring exclusive rights for esports, part of its strategy to close the gap vs. Twitch in the streaming market. While many deals are not public, it is estimated that YouTube has entered into multi-year deals and paid ~$160 million for esports from Activision-Blizzard (covering Overwatch, Call of Duty, and Hearthstone), and $113 million to Riot for League of Legends. Some AVOD/SVOD players are experimenting with esports as content to differentiate themselves from competitors. For example, the Spanish platform Movistar offers dedicated esports content and has invested in an esports club. Some regional platforms, especially those focused on sports, are experimenting with sports simulators like FIFA. TV is also getting involved. While South Korea introduced the first TV streams in the 1990s (focusing on the StarCraft franchise), today some cable TV players are doing so as well, including ESPN (League of Legends, Dota 2 tournaments) and BBC (mostly League of Legends).
Finding a sustainable business model is further complicated by the esports ecosystem. Besides being more complex, a fundamental difference compared to traditional sports is that no one owns basketball or football, whereas there are publishers who own games like Call of Duty or League of Legends. Game publishers are an additional, powerful stakeholder at the negotiating table – they are the gatekeepers determining whether a title can be used for esports or not. Other stakeholders have limited say in publishers’ plans for a game’s evolution (e.g., update, discontinue or launch a new version of a game).
Publishers’ shift from a traditional business model of one-time sales towards ongoing monetization via in-game items and subscriptions significantly extends games’ shelf life, making them businesses in themselves with constant development. For example, World of Warcraft has been around for 18 years, through 8 major expansions. This means that a game has its own community and brand, which may be damaged by misaligned PR or activities. If an esports tournament is poorly organized or attracts unwanted publicity, it can have a negative impact on the community, game, and financial performance.
This game-specific context slows down esports’ development, limiting both supply and demand:
Some game publishers have separated esports into stand-alone businesses, organizing esports leagues around their games. While some games are easy enough to attract general video game fans (e.g., CS:GO or Rocket League), it may take a long time for more complex games to become operationally and financially sustainable. A good example is leagues for MOBA or some FPS games with complex mechanics like Valorant and Overwatch 2 (many distinct heroes with own special abilities / skills – >15 in Valorant and >35 in Overwatch 2), which limits the potential to game fans only. Each league is focused on one game only, so does not capture the broader gaming audience, which is critical at this early stage. We are already seeing the first signs of difficulty. Activision-Blizzard had to allow franchises in its Overwatch leagues to postpone paying fees, equalling up to $25 million per franchise. Arguably, this led to a somewhat safer approach from Riot, where teams for its new Valorant esports league were selected through an interview and financial review process, but with no franchise fee required.
This status quo will likely drive a change of approach in the market, like focusing on more open leagues (e.g., Valve licenses CS:GO rights to third parties and has 3 successful leagues – ESL, BLAST, and PGL), growing popularity through international events (e.g., Olympic games), or even becoming a part of larger events such as Gamers8 in Saudi Arabia. Potential partnerships to grow not only events for a publisher’s own game(s), but esports as a whole, might also take place in the future, especially if the pace of growth slows down.
The secondary importance of esports relative to games also leads to a lack of unified rules supporting esports athletes, further slowing industry development. The esports ecosystem requires at least some level of alignment to keep the industry moving forward. For instance, sports leagues typically have clear competition rules, event schedules, athlete contract models, processes for trades between the teams, and other elements that address potential conflicts and provide an opportunity for cross-league coordination (e.g., allowing players to participate in national events or change leagues between seasons). A similar infrastructure could benefit esports as well, with some specific cases requiring additional alignment. Sometimes top players can change video games, which is rare in sports. It is especially relevant within the same genre, like when the strong CS:GO player “KennyS” joined Valorant. This could use additional clarification and alignment between game publishers / third party event organizers and their leagues. Another area that requires unification is the overall health and wellbeing of esports athletes, whose career requires them spending long hours sitting in front of their PCs or mobile devices.
In traditional sports, rule changes are approved and facilitated by some form of governing committee. An equivalent body does not yet exist in esports, but may have a role in shaping the format of competitions (e.g., how many rounds of a game to play, points awarded, etc.). Clearly, not everything should be unified or regulated. Game publishers often know their games and communities much better than anyone else, so they are the best stakeholders to oversee the evolution of a specific game (e.g., the balance of power between different game characters, new game mechanics, etc.).
Some degree of unified or aligned regulation is especially critical at this early stage to persuade people that esports can offer a viable career. Fortnite had a prize pool of $30 million for its top event several years ago, but subsequently reduced it to only $2 million today. Activision-Blizzard created an esports scene for its MOBA called Heroes of the Storm by establishing the Heroes of the Storm Global Championship in 2016. But then they shut it down in 2018, which forced athletes to quickly change games if they wanted to stay in esports. Such volatility impacts esports athletes’ ability to plan a career.
Countries have been slow in supporting esports – perhaps understandably, given the context. But this hesitancy translates into a lack of support for esports athletes, which undermines the overall perception and likelihood of someone choosing it as a career. National recognition as an athlete comes with certain obligations and benefits, which cost money that governments may not always be willing to spend. For example, Spain is, in many ways, the esports hub of Europe because of its popularity there. But the country has not recognized esports as an actual sport. Instead, it includes esports under audiovisual industry development, with a current view that no separate legislation is required. This decision makes it challenging for some people to see esports as a sustainable career. Firstly, it makes esports inherently less stable: a professional esports athlete cannot rely on any game as it can be easily cancelled, or have its support withdrawn – not just by the publisher but by the government. Secondly, because esports athletes are not yet recognized by the state (so not technically employed), they do not receive medical insurance or other benefits, compounding the financial insecurity.
To drive esports forward, governments can consider adopting measures including: holistic regulations for esports; incentives for players to select esports as a career; a clear development path from amateur to professional levels; transition after a person’s esports career ends (both direct involvement as a team owner or a coach, and in adjacent sectors such as game development); and guarantees for players during and especially after the end of their careers (typically in their late 20s – early 30s). Governments and their federations can also organize and sponsor esports clubs and events at multiple levels, from in schools through to major global championships, and invest in dedicated or cross-functional infrastructure like venues.
Its rapidly increasing popularity, youthful fanbase, and tremendous untapped growth potential make esports an exciting segment that will help shape the future of live entertainment. It offers a range of opportunities for established industry players and other companies wanting to leverage the buzz and reach esports’ coveted audience. While some fundamental challenges will need to be resolved, esports has the potential to scale significantly and become a major global form of live entertainment. And Middle East is establishing itself as an emerging leader with strong focus, investment, and commitment to the sector. Its young population of gaming enthusiasts and government willingness to invest in events, support, and infrastructure are positioning the region as the esports market of tomorrow.
Managing Director & Partner
Dubai
Partner
Dubai
Principal
Riyadh
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