Are competitive video games worthy of being considered a sport? What was once the realm of science fiction is quickly becoming a reality: With college scholarships, exorbitant prize pools, and millions of spectators, League of Legends and Dota 2 are the closest thing the world has ever seen to video games as professional sports.
Although it's difficult for investors to gain exposure to those games, there are other opportunities. Both Activision-Blizzard (NASDAQ: ATVI ) and Electronic Arts (NASDAQ: EA ) are making a concentrated effort at breaking into the space.
The rise of the MOBA
Although dedicated fans of League of Legends and Dota 2 would insist that they are radically different, unfamiliar observers would find it almost impossible to tell them apart.
They are the two most popular members of a relatively new video game genre known as the multiplayer online battle arena, or MOBA. The MOBA, for a variety of reasons, lends itself well to being considered a sport -- the games consist entirely of short matches between two teams of five players. The matches are highly demanding, requiring much skill, and teamwork is of the utmost importance.
Perhaps most crucially, unlike other video games, the matches can be amusing to watch -- League of Legends and Dota 2 are the two most commonly viewed games on Twitch, the rapidly growing video game streaming service.
It's no surprise then that when Robert Morris University elected to add a video game to its varsity athletics, it chose League of Legends. Beginning in September, the university will incorporate League of Legends into its athletic program, and will even go so far as to offer scholarships to top players.
The enthusiasm for Dota 2 is no less impressive. The upcoming Dota 2 International invitational tournament has a prize pool of over $10 million -- more than golf's U.S Open.
Activision and Electronic Arts are pushing into the space
Unfortunately, there aren't many ways to invest directly in either game. Valve, a private company, owns Dota 2, while League of Legends is developed and managed by Riot Games, a subsidiary of Chinese tech giant Tencent. Twitch is private and an IPO appears unlikely -- the company is reportedly in acquisition talks with YouTube.
But the rise of the MOBA has not been lost on other video game publishers. Both Electronic Arts and Activision are working on titles within the genre, one or both of which could emerge as mega hits.
Activision's Heroes of the Storm is currently in alpha testing, with no set release date. When it does launch, it will attempt to utilize its Blizzard IP to attract PC gamers, most of whom are familiar with its iconic Starcraft, Warcraft, and Diablo franchises. Activision also has some level of experience in crafting video game sports -- Starcraft has been played competitively for years, notably in South Korea, where there is a large professional circuit.
Electronic Arts' MOBA is known as Dawngate. Currently, anyone can download the game and begin playing, though it technically isn't finished and hasn't received an official launch -- Electronic Arts is presently running it as an open beta test. Dawngate has an active community, but it hasn't gained nearly as much traction as Dota 2 or League of Legends. If it does, it won't be until the game is finished.
Lacking first-mover advantage
Still, there are some notable challenges to both games. League of Legends and Dota 2 have the first-mover advantage, and the highly competitive nature of the games may keep their players loyal -- skills developed playing one game may not easily transfer over to another.
But given the scope of this trend, one that is quickly becoming transformational, blurring the lines between video games and traditional sports, Activision and Electronic Arts offer interesting upside. While Destiny and Call of Duty may be the focus of Activision investors, and Madden and Battlefield the centerpiece of Electronic Arts, Heroes of the Storm and Dawngate stand as two potential sleeper hits -- titles that could help to redefine the very concept of what it means to be a sport.
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