With Audiences Rivaling Major Professional Sports Leagues, How Big Is the Opportunity for eSports?

In this segment from Industry Focus: Consumer Goods, Vincent Shen recruits Fool.com contributor Seth McNew to share the latest news from the world of eSports. Competitive gaming events are selling out arenas and awarding millions of dollars to tournament champions. Though revenue opportunities for the growing industry have yet to reach traditional sport levels, analysts estimate eSports will top $1 billion in the next year with more growth on the way.

A full transcript follows the video.

Vincent Shen: You mentioned Oculus. I want to get to virtual reality, we'll save some time for that. But eSports is what really blew me away. It's March, we're in the thick of March Madness. My team might be out as a UVA alum. But, while watching that game, I could not believe it, I saw commercials for a Street Fighter 5 championship eSport event being aired on ESPN. The first time I've seen -- maybe I don't watch enough network cable television with commercials, because I'm usually on Netflix. But I was blown away by this. It made me realize that a lot of companies point to eSports as a big opportunity, but the legitimacy there, I feel like anybody that's watching these games and sees that is like, "What is this doing on ESPN?" And now, you get an idea of how big this opportunity is. What do you think about this?

Seth McNew: Yeah, certainly, seeing it on TV, there's a lot of companies that are trying to play in the space right now, not just the players we've mentioned so far, but ESPN, YouTube, recently Amazon bought Twitch, which is known for its eSports. But, what I think is interesting here is, first of all, we should just talk about what eSports is. It's electronic sports. Essentially, there's pro gamers playing against each other, usually for a cash prize. As you would imagine, there are people watching this. There is a fan base which leaves open the door for advertisements and other revenue.

Shen: You brought this to me, and I think I've touched on this in a previous episode before, but some of these tournaments, the prize pools are not trivial at all.

McNew: Yeah, you're talking about prize pools of tens of millions of dollars. The most recent one was over $20 million. That's incredible. 

Shen: Yes. So, as you can imagine, with that kind of money on the line, you're going to start really attracting a bigger and bigger pool of people wanting to get into this in a professional manner. But the thing is, I was trying to get a sense of the scale for this, 385 million people globally in terms of audience size for eSports. Huge, right?

McNew: Have you ever watch eSports, or any gaming?

Shen: I have, through YouTube. I haven't seen it on television, I haven't taken that step yet. Funny enough, I have been to a live event before at the conference center here in D.C., just out of curiosity, to get a lay of the land. And it was for Pokemon.

McNew: Does it feel like a sporting event, with all the fanfare?

Shen: You have everybody seated. There wasn't tens of thousands of people, of course. But seeing people playing with the big screens, I saw a lot of potential. And I can imagine that going to a full event with tons of fans in an arena -- because this was more of just a conference for Pokemon -- I could see that having an energy level that people might typically associated with professional sports.

385 million globally in terms of audiences for eSports. And the thing is, this is really in its infancy, really early stages. I found an analysis that said the revenue for this market is not expected to break $1 billion until next year. So, the companies that are investing heavily in this, including Electronic Arts and Activision, they're really not making that much money on this, if any at all. But the idea is, you could attract more gamers, you could build more buzz and publicity for various titles, and ultimately, people are starting to say, 385 million viewers, some of these audiences are bigger than major professional sports leagues like the NBA, does that mean they can make more money?

The issue right now is, by comparison, the NFL generated $11 billion in 2015 from ticket sales, TV rights, and sponsorships. eSports hasn't even broken that $1 billion marker. The problem is, I think, ultimately, the number of events you can have between NFL games and different franchises, the number of games played in the season, you have a lot of events generating those ticket sales, and a lot of money from those TV deals. You've heard about these billion-dollar deals signed to air football games, for example. Whether we reach that threshold, that point for eSports remains to be seen. But ultimately, it's definitely an exciting avenue. Anything else you've seen with eSports that you want to leave listeners with?

McNew: That's a good point, how small it is right now comparative. But I think it's interesting that there can be new content that drives its own leagues. It might be a place where there's just as many opportunities to have these kinds of competitions, as you have different leagues that are devoted to a specific game, more games have more leagues, and also the ability to have these in house ones in any arena, you don't have to have them in an arena that's specific for gaming, you just need to have a TV there. So I think it's possible that this could grow much more regionally.

Shen: OK. Something else I've also kept in mind, and people stress with eSports, is that it can change as the technology we have available to us, in terms of how we consume our media, it changes. Virtual reality, some of the first major headsets or devices for that, the hardware for that, went on sale last year. That could potentially change how we view an eSports tournament.