Esports: A $5 Billion Industry by 2020?

Esports is taking off, and it's probably going to see a high level of growth in the next five years. In this special South by Southwest episode of MarketFoolery, Chris Hill interviews Macy Mills, the head of business development at GameInfluencer, about influencer marketing and the growing world of esports.

Tune in to find out where esports is seeing most of its competition; when the U.S. might really start to pay more attention to esports; what it means that colleges are starting to offer esports scholarships; how online gaming facilitates fan-to-star interactions, and how that might change in the future; how influencer marketing works for gaming; and more.

A full transcript follows the video.

This video was recorded on March 15, 2018.

Chris Hill: For Thursday, March 15th, it's Market Foolery from Austin, Texas. We're wrapping up South by Southwest week. I'm Chris Hill, and I'm very happy to be joined by Macy Mills. She's the head of Business Development at GameInfluencer. Thanks for being here!

Macy Mills: Thank you so much for having me! I'm excited to be here.

Hill: You just got off the stage. It was a great breakout session entitled The Connected World of Sports and Esports. This is an industry that we've been watching very closely at The Motley Fool, and it's fascinating to see the rise of esports. Let's just start with the big number. The promotion for this breakout session said, by the year 2020, esports is going to be a $5 billion industry. Where is it right now, do you think, in terms of its value?

Mills: We were talking with the panelists right before we jumped on stage, and there was a lot of back and forth on what the number actually is, but we're pretty sure it's around $1 billion in 2017, and it's doubling and doubling and doubling. So, I definitely think it's going to be over $1 billion every year for the next five, at least.

Hill: You were moderating the panel. There were two panelists who were very much in the world of esports, and there was an executive from the Milwaukee Bucks, NBA franchise, talking about the Milwaukee Bucks being at the leading edge of the NBA's entry into esports. I was saying to Dan right before we started taping, I laughed out loud during the session because, for the first time in my life, I heard what we consider to be traditional sports referred to repeatedly on the panel as "offline sports."

Mills: Right, correct. [laughs] 

Hill: The NBA executive seemed a little hurt by that. Maybe I was misreading his body language. I had never heard the phrase offline sports before.

Mills: Yeah, when I sent him the questions before, he didn't say there was anything wrong with that, so we just went with offline sports. But I guess, traditional sports is also a better way to call regular sports.

Hill: So, in terms of competitive threats, because one of the things that came up in the panel was, not just the NBA starting to get involved in this, but also it sounds like Major League Baseball, the NHL, they're starting to get involved. Before we get into the nitty-gritty of esports itself, I'm always curious about any industry's competitive landscape. What is the big competition right now for esports? Is it other forms of entertainment? Because if you're Netflix or Hulu, if you're HBO, all of which have a presence at South by Southwest this week, you want people sitting and watching your content. You don't want people engaging in esports.

Mills: Right. I see it as an opportunity for a Netflix or a Hulu. I think it's a natural progression for them to, at least someday, get involved in esports and live streaming and things like that. Obviously Twitch is taking the cake right now on the streaming side of things for esports. I mean, in general, I would say they're mostly competing against each other in terms of the games and the game publishers. You have people who are die hard League of Legends fans and they're not watching OverWatch games, for example. But, I think it's really up to the game publishers to market their game, and once the game receives mass adoption, that's when you really have the esports enthusiasts who are really interested in not only competing but watching these titles and things like that.

Hill: One of the things that came up on the panel discussion was about the money involved, and the ownership. Part of the case that was being made by all of the panelists had to do with the amount of money that, if you own -- one of the guys was saying that the Kraft family, which owns the New England Patriots, they're one of the investors in his company, Skillz. One of the panelists was making the point about how investment is a little easier to come by these days because these aren't franchises that are in the billions of dollars, and it really behooves any pro sports owner to be looking at this industry. Let's talk about your area of expertise, and that has to do with the promotion and marketing of this. I'm assuming, as with the rise of esports and the rise of the audience of esports, the rise of marketing dollars flowing into it has got to be -- I don't know what the exact numbers are, maybe you could share some of them. But I have to believe they're going north.

Mills: At GameInfluencer, we're focused on influencer marketing for any type of game, whether that's a competitive esports game or a casual match three. And what we found really interesting is, we're actually learning from the esports industry. One of the best cases that we had was with a publisher, and the game was called Tiny Armies. In Germany, we had four mobile stars, basically, create their own clans within the game and really promote it on their YouTube channels. Then, after two weeks of constantly promoting, they actually livestreamed, and all four clans competed against each other. There were real life prizes involved. We saw these users were retained much better in the long term. So, it's not only that people are coming to us to, for example, work with an esports star. We're actually learning things from esports as well that are helping us do our jobs better in influencer marketing.

Hill: It seems like, at the moment, even though esports is smaller than, [laughs] offline sports -- again, it feels weird to say that out loud -- it does seem like one advantage is connection with the fans, because the fan base is very passionate and feels an even greater connection to the players involved because they're able to interact with them much more than they are with, pick your favorite sport and pick your favorite player in that traditional offline sport, you're not going to have the same kind of relationship.

Mills: Right. And right now, it's really easy to just ping your favorite star and write in their Twitch channel. Even if that's one note out of thousands of comments, they may respond, you may get to talk to them. Most of the time with Twitch, they're actually reading them and responding while they're playing the game, which is really cool.

Hill: And practicing. You can watch these people practice.

Mills: Yeah, and that's something that's incredibly different, obviously, from traditional sports. I will be interested to see how it involves as esports gets bigger and continues to double in size. Will these stars become as inaccessible as a LeBron James? I don't know. They may stick with being able to see them practice and understanding their strategies and things like that. But, will it become too competitive, to where they won't want to show their practices livestreaming and things like that? I don't know. It'll be very interesting to see how this flows forward.

Hill: What are a couple of numbers that the average investor out there who's interested in this industry, what should we be watching for? Whether it's audience numbers, or maybe it's not a number, maybe it's just a partnership or a deal of some sort, what should we be watching for, to get further indication of this?

Mills: I would say concurrent streamers on Twitch. I would say, not even numbers, but for example, where is esports going to be shown other than Twitch? Is Netflix or Hulu going to pick something up like this? Is it going to go on television, or does that even matter at this point, because people are less and less having cable in their home? What we look up when we look at influencers is their view counts. Subscribers don't matter as much to us because you could have someone as a subscriber who hasn't logged into YouTube for 5 years. It's really about who's bringing in consistent viewers, and esports from there is someone who's getting really good at that game and getting picked up by a team. And the rest is history, it's happily ever after for them.

Hill: One of the points that was made toward the end of the discussion had to do with geography, and how esports, for as much and growing attention as it's getting in the United States, the U.S. isn't really leading the way on esports. So, is there a tipping point that Americans should be looking for in terms of the U.S. getting even more involved in this?

Mills: I think Korea is really taking the charge here, and in general in the games industry, it's just making up a lot of it. China is making up one-fourth of the revenue in the gaming industry overall. I think what's interesting for the U.S. is that we're set up for something like this. We have created the NFL, we have the NHL, we have the MLB and the NBA. We have these opportunities for people like the Milwaukee Bucks to invest in esports teams and create that same function that they did with traditional sports. I'm interested to see how we continue to evolve. The U.S. in general learns pretty quickly, so I think we've seen how well Korea is doing this and we're trying to pick up on the trend and continue to grow as well.

Hill: And obviously, younger people are the dominant demographic in this. We're starting to see it play out in colleges, as well. One of the things you mentioned was, your alma mater is giving away esports scholarships.

Mills: Exactly. I went to Miami of Ohio, and they have one of the best esports teams in the U.S., and that's something that's happened maybe in the past two years or so. But, I'm always seeing postings about it and things like that, and I think that's really cool, to see that trickle down to the college level. I think that will just continue to trickle down, whether that's elementary schools or scholarships to the larger schools and things like that. It'll be cool to watch this evolve.

Hill: I want to get to your background in a second. But one other thing that I was struck by during the discussion, and I'm only half joking when I say this, one of the things that got brought up with the prospect of cheating. We've seen, at various points in offline sports, different scandals, whether it's performance enhancing drugs or point-shaving or something like that. Am I wrong to think that it would actually be weirdly helpful for esports as an industry to have some sort of cheating scandal? Because, I think in some way, for people who look at esports and it makes no sense to them, and I think there are still, obviously, many millions of people who are still trying to wrap their heads around, "Wait, what do you mean people are going to watch other people play a video game?" If nothing else, having a cheating scandal will at least make it more relatable.

Mills: Yeah. I mean, I think there's been a few already, but as we were talking about on the panel, some of them are due to human error, like being able to see the screen that's behind you, being able to see where the other team is on the map in League of Legends. In Counter-Strike, there's actually a cheat where you can see through walls, which is obviously a huge advantage. So, things like that you can catch really easily. What I'm interested in seeing the future is these more sophisticated cheats, where they're somehow figuring out a way to hack the game to where they're gaining more XP and things like that for actions in the game. I don't know, I assume that Valve and Blizzard and everyone have probably set it up so that it's pretty difficult to do that, but if they can look through walls, then I don't really know how that's going to pan out.

Hill: How did you get involved in this industry?

Mills: I actually started because of my family. Into the gaming industry, I started four years ago now. My family had a mobile games publisher company, so I worked for them out in San Francisco for three and a half years and I just fell in love. I went to Game Developers Conference four years ago, and it was such a cool experience that I said, I'm working in the gaming industry, this is it, I'm moving to gaming and I'm staying there.

Hill: And at some point, you moved to Germany. Because GameInfluencer is based in Germany. How did you get hooked up with GameInfluencer?

Mills: I had just created a business relationship with Georg Broxtermann, which is the CEO and founder of GameInfluencer. And in March of last year I was looking for a new gig because I had been with Hitcents for three and a half years, we launched our two main titles -- NBA Life and The Godfather: Family Dynasty -- and it was just time for me to try something new. And Georg called me up and said, how do you feel about moving to Germany? And it was a good opportunity. We had a little bit of influencer activations going on at Hitcents, but I had no idea the depths at which I was going to learn influencer marketing. It's been a really cool experience, living in Munich the last nine months and getting to know the European gaming scene and influencer marketing, as well.

Hill: Do you have a favorite game right now? Or is gaming your job, and therefore when you're looking to relax at the end of the day, the last thing you want to do is play a game?

Mills: I'm a mobile gamer, so I do game. I would say Battle Cats right now is my favorite game. It's a tower defense game on mobile, super quirky, it's super cute. It actually came about because of one of our clients, which is how I get hooked on a lot of mobile games, I play the game to check it out, help them come up with their influencer strategy, and I was like, wait, this is actually really cool. And six hours later, I'm still playing the game. So yeah, Battle Cats for now, for sure.

Hill: Macy Mills, thank you so much for being here!

Mills: Thank you so much, Chris! I appreciate it.

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening, we'll see you next week.