Activision Blizzard (NASDAQ:ATVI) recently revealed that its Overwatch League esport event is already approaching $1 billion in cumulative revenue since the company began selling teams last year. As famous investors and entrepreneurs scoop up franchises, the company is already making plans to expand the league.

In this clip from Industry Focus: Consumer Goods, Vincent Shen and John Ballard discuss what this latest development says about the future potential of esports as a major business for video game companies.

A full transcript follows the video.

This video was recorded on May 22, 2018.

Vincent Shen: We've managed to set the stage a little bit for how big esports is getting. A few years ago, companies were more tight-lipped about how profitable or lucrative some of these events and leagues could be. But now, the viewership and engagement are exceeding a lot of expectations, the companies are sharing much more detail.

Activision, for example, they're managing to sell teams in its esports league for $20 million each or more, and that number seems to be going up. Can you tell us a little bit about some of the actual contributions that these opportunities are making?

John Ballard: Activision recently revealed that they've sold, so far, 12 teams for $20 million each. That comes out to about $240 million. They sold more than $100 million of broadcast rights and sponsorship sales, and that's just for a handful so far. This is why the Nielsen news can be big. If Nielsen reports strong data and gets that accelerating, brings in more advertisers to have interest in this, that'll increase that even more.

Activision wants to expand Overwatch League to 28 teams. That gives us a clue as to where the scale of this is going to be. Management has said the price of teams, so far, is going up because there's such demand they're seeing because of the strong viewership from the beginning of the year. Let's say teams sell for $25 million. That'd be an additional $400 million. ESPN has already reported from their sources that that could fetch between $30 million to $60 million each. You do the math, 16 teams for as much as $60 million, that could be another $1 billion in revenue.

Shen: Or getting really close to that point very quickly.

Ballard: Yeah. Now, we have to keep in mind, though, that's just one-time team sales. That's not recurring revenue. But obviously, these are smart business people. These are entrepreneurs. You have Robert Kraft at the New England Patriots who's bought one of these teams. His track record speaks for itself in the NFL, growing the New England Patriots. These are well-informed business people buying these teams, and they obviously expect this to be a good investment and to recover that cost of these teams and profit over the next several years. That's something interesting to keep in mind about these team sales.

In a way, these teams' values give us an indicator as to what potentially could be the annual recurring value of Overwatch League, if you want to think about it in terms of revenue or whatever. It's pretty obvious that this is probably going to be, conservatively, at least a $1 billion business segment for Activision when you look at all that. You add up the team sales, you add up the sponsorships, you anticipate there's going to be more advertisers coming in at some point spending money annually on this --

Shen: I would go beyond that, really, beyond the direct contributions from things that you mentioned like sponsorships, advertising, ticket sales, franchise deals. Management at these companies also recognize that their bread and butter here is also from the increased interest that they generate in their esports titles. This ends up creating a virtuous cycle. Esports popularity draws in more viewers, more potential players. And while most of these games do cost money to purchase, so companies get revenue from that initial sale, they want to extend the tail of revenue generation from each title. That happens thanks to greater engagement, because most of these games have in-game purchases, downloadable content.

And some popular titles, like Fortnite, which Tencent has its fingers in as part-owner of the game's developer, that costs no money upfront and it's free to play. But even then, the latest estimates for that game put monthly revenue at over $200 million, really, really impressive.

John Ballard owns shares of Activision Blizzard. Vincent Shen owns shares of Activision Blizzard and Tencent Holdings. The Motley Fool owns shares of and recommends Activision Blizzard and Tencent Holdings. The Motley Fool has a disclosure policy.