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What Esports, NBA 2K, and China Could Mean for Take-Two Interactive

By Luis Sanchez CFA – Updated Feb 5, 2020 at 3:57PM

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A basketball league is the game maker's first foray into esports.

Investors are excited about the burgeoning esports industry. Though it may seem odd, there is a global audience in the hundreds of millions that enjoys watching other people play video games. As a rule of thumb, a large and engaged audience can be monetized, and game publishers are starting to figure out how to translate that enthusiasm into dollars.

Take-Two Interactive (TTWO -4.91%) is a video-game developer best known for its blockbuster Grand Theft Auto series. The company also makes the popular NBA 2K basketball series and has used this title to launch its first esports league.

The NBA 2K League

Despite its popularity, Grand Theft Auto doesn't really work for esports because it is more of a role-playing game -- there isn't an objective winner or tabulation of points. The NBA 2K basketball game, on the other hand, has a vibrant competitive online multiplayer mode. And each year, the latest version sells millions of copies; NBA 2K20 has so far sold nearly 6 million units.

To capitalize on NBA 2K's appeal, Take-Two and the NBA launched the NBA 2K League in 2017. Each real NBA team has the option to create its own esports team associated with the team brand. Today, 22 out of 30 teams have organized an esports team. For example, the New York Knicks have a team called Knicks Gaming, which sells its own merchandise and has a dedicated roster of gamers.

A white T-shirk with the NBA 2k Leage Knicks gaming logo on it

Image source: Knicks Gaming website.

The NBA 2K League is heading into its third season in summer 2020, but first, the teams will need to draft their players. Last year's draft took place in a packed arena in New York City, which shows just how much fan interest exists.

Chinese expansion

An interesting development for 2020 is the addition of Gen.G, a prolific Chinese esports organization. Gen.G's participation is notable for two reasons. First, it shows that major esports teams believe the NBA 2K League is worth participating in. Second, it signals that the Chinese esports audience is interested in the league as well.

It is no secret that the NBA has a lot of fans in China. More than 600 million people there watched the NBA during the 2017-2018 season, and the broadcasting rights in China are worth billions. Esports viewership also happens to be a big deal in China, with some estimates putting the size of the esports audience somewhere around 350 million and growing.

So it makes sense that there is a big market for the NBA 2K League in China and that the streaming rights should be worth a great deal of money. Last year, the league partnered with Tencent (TCEHY -4.25%) to stream the matches in China, although the monetary details have not been disclosed.

The future of gaming

The proliferation of esports and the ability of game makers to monetize viewership are more examples of how the business of video games is evolving. Take-Two has many ways to benefit from this shift.

The most obvious opportunity is to monetize it through brand sponsorships and advertising. For example, sports clothing brand Champion has signed on to be the league's official outfitter.

Less discussed is that having an esports league will help Take-Two sell more games and encourage in-game spending. Esports engenders more-engaged gamers who are more likely to buy the updated version of the game each year and to spend money on things like extra downloadable content and premium player outfits.

It is a bit early in the history of the NBA 2K League, but if Take-Two can prove its viability, we should expect other game publishers to launch similar efforts.

Editor's Note: This article was corrected on Feb. 5, 2020.

Luis Sanchez owns shares of Take-Two Interactive. The Motley Fool owns shares of and recommends Take-Two Interactive and Tencent Holdings. The Motley Fool has a disclosure policy.

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