As esports viewership and revenues continue to climb, it’s no wonder industry insiders are bullish about the market’s potential this year. In fact, nearly nine out of ten esports professionals surveyed in the fourth annual Esports Survey Report expect esports investment and deal activity to increase in the first six months of the year; building on the bullish sentiment shared in the third annual survey where nearly three-quarters expected investment and deal activity to increase.
Conducted by Foley & Lardner LLP, Sports Business Journal and The Esports Observer – and based on responses from 430 professionals involved in esports – the report identifies the opportunities and challenges ahead for this burgeoning industry, highlights the continuing impact of the pandemic, and examines why skyrocketing viewership numbers have not yet translated to an equal boon in monetization.
Key takeaways from the esports survey report include:
A large majority of survey respondents (88%) expect investment and deal activity to increase in the first six months of the year. Much of respondents’ bullishness stems from their expectations for esports dedicated investment funds, a group that saw a 21-percentage-point increase in our latest survey and was selected by respondents as most likely to increase its investment in esports this year – a spot held previously by traditional sports teams and leagues, athletes and celebrities.
“What we’re seeing might be a recognition that esports is complex – a different and, in some ways, more complicated ecosystem than traditional sports,” said Bobby Sharma, special adviser to Foley’s Sports & Entertainment Group. “As such, it’s taken some time, but the primary investment vehicles in the space have begun to develop a very specific level of expertise and portfolio, and it seems the marketplace may now be recognizing and understanding that better.”
When asked what would drive the increase in investment in the first half of 2022, the highest number of respondents (61%) cited the continued growth of online streaming platforms. Ranking second and third among expected drivers of investment were COVID-19 friction at live events and the declining appeal of traditional sports with younger generations, respectively.
“While the pandemic evidently has had a net-positive impact on the growth of esports, it certainly has had a dramatically negative impact on traditional sports leagues and teams,” said Michael Wall, of counsel and business lawyer at Foley. “Attempts to recover from this devastating blow may have affected traditional sports stakeholders in their esports investments, at least in terms of immediate and short term focus and priority.”
As esports enters the mainstream, it appears industry executives are seeking heightened regulation. 72% of surveyed respondents agree or somewhat agree that esports needs a single overarching governing body for regulation and rule setting, up from 44% in 2020.
Moreover, as the esports betting market continues to grow and the stakes become higher, professionals in the industry seem concerned about the possibility of manipulation. Survey respondents ranked a lack of adequate detection systems and monitoring tools for fraud and cheating, and a lack of oversight of esports from an overarching governing body, as the greatest threats to the industry’s betting market.
However, even with these concerns, respondents saw a number of opportunities for the growth of the esports betting market: Natively digital media consumption topped the list of opportunities for the market at 54%, followed closely by increased adoption of regulated gambling in the United States, inherently global fan and consumer bases, and legacy integration with cryptocurrencies – all of which fell within 11% of the top spot, perhaps a sign respondents are bullish about 2022.
“By many objective metrics – whether the persistently rising number of gamers, continued growth in consumption and participation, increased online activity, or the accelerated mainstreaming of its culture during the pandemic – as an industry, esports continues to thrive,” said Kevin Schulz, co-chair of Foley’s Sports & Entertainment Group.
Similar to our 2020 survey, respondents view cybersecurity and malware attacks (42%) and intellectual property rights and licensing issues (40%) as posing the greatest legal risk to the esports industry. However, there was no runaway winner. Following close behind was cyberbullying within games, contracts that do not provide adequate protections for players, and labor and employment issues.
“Labor and employment issues regarding harassment and toxic environment have surfaced within the esports industry in the wake of the #MeToo movement, and beyond,” said Jon Israel, co-chair of Foley’s Sports & Entertainment Group. “Despite changing work environments stemming from COVID-19, the pandemic hasn’t pushed labor issues to the side – in many cases, they’re just percolating underneath the surface, and in some, they have reached a boiling point.”
Meanwhile, publishers are facing different obstacles. When asked which issues facing major game publishers were potentially negatively impactful, survey respondents rated cultural and/or political shifts away from youth video gaming and challenges with the franchise league model and system as paramount first and second.
Survey respondents highlighted another area of opportunity for the esports industry – Non-Fungible Tokens, or NFTs. Nearly four out of five surveyed expect NFT’s prevalence to increase this year. When asked to specify the use-type that would become increasingly prevalent in the coming year, respondents’ top choices were digital player cards of professional gamers, streamers or content creators (64%), followed by new unique “skins,” animations, characters or songs (54%) and virtual merchandise related to specific esports organizations and teams (51%), with unique highlights from esports competitions (44%) trailing close behind.
“Cryptocurrency and NFTs are made for a digital world,” said Laura Ganoza, litigation partner at Foley. “What we’re seeing in traditional sports is the creation of digital assets to become NFTs, whereas in esports, assets are digital from the very beginning.”
The fourth annual Esports Survey Report was completed by 430 professionals primarily based in the United States. Respondents included esports and traditional professional sports teams and leagues, technology developers, media companies and more. To read the complete report and methodology, please click here.
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