With over 320 million fans worldwide, esports is fast becoming a billion-dollar mainstream industry. According to Newzoo, revenue from global esports was over $655 million in 2017 and is estimated to grow to over $1.6 billion by 2021. Since video games became competitive, the appeal of esports has boomed so quickly that in South Korea, esports is even described as a national pastime. In January 2016, ESPN began covering esports as a vertical and Yahoo Sports followed suit just a few months later. However, even with rapid growth, the landscape of esports has unique issues and challenges the industry will face as competitive gaming develops. So what’s actually powering up and potentially powering down the competitive gaming industry? This report from the J.P. Morgan Global Research team takes a look inside the exciting playing field of esports.

Sizing the playing field

Despite the ongoing debate about how a sport is defined, it is undeniable that competitive video gaming is growing exponentially across the globe. In addition to advertising, sponsorship and media rights deals, ticketing, merchandise, and promoter and game publisher fees also contribute to the gaming industry’s overall revenue.

However, it is important to note that esports cannot be directly compared to the four major sports leagues. Traditional sports make up the majority of their audiences on live television and esports on digital platforms, which cause misleading results regarding viewership. However, Riot Games stated that the 2015 League of Legends World Championship had an average of 4.2 million concurrent viewers over 73 matches, placing the event on par with the Stanley Cup Finals with 4.8 million viewers in 2017, but below the 2018 NBA Finals with 20.4 million viewers and the 2017 World Series with 18.7 million viewers.

In general, the monetization challenge for esports is identifying a revenue stream from a fan base that largely consumes its product online for free. Revenue until now has primarily stemmed from sponsorships. In order to grow, publishers and leagues will likely have to take a different approach to license and window content. Revenue growth towards the level of traditional sports leagues may also require streaming content on television.

Entering the big leagues

Despite the challenges, the esports playing field has hit notable milestones in becoming an established industry while continuing to expand and offer new revenue opportunities. Certain leagues, such as the Overwatch League (OWL) have utilized a traditional approach and adopted a professional sports franchise model with geographic-based teams. Economically, OWL is also structured similar to other sports, with separate revenue streams for the league and individual teams. Meanwhile, publishers like Electronic Arts continue to invest in competitive gaming and focusing the company’s strategy more on driving engagement through its entire player base rather than generating direct esports–related revenues. In the last few years, the company has expanded into more games, modes and events with corresponding live services monetization opportunities, which has driven strong engagement and profit benefits. Above all, the competitive gaming industry has forged its own path and has already grown larger than many have realized. By gaining traction among publishers, event promoters, platforms, teams and investors, all of whom see prime opportunity for monetization and growth, esports is well on its way to becoming a mainstream industry.