Here's why esports can become a billion-dollar industry in 2019

Participants in the Crown Championship esports finals in London, 2017
Source: Supercell
Participants in the Crown Championship esports finals in London, 2017

Electronic sports (esports) experts considered 2018 a landmark year that cemented the space's potential as the next billion-dollar industry.

Research firms like Statista estimate that global revenues for the wildly popular, still nascent sector may even surpass that milestone this year — particularly because of the number of companies and investors getting in on the esports market. Estimates from Newzoo project that the global esports market will exceed $1.6 billion by 2021.

"When I look at 2018, I feel like it was the year that esports really started cracking into the mainstream," Jack Etienne, owner of North American esports team Cloud9, told CNBC recently—. "To me it feels like we've broken a barrier that we've never attained before in esports."

Like other industry participants, Etienne believes the past year also laid down catalysts that will drive esports' development going into 2019. This is particularly true in some key areas that he thinks are essential to building a more sustainable ecosystem for the industry.

Getting in the Game

In October, Cloud9 became the world's most valuable esports team after raising $50 million in Series B funding, leading Forbes to peg the team with a $310 million valuation. The same report also estimated that a total of nine esports teams worldwide are worth at least $100 million.

Those numbers have attracted attention from a number celebrities, including basketball legend Michael Jordan, who joined the ownership group for Team Liquid in October 2018.

Meanwhile, big-time investors like Mark Cuban have also taken stakes in esports-related entities for years, and traditional sports moguls have bought in. For instance Robert Kraft, who owns the New England Patriots, also paid $20 million to own the Boston-based team in Activision Blizzard's Overwatch League prior to its launch last year.

Aside from the star-studded line of investors, 2018 saw a new rush of brands into the space. Last year, research firm Newzoo estimated that about 60 percent of the esports market's revenue would come from sponsorships and advertising.

One big trend some esports players are betting on is the continued entry of non-endemic companies into the space. In 2018, a rush of non-gaming companies, from autos to telecom, struck deals and sponsored events, leagues and teams alongside more traditional tech and gaming-related names.

According to Naz Aletaha, head of esports partnerships at Riot Games, "our audience is predominantly digital first and that gives us different opportunities to engage in meaningful ways."

Using Riot's "League of Legends" competitive scene as an example, she recently told CNBC that "the scale that we've achieved globally by operating 13 leagues has created the perfect ecosystem for brands to get involved."

These partnerships lead Aletaha to believe that some of the next big non-gaming brands to enter esports will be from three primary areas: Quick service restaurants, male grooming and apparel. All three stand to benefit from a space that is "not overly saturated yet" that also boasts a younger audience, Aletaha added.

Cloud9's Etienne also expects that many of these brands will establish longer-term deals in the esports space. The number of brands wanting in leaves teams and companies in a position with more options to consider for their longevity.

"One of the things I need to balance out is I need to look at these brands," he said. "Long-term partnerships are really starting to [generate] and dig in with that partner and start building some really great products and I want to do that, but I also want to sign partners" best suited to esports teams and companies, he said.

Creating longer-term deals will establish a more sustainable esports market that companies will also benefit from, according to esports experts.

"The longer you're in the space, the more of an authentic layer you're going to become, which really just helps win the hearts and minds of the audience," explained Aletaha.

Activision Blizzard holds first ever Overwatch League Grand Finals
Getty Images
Activision Blizzard holds first ever Overwatch League Grand Finals

The Overwatch effect

Many esports tournaments and leagues were initially set up for publishers to market their games.That dynamic has shifted in recent years, as the industry has become more stand-alone. Its rapid growth now demands ways to accommodate for the influx of revenue streams and the ever-growing profiles of events.

However, Etienne believes that the advent of leagues like Overwatch provide a sort of "roadmap" for the industry going forward that could be emulated.

Overwatch League, a professional league set up by Activision Blizzard featuring its billion-dollar franchise "Overwatch" game, was the first global league with a city-based system and came with a business structure mirroring that of traditional sports leagues.

"I think when Activision built Overwatch League, they really showed the world how much money you could make with these competitive games," said Etienne. "They set the standard on how you approach ad sales and partnerships to drive tons of revenue into these games."

Riot, which has run esports leagues and tournaments for their "League of Legends" game since 2011, signed their first global partnership with Mastercard in September. That same year, their North American league also adopted a franchise system with ten permanent teams who each paid $10 million for a slot — much like a traditional sports league.

But while some leagues have emulated a traditional sports model, other publishers and competitive leagues have opted to run their esports operations in a way that they believe suits their game and audience.

For instance, "Fortnite" publisher Epic Games has run its own tournaments and events independently, without sponsors. That deviates from what is becoming more or less the norm in esports.

Challenging NFL and NBA in size

Ultimately Etienne sees the biggest esports leagues in the world only getting bigger to be on par with the traditional sports industry.

Riot said the League of Legends World Championships in November, for instance, attracted nearly 100 million unique viewers for the finals. Last year's Super Bowl saw viewership numbers clock in at just over 103 million.

That has Etienne predicting that other long-established competitive scenes like "Counter Strike: Global Offensive" (CS:GO for short) and Valve's "Defense of the Ancients 2" (DotA 2) will continue to gain traction this year."I think League of Legends, for example, is at the same level as the NFL and the NBA, and I think that realization to the mainstream audience is going to be really exciting to watch," he said.

Etienne also believes that leagues and competitive scenes with more minor but growing followings will find footing as well. Publisher Ubisoft, for example, has been building a competitive scene for its "Rainbow Six Siege" game since around 2016. This year, its annual "Six Invitational" world championship will boast a prize pool of over $1 million for the first time.

"I think there's always going to be a place for new and upcoming games," he said. "I don't think they're going to disappear either, and there's definitely a place for a company to come and help out smaller publishers."

Clarification: Riot Games, the publisher of "League of Legends," puts the official number of unique viewers for their League of Legends World Championship finals at almost 100 million. CNBC could not confirm the 200 million concurrent viewers initially reported by third parties for the event.

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