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League of Legends is now 10 years old but may be tops in esports. Here's why

Players participate in a League of Legends tournament in Manhattan Beach, Calif.
Robyn Beck | AFP | Getty Images

The biggest PC game in the world just turned 10, and the creator of an exchange-traded fund that focuses on esports says it's the game you want to bet on right now.

It's not Fortnite, but rather Tencent-owned publisher Riot Games' League of Legends. Launched a decade ago, the game became a worldwide sensation and is still drawing up to 8 million concurrent players per day, according to Riot's most recent numbers released in September.

In fact, even with the rise of Fortnite, League of Legends has grown and maintained its place as the most-viewed game by esports hours watched on Twitch and YouTube, according to research firm Newzoo. It is also second-most viewed game by recreational hours watched on those platforms, trailing only Fortnite.

This growth over time has led Roundhill Investments CEO Will Hershey to classify the game as a top-tier bet for investors looking to get in on the esports industry. The firm launched the Roundhill BITKRAFT Esports and Digital Entertainment ETF in June, using the ticker name NERD. That gave investors their second ETF with which to play the esports space. (VanEck also launched the VanEck Video Gaming & Esports ETF (ESPO) last year.)

NERD offers 25 media, game publisher and hardware stocks that factor heavily into the esports ecosystem, with Tencent making up about 4 percent of the weighting thanks to the popularity of League of Legends. Its continued growth in tandem with its longevity has Hershey classifying the game in a "league of its own."

"I think when we look at which esports people need to pay attention to, not every game title is created equally and you need to look at games with a sustainable ecosystem," he told CNBC in a telephone interview last week. "I think what you have with League is an audience and a player base that is both casual and into the competitive side of esports."

But while League of Legends does appeal to casual and hardcore players, revenue has dropped to its lowest in years according to Statista. Estimates from Statista say the game generated $2.1 billion in revenue in 2017 after increasing for years. In 2018, that dropped to $1.4 billion, which was lower than even 2015 revenue estimates.

Hershey, however, emphasizes that it's still a big number for a game that has been around for a decade. And a big driver for League of Legends has been Riot's focus on producing content to tap into their player base, which Riot co-founder Marc Merrill says mirrors the increasing emphasis on quality content in the gaming and entertainment space to consumer engagement and spending.

"There's never been a better time to be a premium content creator as distribution becomes more commoditized and value streams to premium content," he said. "More platforms are willing to pay for premium content, that's what Riot is trying to do. We're a premium content creator."

"But that means our biggest challenge is constantly creating things that are great," he added. "Every time we do, we hit critical mass, and now we need to get people to stay."

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Despite the number of views that have come as a result of the growing popularity of esports and the increased in quality of gaming content, one of the biggest challenges that Hershey believes the industry faces is finding a way to monetize those views. Sponsorships and advertising deals still make up the vast majority of total revenue, but so far they haven't been able to generate enough for costs. A Riot Games employee who led the global esports event team revealed last year that the company spent over $100 million a year on their esports operations while admitting that it hadn't broken even on spending.

The Roundhill Investments CEO believes the inability to monetize viewers has led to the "biggest hurdle" for esports, and that the industry might have to shift to a subscription-based model.

But Hershey also says League of Legends is in a position to have its esports revenues catch up with the spending, since its longevity has attracted big buyers to its competitive leagues, in addition to its dedicated player base.

Like Hershey, aXiomatic Gaming CEO Bruce Stein points to the game's audience growth over the years as an indicator of the game's staying power and its investment potential.

In 2016, League of Legends had reached 100 million monthly active users, up from the 15 million it had previously recorded in 2011. Stein, whose company owns the top team in League of Legend's North American league, says that growth and staying power have ensured a stable environment for sponsors who want to get in on the esports industry.

"As an investor, having an audience like League of Legends that is so brand loyal and [features so many repeat viewers is] magic to sponsors who can't get that demographic any other way," he told CNBC. "So I think what they've gotten is not just an audience, but a unique audience that has value to sponsors and those sponsors can't reach in any other media or media format."

Newzoo estimates that the global esports industry will surpass $1 billion in revenue this year for the first time.

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