Investors Should Be Cautious About The Hype Around Esports

Esports, despite being on of the fastest-growing industries, has massive amounts of instability in terms of actual profit.

Esports is one of the most volatile investment spheres, yet offers some interesting takes on video games and their culture. Is it the future, or is it already in the past? Some investors still remain both doubtful and wary, though the returns seemingly speak for themselves. In a page dedicated to the scene titled "Esports Joins the Big Leagues," Goldman Sachs and NewZoo highlight some of the main investor insights, which are expounded upon even more in an equities research infograph. This research highlighted that in 2018 alone, esports investments increased 90% and reached as high as $1.4 billion.

Parents may have said gaming will never get you paid, but nowadays that couldn't be any more false. Even still, there may be some warrant to their claim - after all, it's not always high returns and big bank statements when it comes to this sector.

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In an article on Kotaku, the writer reiterates what the sponsorship manager of Corsair, Frank Fields, said to a crowd of onlookers last March at the Game Developer's Conference:

"Everyone I talk to in this industry kind of acknowledges the fact that there is value in esports, but it is not nearly the value that is getting hyped these days...as of now, it's optimistic at best and fraudulent at worst.”

This is the reality of the esports scene, wherein multimillion-dollar deals can become lost by the wayside in unexpected mishaps and uncertain calamities. Look no further than the now well-known Blizzard after killing its Heroes of the Storm esports team; oftentimes deals don't pan out the way they may initially appear on paper. Blizzard itself knows this all-too-well after Mitsubishi pulled out of a potential Hearthstone sponsorship amid the Blitzchung and "Free Hong Kong" debacle.

And not all big investor firms with their feet in the esports scene actually get hefty returns. As Daniel Mitre, CEO of New Wave Esports, says in an interview with GamesIndustry.biz:

"With a lack of players in the ecosystem, you have a lack of monetisation, and you've got to start cutting corners, and the first one is going to be esports because it's so unstable right now. It's tough to make money in esports, and the companies that are, aren't necessarily pulling in millions of dollars."

It's already a great deal of cash just to be involved. With Overwatch as an example, teams must pay a hefty $30 to $60 million alone just to play in tournaments. Riot Games has similar plans with League of Legends, with base esports inclusion costing between $10 to $13 million. On top of that is players' salaries, which can be anywhere from $150,000 to $300,000 dollars. No one said esports was cheap, just profitable.

What should be key to investors is monetizing viewership, as pivoting toward natural gains in addition to media and sponsorship deals are what will pave the future in this sector. Just look at what TV Azteca is doing with Gears 5 Esports: it's all about monetizing key assets within the industry so as to pave the way for the future. Yet, still, investors must remain cautious as not all esports investments are worthwhile and, in essence, profitable. Mitre elaborated:

"I don't ever invest in a team that only supports one game. What happens when that game tanks? What happens if the publisher pulls the plug? It's good to have that diversity."

Obviously, industry trends are the best route taken when opting to look at esports' profitability. There are a variety of takes to be had and can be made, if—and only if—investors remain smart about their tactics.

What it all boils down to is talent. Relying on one's gut is well-advised, but the volatility so inherent within esports almost makes it null and void. Anything can happen in this industry, the variables are nearly infinite. But, the money is there, it's all about choosing the right team, understanding the ecosystem, the market, the trends, and pinpointing exactly what needs to be elaborated upon for the entire investment to work and not fold in on itself. One fund is even trying to launch a pro gamers' careers, which itself may be a high-value target for future investing. Time will only tell.

As reported by The Motley Fool, Blizzard's esports scene itself has experienced a 25% drop in revenue over the first half of 2019, which speaks volumes on the industry. There's a lot of growth and overall quality control needed before any major turnarounds can solidify this market.

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