Rise of the cyber athletes

By Haky Moon ( China Daily' ) Updated: 2016-08-27 08:45:18

Rise of the cyber athletes

A DOTA 2 e-Sports event in Moscow, Russia on May 13. Dota 2, a team-based strategy game, generates plenty of enthusiasm among Asian gamers, especially those in Southeast Asia. [Photo provided to China Daily]

The United States may have its National Basketball Association and National Football League but Asia has e-Sports, and these are attracting billions of dollars in investment, even though lucrative returns have yet to materialize.

E-Sports, shorthand for electronic sports, are organized tournaments in which participants-singly or as a team-compete against each other at video games.

The largest contests are like any other major sporting event, with spectators buying tickets to watch in person or paying to see it broadcast on television or over the internet. Both the sponsorship deals from major companies and the prize money for winners can be worth millions of US dollars.

On Aug 11, Allied eSports, a joint venture of the largest e-Sports, sports and entertainment companies in China, announced a strategic investment partnership with Esports Arena from the US. The partnership will include investment toward new Esports Arena locations.

This was just the latest example of a flood of investments.

Earlier in July, Chinese outdoor advertising firm Focus Media led an $81 million venture capital round of investment in a three-month-old e-Sports startup, Sport of the Heroes.

But while attracting investors, they are failing to generate any kind of significant return. For the time being, venture capital firms (VCs) are just looking to break even.

"If you've even made $1 million (as a VC in e-Sports), I would say you're doing exceptionally well," says Alex Lim, secretary-general of the International e-Sports Federation (IeSF), a governing body for e-Sports founded in South Korea in 2008.

Last year, according to a stock exchange filing, Yinchuan International Game Investment, operator of the World Cyber Arena series, one of the larger global tournaments, lost 65.4 million yuan ($10 million).

Hero Entertainment, a competitive video game developer, lost 7.58 million yuan in the first half of this year, according to a company filing.

"You can't expect returns right away from an early stage. You have to be patient. They are trying to establish a strong brand with strong loyalty from the e-Sports community. Only after maybe three to five years, they will start making more money," says Lim.

The global e-Sports market generated $325 million in revenue last year and it is expected to hit $463 million this year, according to Newzoo, a market intelligence firm specializing in the digital games market.

In 2014, VCs pumped $2.43 billion into 217 game companies. The following year, investments in 216 game companies halved to $1.02 billion.

But it should be taken into account that some of the largest investments in 2014 were an anomaly. For example, South Korean game company CJ Games raised $500 million.

"VCs want a large customer base, a large number of registered users, even if platforms are losing money right now," says Guan Wang, CEO of Ali Esports, which is part of Ali-Sports, a subsidiary of e-commerce giant Alibaba. He adds that platforms are now exploring a self-sufficient business model, rather than relying on outside funding.

Despite all this money floating around, the e-Sports industry is still in its infancy. There are great expectations that it will generate more and more revenue, however.

Brokerage firm Industrial Securities estimates that by next year, China will have an e-Sports audience of 148 million players, up from 48 million in 2015, when the whole industry was worth $4.2 billion.

Despite the slew of initial losses, many think there is a huge opportunity for investors to make handsome returns through channels such as merchandising, advertising, events, ticket sales and even lotteries.

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