Investing in eSports and Video Games

Video games have been around for decades, beginning with arcade gaming in the 1970s and home gaming in the late ’70s and early ’80s with Space Invaders, Frogger, and PacMan. Fueled by lockdowns during the pandemic, between 2019 and 2021, the market expanded by 26 percent with games like Nintendo’s best-selling Animal Crossing: New Horizon selling millions in their first few weeks.

Today, gaming is a booming industry, with launches eagerly anticipated by legions of fans and eSports teams capturing audiences that number in the billions.

Until relatively recently, console gaming and personal computer (PC) gaming were the dominant forces in the video game industry but the explosion of smartphone use and internet connectivity globally has positioned mobile gaming as the mover and shaker of the industry.

Years ago, if you wanted to play the latest game, you would go to a local store (GameStop, for instance), buy the game for around $60, and take the discs home to install and play. These days, mobile gaming (primarily on smartphones) accounts for the largest share of total gaming revenue worldwide (45% of the total gaming market in 2022 and racing to exceed the $100 billion mark by 2023).

This isn’t to say that dedicated gamers are ditching their consoles and PCs in favor of games on their smartphones; rather, the market is expanding as more people gain access to free or inexpensive games through their mobile devices. In addition, the rise of subscription gaming offers players access to a multitude of games for a monthly subscription fee. Similar to the “streaming wars” between Netflix, Amazon, Hulu, etc., developers are scrambling to build competitive subscription services as they work to attract larger shares of the growing market.

The expansion and diversification of the gaming ecosystem have triggered novel revenue streams; most notably, live streaming and eSports. The emergence of live streaming and esports has fueled greater interest in gaming while offering outside investors a new way to reach this diverse group of consumers.

Searching for the Industry Players

There are hundreds of different companies working on individual gaming properties, as well as mobile providers and hardware manufacturers. How do you find the video game investment right for you?

Video gaming investing search tip #1: Investors who want to invest in their favorite video game can easily check out its publisher’s or platform’s current price. For example, on Magnifi the search “invest in Microsoft” will bring up Microsoft shares as well as (after a click or tap on the name) the price of the share and useful information for investors, like its dividend yield. You will also see mutual funds and ETFs that include Microsoft and can diversify your holdings.
Video gaming investing search tip #2: If you’re interested in leveraging the growth potential of technologies that promise to deliver the next generation of games and eSports, you could look at sectors like cloud computing. Search for “invest in video games and cloud computing,” and you’ll see mutual funds and ETFs that provide a broad exposure to this emerging technology and video games.

You don't need to be an expert to invest.

A Look Inside eSports

Professional, competitive gaming is serious business, with gamers practicing for 10 hours or more each day. Like more traditional sporting “practice,” pro-gamers study previously completed games to determine ways to improve, have informal competitions against other teams, and analyze opponents’ play styles and strategies. Pro teams even have coaches and managers and personal trainers who help players to stay fit.

Typically, professional gamers are paid a base salary by their team or company before bonuses or prize winnings. Whether in genres of Real-Time Strategy, Multi-player Online Battle Arena (MOBA), First-Person Shooter (FPS), or Sports, in 2022, gamers on Twitch—owned by Amazon—YouTube Gaming, and Facebook Gaming alone streamed to the tune of a combined 273 million hours.

Traditional leagues took notice of pro-gaming’s fandom and revenue potential, and initiated traditional “sports” genre varieties of eSports that are growing in popularity, such as eNascar sim racers, the FIFAe World Cup, and the NBA 2K League. That’s not to mention the Madden 21 Club Championship, which gave gamers a go at a pool of $1 million in 2022.

How Do eSports Teams Make Money?

Sponsorships, advertising, merchandise, tournament winnings, league revenue sharing, ticket sales, and broadcasting rights lead to big money. Licensing revenue is also key. The games played in eSports are owned by their game/developers and publishers. Even if a publisher isn’t handling a tournament, it can still generate licensing revenue.

Tournament organizers can also make large sums of money, even if they license from game publishers. Tournaments and leagues include the League of Legends Championship Series, Dota 2: The International, the Call of Duty League, CS:GO Major Championships, and Apex Legends Global Series.

Who is Watching?

Nearly half a billion people worldwide consume eSports content, and most of those audience members are Gen Z and Millennials—two of the most important and profitable demographics for brand awareness. In China, South Korea, and Europe as well as in the U.S., competitive gaming has established mass popularity. Its popularity is also growing in Eastern Europe and South America. That’s much different than the markets for traditional sports (think NFL football) that are predominately tied to domestic audiences.

Why Invest in eSports and Video Games?

Investors who love media and entertainment know that blockbuster movies are, well, so 2018. There are more than 2.5 billion people globally who play video games like best-sellers Grand Theft Auto V, Red Dead Redemption Two, and the Call of Duty franchise, and global revenue from gaming reached $214.2 billion in 2021, which is predicted to grow to $321 billion in 2026—larger than the movie and music history combined. Clearly gaming has evolved well beyond its niche origins to sit squarely in the entertainment and cultural mainstream.

Talk about a huge, diverse audience: Gaming has gone mainstream—even older adults are getting in on the action, with the percentage of adults age 50+ who play video games at least once a month increasing from 38 percent in 2016 to 44 percent in 2019.

And mobile gaming’s expansion in the market may be accelerated by rollout of 5G networks (faster connectivity means better gameplay in more places) and further advancement of augmented/virtual reality (think Pokémon GO).

The video game market offers a unique investment opportunity because the industry is projected to continue its extraordinary performance in the coming years, and the various segments offer a wide variety of investing options that can help investors match their goals.

How to Invest in eSports and Video Games

If you are a gamer yourself or just someone interested in this industry, there are a surprising number of ways to add eSports and video games into your investing portfolio. To get started, try searching:

References:

Read, Simon, “Gaming is booming and is expected to keep growing. This chart tells you all you need to know,” July 28, 2022, World Economic Forum, link
Celemtn, J, “Mobile gaming market in the United States - Statistics & facts,” October 18, 2022, Statista, link
Ruby, Daniel, “38+ eSports Statistics for 2023 (Trends, Facts & Insights),” December 29, 2022, DemandSage.com, link.
Ruby, “38+ eSports Statistics for 2023 (Trends, Facts & Insights).”
“Perspectives from the Global Entertainment & Media Outlook 2022–2026,” accessed January 12, 2023, PwC, link.
Nelson-Kakulla PhD, Brittne, “Who Is the 50+ Gamer?,” December 2019, AARP, [link](https://www.aarp.org/research/topics/technology/info-2019/2020-gaming-trends-older-americans.html#:~:text=Most%20older%20Americans%20(92%25),in%20the%20evening%20(57%25).

Disclosures:

Mutual funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.