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It’s time to switch on to the spectacular growth of eSports

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It’s time to switch on to the spectacular growth of eSports

Lee ‘Faker’ Sang-hyeok is considered by many to be the best League of Legends player of all time. Why is this important? Because the eSports market, where ‘Faker’ is a major star, is growing – fast. And it’s boosting the value of eSports businesses, like Tencent (HKEX: 700 HK) and Take-Two Interactive (Nasdaq: TTWO) – whose shares we are pleased to hold in the Montgomery global funds.

eSports is increasingly becoming an area in which video game publishers are trying to gain a foothold. The term eSports refers to competitive video gaming – that is, competitions staged in the virtual world of a video game. These tournaments are not constrained by genre, and span the sports, first-person shooter, and multiplayer online battle arena (MOBA) categories, among others.

Riot Games’ League of Legends (LoL) World Championship (n.b., Riot Games is owned by Tencent) is one of the largest eSport tournaments, and the scale of this event is nothing short of mind-boggling (see the picture above). The League of Legends 2015 World Championship had an estimated 36 million viewers tune in to the finals. For comparison, Game 7 of the 2016 NBA Finals achieved approximately 31 million viewers. The prize pool for the LoL World Championship is more than $5 million, and these sorts of sums aren’t uncommon in the realm of eSports. For example, The International Dota 2 Championships had a $20.8 million prize pool in 2016.

Recently, Take-Two Interactive (Nasdaq: TTWO) announced the NBA 2K eLeague, an eSports competition launched in partnership with the National Basketball Association (NBA) that is set to debut in 2018. This is the first official eSports league operated by a U.S. professional sports league, and it will consist of teams operating by actual NBA franchises. For example, you can play as your favourite LA Lakers player in a competition that is being sponsored and operated by the NBA.

The tournament will be a drawcard for new players and will help keep players from defecting to competing basketball video game franchises. This is a particularly important point as Electronic Arts (Nasdaq: EA) is launching a revamped console version of its NBA game later in the year. TTWO management have done a stellar job at pivoting the business to different growth areas, whether that be eSports, virtual currency and in-game spending, or mobile gaming via the recent acquisition of Social Point. The company also has a solid pipeline of upcoming game releases, helping underwrite strong future growth prospects for the business.

The Montgomery global funds own shares in Tencent (HKEX: 700 HK) and Take-Two Interactive (Nasdaq: TTWO).

George joined Montgomery Global Investment Management in September 2015 as a Research Analyst. Prior to joining Montgomery, George was an investment analyst at Private Portfolio Managers where he covered global equities across various industries, using a value investing framework. George’s prior experiences include equities research and investment banking roles at both Citi and Greenhill & Co.

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This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564) and may contain general financial advice that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking advice from a financial advisor if necessary.

3 Comments

  1. Hi Karl,

    We took a deep dive on ATVI last year and concluded that while Blizzard was a high quality business with bright prospects, we had our reservations about the King acquisition and the state of the Call of Duty franchise. As it turns out, ATVI’s recent results highlighted beyond market (and our) expectations just how powerful the digital content / in-game transactions model is.

    As for e-sports, ATVI is indeed an experienced participant with Starcraft, the Call of Duty world league and the Overwatch league. Blizzard in particular has extensive experience developing titles with an e-sports focus (e.g. Overwatch was developed with e-sports in mind from the start). Monetisation, I think, will ultimately come down to distribution, which is something that Facebook, Amazon, Google and a host of other media platforms are actively working on. Given the difficulty that advertisers have reaching the high-value teens-30’s demographic on traditional media, e-sports, given the right distribution platforms, could potentially become an alternate, lucrative source of ad inventory (beyond social) for ad publishers and game developers.

    • Hi Daniel,

      I think your assessment of the King acquisition and COD was perfectly reasonable and may turn out to be correct at some point, although I think from a marketing and branding point of view it makes sense for Blizzard (at least) to be involved in the mobile market. Hearthstone has demonstrated their interest in developing mobile content and the King acquisition might save them the headache of learning how to develop and sell to the new market. Whether it was worth the hefty price tag i don’t know, but as a player of Blizzard games since i first touched a computer I think you’d be a brave man to bet against their IP.

  2. Thanks for the article George.

    What are your thoughts on Activision Blizzard? It’s a near certainty that Blizzard will produce at least one of the premier esports games in the next 10 years (Overwatch is already gaining momentum). Do you expect esports to start becoming a significant part of the new gaming business model?

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