The European esports market is worth approximately €240million, with the potential to reach an estimated €670m by 2023, according to a new report from global consultancy Deloitte.
The report – Let’s Play! – The European Esports Market – was produced in cooperation with the German esports trade organisation Game.
It estimates a global esport fan base of 380 million people with 86 million in Europe.
The report forecasts an annual average growth rate of about 23% over the next five years, with the European esports audience predicted to increase at a steady rate, reaching an estimated 105 million people by 2020.
Examples of well-known gaming brands involved include Call of Duty, FIFA, Halo and League of Legends.
The sector is facing one dilemma in that the model for gaming leagues in some parts of Europe is generally open i.e. with demotion and promotion so that new teams can enter and existing teams fall out the major leagues. In contrast, the US model perhaps unsurprisingly is based on a system closer to American Football’s NFL with franchises and generally closed membership of the leagues and competitions.
The report predicts that advertising and sponsorship will account for 60% of the industry’s overall revenue by 2020, primarily as a result of the growing interest of both endemic and non-endemic brands reacting to the increasing interest in esports from younger generations.
In addition, media rights are expected to increase by almost 500% between 2016 until 2020 in the European esports market.
The report also notes that live streaming and Video-on-Demand offerings, driven by the desire of the public to decide when and what they want to watch, are the preferred ways to watch esports at 40% of the audience, next to 27% watching on traditional TV.
Sam Boor, senior manager in Deloitte’s Sports Business Group, says: “Esports have attracted interest and investment from some of Europe’s most recognisable football clubs, and for good reason. The audience is predominantly comprised of young, tech-savvy consumers who spend more time online and using mobile devices – a demographic that stakeholders in sport are keen to engage with.
“This has resulted in traditional sports rights holders and clubs increasing activity in the market, most commonly through the development of formal competition structures around video games associated with their sport and the acquisition of esports talent. This development is also attractive for multi-national brands already active in traditional sports advertising who are keen to connect and engage with that same consumer demographic who are perceived as harder to reach by traditional means.”
For the esports market to maintain its growth, the report suggests that newly implemented leagues, such as the League of Legends European Championships (EU LEC) franchise, as well as new esports titles must prove successful. Meanwhile, existing tournaments need to exploit the popularity of the booming esports scene and reach new spheres.
Competing with traditional sports
It suggests that broader media engagement is crucial to the ability of esports to compete with ‘traditional sports’, such as basketball, handball, ice hockey and soccer.
The report breaks the opportunities down into five areas
Sponsorships: Revenues generated through sponsorship deals by esports teams and leagues.
Advertising: Revenues generated by advertisements served to esports viewers via live streams on dedicated online platforms as well as Video on-Demand and TV showing esports content.
Media rights and streaming: Revenues generated through media coverage, including all revenues paid to the event organizers, leagues and teams, in order to secure the rights for esports content on a channel. This includes income from fees for premium content as well. In combination with sponsorships and advertising, these revenue streams represent over two-thirds of entire revenues in 2018.
Ticketing and merchandise: Revenues generated by the sale of tickets for live esports events, as well as teams and events merchandise sales for example, caps, jerseys and chairs.
Game publisher fees: Revenues paid by game publishers, such as Riot Games, to independent esports organisers for hosting events.
Germany: a key market
A considerable number of teams, event organisers and leagues are based in Germany. These include globally recognised brands such as ESL, an organiser and production company that claims to be the world’s largest esports company and the oldest that is still operational as well as SK Gaming, one of the largest and most well-known esports teams.
Germany is also the headquarters of LEC, the League of Legends European Championship run by Riot Games, located in Berlin with all their games are played and broadcasted from their studio in Adlershof, a borough in the south-east region of the city.
Germany also hosts many other smaller esports tournaments as well as the Virtual Bundesliga, a nationwide FIFA tournament organised by the Deutsche Fußball Liga (DFL) and EA Sports.
Germany had an estimated market size of EUR 70 million in 2018, which is 29% of the entire European market. By 2023, Deloitte estimates that the German market could reach an estimated size of EUR 180 million, which is an annual growth rate of 21%.
Although the German market has experienced robust growth, revenue streams from the sale of media rights for premium esports content has not had the market impact expected. The reports suggests this is based on the specific esports culture where consumption is often considered to be ‘for free’, because, traditionally, esports fans use dedicated esports online platforms that supply content for free and not on a paid basis.
The franchise model comes to Europe
In 2018 the US company Riot Games announced the introduction of a franchise league in Europe with a European Championship (known as LEC) for “League of Legends”, one of the most popular esports titles worldwide.
From 2019 onwards, ten organisations are competing under this license model, including traditional esports clans such as SKGaming and Fnatic.
In the European league, every team organisation pays up to EUR 10 million for a place in the competition for an initial five-year period. A discount is offered for teams that have been a member of the predecessor league, the “European League of Legends Champion Series.”
The report adds: “The emergence and success of franchise models will be a crucial factor of the future development of the European esports market. However, this model may find difficulty gaining traction as it is in opposition to the popular European ‘open’ league model with its traditional promotion and relegation system.”
Traditional sports clubs are becoming increasingly involved in the esports market. Such clubs are seeking to position themselves with their own team organisations in different esports titles such as Counter-Strike, FIFA, League of Legends and Rocket League.
Sports teams compete in esports
FC Schalke 04, a club in Germany’s Bundesliga, has a League of Legends team competing in the new LEC franchise league – the League of Legends European Championship.
Paris Saint-Germain, a major force in France’s Liga 1, has a team that competes in the Dota 2 online battle arena competitions and that finished second in the Dota 2 world championship tournament, “The International 2018”.
In October 2018, Newzoo International, a Netherland-based provider of premium esports content such as industry insights and esports analytics, sold a 65.2 per cent stake to the US company Advance Publications for an undisclosed price.
Advance also announced the acquisition of The Esports Observer (TEO), an esports business news and data outlet, for an undisclosed consideration, which also fits into the company’s long-term strategy. With the acquisition, TEO will support Advance in serving professionals in the business of esports, just as Advance served traditional sports executives for more than 20 years.
One of the most recent transactions involved three esports teams: the French Team Vitality, German SK Gaming and UK based Fnatic. In November 2018, Rewired Advisory, a Switzerland-based venture capital firm with an esports division, bought an undisclosed stake in the French esports clan Team Vitality for about EUR 20 million.
Team Vitality runs teams in the popular esports titles of Call of Duty, FIFA, Halo, League of Legends and Rainbow Six Siege. Through the acquisition, the team plans to develop state-of-the-art facilities, including training and performance centres, as well as a flagship store.
The first transaction in 2019 was the acquisition of a 67 per cent stake in SK Gaming, the popular German esports clan, by Mercedes-Benz and FC Köln for an undisclosed sum. SK Gaming was sold by ESforce, the Russian esports holding company that bought the team in September 2016.
About the consumer research
To obtain the consumer-related information contained within the report, Deloitte conducted an online survey of 6,400 consumers aged 14 to 75 years in Austria, France, Germany, Italy, Netherlands, Poland, Spain, Sweden, Switzerland and the UK conducted in the early summer of 2019.