In December 2015 we set out 5 key predictions for eSports in 2016. We thought we'd start by looking at how well (or poorly) we did before casting an eye towards what 2017 could have in store for eSports.
Reflecting on 2016
Prediction 1 - That eSports would bloom into a range of experiments from improving player/team relations to gambling regulators taking an interest to the start of 'national' eSports bodies.
Did this happen? Yes.
While a deal of discussion towards the end of 2015 surrounded the idea of player unions and professionalisation of player welfare generally, aside from a few rather muted mentions this has received little attention this year.
But we have seen a number of organisations spring up. We've seen the arrival of the World Esports Association and the Professional Esports Association (the former predominantly European and the latter predominantly American), each of which is an association of major teams (in WESA's case in partnership with ESL) with aspirations to build long-term, part team-owned leagues, amongst other things. National bodies and grassroots organisations have begun to emerge, including the newly created France Esports Federation and the recent British Esports Association, although within the industry there is a considerable range of opinion about whether national bodies (or national regulation) have a valuable role to play in the global world of eSports and whether there's sufficient stakeholder support as of yet.
We've also seen the rise of proto-regulators such as the Esport Integrity Coalition, although again there is debate about the extent to which issues like match-fixing and 'doping' are real and sufficiently serious issues in eSports and how much eSports should follow traditional sports here. Finally, trade associations including BIU in Germany and Ukie in the UK have taken steps to become involved in eSports (see for example the recent Ukie governmental eSports white paper).
As predicted, gambling regulators have also started to make their presence felt throughout the industry, likely spurred on in part due to various allegations that came to light involving connections between a few prominent YouTubers and gambling websites. In August the UK's Gambling Commission released a discussion paper on the regulation of eSports and skins betting and in the following month commenced legal action for the first time against two individuals for video game related gambling offences. The Washington State Gambling Commission has a particular interest in Valve's offering of loot boxes in CS:GO. Gambling on video games and eSports could reportedly be banned completely in South Australia.
Prediction 2 - The number of leagues and events will become over-saturated.
Did this happen? Not yet.
Over the course of 2016 a number of new events and leagues were introduced (or at least announced). These span titles including Call of Duty, Rocket League, CS:GO, FIFA and Gears of War and come from big names like Twitch, Faceit, ESL, Turner, WME/IMG and more. But while there has undoubtedly been an increase in the number of overall eSports events going on, because these are spread across several different titles, we have not yet seen the oversaturation that was once feared.
"Blizzard's current plan is to have city-specific teams, much in the same way as many traditional sports operate"
One potential exception to this may be CS:GO, which has seen an incredible surge in popularity during 2016 and now has the busiest competitive schedule of all popular titles. In November Blizzard announced the official league format for its recently released game Overwatch, which is particularly interesting given Blizzard's current plan is to have city-specific teams, much in the same way as many traditional sports operate. This will be one to watch in 2017. Fundamentally, we still share the concerns expressed to us by several clients that there may be just too many events happening in major eSports at present.
Prediction 3 - Bigger brands will start investing more into eSports.
Did this happen? Non-endemic investment - yes. Bigger spending - not yet.
The list of non-endemic names that have made their way into eSports this year is staggering. ESPN and Yahoo launched their respective eSports news verticals in early 2016. Celebrities like Shaquille O'Neal, Magic Johnson, Jonas Jerebko and DJ Steve Aoki along with institutions like the Philadelphia 76ers, Wedmedia and Paris Saint-Germain (kind of) all joined the world of eSports team ownership. Upwards of 10 traditional sports teams including West Ham and Manchester City were reported to have become involved in eSports, although in reality this usually meant hiring an individual FIFA player and doesn't yet represent entry into eSports in earnest.
In terms of non-endemic brand involvement the scene is equally buoyant when it comes to numbers, with new names including Snickers, GEICO, Barclays and Gillette as well as renewed involvement from the likes of Coca-Cola. While the range of non-endemic sponsors is increasing, the value still seems relatively low, certainly compared to traditional sports. 2016 was a test-case for many of these brands to see what kind of return on investment the eSports demographic actually brings them. In 2017 we expect to see a number of names drop out while others ramp up their involvement.
Prediction 4 - Esports will appear on TV, though success is not guaranteed.
Did this happen? Yes.
We cheated a little with this prediction in 2015 (sorry) because we already knew that eSports would be coming to TV in the US via Turner's ELEAGUE Season 1. What we didn't know at the time was whether or not this would be a success. It's still hard to answer to that question. Reports indicate that average viewership for ELEAGUE Season 1 was around 255,000 on TV and considerably lower on Twitch, which is around 1.2m viewers less than the average episode of Big Bang Theory gets during prime time. But, as part of Turner's larger eSports plan there may still be value here (and Turner is continuing with ELEAGUE into Season 2). One or two smaller eSports / TV deals have also been made this year including a small investment by traditional broadcasters ITV and Sky into a 24 hour UK eSports channel, Ginx TV. Potential bigger news, although it hasn't quite crystallised in 2016, is speculation that Riot may be selling broadcast rights in North America for League of Legends.
Prediction 5 - New titles will break into the top 4 games (League of Legends, CS:GO, Dota 2 and Hearthstone).
Did this happen? Yes, but not always from who we expected.
Back in 2015, challengers to the current top 4 included Vainglory, Overwatch, Halo 5, Call of Duty and Rocket League. While several have undoubtedly increased their eSports efforts this year (including announcements of several high prize pool leagues), none have had the runaway success needed to sit alongside the reigning champions. Overwatch is reported to have become more played than League of Legends in Korean PC cafes, but as an esport its prospects are still unknown and a great deal will hinge upon the success of Blizzard's Overwatch League.
"Supercell's new game Clash Royale, while not played extensively on a professional level, has proven a surprisingly popular addition to the more casual eSports catalogue"
Supercell's new game Clash Royale, while not played extensively on a professional level, has proven a surprisingly popular addition to the more casual eSports catalogue. EA's FIFA, while not included in our list for 2016 and still a comparatively unknown quantity in eSports terms, seems to be making quiet headway, having attracted the attention of traditional sports teams and a greater push expected from EA in 2017.
Our Predictions for 2017:
1) Another 2-3 meaningful traditional sports entries (not including FIFA player signings) and at least another 3-5 big team sales.
Even though 2016 has been a busy first year for traditional sports investments into eSports, we expect this will continue into 2017 as the scramble for a slice of the industry continues. As we mentioned earlier there has already been some of this in 2016, notably the Philadelphia 1976ers' acquisition of Team Dignitas (disclosure: we advised Team Dignitas on that transaction). While both team and tournament slot prices are undeniably increasing across the board (rumours suggest that co-owner of the Milwaukee Bucks NBA team is considering purchasing a slot in the top League of Legends division for $1.8m) this is still a relatively low barrier to entry for wealthy clubs and individuals. In terms of team sales we expect this also to continue and we will be paying attention to the interest currently being shown to Overwatch and FIFA.
2) Player remuneration to hit a new peak.
Through a combination of salary, streaming, prize money, merchandise sales, sponsorships (both team wide and individual) and other benefits like free accommodation and food, player remuneration will reach new peaks in 2017 (at least for those in the top tiers of the top titles). This will be increasingly true as more and more high value investors become involved in the industry who will look to secure the best players. This is good for players but in wider market terms not necessarily so - a number of stakeholders have shared with us their concerns about the player market overheating rapidly, especially in CS:GO. We have even begun to hear the word 'bubble' (and not just in relation to player remuneration either). Still, competing with new investor money will continue to be a challenge for existing/veteran teams, which takes us nicely to our next prediction.
3) New monetisation avenues open up.
2016 was the year that eSports were tested on TV in the West which still has real revenue generation opportunities (although opinion is not universally in that direction), but on top of that a number of other potentially interesting deals and avenues of rights monetisation were going on quietly in the background. Fnatic released an eSports book and opened a popup store in London. Optic Gaming signed a reportedly six-figure book deal with Harper Collins. A scripted eSports TV series has wrapped production, the creator of popular TV show Rick and Morty is said to be producing an eSports show and, for what it's worth, Will Ferrell is apparently slated to star as a professional gamer in an upcoming feature film(!) As player remuneration continues to increase but prize pools remain relatively stable, alternative avenues of exploitation and monetization will become increasingly important for teams and leagues. We don't expect this to have a serious market impact in 2017, but it should help to lay the foundations for a more sustainable business in the long-term (particularly for teams).
4) The battle for broadcasting rights and exclusivity will kick off.
Big stakeholders, notably leagues and broadcasters, have been signing up teams, players and streamers/broadcasters on exclusive deals left, right and centre. These deals often overlap and often benefit the bigger party over the smaller one, but they were easy to sign and gave at least short term benefits. Plus, as we mentioned earlier, the number of entities in eSports has grown significantly. This landgrab, while entirely understandable and economically rational, nonetheless sets up a precarious position for the future. What happens when a league or broadcaster attempts to force its rights against a team which has given exclusivity to two or more rivals? We have already begun to see some signs of strain and in 2017 we expect to see that trend continue, probably breaking out into battle in earnest.
5) Esports regulation will get worse before it gets better.
We said earlier that we expected 2016 to be the year in which eSports bloomed when it came to professionalisation and regulation. That happened, and some things were certainly good developments, but we're not sure the overall result puts eSports in the best position. Looking back, it feels like 2016 was the year in which those voices within eSports who want it to find its own way were drowned out by louder outside voices telling eSports what it should do - sometimes from traditional sports, sometimes from video games and sometimes from government, and too often from a position of regrettably little eSports industry knowledge or stakeholder support.
"It feels like 2016 was the year in which those voices within eSports who want it to find its own way were drowned out by louder outside voices telling eSports what it should do"
We will therefore see initiatives in 2017 which try to shape eSports based on assumptions about traditional sports and video games; this could certainly bring benefits but is just as likely to cause problems. Above all, we are concerned about the fragmentation of eSports specific regulation on national lines (even if well intentioned) and aping traditional sports, which with a few exceptions is conceptually, legally and practically problematic. At best this will complicate the growth of global eSports and at worst may harm it. In our view, only through a concerted effort by major eSports stakeholders, and a balanced and educated view of what eSports can learn from its predecessor industries versus what it must learn for itself, will eSports avoid this trap. We're confident this will happen at some point - but it remains to be seen whether that will be in 2017.
Purewal & Partners is a law firm advising the European eSports industry. We advise the full range of stakeholders from players and teams to leagues and broadcasters and have been involved in a number of the major eSports transactions in 2016.