eSports still waiting for its big "Supercell moment"

Editor's Note: This is one in a series of year-end content to be published daily leading up to Christmas that includes analysis, opinion and insights into the biggest news and trends of 2015.

2015 has been an incredibly busy year for eSports: we have seen continued strong growth in its fundamentals; new records in viewing numbers, attendance and prizes; the entrance of new players and sponsors; and a growing consensus over the need for greater professionalisation and regulation. This article sets out some of the most interesting and important eSports stories of 2015 and gives our thoughts on the great experiments that will underlie developments in 2016.

Setting the Scene - how big is the eSports industry?

There is little public data or projections regarding the size and growth of the eSports market, but 2015 saw some impressive numbers beginning to come through. Newzoo, for example, published a report estimating that more than 200m people watched eSports in 2014 with global revenue set to grow from $278m in 2015 and tripling by 2018. Audience growth is substantial and the top events are well into the tens of millions of viewers: DreamHack Cluj pulled in 25 million unique viewers, ESL One received 27 million and Riot just announced that the League of Legends 2015 World Championships saw an astonishing 36 million unique viewers (although, for comparison purposes, the 2015 Super Bowl had 114.4 million viewers in the US alone). Prize pools continue to rise, with the standout leader continuing to be The International for DOTA 2 at $18m this year (by some margin larger than those of a range of traditional sports events from Wimbledon to the Super Bowl). Household brands are slowly becoming involved: Coca-Cola is sponsoring League of Legends and looking further afield; and Blizzard's World Championship Series was sponsored this year by MasterCard and T-Mobile.

All quiet on the corporate front?

Amazon's acquisition of Twitch for $970m in cash in the summer of 2014 was a wake-up for everyone - in video games, eSports and elsewhere - about the potential of eSports. There were no such ground-breaking deals of that magnitude in 2015, but this year did nonetheless see a few smaller-scale but still important moves for the future of eSports.

"While we can expect to see more investments into leading teams, they are likely to be relatively few and piecemeal in 2016, if for no other reason than many eSports teams are not easily investable at present"

First, we saw the arrival of MTG (a Sweden-based and NASAQ-listed traditional entertainment and media company) as a force in eSports, buying a majority stake in the company behind ESL, one of the world's leading eSports production and events businesses, for €78m. This was followed soon after by MTG acquiring DreamHack, organiser of the world's leading games festivals and itself a force in eSports events, for nearly $30m. MTG now controls three of the world's leading eSports leagues (ESL, ESEA and DreamHack), which is going to have a real effect on the eSports industry (in particular independent league and event organisers) into 2016 (more on that later).

2015 also saw one of the first substantial investments into eSports teams, with an investment of "up to $100m" into Virtus.Pro (Russia's leading eSports team), by USM Holdings - an entity controlled by the Russian billionaire Alisher Usmanov. The deal is interesting for two reasons. First and most immediately, it heralds greater interest in the underexploited but potentially very substantial Russian/CIS eSports industry. Secondly and more widely it sets a marker regarding investment into teams, which of course has been a very active area in traditional sports for some years (take as a recent example the leading football club Manchester City, which is owned by an investment vehicle of the Abu Dhabi royal family but just saw a minority stake taken by a Chinese state media company worth £256m, valuing the club at over $3bn). However, while we can expect to see more investments into leading teams, they are likely to be relatively few and piecemeal in 2016, if for no other reason than many eSports teams are not easily investable at present.

Elsewhere in eSports, we saw investments into digital broadcast and gambling, with tens of millions in equity or debt finance going into companies including Hitbox, Mobcrush and Azubu in the digital broadcast space and AlphaDraft, Unikrn and Vulcun in eSports gambling.

eSports on TV?

For many years the eSports industry has been in turns both attracted by and dismissive of the potential for eSports on TV. For TV's part, traditionally it largely was ignorant of the existence of eSports. This all began to change in 2015. The MTG acquisitions we mentioned earlier are one big factor, since MTG is primarily a traditional entertainment company with TV interests. Of even greater significance was the announcement that Turner Broadcasting will form a new eSports league (to be known as "ELeague") featuring a number of top eSports teams from around the world, to be broadcast on primetime US TV during 2016 and using Counter-Strike: Global Offensive (CSGO).

"Real and increasingly acutely felt issues in 2015 stemmed from some basic deficiencies in the business and legal landscape. Leagues and publishers do not always set sufficiently detailed and understandable rules for the teams and players to follow"

Both MTG and Turner are likely to shake up eSports into 2016 as a result, although the exact consequences remain to be seen. It is also worth bearing in mind there are some key differences in their strategies: MTG is building a position in eSports via its acquisitions of existing leagues, whereas Turner is attempting to build a new league. Looking further afield, broadcasters around the world will be watching how Turner and MTG fare with interest: the BBC, Sky, ESPN and others have all begun to watch eSports and even make a few tentative moves. But before we see some really big moves, some key questions need to be answered: do existing eSports fans want to watch eSports on TV? What can traditional TV companies bring to eSports which eSports cannot do itself? Will eSports on TV actually grow the audience base? What will the big brands who drive sponsorship packages think?

Clouds forming over eSports regulation

2015 was the year in which consensus began to build that eSports needs greater professionalisation and some degree of regulation in order to ensure a level playing field and a sustainable business and legal environment. There were a number of headlines which, although at times rather sensationalist, helped to drive the agenda. For example, over summer 2015 a story emerged in which a top CSGO player claimed that he and a number of other players had been using Adderall (an attention deficit disorder medication alleged to improve focus and concentration) in eSports tournaments, which led to the discussion about the importation of anti-doping regulation measures from traditional sports. Similarly, there was a story about a match-fixing ring focusing on StarCraft 2 matches out of Korea. Gambling became a force in eSports in 2015, with players like AlphaDraft and Vulcun spending sizeable sums in eSports, but there are unresolved matters regarding their legal status in eSports.

At first blush this could look worrying, particularly in a year where traditional sports regulation around the world has come under attack with charges ranging from bribery and corruption (with FIFA) to allegedly state-sanctioned use of performance enhancing drugs (in Russia). However, in reality there is as yet no data regarding the degree to which these kinds of integrity issues are actually a problem in eSports and our anecdotal experience suggests that the press headlines and the reality are some distance apart. Nonetheless, what we have seen in 2015 shows that clearly there is room for improvement.

Not just in relation to integrity issues, either. Real and increasingly acutely felt issues in 2015 stemmed from some basic deficiencies in the business and legal landscape. Leagues and publishers do not always set sufficiently detailed and understandable rules for the teams and players to follow. Teams do not always have sufficiently well prepared player arrangements, ranging from enforceable player agreements to proper player welfare. For their part, players are increasingly in demand yet often pay insufficient attention to business contracts or their own long term futures. All of these things need attention in 2016 if eSports wants to avoid them becoming serious bottle-necks.

Looking forward to 2016

In closing, here's some predictions from us of five key experiments which we believe will define eSports in 2016.

(1) Professionalising eSports: a hundred flowers bloom

2016 will see a range of experiments in professionalising eSports and it could get messy. There has long been talk (but not much more than that) regarding player 'unions' and team associations, which will probably gain greater momentum in 2016 (although past experience argues in favour of tempered ambitions). Some kind of industry wide advocacy is needed and it is to be hoped that some of the larger players will form up in favour of it. National organisations are beginning to form. More generally, 2016 will see great experiments in improving the player/team relationship, the great unknown being where the balance of power will rest between these two camps by the end of the year. From the outside, regulators - above all gambling regulators - may begin to make their presence felt, most likely through monitoring developments and gathering data, but potentially going as far as full investigations. This will depend in part on the fallout from ongoing US investigations into fantasy sports betting, although EU regulators may have their own agendas to pursue.

(2) How many leagues and events does eSports need?

Arguments are growing within the industry that the leagues and events space is oversaturated, putting pressure on the eSports calendar and thereby on teams and players, even as MTG and Turner pile on yet more pressure. Top players are already competing against each other on a regular basis throughout the year via different leagues, with no semblance of any 'seasons' or off-periods. It is likely that this will lead to some form of consolidation, certainly affecting leagues and events but possibly even impacting those teams which may become less able to cope with the greater demands of a busier calendar.

(3) Big brand deals start spending (bigger) money

2016 will see some of the biggest brand deals so far. As mentioned earlier, a number of big brands have begun experimenting in eSports partnerships but there has not yet been anything like the scale of those seen in traditional sports. The time is ripe for experimentation and candidates could come from almost any direction, including for example sports labels, lifestyle and leisure names, even the movie industry. The best placed candidates to exploit those opportunities will include the leagues, broadcasters (in particular Twitch) and those (few) teams which were farsighted enough to begin building a brand strategy in 2015. The key issue will be if and how big brands will be able to adapt to new marketing strategies to meet the demands of eSports fans and the unique features (and issues) of the eSports landscape.

"A big factor in 2016 will be whether Turner will make its eSports league a big success on primetime American TV. If it does, it would have a substantial impact on every part of the eSports ecosystem"

(4) TV and eSports

A big factor in 2016 will be whether Turner will make its eSports league a big success on primetime American TV. If it does, it would have a substantial impact on every part of the eSports ecosystem. Rival leagues and broadcasters may tie-up together. Teams and players would receive greater attention from the rival league/broadcast combinations as well as brands. Sponsors would scramble to catch up. However, we suggest it is worth having tempered expectations: this is no small undertaking and there is as yet no clear evidence regarding what unmet audience needs would be met compared to the current offerings.

(5) Breaking into the top 4 games

The most popular eSports will continue to be League of Legends, CSGO, DOTA2 and Hearthstone, but we will see challengers including mobile MOBA Vainglory (which is already quietly gaining traction), Blizzard's new entrant Overwatch, Microsoft with Halo 5: Guardians and Activision with Call of Duty: Black Ops 3. It's possible we'll also see at least one or two other entrants from independent developers experimenting with eSports (Psyonix's Rocket League being one example). Finally, we can also expect to see action from several big existing publishers making a concerted push into eSports, like EA (who just announced the formation of a new "Competitive Gaming Division" led by Peter Moore), Sony (with their PS Plus League) and Activision Blizzard (also with their own newly formed competitive gaming division headed by ESPN and MLG veterans) - we'll have to wait and see what impact each of these has in 2016. However, there is still much to play for: we have not yet had our 'Supercell moment' where a new entrant figures out how to build a truly eSports-first game and takes significant market share.

Hold on to your hats, folks...