The rise of eSports: from niche to blockbuster

Although it has grown exponentially in popularity in the last few years, esports has a longer history than you might realise, stretching back almost 50 years, in fact, to the world’s first ever competitive tournament in 1972. On October 19, Stanford University invited players to compete in a game called Spacewar! that was popular in the relatively small world of academic computer laboratories. The winner took home a year’s subscription to Rolling Stone magazine.

Video games went mainstream during the 1970s with the arrival of home consoles like the Magnavox Odyssey, but it was not until the release of the Atari in 1977 that the market exploded. In 1980, when Atari held a championship for one of its most popular titles, Space Invaders, more than 10,000 people showed up – a landmark event in the history of esports. The following year saw the launch of Twin Galaxies, an organisation dedicated to recording high scores from arcade machines in the US and bringing top players together for tournaments. This allowed players the ability to essentially compete not just with those who frequented the same arcade but with enthusiasts from across the US, adding a new dynamic to competitive gaming. 

Of course, it wasn’t until the emergence of the world wide web in the 1990s that esports really took off on a global level. Suddenly, a player in Germany could face off against one in the US or Australia without either of them having to leave their own homes. However, the low speeds of dial-up internet and the high price of data were limiting factors for many and the cheaper, though logistically more arduous, option was for gamers to bring their PCs over to each other’s houses for LAN parties.

The late 1990s also saw the release of Blizzard Entertainment’s StarCraft, which gave birth to the Multiplayer Online Battle Arena (MOBA) genre that dominates esports tournaments today. Many of the biggest names in gaming piled into the genre over the next decade or so, spawning hugely successful titles like Defence of the Ancients (better known as Dota) and League of Legends.

The professionalisation of esports began with the establishment of the Cyberathlete Professional League in 1997. CPL’s first tournament boasted a $15,000 prize pool, though by 2005 the organisation was able to distribute more than $1 million to participants in a world tour. Tournament prizes have grown exponentially since then, with this year’s Dota 2 championship (won by Tham’s OG team) featuring a $35 million prize pool.

So how are these big paydays possible? It’s because esports has found a big and fast-growing global audience, one that only got bigger when the COVID-19 pandemic shut down sports across most of the globe. For instance, last year’s League of Legends World Championship in South Korea had a global audience of almost 400 million, compared to the Superbowl’s 150 million.

And as audience numbers grow, so too does revenue from advertising, sponsorships and media rights, which are collectively expected to top $US1 billion this year. This has been made possible largely by the rise of streaming platforms like YouTube and Amazon’s Twitch, with fans watching more than 100 billion hours of gaming videos on YouTube in 2020 – double 2018’s total.

The growth of esports has fuelled the rise of a number of gaming companies and created a significant amount of growth for shareholders. For instance, shares in Activision Blizzard, which owns Call of Duty and World of Warcraft, among others, have risen from around $US1 per share in 2000 to more than $US95 a share today.

That rise, however, hasn’t come from direct esports revenue but (primarily) from increased sales and subscriptions as a result of the broader growth of the gaming industry. Of course, esports is only one part of the story with that industry-wide growth, but it’s an increasingly important one. Just look at the launch of Blizzard’s hugely successful Overwatch, a title firmly aimed at the esports market, which helped drive a 100% gain in its share price over two years. Other businesses that are riding this wave include Electronic Arts (EA), which owns a string of popular sports-based titles like FIFA and Madden NFL, and Tencent Holdings, the Chinese social media and gaming giant.

Despite this rapid growth, it’s clear that even after 50 years, esports is just getting started. Analysts have forecast significant growth in viewer numbers and revenues over the next few years. Prize pools are on the rise as well, meaning we will see more and more millionaire esports stars while new leagues, games and tournaments will create fresh opportunities for players and investors alike.

If you’re interested in finding out more about the esports market or the share market in general, visiting our ​share trading​ page.