The idea of the typical sport jocks lifting weights and participating in locker room banter may soon be replaced by the quick-thinking, button-pushing video gamer as competitive video gaming, or eSports, is positioning itself to become a disruptor in traditional media and entertainment. As such, enter today’s launch of the VanEck Vectors® Video Gaming and eSports ETF (NYSEArca: ESPO).
ESPO seeks to track the performance of the MVIS® Global Video Gaming and eSports Index (MVESPO). The index is a rules-based, modified capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of companies involved in video gaming and eSports.
The list of companies within the index may include developing video games and related software, streaming services, and/or those involved in eSports events. To be included in the index, companies must generate at least 50% of their revenues from video gaming or eSports, which allows ESPO to have the highest concentration, among U.S.-listed ETFs, of pure play names participating in this fast-growing space.
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ESPO will take aim at in industry that is already garnering more interest than traditional sporting events like the MLB and NHL.
“Just a few years ago, talk of sold out stadiums, viewership in the millions, high-profile sponsors, and notable marketing arrangements would have been centered on football, baseball, basketball or hockey. But today, that talk can just as easily be applied to the world of video games and eSports,” said Ed Lopez, Head of ETF product at VanEck. “This is the future of sports and a growth story that is global in scope.”
A recent Newzoo Global Games Market Report estimates that the video game market itself is set to generate close to $140 billion in revenue in 2018, an increase of more than 13 percent from 2017. VanEck anticipates that established video game companies are set to benefit the most with the rise of eSports, through partnerships, league ownership, sponsorships, franchising, and other marketing arrangements.
“All the ways the NFL makes money and grows revenues–that’s how these eSports companies are also currently bringing in money, but it’s going to grow exponentially over time,” said Michael Cohick, Senior ETF Product Manager at VanEck.
Demographic of Youth and Affluence
ESPO will look to capitalize on an eSports industry that is dominated by a younger demographic that is willing to open their wallets—43% of eSports enthusiasts have annual household income of over $75,000 and 31% of eSports enthusiasts have an annual household income of over $90,000. Furthermore, by instilling brand loyalty at a young age, these gaming companies have the potential to build long-lasting relationships.
“The proliferation of social media and the general millennial experience, we see video gaming and eSports as a way for advertisers and big brands to connect directly with their customers,” John Patrick Lee, Associate ETF Product Manager at VanEck, told ETF Trends.
“A huge part of the story is that it’s a young demographic,” added Lee. “The average person who watches eSports and plays video games is 28, 29 years old.”
Lee went on to mention that ESPO is “looking at a young, engaged demographic who is actively looking to participate in the community we got a situation with kids, young adults and regulars are watching and interacting with these eSports superstars and it’s transitioning to what we think are the sports of the future.”
Investor Interest on the Rise
The rise in eSports has provided the necessary funnel for investment capital from not only large companies like Amazon and Alibaba looking to acquire smaller companies that already operate within this nascent space, but also public institutions like colleges that are willing to inject more resources to proliferate the competitive video gaming space.
“We see colleges investing in eSports arenas and computer labs,” said Lee. “And they’re granting scholarships to the top eSports athletes.”
The rise of eSports is not relegated to the United States, but its presence is far-reaching globally and that is expected to continue as technological enhancements in video gaming continue to add fuel to the proverbial flame. This will only dwarf the size of traditional entertainment moving forward and the numbers are already reflecting that eventual change.
“The global box office receipts was $40.6 billion,” said Lee. “The video game revenue in 2017 was $120 billion–roughly three times the revenue of box office receipts and that is not necessarily an apples to apples comparison, but you get a size and a sense of the scope of the market.”
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