Even though video games have been a significant part of adolescent culture since their inception, the industry is undoubtedly niche.  However, the video games culture is experiencing a modern-day renaissance and becoming more mainstream with the help of technology and the burgeoning industry of electronic sports, aka e-sports.  Just last month, players of the popular ‘Fortnite’ game gathered in New York City for a world cup competition where the champion, 16-year-old Kyle Giersdorf, won $3 million from the $30 million prize pool.  Per the WSJ, revenue from the e-sports industry is expected to hit $1.1 billion in 2019, with anticipated growth from the large deployment of investor capital to be significant.  Streaming platforms such as Twitch, which was acquired by Amazon for $970 million in 2014, or Youtube, have aided in the growth of e-sports, as professional and amateur gamers alike stream live broadcasts of gameplay, and the increased popularity of these livestreams are a major focus for the injection of capital from both marketers and investors.

The NFL of video games

The e-sports industry is niche, within the already demographic-specific industry of video games, but it is a rapidly growing sector that is seeing an increasing amount of capital being invested.  According to SPS data, there was a 38% increase in video game deals closed from 2017 to 2018, most traded under the Consumer: electronics and Media: entertainment industries.  E-sports specific deals closed in 2019 year-to-date have increased 250% from 2018, and these deals touch upon a variety of different sectors, including Services: marketing & related and Consumer: sports & recreation.  For investors interested in these areas, the rise in popularity generates further growth in opportunities for sponsorships, e-sports organizations, and even retail and apparel companies. 

Earlier this year, Sector Six Apparel, an e-sports apparel brand specializing in jerseys and custom team wear, was acquired by We Are Nations.  SPS spoke with Zachary Sass, Owner and Founder of Sector Six, for his insight on the e-sports industry, “The past 12 months or so the e-sports scene has seen quite a few big names show interest in the space… Names like Dan Gilbert coming into the space are the catalyst for stronger structure… throughout the next year or so, this will become much more common, which in turn, will assist in the growth of e-sports as a whole.” 

The aforementioned WSJ article also mentions names like Red Bull and Bud Light, some of the larger sponsors in e-sports, with Bud Light’s investment in an e-sports league being up to $3 million.  Compared with their $1.4 billion NFL brand deal, it is an immaterial amount, but as the e-sports industry grows, the deals will inevitably follow.

Transaction profiles

Per SPS data, approximately 73% of video game transactions have traded in the sub $50MM range, and 23% between the 50-250MM range.  Most of these deals involved corporate investors; however, approximately 25% of these deals had an equity participant, with Austin Ventures being the most active sponsor since 2015.  Furthermore, the video game industry is most active in California with about 45% of video game deals traded there, followed by Washington with approximately 14%.

The future of the industry

From Pac-Man to Fortnite, video games have been ubiquitous for many decades, and modern technologies are presenting new opportunities for the industry to expand.  The organization of e-sports paves the way for investors to invest in brand sponsorships and deals, worldwide competitions with increased viewership, and e-sports team apparel and merchandise.  If your firm is interested in this industry, the SPS portal can provide actionable data that can help you form new relationships to advance in this sector.

Last week’s deals today

August 5-9, 2019
~121 deals traded

Deal of the week

Elliott Management Corp. completed its acquisition of New York, NY-based book retailer Barnes & Noble Education Inc. for $683 million. Evercore Partners, Guggenheim Partners, and PJ Solomon acted as financial advisor to Barnes & Noble, with Baker Botts and Paul Weiss serving as legal counsel.  Credit Suisse and Debevoise & Plimpton provided buy-side financial and legal advisory services, respectively.

Most active subsectors
  • IT: Software & services
  • Industrial: Misc. equipment & products
  • Financial: Services
  • Services – Misc., asset light
Most active cities
  • New York
  • San Francisco
  • Montreal
  • Phoenix

Photo by Florian Olivo on Unsplash

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