The uptake of esports had been slower in the UK than in other leading nations in gaming, though it has accelerated in recent years. The UK government recognised in 2020 that ‘esports has the potential to develop as an area of real national strength’, owing to steep growth in viewership, an increasing number of esports events and a growing number of investments.
However, esports remains small compared with the wider gaming sector. The UK industry must find ways in which to showcase its true potential, acquire a greater number of regular viewers and organise and host esports competitions to attract investors. The industry can also leverage the UK’s expertise in tech, gaming and the arts to create opportunities for growth.
Growing industry
According to gaming research company Newzoo, global esports revenue is forecast to reach US$ 1.4 billion (£1.1 billion) in 2022, representing a 16.4% rise on 2021. Moreover, its audience is anticipated to reach 532 million in 2022, up 8.7% on 2021.
Newzoo’s report also highlights the key revenue streams for the industry in 2022:
- Sponsorship - US$837.3 million (£648.5 million)
- Media rights - US$207.8 million (£160.9 million)
- Publisher fees - US$130.7 million (£101.2 million)
- Merchandise and tickets - US$107.9 million (£83.6 million)
- Digital - US$53.9 million (£41.7 million)
- Streaming - US$46.3 million (£35.9 million)
A study for UK Interactive Entertainment (Ukie) indicates that the UK industry’s revenue was just £60 million in 2019, representing 8% of the global market at the time. Nevertheless, revenue grew at a compound annual rate of 8.5% over the four years through 2019. The industry generated £111.5 million in gross value added in 2019, supporting over 1,200 jobs in 2019. In the United Kingdom, Twitch, YouTube Gaming and Level Up Media are the three leading streaming platforms for esports.
Higher engagement
While most industries struggled during the COVID-19 pandemic and physical live sports ceased, the esports industry grew, attracting a higher number of viewers and players. Stringent restrictions over much of the two years through 2021-22 meant more people were at home with free time on their hands. With many leisure activities closed off, many turned to alternative leisure activities such as gaming and esports.
The industry has also benefited from a number of popular sportspeople – such as F1 drivers Lando Norris and George Russell and footballer Gareth Bale – taking part in various tournaments. However, as the industry generates a sizeable share of revenue from merchandise and tickets, the forced shutting of live events negatively affected the industry.
Nevertheless, the industry has received higher exposure on TV programming and broadcasting networks, including BBC, Sky and ESPN. Moreover, in June 2022, esports tournament organiser Blast signed a media rights partnership with sports streaming platform DAZN.
As esports is becoming more mainstream, gambling on competitive gaming has also surged, particularly during the pandemic when other live sports events were shut.
According to the Gambling Commission, there was a staggering 2,992% year-on-year increase in esports betting in the United Kingdom in March 2020, from £50,223 to £1.5 million. This rose to £4.6 million in May 2020, accounting for 4% of all sports betting.
New investment
The growth in gaming during the pandemic and the opportunities within the sector resulted in strong merger and acquisition activity. A stand-out acquisition has been that of Activision Blizzard by Microsoft for US$68 billion (£50 billion).
According to accountancy and business accountancy firm BDO, 14 M&A deals involving UK video game makers took place in 2021, compared with nine in 2020, totalling £1.9 billion.
Research published by Here East and Beauhurst from July 2021 states that UK-based esports firms raised £42 million in 2020, which was a record year in both value and the number of deals; in the first half of 2021, the industry enjoyed eight deals worth a total of £15 million.
Over the decade through 2021, esports have raised £138 million, with £85 million of this secured over the two years through 2021. This highlights the recent positive boom in the industry. London-based Fnatic is Britain’s most successful esports firm, raising £51 million across seven funding rounds.
New regional players
According to Here East and Beauhurst’s research, 45% of the funding rounds over the two years through 2021 were secured by startups that had never previously raised investment. There are 43 fast-growth UK esports startups and scaleups, with 67% based in London.
Nevertheless, the industry is growing across the United Kingdom with recent investment in other regions, which could support the government’s Levelling Up plan. For example, the West Midlands has agreed on a 10-year strategic framework with the Global Esports Federation, with the aim of making the UK a key player on the international stage and to have the West Midlands become a hub for esports and gaming.
The West Midlands is already generating one-quarter of the UK’s output in the sector.
Furthermore, the British Esports Association has announced that it will establish a multi-million National Esports Performance Campus at Riverside Sunderland. This is with the aim of providing access to state-of-the-art equipment, training and investment that will support the North East and the UK become a globally recognised esports hub capable of attracting and developing the world’s best esports talent.
In addition, the UK government is likely to up its support for the industry in the coming years, though assistance is currently still very low.
Boosting revenue streams
Newzoo expects the global esports industry to continue to perform strongly; over the five years through 2025, revenue is expected to grow at a compound annual rate of 13.4% to reach US$1.9 billion (£1.4 billion), with the total audience likely to surpass 640 million in 2025.
Despite this, the global esports industry has to seek ways in which to boost revenue generated from its various streams, as it currently relies heavily on sponsorship, which generates 60% of revenue. Participants will also have to find ways in which to boost streams that are lagging behind.
The esports industry’s growth will also be heavily dependent on game publishers releasing new game titles that are more immersive and captivating, which draw a larger number of professional players and viewers.
Ukie reports that a major global esports event could generate 238 jobs and £12 million in GVA for the UK economy.
The mobile games market could also present a growth opportunity, particularly as mobile game developers release more high-profile gaming titles that can attract larger audiences, such as PUBG Mobile, Free Fire and Mobile Legends: Bang Bang.
Outlook
A PwC report on video games and esports in the UK states that international per-capita spending on esports in the United Kingdom ranked fourth globally in 2021, at £0.55, behind South Korea (£3.58), Germany (£1.12) and the US (£0.86).
Spend on esports seriously lags behind international per-capita spending on video games, in which the UK ranks sixth, at £87.86 in 2021. This is due to the difference between the business models of the two industries, with consumers paying for the experience of playing video games, and not paying for the experience of watching esports.
Will the industry change its business model in order to accelerate growth and be sustainable in the long run, such as by introducing a subscription model for access to certain content or incentivising competition to boost media rights revenue? This remains to be seen.
But what is certain is that, in the UK, drawing more private investment as well as support from the government, will be important in making the country a global hub for esports. Greater exposure, greater participation of high-profile individuals and the hosting of high-rep events will all bolster interest in esports.
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