Investors cool on ‘anti-sexy’ esports

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Illustration of a trophy knocked over with only a few pennies falling out.

Illustration: Aïda Amer/Axios

The investment buzz around esports has faded, experts in and around the competitive gaming world tell Axios.

Why it matters: Esports had been one of the hottest and most frequently funded sectors in gaming for several years going into the pandemic.

  • But concerns over profits have sent investment firms elsewhere, particularly to crypto-based web3 gaming startups.

The numbers: Out of 695 private gaming investments in the first nine months of 2022, just 33 deals (worth $310 million) involved esports, according to Michael Metzger at Drake Star Partners, which tracks gaming deals.

  • That’s down from 138 esports deals ($2.1 billion) out of 718 private financings in gaming in all of 2021, Metzger says.
  • The investment portfolios for large, gaming-focused venture capital firms such as Griffin Gaming Partners and Bitkraft Ventures (fka Bitkraft Esports Ventures) are now light on esports, heavy on blockchain.

What they’re saying: “Esports has become anti-sexy to VCs who had been burned by the hype and sky-high valuations esports startups enjoyed a few years earlier,” wrote esports veteran Ben Goldhaber in a recent Medium post.

  • He was detailing the struggles of Juked, an esports schedule and social media venture that shut down last month.
  • Goldhaber recalled the gold rush of a half-decade ago, when esports organizations could easily find funding because the money people wanted in.
  • “It’s unclear to me how much of it was bad faith and how much of it was stupid, delusional hype,” reporter Jacob Wolf, who built his name covering esports and covered those sky-high valuations, tells Axios.

Popular, if not profitable: It’s been hard for esports organizations to monetize players and esports fans, Goldhaber and others say.

  • Esports may be enjoyed by millions of people, especially during big tournaments for Counter-Strike, League of Legends and Valorant. But it’s essentially a young, alternative sector of sports that lacks crossover stars and lucrative rights fees.
  • The most popular esports games are owned by the companies that make them, and it’s those companies, the Riots and Activisions, that can make the most money and tolerate any losses, experts say.
  • “Fan engagement is there and is going to continue to grow,” Goldhaber tells Axios, citing healthy online viewership numbers for recent events. “The question is how do you make any money if you’re not the game publishers themselves?”
  • “Esports is not a profitable business,” Misfits Gaming CEO Ben Spoont recently told Axios Pro Media Deals, explaining his group’s pivot this year from esports to the creator economy of Twitch and YouTube stars.

Yes, but there’s still some money coming in.

  • Esports M&A activity for 2022 has totaled $2.1 billion for the year across 31 deals through September, according to Drake Star.
  • The bulk of that: A pair of esports purchases in January financed by Saudi Arabia’s sovereign wealth fund, a $1.5 billion bundle that is part of the country’s planned $38 billion investment across the games industry.

What’s next: Wolf considers the slowdown in esports investment to be a “healthy” corrective for the scene, potentially reviving the scrappier, more realistic spirit of esports circa 2014 or so.

  • Goldhaber just saw his startup’s lifeline get clipped when a potential acquirer bailed a month ago. It’s a crypto company, he says, and with the collapse of FTX, it had to get more conservative.
  • He doesn’t want people to think esports is doomed. He’s still bullish: “I think anyone who thinks esports won’t be much bigger than it is now in 10 years, is wrong.”

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