Tej Kohli is a technologist and investor who is Europe's largest individual esports investor thanks to a $100m investment into Switzerland-based Rewired . He is also founder of the not-for-profit Tej Kohli Foundation which is developing scientific and technological solutions to major global health challenges. Tej Kohli’s blog is #TejTalks and he is also the author of Rebuilding You: The Philanthropy Handbook. Tej Kohli posts on Twitter as @MrTejKohli.
I am firmly on record in my belief that, given entirely tangible and observable worldwide trends that exist today, esports teams will outpace ‘conventional’ sports teams in the coming decade. The difficulty in substantiating this view is that there is little transparency in reporting from esports teams. The majority of esports teams remain privately owned, and owners have no obligation to share data.
A strong indicator for esports closing the gap with sports, in a commercial sense, would be comparing the value of esports teams with sports teams, as Visual Capitalist attempts to do in the above infographic.
However the values assigned to esports teams in the above graphic are based on a methodology that has no grounding in fact or reality. Most analyses also have a US bias that barely rarely acknowledges the growing cohort of esports titans in Europe and Asia that are well on their way to becoming the world’s first $1 billion teams.
This view is not mere hyperbole. Some exchange traded funds (ETFs) which give ‘everyday’ investors the ability to invest in a public fund that makes private investments across the esports world have doubled in value in the last year. The VanEck Vectors Video Gaming and eSports ETF (ESPO) invests in companies that derive at least 50% of their revenues from video gaming or esports.
That fund has outperformed the S&P 500 during the market volatility of 2020. It notes that the competitive video gaming audience expected to reach 495 million people in 2020, and that esports revenue growth has increased almost 28% yearly since 2015, supported by a young and affluent audience. This gives us an indicator of the optimism that exists amongst those ‘in the know’ about the esports business.
Even the flawed methodologies used by ‘outside’ commentators to estimate the value of esports teams points toward an accelerating growth trend: according to one analysis, in 2018 there was only one esports company worth more than $300m million. By 2020, at least four of the top 10 were valued at more than $300m.
Such an analysis of valuation is flawed for the reasons that I have already outlined: it omits some of the biggest teams and in the absence of true commercial insight, bases valuation on the observable PR-led impact of each esports team rather than any underlying business fundamentals, because data for the latter is not available.
But if we set this aside, restrict our analysis to the USA, and suspend our disbelief for just a moment, one could agree with Visual Capitalist that as of right now, esports companies have most likely already reached valuations equivalent major league hockey status. According to the analysis, some esports teams are more valuable that NHL franchises such as the Florida Panthers and Arizona Coyotes.
However whilst the median value of an NHL franchise in 2020 was $520 million, the MLB, NBA, and NFL all saw median values of over $1.6 billion. But I firmly believe that very soon we will start to see esports teams close this gap with 'sports' and start to attain a similar valuations. Once again, I base this entirely in fact.
Unlike ‘sports’ companies, major esports companies can own multiple franchises and non-franchise teams across many games. Cloud9 owns both the eponymous Cloud9 League of Legends franchise and also the London Spitfire Overwatch franchise, as well as non-franchise teams in Halo, Counter Strike: Global Offensive, Fortnite, and other games. This creates unprecedented latitude for monetisation that is multiples larger than what is available to a sports team.
The revenue streams for esports companies are also extremely varied compared to conventional sports companies. Companies like TSM, 100 Thieves, FaZe Clan and Enthusiast Gaming each made 50% of their revenue from outside of esports, having expanded into content creation and apps.
It is this greater ability to diversify, and the still-increasing size of esports fandom, that will continue to drive the growth of esports valuations. As a case example, TSM’s estimated 2020 revenue of $45 million is less than half of the Arizona Coyotes’ estimated revenue of $95 million, despite a $100+ million valuation difference in favor of TSM.
Whilst it is hard to agree with the methodology of valuation used to create the above infographic by Visual Capitalist, I do fully agree that the continued maturation of esports is only going see the differences in value between ‘sports’ teams and esports teams will shrink. I have no doubt that very soon we will see a first cohort of esports teams attain the status of billion dollar companies.
d learn to incubate them.
To find out more about Tej Kohli visit:
Tej Kohli official website
Kohli Ventures official website
Tej Kohli Foundation official website
Tej Kohli's real estate portfolio
Tej Kohli’s Medium.com blog
Tej Kohli on Twitter