Let’s Play!The European esports market

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ContentsForeword2Market overview4Trends and drivers9Rise of franchise leagues16The development of European League of Legends esports19Media insights21Mergers and acquisitions23Corporate governance28About Deloitte and game29Basis of preparation30Contacts31Endnotes32Disclaimer38

Let’s Play!ForewordEsports is a rapidly emerging success story all across Europe. Revenues arerising on the back of significant audience growth and increasing engagementfrom commercial partners. Potentially the market could develop further towardsmainstream acceptability, especially in terms of increased media coverage.THE EUROPEAN ESPORTS market isThe European esports market has seen strongexperiencing enormous growth. Nowadays,average annual growth of about 24 per cent sinceesports events easily fill arenas while the prize2016, with total revenues amounting to EUR 240money can rival or even exceed that on offer inmillion in 2018. During this period, the market hasmany traditional sports. As part of its growth,increasingly become more structured: Associationsesports has evolved well beyond being a nicheand league systems have been implemented,product. The small, local ‘LAN parties’ of past yearsnew competition structures are evolving andhave been replaced by globally connected eventsnonendemic participants are entering esports,that are streamed online and transmitted via linearespecially as sponsors or commercial partners.TV. A few years ago, only a small number of coreAdditionally, global mergers and acquisitionsfans followed the latest esports news. Now, the(M&A) activity reached a record high in 2018,latest developments are the subject of intensereflecting growing interest from investors, whichpublic discussion, mainly by younger generations.was also evident in the European esports market.This does not seem to be a short-term phenomenon.For the esports market to maintain this growth,Rather it reflects a sustainable and constantnewly implemented leagues, such as the Leagueexpansion. For this reason, esports must beof Legends European Championships (EU LEC)considered a success story not only in Europe, butfranchise, must prove successful. Meanwhile,also globally because the developments can also beexisting tournaments need to exploit theseen worldwide. However, this study investigatespopularity of the booming esports scene andEuropean esports with a particular focus appliedreach new spheres. In this way, there will be ato Germany, the largest and one of the mostpositive impact on the size and monetisationadvanced esports markets on the continent.of the esports audience, which will lead to anincrease in commercial and media rights revenuesto the benefit of all esports stakeholders.2

The European esports marketBesides defining the market size andAs part of this study we have conducted adevelopment, this study focuses on the majorconsumer survey across various Europeanmarket drivers, and examines the significance ofcountries. The intention was to investigatefranchise leagues, the increasing M&A activityperceptions of esports on an international leveland the growing media engagement in esports.(for details on the methodology, please refer toThis latter trend is crucial to the ability of esportsthe section “Basis of preparation”).to compete with ‘traditional sports’ such asbasketball, handball, ice hockey or even soccer.Ongoing equity investments and the implementationof additional closed-league systems will enableThe European esportsmarket has seen strongaverage annual growthof about 24 per centsince 2016.esports to take further significant steps towardsmaturation. To explain the importance of closedleague systems, this study also examines the recentlylaunched EU LEC league and includes an interviewwith Alban Dechelotte, Head of Sponsorships& Business Development EU at Riot Games(see page 19).3

Let’s Play!Market overviewThe European esports market has experienced significant growth in recentyears to become a market of considerable size. Along with a strong revenuedevelopment, the market has also seen an increase in the variety and numbersof interrelated stakeholders.The European esports marketE2. Advertising: Revenues generated by advertisements served to esports viewers via live streamsSPORTS HAS DEVELOPED rapidly from aon dedicated online platforms as well as Video-niche product towards becoming a main-on-Demand and TV showing esports phenomenon. The three regions of3. Media rights and streaming: Revenues gen-Asia, Europe and North America each representabout 30 per cent of the global market. In Europe,erated through media coverage, including allthe esports market is attracting more stakeholdersrevenues paid to the event organizers, leaguesevery year and in 2018 was estimated to be worthand teams, in order to secure the rights forEUR 240 million. This is an annual growth rate ofesports content on a channel. This includes24 per cent since 2016.income from fees for premium content as well.In combination with sponsorships and advertis-In this study, the European esports market is defineding, these revenue streams represent overas the accumulated revenues of esports leagues andtwo-thirds of entire revenues in 2018.2events, as well as team organisations (also referred4. Ticketing and merchandise: Revenuesto as ‘clans’). This aggregate is depicted in the innerarea of figure 1, which represents one part of thegenerated by the sale of tickets for live esportsentire esports ecosystem. The revenues of relevantevents, as well as teams and events merchandisestakeholders stem from the following streams:sales (for example, caps, jerseys and chairs).11. Sponsorships: Revenues generated through5. Game publisher fees: Revenues paid by gamesponsorship deals by esports teams, leaguespublishers, such as Riot Games, to independent(such as the ESL Pro League), as well as eventsesports organisers for hosting events.(for example, ESL one in Germany, Dreamhackevents in varying European countries or theIEM in Katowice, Poland).4

The European esports marketFIGURE 1The ecosystem of the European esports marketRevenue stream (contributing to the European market size)Revenue stream (not contributing to the European market size)‘Peripheral’ ecosystem‘Core’ ecosystemFees for streaming platforms, premium content and pay TVGame publisher feesesportsaudienceGamepublishersMerchandiseand tickets atesports eventEuropean esports marketLeaguesEventsTeamsExamples:ESL Pro leagueLECVirtual BundesligaExamples:ESL OneDreamhackIEM KatowiceExamples:SK GamingG2 ESPORTSFNATICBroadcastingrightsBroadcasting rightsGamerightsSponsoringof leagues,events andteamsMediaand onlineplatformsCompanies(sponsors/partners)Digital and onsite advertisingSource: Deloitte analysis.Deloitte Insights addition to the stakeholders and revenueAs part of the ‘Peripheral’ ecosystem, an in-streams defined for the European esports marketcreasing number of companies, such as bettingthere are other stakeholders that contributeagencies, content and publishing companies,financially to the ecosystem, such as theconsultancies, marketing agencies, sportsesports audience through their consumption andassociations, are also generating revenuescorporations via sponsorships. Parties, such asthrough esports. Although relating to esportsmedia companies, online platforms or gameand certainly affecting the market, the incomepublishers (‘Core’ ecosystem), also benefit fromof the ‘Core’ and ‘Peripheral’ ecosystems isthe increasing commercial potential of the market.not included in the Deloitte market figures.5

Let’s Play!Market developmentand outlookThe growing audience and accompanyingcommercialisation potential means esports isattracting ever more companies willing to engage asFigure 2 shows the significant growth that thesponsors or partners of events, leagues and teams.European esports market has undergoneSuch companies are realising that advertisingin recent years to become a market withplaced next to esports content on online platformsrevenues estimated at EUR 240 million in 2018.and on TV is becoming increasingly relevant forGrowth until 2018 was especially driven by anreaching younger generations as the underlyingever-expanding esports audience, as well increasingdemographics of esports is focused on millennialsrevenues from sponsorships and advertising.aged between 21 and 35.In 2018, the European esports audience wasWith esports already having an estimated global fanabout 86 million people. This is an increasebase of about 380 million people, both endemic andof 19 million ( 28 per cent) over 2016 figures.nonendemic brands will increasingly be drawn toSimilar growth is expected over the next twothe market. As a result, the demand for advertisingyears with 105 million people expected tois expected to grow. According to recent research,be watching esports in Europe by 2020 advertising and sponsorship will account3for 60 per cent of the industry’s overall revenue.4FIGURE 2The European esports market – development and outlook 23Source: Deloitte analysis.Deloitte Insights

The European esports marketThe European esports market is expected toGermany is also the headquarters of LEC, the Leaguecontinue its success story. Primarily driven byof Legends European Championship run by Riotincreasing engagement from media companiesGames, which is located in Berlin. This means all theirin esports and a growing audience, revenuesgames are played and broadcasted from their studiofrom media rights and premium esports contentin Adlershof, a borough in the south-east region of thewill be – next to increasing revenues fromcity. Additionally, the country hosts many othersponsorships and advertising – key businesssmaller esports tournaments as well as the Virtualdrivers. Revenues from media rights are expectedBundesliga, a nationwide FIFA tournament organisedto increase by about 500 per cent from 2016by the Deutsche Fußball Liga (DFL) and EA Sports.until 2020 in the European esports market.5In 2018, the Europeanesports audience was about86 million people. This isan increase of 19 million( 28 per cent) over2016 figures.Increasing numbers of live events will alsoboost the merchandise and ticketing revenuespositively. Based on this development of the keyrevenue sources, the European esports markethas the potential to reach an estimated volumeof EUR 670 million with an annual growth rateof about 23 per cent over the next five years.The German esports marketGermany had an estimated market size of EURGermany is the largest European esports market70 million in 2018, which is 29 per cent of the entireand is considered one of the most significantEuropean market. By 2023, the German marketmarkets worldwide. As one of the first countriescould reach an estimated size of EUR 180 million,where esports emerged, it has been a continuouswhich is an annual growth rate of 21 per cent.driver of market growth and innovation.Revenue growth in Germany has been primarilyA considerable number of teams, event organisersdriven by increasing sponsorships of teams (such asand leagues are based in Germany. These includeSK Gaming, mousesports, Team Roccat, FC Schalkeglobally recognised brands such as ESL, an organ-04 Esports), leagues (for example, ESL Pro League)iser and production company that claims to be theand esports events, as well as by digital and onsiteworld’s largest esports company and the oldest thatadvertising paid to relevant stakeholders. Further rev-is still operational; as well as SK Gaming, one ofenues have come from ticketing and merchandisingthe largest and most well-known esports teams.of big esports events, such as the ESL One in Cologne,which attracted 15,000 visitors in 2018, as well as theESL event in Hamburg and Dreamhack in Leipzig.7

Let’s Play!Although the German market has experiencedHowever, initiatives, such as the Virtual Bunde-robust growth, revenue streams from the salesliga, have opened esports to a broader audience,of media rights for premium esports contentproviding a solid foundation for future growth.has not had the market impact expected. ThisFor instance, the consumer survey found thatresult is based on the specific esports cultureduring the period of 2017 to 2019 the number ofwhere consumption is often considered topeople regularly watching esports increased frombe ‘for free’. Traditionally, esports fans use6 per cent to 11 per cent, a positive developmentdedicated esports online platforms that supplyin absolute terms (refer to the section Trends andcontent for free and not on a paid basis.drivers). Based on such success, the German marketis likely to remain one of the most significant andIn addition, the slow uptake of innovative tech-competitive not only in Europe but also worldwide.nology such as virtual reality (VR) is also seen asretarding monetisation by preventing a highergrowth rate. It seems some market forecasts mayhave been overly optimistic in the uptake as the performance of VR is yet to achieve full expectations.FIGURE 3The German esports market – development and outlook ce: Deloitte analysis.Deloitte Insights

The European esports marketTrends and driversThe growth and further development of the European esports market willdepend on several critical factors. In the following section, six current andfuture trends and growth drivers critical to the future of esports in Europeare examined.TIncreasing popularityand growing audienceFIGURE 4Percentage of people who regularlywatch esports online in selectedEuropean countriesHE MONETARY SUCCESS and development ofany sport depends on its popularity in terms5-9%of the size of the (regular) audience it attracts.10-14%15-19%20-24%In recent years, esports has made significant stepsto increase its coverage, which is leading to growingawareness among the general population. This inturn is helping grow its audience.The consumer survey was conducted in thenine most significant European countries foresports. The survey revealed that 52 per cent ofparticipants are already familiar with the term11%‘esports’. Another 28 per cent have heard the termbefore but did not know exactly what it meant.Hence, only about 20 per cent of participants10%have not heard the term esports before.10%participants had already watched esports, either14%online or at a live event, while 13 per centwatched esports on a regular basis. Figure 415%11%Significantly, about 41 per cent of the survey7%23%6%illustrates the regular online consumption ofesports in selected European countries.23%Significant differences exist between Europeancountries in terms of esports consumption. WhileSource: Deloitte Consumer Survey 2019.Deloitte Insights 6 per cent of Austrian survey participantswatch esports regularly, 23 per cent of the Italianand Spanish ones regularly visit relevantonline platforms.9

Let’s Play!FIGURE 5While Italy and Spain have a high share ofPopularity of esports on onlineplatforms in Germanyfrequent viewers, Austria and Switzerland have alow regular audience of 6 per cent and 7 per cent,respectively. All other countries have an audienceWatch esports regularly (at least once per week)ranging between 10 and 15 per cent. The popularityof esports in Spain and Italy is attributed to theAlready watched esports (less than once a week)higher adaption rate of new digital trends, whichAlready watched esports, but have lost interestis typical of the population in both countries.Never watched esports, but generally interestedThe consumer survey also reveals that esportsNever watched esports and are not interestedconsumption is significantly increasing inEurope. Taking Germany, the largest European6%esports market, as an example, the regular11%esports audience nearly doubled from 6 percent in 2017 to 11 per cent in 2019. Overall, thenumber of regular German viewers increased9%significantly from 5.3 million people in 201764%to 9.2 million in 2019 ( 3.9 million).201710%In addition, the share of people with no interestin watching esports decreased from 64 per centin 2017 to only half of the population in 2019.The growing media presence as well as ongoingpublic coverage of esports is leading to increased11%general awareness of esports. This developmentis mirrored in the number of people in Germanywho have never heard of esports, which declined17%from 47 per cent in 2017 to 17 per cent in 2019.49%20198%15%Source: Deloitte Consumer Survey 2017 and 2019.Deloitte Insights

The European esports marketImplementation offranchise leagues1. sponsors and advertisers have a reliable formatwith regular appearances at games and events,In 2018 the US company Riot Games announced2. the system encourages media rights buyers tothe introduction of a franchise league in Europesecure the rights to regularly broadcast esportswith a European Championship (known as LEC)tournaments on relevant platforms,for “League of Legends”, one of the most popularesports titles worldwide. From 2019 onwards,3. large fan bases do not migrate when a popularten organisations are competing under this licenseteam is relegated,model, including traditional esports clans such asSKGaming and Fnatic, as well as “newcomers”4. traditional investors, such as private equitysuch as FC Schalke 04 Esports. Riot Games havecompanies, can be inspired to become involvedconsiderable experience in closed-league systemsbased on the provision of predictable metrics forafter implementing a “North American League oftheir investments.8Legends Championship Series” (NA LCS) franchiseThe emergence and success of franchise models willin the United States with such noted investors asMichael a crucial factor of the future development of the6European esports market. However, this model mayIn the European league, every team organisationfind difficulty gaining traction as it is in oppositionpays up to EUR 10 million for a place in theto the popular European ‘open’ league model withcompetition for an initial five-year period.its traditional promotion and relegation system.A discount is offered for teams that have been amember of the predecessor league, the “EuropeanThe open system offers fans an extra dimension ofLeague of Legends Champion Series” (EU LCS).7excitement by enabling them to follow the fortunesof teams facing relegation or close to making theThe introduction of franchise leagues into Europejump to the next level. In addition, the compositionbrings several benefits, particularly becausechanges that occur in the course of promotionit does not involve a system of relegation andand relegation encourages teams to develop,promotion. Such a ‘closed system’ is characteristicwhich adds relevance to lower-tier leagues.9of major (North American) sports leagues such asFrom an organisational standpoint, open leaguesthe NFL, MLB and NBA and supplies significantare usually more democratic compared tobenefits as well as security for stakeholdersfranchised leagues, as there are no private franchisewithin the respective ecosystems. For instance:owners holding major stakes in the league itself.10For further details on the developmentof LEC from Riot Games, please refer tothe section on Rise of franchise leagues.11

Let’s Play!FIGURE 6Increasing mediaengagement andVideo-on-Demand (VoD)Online streaming patterns of theesports audienceWatch esports regularly (at least once per week)As a result of the growing audience as well asthe rise of franchise systems, ever more mediaAlready watched esports (less than once a week)companies and online platforms are securing rightsAlready watched esports, but have lost interestto produce and broadcast esports content. However,Never watched esports, but generally interestedthe broadcasting and media market in the esportsecosystem is different compared to other industriesNever watched esports and are not interestedwhere it is primarily driven by Video-on-Demand.13%In general, there is a trend away from traditionalTV towards live streaming and Video-on-Demandofferings driven by the desire of the public43%to decide when and what they want to watch.This is the basis of success for such platforms201919%as Twitch, YouTube and Netflix. Esports,which targets younger generations, offers a8%variety of those platforms for its audience.17%These patterns are reflected in the consumersurvey where 40 per cent of participants indicatedSource: Deloitte Consumer Survey 2019.that they have already watched esports onDeloitte Insights platforms (figure 6). In comparison,another question revealed that only 27 per centhave watched esports on TV, with 10 per cent ofthose only having watched large esports events.12

The European esports marketInteraction of traditionalsports organisationsand esportsWhile many soccer clubs are venturing intoesports, teams from other sports, such asbasketball, American football, baseball andracing, are also becoming involved. A recentTraditional sports clubs are becomingstudy in the US found that 52 per cent of esportsincreasingly involved in the esports were also fans of NFL teams, while 39 perSuch clubs are seeking to position themselvescent were NBA and Major League Baseball fans.with their own team organisations in differentThese sports clubs are oftenwell-known brands witha huge fan base and theirinvolvement in esportscould potentially acceleratethe future development.esports titles such as Counter-Strike, FIFA,League of Legends and Rocket League.11, 12These sports clubs are often well-known brandswith a huge fan base and their involvementin esports could potentially accelerate thefuture development of the European – andglobal – market by delivering new fans thatsupport the sustainable growth of the industry.Further, these established brands significantlyincrease the awareness – and acceptance – ofAdditionally, many mainstream sports playersesports that will help the market to matureare themselves gamers who play at home, inand merge closer to the, while on tour or even on planes.13FIGURE 7Selected traditional sports clubs and esports titlesSports clubFC Schalke04ManchesterCityParis aclubsMain IFA, RocketFIFALeague, Dota 2LoL, CS: GO,FortniteFIFA (VirtualBundesliga)SelectedFIFA, PES,esports titles LoLSource: Company websites; Deloitte analysis.Deloitte Insights

Let’s Play!Mobile esports –competitive gamingon the mobile phoneA number of well-known European sports clubswith their own esports departments are presentedin figure 7.14 Some clubs only engage in titles closeto their core business. For example, AS Roma andManchester United, as well as several German clubsAlthough still in the preliminary stages, at leastonly focus on the FIFA soccer simulation Europe, mobile esports could have one of theHowever, other clubs compete in further esportsWith an estimated US 50 billion in global revenuesgreatest impacts on the industry as a whole.titles. FC Schalke 04, a club in Germany’sin 2017, mobile has grown to become the biggestBundesliga, has a League of Legends teamgaming segment – and it is still developing.19competing in the new LEC franchise league –Watching and streaming esports on mobile phonesthe League of Legends European not a new development. The Twitch app, forParis Saint-Germain, a major force in France’sexample, already enables esports fans to followLiga 1, has a team that competes in the Dotatournaments and events. However, competitively2 online battle arena competitions and thatplaying games via the mobile phone – knownfinished second in the Dota 2 world championshipas mobile esports – is a recent phenomenontournament, “The International 2018”.that could dramatically change the market.Additionally, traditional sports leagues and sportsThe shape and status of mobile esports differsassociations are increasing their interactionper region. In Asia, mobile esports explodedwith esports. For example, the DFL and FIFAin 2017 and saw the development of franchiseboth cooperate with EA Sports to run the Virtualstructures with professional leagues and liveBundesliga in Germany and the FIFA Interactivestadium events that attracted millions of viewers.World Cup16, respectively. This is mirroringWithin the Asian regions, mobile esports hasdevelopments in other parts of the world wherealready reached a level of organisation similarsports organisations are implementing esportsto that of esports based on personal computers15competitions, such as the National Hockey League(PC). This popularity is true for both core(NHL) in North America, which formed the NHLcompetitive games, such as Arena of Valor, andGaming World Championships and has regionalfor more casual games, such as Battle of Balls.20leagues in Canada, Europe and the United States.17Another example is the NBA 2K league, whichIn the West it is expected that PC-based gamingwas founded in 2017, with currently 22 NBAwill continue to dominate esports for the nearteams participating in this basketball esportsfuture. While many mobile esports initiativestournament. In case of the NBA 2K league theare in the planning, it will probably remainparticipation is restricted solely to NBA teams.18a niche in the European esports market.21However, the rapid development in Asiahints to the potential that mobile esports caneventually provide for the European market.14

The European esports marketIncreasing engagementof nonendemic brandsand M&A activitiesExamples of nonendemic brands engagingwith esports are presented in figure 8.23 Thesecompanies operate in many different industries andengage in different areas of the esports ecosystem,With an actively engaged and growing fan base,such as with event organisers and esports leagues,the European esports market is experiencing anas well as with the team organisations themselves.influx of nonendemic brands engaging asThe year 2018 saw arecord number of M&As inthe global esports market.sponsors and partners.For clarification, endemic brands createproducts used in the production or playingof esports, such as manufacturers ofsoftware and computer components.These have typically been the mostregular esports sponsors.In addition to the increasing influence ofnonendemic companies, there is growing M&Aactivity. The year 2018 saw a record number ofM&As in the global esports market. This trend stemsNonendemic brands or sponsors createproducts that are not vital to the productionor playing of esports. Such firms aresignificantly increasing their engagementin the esports market.22 The influx islikely to continue as esports growsin popularity.from the increasing involvement of traditionalinvestors, such as private equity firms and strategicinvestors.24 Europe also experienced significantM&As and, as the wave of global activity seemsto be growing, it is assumed that this trend isonly beginning. This topic is described in furtherdetail in the section on Mergers and acquisitions.FIGURE 8Esports engagement of selected nonendemic brandsCompanyFootLockerMastercardMercedesBenzR VVersicherungTAG vicesAutomotiveInsurancecompanyClockFood &manufacturer BeveragesEsportsLECengagementRiot GamesESL One SKGamingFC Schalke 04EsportsVirtualBundesligaTeamVitalityEngagement LeaguetypeLeague PublisherEvent Team TeamLeagueTeamSource: Company websites; Deloitte analysis.Deloitte Insights

Let’s Play!Rise of franchise leaguesAccording to a variety of metrics, League of Legends (LoL) is the most popularand most prominent game in esports.25, 26 There are multiple regional andinternational LoL competitions and leagues around the globe, mostly organisedby Riot Games, the publisher of the game, but some are arranged by generalleague organisers such as ESL or Liga De Videojuegos Profesional (LVP) in Spain.WHILE MOST ESPORTS games are still inThere are 13 Tier 1 regional leagues that form thethe preliminary stages of forming inter-basis for international tournament qualification. Fivenational competition structures, LoL hasof these 13 leagues are ranked higher and enjoy higheralready established a comprehensive system ofviewership, as well as more qualification seeds forleagues with an overarching World competitions, than the other eight.This initiative was taken early on: The first WorldThe higher leagues are LCK (South Korea),Championships took place in Sweden only twoLEC (Europe), LCS (North America), LMSyears after the game was officially launched in 2009.(Taiwan/Hong Kong/Macau) and LPL (China).Regional leagues and the current global league system (figure 9) began to form shortly afterwards.27FIGURE 9Timeline of competitive League of Legends esports20092011Public roll-out ofthe first version ofLeague of LegendsStaging of the firstWorld Championship2014North American andChinese leagues changeto closed-league systemsEstablishment of t

smaller esports tournaments as well as the Virtual Bundesliga, a nationwide FIFA tournament organised by the Deutsche Fußball Liga (DFL) and EA Sports. Germany had an estimated market size of EUR 70 million in 2018, which is 29 per cent of the entire European market. By 2023, the German