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Investors cool on ‘anti-sexy’ esports

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Investors cool on ‘anti-sexy’ esports
Illustration of a trophy being knocked over and only a few pennies falling out.

Illustration: Aída Amer/Axios

The investment buzz around esports has died down, experts in the world of competitive gaming tell Axios.

Why it matters: Esports had been one of the most popular and most frequently funded sectors in gaming for several years prior to the pandemic.

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

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

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

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

  • He was detailing the struggles of Juked, an esports show and social media company that went out of business last month.
  • Goldhaber recalled the gold rush of half a decade ago, when esports organizations could easily find funding because people wanted the money.
  • “It’s not clear to me how much of that was bad faith and how much was stupid and delusional exaggeration.” reporter jacob wolfwho built his name covering esports and covered those sky-high ratings, he tells Axios.

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

  • Millions of people can enjoy esports, especially during the big tournaments of 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, Riots and Activisions, that can make the most money and tolerate losses, experts say.
  • “Fan engagement is there and it will continue to grow,” Goldhaber tells Axios, citing healthy online viewership numbers for recent events. “The question is how do they make money if they are 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 strategy. pivot this year from esports to the Twitch creator economy and YouTube stars.

yes but there’s still some money coming in.

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

Whats Next: Wolf sees the slowdown in esports investment as a “healthy” corrective for the scene, which could revive esports’ more rudimentary and down-to-earth ethos around 2014 or so.

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

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