Video gaming and wrestling are not the most likely pairing; however, those hoping for some perspective on how the esports market could develop over the next few years should look to the meteoric rise of World Wrestling Entertainment Inc (NYSE:WWE).
Despite being around for more than 40 years, and listed on the stock market for 20, since 2014 WWE’s share price has risen close to 365%, causing its market cap to balloon to US$4.4bn.
The dramatic ascent followed a decision that many considered very risky at the time, transferring content away from the traditional pay-per-view (PPV) cable TV model and towards an online subscription service, the WWE Network.
In an interview with business magazine Inc. in 2018, WWE’s co-president Michelle Wilson said the transition to digital had been a “smart choice” as the firm’s data had shown that “digital consumption and subscription services were the future”.
The move has proven to be a shrewd one, as by 2017 the company had raked in US$801mln in revenues, the highest in its history, and now counts over 1.5mln paid subscribers on its network in addition to a raft of content distribution deals with major networks such as Fox and BT Group PLC (LON:BT.A).
The company also still retains its large “tent pole” events such as Royal Rumble, SummerSlam, Survivor Series, and WrestleMania, with tickets for the latter selling at over US$330 a pop.
What has this got to do with esports?
While WWE had to make the transition from terrestrial TV into digital, the group’s success provides something of a read-across for esports.
One of the crucial factors is media rights (i.e. the right of specific broadcasters to show content), which is becoming a key source of revenue as streaming providers battle over exclusive content to replace income lost from traditional TV advertising.
According to research from Goldman Sachs, media rights as a revenue stream accounted for 14% of total esports sector revenues in 2017, however, by 2022 this is expected to grow to 48% of the total.
Esports is also attracting major network interest for its content, much like WWE, with ESPN+, Walt Disney Co’s (NYSE:DIS) subscription sports service, inking a streaming deal last year for League of Legends, an online video game with a large esports player and fan base.
Esports events will also serve as a major draw as the global audience expands, and with it, opportunities for sponsorship and merchandising that is already attracting interest from major brands.
The English Premier League, the world’s most popular sports league with a potential audience of 4.7 billion, is also getting in on the act with its ePremier League, which offers UK gamers the opportunity to compete as their favourite team through the FIFA 20 video game.
On the sponsorship front, a report by consultancy Deloitte highlighted that major brands such as Mastercard, Mercedes-Benz, Volvic and Foot Locker have all engaged with the esports industry in some form or another, mostly through team or event sponsorships.
However, the similarities of WWE and esports end when it comes to scale, with the latter pulling in much larger audiences for big-ticket events.
Esports viewers are even starting to surpass more traditional sports, with the 2018 League of Legends World Championship finals attracting 100mln unique viewers, surpassing that year’s NFL Super Bowl at 98mln. By contrast, WWE's SmackDown on FOX earlier this month drew in an average of 2.6mln viewers.
The growth of esports also shows no signs of slowing, with analytics site Newzoo predicting the sector's global audience will hit 453.8mln this year, up from 380mln in 2018.
With numbers such as these, the traditional sporting industry may be worried about suffering its own smackdown.