Electronic sports, or the competitive video game industry, is growing so fast that some experts predict it could become the world’s number one sport over the next 10 years, putting even soccer out of play.
According to a report released by global analytics company Newzoo, the industry topped over $1 billion in revenues for the first time in 2019, netting $200 million more than in the previous year.
Teams of professional players compete for millions of dollars, and millions of viewers watch live broadcasts of video game tournaments. Game publishers create their own leagues and tournaments where players compete.
To name one, Riot Games’s “League of Legends” attracts viewership in the hundreds of thousands, while prize pools often exceed $1 million.
But as revenues from esports continue to rise, the industry remains largely untamed.
From the monetization of star players to betting and even to fixing matches, esports faces the same issues as traditional sports but with fewer safeguards. The industry’s response to these challenges will shape it on local and international levels, and Ukraine is at the heart of this transformation.
Major esports hub
In Ukraine alone, there are two million people following esports. According to Newzoo, viewership during game tournaments typically reaches 1.3 million people while about 700,000 others are considered to be professional gamers.
Ukraine’s legendary esports team NaVi is a top supplier of world-class talent. Founded in 2009 by Kazakh Murat “Arbalet” Zhumashevich, NaVi — short for Natus Vincere in Latin, or “Born to Win” — is one of the most successful teams on the planet.
Back in 2010, NaVi became the first team to win three major tournaments in one year in the globally popular first-person shooting game, Counter-Strike.
The team’s most famous player is Ukrainian Danil “Dendi” Ishutin, who is widely considered by many gaming enthusiasts as the face of esports, inspiring a generation to consider a professional esports career.
In 2011, Ishutin won a tournament called the International as part of NaVi, winning a record breaking $1 million in prize money with his five-person team.
The team’s founder and former CEO Alexander “ZeroGravity” Kokhanovskyy believes Ukraine is exceptional in the esports industry.
“We have strong players, strong teams and cool infrastructure,” Kokhanovskyy told the Kyiv Post. He pointed out that the leading platform for esports tournaments, Starladder, is based in Kyiv. Founded in 2012, the platform broadcasts events worldwide.
For the current CEO of NaVi, Yevhen Zolotarov, Ukraine’s success lies in the country’s socioeconomic difficulties.
“It’s all about escapism,” Zolotarov said. “When you live in a small village in Ukraine, don’t have any social life but have a good computer and a decent internet connection, esports offers you a window to the world.”
The advantage for Ukrainian players rests on paradoxes, he said.
“The arcade game machines were too expensive to set up compared to the U. S. So we didn’t have an arcade game revolution — Ukrainians started directly playing computer games since they appeared.”
Another paradox is that 80% of worldwide Russian-language gaming content is broadcast from Kyiv, making the Ukrainian capital a major esports hub.
Geeks become rock stars
Streaming is at the heart of the esports revolution. Apart from putting Ukraine on the industry’s map, the live broadcasting has also given a massive popularity boost to top video game players, transforming computer geeks into rock stars.
Platforms like Amazon’s Twitch stream events online to millions of viewers. And high viewership is accompanied by massive amounts of money for star players on top of prize money for winning competitions.
For example, star player Tyler “Ninja” Blevins gets an average of more than 72,000 viewers during competitions ready to pay $5 per month. Having access to more than 12 million followers, he wins nets about $300,000 a month in streaming revenue.
On the one hand, star gamer popularity attracts young people to gaming. But on the other, Kokhanovskyy thinks it may harm the industry.
He compared the esports industry to soccer, which both show signs of a financial bubble.
“Some players are overvalued,” he said, referring to soccer players and gamers. When their popularity increases, the huge salary they take is at the expense of the team they belong to.
The teams don’t earn any money when their players stream their victory, collecting funds exclusively from sponsors instead, with which they pay the players.
Zolotarov echoes Kokhanovskyy, insisting that players abuse their popularity by monetizing viewership.
“I think there is a very hypocritical attitude from players in terms of monetizing their persona. They take advantage of that, and it’s a kind of abuse. They just use their image and use their fan base to profit from that.”
Zolotarov underlines the need for regulation on that matter.
“If you’re getting contracts from sponsors, you already getting money, and then you open up your Twitch channel and get money out of it too,” he said. “There should be a clause in the contract saying everything you’re doing on Twitch, that’s the money (of the CEO).”
People play video games in NaVi Bar, a themed restaurant dedicated to video games, on Nov. 29, 2019. The bar was founded by world-famous, Ukrainian esport team Natus Vincere (“Born To Conquer”). The competitive video game industry, or esports, globally topped $1 billion dollars in 2019. (Konstantin Chernichkin) (Kostyantyn Chernichkin)
Wild West
Regulating esports is impossible without taking into account the key feature of the games.
In mainstream sports like soccer, parties own teams and stadiums but nobody owns the sport itself. In esports, publishers own the games, which gives them total control of league regulations.
And while some experts do call for governing bodies to regulate the games, Zolotarov laughed at the idea. For him, esports is like the Wild West.
“There are basically no rules,” he said. “Nobody knows how to operate this huge machine with tons of players and billions of dollars involved. Nobody has real solutions, and nobody’s really working on that. It is incredibly difficult to work this out.”
He then referred to the Hearthstone scandal, when heavyweight U.S. gaming company Activision Blizzard suspended a Hongkonger player over a statement supporting pro-democracy protesters in his region in October 2019.
Despite a tournament victory, the player saw his prize money confiscated and was banned from participating in international tournaments for 18 months, a punishment rolled back after an international outcry from players.
Still, publishers’ absolute control over games makes the industry virtually impossible to independently regulate the competitions without their consent.
The competitive video game industry is growing so fast that some experts predict it could become the world’s number one sport over the next 10 years, even putting soccer out of play.
Match fixing
Betting in esports is essentially the same thing as gambling, except it is a lot harder to monitor.
What makes esports betting different is that gamers place online bets using customised weapons, known as “skins.” They purchase these skins for cash and place bets on esports matches with these skins through an online forum. After a match, one can then exchange the skins for money.
The skins have become a virtual currency like chips in a casino, with rare items sometimes worth thousands of dollars.
Match fixing is also widespread in esports. On Aug. 24, 2019, Australian police arrested six men suspected of fixing games. They face up to ten years in prison if convicted. Police alleged that the men arranged the outcomes of matches during a tournament, and placed bets on their own matches.
Another suspicious case is the iBuyPower and NetCodeGuides teams scandal: back in 2014, iBuyPower was heavily favored to win the match, but lost instead.
The strange strategies of the esports team, which played way under its level, attracted attention at the time of the match.
Texts exchanged between players of both teams finally revealed that the game had been rigged to let NetCodeGuides win, so they could share the money from the bets.
According to U.K.-based lawyer Ian Smith, speaking to the U.K. Guardian newspaper, match fixing follows two patterns: individual players or teams seeing an opportunity to rig a particular outcome of a game and financially back themselves, and higher-level activity, where gambling syndicates bribe players.
In 2016, he estimated that illegal betting in esports could be worth as much as $2 billion.
In 2017, the ProDota Cup, organized by ProDota Cup, was under suspicion of letting teams fix games, but its’ chief executive released a statement saying the team concerned had been obliged to sign contracts leading to heavy fines if match rigging was proven.
Kokhanovskyy, however, does not think it’s a big deal. If players are found guilty, the executive suggests simply banning them for life from taking part in tournaments.
Lucrative, unregulated business
Esport is a self-feeding business: publishers own games played in tournaments, players pay to participate in a game they already paid for and viewers pay for a subscription to watch gamers play.
For marketers able to navigate this nascent landscape, the payoff can be huge, and the sharp rise of the industry attracts big business names to the market.
Around 82% of the industry’s revenue comes from advertising, sponsorship and media rights, globally generating over $800 million so far in 2019. Sponsors like Red Bull, Intel and Samsung are already firmly entrenched in esports, with more big names to come. Its explosive growth has also started catching the eye of big-spending marketers, like Louis Vuitton, who released a collection of outfits and trophies for Riot Games’ “League of Legends” on Dec. 10.
Branding expert Graham Hitchmough believes that around 70% of esports $650 million revenue comes from brand investment and thinks that alliance is likely to become the norm.
As a result, 2019 is believed to be just the beginning of “a market that will continue to attract brands across all industries,” Newzoo CEO Peter Warman said in a report released on Feb. 12.
Kokhanovskyy sees it as the biggest sport discipline introduced to the world over the last decade. However, despite the serious amounts of money involved, esports is yet to be taken seriously by lawmakers and regulators.
In the words of Zolotarov, as big and promising as it is, “it is still an embryo.”
