NEWSNov 23, 2018

The Rise of Esports in China

This year, Chinese team have won every major tournament in League of legends, the world’s most played video game, and won the world championship on October 3rd. Invictus Gaming(IG), the Chinese team beat its European rival Fnatic 3-0, taking home the giant silver “Summoner’s Cup” and more than $840,000 in prize money.

The rise of esports in China has been even more dramatic than elsewhere. Until 2015, video games were still banned by the government, who claims the negative effect the video game have on the development of children. This year, no new games have been licensed for commercialization since March. Nevertheless, money has poured into Chinese esports, and the country now has a pivotal influence in the global market. Tencent, the world’s largest video games company, expects China will have 60% of the world’s players in two years.

Esports is a mass spectator sport, and is the one where Chinese can really be competitive and be top of the World. According to consultancy Newzoo, esports will generate $906m in revenue globally this year. A Goldman Sachs prediction suggests 35% annual growth and a revenue figure of $2.96bn in 2022. Sponsorship money for esports makes up most of the revenue, followed by sales of streaming rights to online platforms, advertising revenues raised by those platforms and tournaments ticket sales.

The main winners from esports have been game developers, and China is their biggest market, generating sales of around $30bn last year. According to consultancy Niko Partners, games with an esports element accounted for about a third of those sales last year, according to Niko, which predicts such games will make up about half the market by 2022.

Tencent led investment rounds worth a combined $1.1bn into Chinese game streaming platforms Douyu and Huya. ”We have a long term optimism and support towards Esports” Tencent’s chief operating officer Ren Yuxin told a conference in June. “We will invest more resources, personnel and capital in the future.” Huya claims 91m monthly active users and listed on NASDAQ this year, raising $180m. It generated revenues of $156m in the past quarter, but profits were a modest $16m.

Team OMG has sponsorship including Daimler’s Mercedes-Benz unit, energy drinks company Red Bull and Bright Food, one of China’s largest consumer companies. It has received Rmb20m ($2.9m) from a sponsorship deal with Douyu, and earns about Rmb5m a year from participating in a national League of Legends league.

Contests are expensive to run. Esports tournament prize will reach $120m this year, according to Niko. The prize for the annual tournament run by the US developer of battle game Dota 2, is $25m. Riot’s Mr Ye added that revenues generated from tournaments in China still do not outweigh investment.

Tencent’s major rival Alibaba is also betting on esports tournaments. Its subsidiary Alisports holds an annual tournament with a $5.5m prize purse that attracted nearly 20,000 players this year, mostly in China. “Our positioning is to run tournaments in the Olympic way,” said Mr Liu, a vice-president at Alisports, referring to esports inclusion in this years’ Asian Games — where China topped the medals table. However, he admits that Alisports’ esports business is unlikely to break even for years, and it heavily relied on government support. The company signed a 10-year hosting deal with Chongqing this year. “The majority of money for the event is coming from government funding, and the second revenue is advertisements,” Mr Liu said. The education ministry has approved esports majors in several universities in 2016, China’s top economics planning body said it would “encourage national and international e-sport tournaments” as a way of making the nation’s economy more consumption-led.
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