INVEST IN ESPORTS

Video games are big business. But away from UK and US gaming companies flaunting console and game sales there’s another side investors need to look at if they’re to find the best gaming companies to invest in. Competing in gaming events and watching people play video game competitions has become an industry in and of itself, known as esports. And esport stocks are making up a growing part of the whole gaming industry.

According to Statista Market Forecast, the global esports market is expected to generate revenues of $4.3 billion in 2024, with an anticipated annual growth rate (CAGR 2024-2029) of 6.59%. This growth could bring the market volume to an estimated $5.9 billion by 2029.

So, remember when your parents said that playing video games was a complete waste of time? Well, parents aren’t always right.

‍

What are esports stocks?

‍

The term ‘esports’ is short for 'electronic sports’.

It’s a combination of sports and digital video games. Playing football ‘IRL’? That’s so 2002. Why boot a ball at the park with your own feet when you can kick one on a screen as thousands watch on and cheer at your success?

Not only are people making money by playing video games professionally, but there’s a surprising number of people choosing to watch people play instead of picking up the controller or a joystick themselves.

Although esports have been popular in Asia for years, the internationalisation of gaming culture and streaming quality with the introduction of platforms like Twitch and YouTube helped bring the industry global reach.

With increasing international demand for esports, firms are needed to build the hardware, create the games, organise the competitions, and find the best gamers from across the world. 

Esports stocks include companies involved in the competitive and streamable gaming ecosystem.

‍

Top esports to watch in 2024

‍

Everyone has their own preferences when it comes to esports games, but here are the most popular esports games in 2024 by viewership, according to Esports Charts.

1. League of Legends
2. Mobile Legends: Bang Bang
3. Counter-strike 
4. Valorant
5. Dota 2
6. Brawl Stars
7. Fortnite
8. PUBG Mobile
9. Arena of Valor
10. Apex Legends

If you’re interested in investing in esports stocks, it’s worth getting yourself clued up on the top games, just as you’d research the top players in any other industry you want to invest in.

As it's a growing industry, some investors are hoping that the esports industry will provide long term investing returns, but this won’t necessarily be the case. The market is fragmented, with many teams, leagues, and game titles competing for attention, causing popularity to shift rapidly. This makes it difficult to establish lasting value for any single entity. Additionally, as a relatively young industry, esports faces regulatory challenges related to betting, match-fixing, and player contracts, which could increase costs and limit growth. Furthermore, investments are often driven by hype, leading to inflated valuations. If the industry doesn’t mature as expected, these valuations may decline, negatively impacting returns.

‍

Are you a league player?

‍

On 2 November 2024, the final of a League of Legends competition at the O2 Arena marked the largest esports event ever held in the UK. According to London & Partners, the capital's business growth agency, the event is estimated to have generated a £12 million direct economic boost. 

The company that owns League of Legends is Riot Games. It is the private company that brought League of Legends to 150m league players around the world. Since Riot Games isn’t publicly traded, it’s not possible for most retail investors to own Riot Games stock. But, there are ways to get investment exposure to the game indirectly. 

‍

Amazon ($AMZN)‍

Amazon owns Twitch, a streaming platform where hundreds of thousands of esports fans watch League of Legends gamers. By investing in Amazon, you gain exposure to this esports community and the revenue it generates.

‍

Alphabet ($GOOGL)

Investing in Alphabet is another way to tap into the world of League of Legends and Riot Games, along with a range of other popular esports titles. As the owner of YouTube, Alphabet provides a platform where gamers and esports fans catch the latest League of Legends tournaments. 

‍

Bilibili ADR ($BILI)

Bilibili is a prominent Chinese video-sharing platform catering to a community of gaming enthusiasts. Investing in Bilibili gives you access to the rapidly expanding esports market, especially for League of Legends fans. 

Importantly, Bilibili also owns Bilibili Gaming (BLG), a professional esports organisation competing in top games like League of Legends. Notably, BLG is the first runner-up in the League of Legends World Championship in 2024.

‍

Comcast ($CMCSA) and SK Telecom ADR ($SKM)

Comcast is a telecommunications and media company, offering services like cable TV, internet, and streaming. Meanwhile, SK Telecom is a South Korean telecommunications provider, delivering mobile communications, broadband, and media services.

Both companies are owners of T1, one of the most successful professional esports organisations in the world, competing in games like League of Legends. T1 is also a champion in the League of Legends World Championship in 2024.

‍

Other than League of Legends…

‍

Microsoft ($MSFT) - owning Activision Blizzard

Microsoft has completed its acquisition of Activision Blizzard, marking a major shift in the gaming industry. With popular franchises like Call of Duty, Overwatch, and Hearthstone, Activision Blizzard has built large, dedicated player communities. Through professional leagues such as the Overwatch League and Call of Duty League, the company has created organised ecosystems that encourage ongoing engagement among players and fans.

‍

Motorsport Games (£MOTR)

Motorsport Games specialises in developing and publishing racing games, particularly titles like NASCAR and the British Touring Car Championship, which are popular in esports. Known for realistic gameplay and official licences, the company engages both casual players and dedicated fans. Motorsport Games also hosts official tournaments and structured competitions, solidifying its role in the esports industry with authentic, immersive racing experiences.

‍

Gaming and E-sports Acc (£ESGB)

Another potential option for investing in esports is using an ETF (exchange-traded fund). This type of investment is often classed as one of the best investments for beginners because it gives you access to a range of stocks with a single investment. It takes a lot of the guesswork out of investing. Just remember that, while thematic ETFs do diversify between companies, they’re all ultimately connected to the gaming industry. If there’s a sudden shock or boon that affects the whole sector, it’s likely the entire ETF will feel it.

‍

Type of companies: esports entertainment stocks

‍

Beyond esports organisations themselves, streaming and other entertainment associated with esports play an important role to form the esports industry as well. These companies typically operate across various segments, including live streaming, event hosting, and digital media platforms. Key players often invest in high-profile tournaments, sponsor professional esports teams, and provide platforms for gaming communities, all of which attract vast global audiences and advertisers.

For example, some analysis predicts that the live streaming esports market in China will generate revenues of $2.58 billion in 2024, growing at an annual growth rate of 8.99% from 2024 to 2027. Investing in esports entertainment stocks gives shareholders exposure to the industry's potential, driven by rising viewership, increased sponsorship, and gaming’s ongoing integration into mainstream entertainment.

But, investing in Chinese companies can come with unique China-specific obstacles. This includes policy changes like age restrictions on gamers and time limits for kids playing games, moves that could shoot down the growth of esports stocks that rely on Chinese gamers for revenue.

‍

Esports investment trusts

‍

There are also popular investment trusts whose current holdings include esports stocks. But, an investment trust will also expose you to lots of companies and industries outside of esports. 

It’s also important to make sure you take a look at the added costs and fees involved with these types of investments and keep in mind that they won’t offer a perfect level of diversification.

‍

Esports IPOs

‍

As the gaming industry expands and gains traction, more companies may seek to capitalise on this momentum by raising funds through initial public offerings (IPOs). This trend could lead to a growing number of esports-related firms going public in the coming years, depending on market conditions.

It's challenging to predict when esports companies will decide to go public. VNG Ltd and Smilegate RPG had initially planned, or were rumoured to be considering, an IPO. However, VNG Ltd has withdrawn its IPO registration in the United States, and Smilegate RPG also announced that they would not proceed with an IPO.

Just keep in mind that when an esports stock becomes a publicly traded company, it will likely be a volatile time for the shares as the market tries to figure out a fair valuation. There’s no reason to rush into an investing decision when you’re in it for the long haul.

‍

How to invest in esports

‍

Once you’ve considered the investment risks and weighed them up against the potential benefits of investing in esports stocks, here’s a straightforward step-by-step guide explaining how to invest:

1. If you don’t have one already, tap here to open your Freetrade account. 
2. Consider the tax efficiencies too. Think about whether an ISA or SIPP might work best for you. Once you've decided, go ahead and make your first deposit. You can also get up to £2,000 cashback when you transfer an ISA or SIPP by 31 December 2024. Learn more at freetrade.io/offers.
3. Research the type of esports company you want to invest in - e.g. a games developer, hardware manufacturer, esports parent company, an ETF, or investment trust.
4. Make sure the stock fits in with your overall investment strategy, diversification, and that the rest of your finances are in a healthy position.
5. Select how much of the stock you’d like to invest in. You can buy fractional US shares on the Freetrade app, so you don’t have to purchase a full share if it's outside of your budget, or you’d just like to start with a smaller investment and build up depending on its performance.

For some more guidance, you can read our in depth guide on how to approach investing in stocks. Whichever way you decide to invest in esports stocks, we recommend that you only use these investments to play a part of your diversified portfolio. 

As an investor, it’s extremely difficult to pick the companies that will succeed in the long run, and this is especially true for newer sectors like esports. Many esports stocks are reliant on the performance of a handful of games, or sometimes only one. The sentiment and popularity can easily shift if something bigger, better, and more exciting comes along. 

‍

Important information