The winner of the 2019 League of Legends World Finals, FunPlus Phoenix, hoist the Summoner’s Cup
Source: Riot Games
Esports has seen a big boom as the coronavirus outbreak has forced the cancellation of traditional sports events and lockdowns have led consumers to gravitate toward online gaming for entertainment.
But one esports investor venture fund partner says valuations in certain sectors have been getting “out of hand,” so much so that the market could enter a “correction mode.”
Jens Hilgers, founding partner at Bitkraft Esports Ventures — a fund that also invests in NERD ETF creator Roundhill Investments — said that while esports has been a “spectacular growth area,” investor FOMO (fear of missing out) and over-promised projections have led to inflated valuations in the space.
This, he says, is particularly true for esports teams.
A lot of investors thought, “‘Hey if I’m not part of this early, I’m not getting a shot” at an esports franchise, said Hilgers. “So, I think there was a certain level of a fear of missing out.” He also cited “fairly high” growth expectations by team founders and start-up management teams.
According to Deloitte and The Esports Observer, team organizations are one of five key investment areas in the space, with just under $200 million invested in teams during 2018.
That doesn’t include some bigger investments that have taken place since then, like the $40 million Series A funding round for an esports organization known as FaZe Clan announced mid-April. Although some teams are estimated to be worth hundreds of millions of dollars, there have always been questions surrounding their real value.
And much of this is starting to emerge, especially as ad budgets suffer as a result of the Covid-19 outbreak. While Hilgers points out that investors have always faced a challenge in figuring out which games to focus on, they may now begin to see that certain sectors — like teams — are not crisis-proof, given how heavily the industry depends on sponsorships and ad revenue.
“We’re in the time of a financial crisis and in a financial crisis, ad budgets suffer,” he said.
Initial estimates projected that the global esports industry will surpass $1 billion in revenue this year, according to research firm Newzoo.