The Philip DeFranco Show - PDS 6.14 How eSports Became a $1.1 Billion Industry: Sold Out Stadiums, HUGE Prize $$$, & More

Episode Date: June 14, 2019

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Sup you beautiful bastards, hope you're having a fantastic Friday. Welcome back to the Philip DeFranco Show. And if you're new here on Fridays, we do things a little bit different. On Fridays, I like to deep dive into just one topic. Sometimes it's light and interesting, sometimes dark and important.

I figured with E3 happening this week, let's dive deeper into video games. And specifically, we're talking about e-sports and just how commercially successful it has become. But before we jump into it, two quick shout outs. One to the sponsor of today's video, Manscaped.com. Because when manscaping, you must use the right tools for the job.

I'm just gonna leave that there with no more context for now. You'll learn more later. And two, July 1st is getting closer and closer, which is of course when we are launching the youtube.com slash rogue rocket channel. That's where you'll be able to get even more deep dives. So if you took a second right now, go to the description,

click the link to subscribe to that channel. Thank you, and I am excited. But with that said, back to esports. Which I will say, it is just insane when you compare what's happening with today's tournaments to those that were happening nearly 20 years ago. For example, here's a video showing the winning moment and award ceremony of the 2002

CPL Winter Counter-Strike 1.6 tournament. Come on! And in first place, the underdogs winning $30,000, Team 3D. Okay, now compare that to a tournament for Counter- Global Offensive that took place in Poland earlier this year. And walking the smoke glaive, he'll only punish one, but it's just aerial to find, and it's done! Intel Extreme Masters, Champions, Majors, back to back, Astralis again!

It's counter-amitza! And the differences range from prize money and production value to popularity and brand integrations. But before we get to the $25 million prize pools, the sold out event centers around the world, we have to go back a few years. And there are a few different start dates for esports, depending on what you think of as esports. In 1972, Stanford University held a tournament

for a game called Space War, where two opponents operating spaceships basically hurdle around a black hole trying to shoot one another. And the prize for that tournament with only 24 players was a subscription to Rolling Stone magazine. Also in 1980, you had a tournament for Atari's Space Invaders game

with around 10,000 competitors. Although obviously that wasn't exactly head-to-head play, but a high score tournament. And the prize there was a cabinet or a sit-down version of the 1980 game Missile Command. And then in the late 90s, we started to see things pick up. You had a 1996 Street Fighter Alpha 2 tournament in the San Francisco Bay Area with 40 competitors

and a grand prize of $91. The next year there was the Quake Red Annihilation Tournament with 2,000 entrants. And an interesting side note here is that the winner, Dennis Fong, is actually the guy who popularized the WASD movement method for first person shooters. So if you didn't know, now you know. It's just a random interesting fact

that you can act like you already knew that you can show off. And also, interestingly enough, the prize for this tournament was the Ferrari of John Carmack, a lead developer for that game. And right around this time, the internet was spreading far and wide, allowing for more than just single player games.

Right, and so that meant playing online with people around the world, and that was really one of the first triggers for an esports explosion. You had the Cyber Athlete Professional League, formed in 1997, and they actually hosted the tournament we showed at the very beginning of this video. And soon after this, a couple of games that became long-lasting successes for esports were released. StarCraft was released in 1998, Counter-Strike 1.6 was officially released in 2000. In fact, some competitive teams that we still see around today were formed around this time. You had SK Gaming in 97, Evil Geniuses and KT Rolster in 99, Team Liquid in 2000.

But the line between esports in 2000 and the $1.1 billion revenue stream that we're seeing today was not inevitable. In fact, global esports didn't exactly take off until the beginning of this decade. For example, even in 2007, there were only around 500 esports tournaments and around $7.4 million in prize money across all games, with some of the top games at the time being Counter-Strike,

Starcraft, Warcraft III, and Halo 2. But there were a couple of developments that really influenced just how big esports is today. The first being that esports was massively popular in South Korea long before North America and Europe, and some gaming executives likely noticed. And in the late 90s, the South Korean government invested heavily in telecommunications

and internet infrastructure. By around 2000, this had caused many internet cafes to pop up, which in turn helped produce gamers and competitions. With the South Korean government even founding the Korea Esports Association in 2000 to help regulate the emerging industry. And there, if you're even remotely familiar

with South Korea or gaming, StarCraft was the game of choice. In fact, it was so popular, all the way back in 1999, KT, the Korean telecoms company, was sponsoring a team. And many more would follow, including Samsung and the Korean conglomerate, CJ. By the mid-2000s, multiple companies were sponsoring teams to live in communal houses, something fairly common today. And all the way back in 2004,

the finals of the StarCraft Sky Pro League attracted around 100,000 fans to watch live. There were even live television broadcasts and entire channels dedicated to eSports. And this wasn't something that even Blizzard, the company that developed Starcraft, had expected. But the South Korean eSports scene basically showed what eSports could be globally.

And in the words of Grubby, a former professional Warcraft 3 and Starcraft 2 player, "'Pro gaming exists in its current form and size "'in large part thanks to the people "'who made it possible in South Korea. "'Other countries took years to catch up "'and are to this date trying to mimic "'some of their successes.'" exists in its current form and size in large part thanks to the people who made it possible in South Korea. Other countries took years to catch up and are to this date trying to mimic some of their successes.

And keep in mind, there were attempts to bring esports mainstream elsewhere in the mid 2000s. For example, the finale of the CPL World Tour in 2005 was broadcast live on MTV. In 2006 and 2007, the USA TV network broadcast recordings of MLG's Halo 2 Pro Circuit. But ultimately, when esports really started taking off

worldwide was when we all got Twitch. The live streaming platform Twitch. In 2010, according to esportserning.com, there were 964 esports tournaments and around $6.2 million in prize pool money up for grabs. The next year when Twitch launches, the number of tournaments and prize money both nearly doubled, 1,644 tournaments

and almost $10.5 million. And those numbers kept growing and growing. And by 2014, the number of tournaments had almost doubled again to 3,062 and the prize pool money had nearly quadrupled to $37 million. And not only did Twitch's beginning signal growth in the e-sports industry, it also continues to propel

a lot of the e-sports industry to this day. For example, the January 2017 final of Counter-Strike's ELEAGUE carried about 228,000 total viewers on television. But on Twitch, the same event broke Twitch's record for concurrent viewers at that time with one million viewers. What made Twitch such an important part of esports was the fact that it was live. Arguably one of the biggest reasons

that traditional sports events like football, basketball, whatever, can be so captivating is you're seeing it develop in real time. It's happening live. And of course, not only that, with Twitch, it's not just a watching platform. You can also engage with the stream itself or with one another in the chat.

Even if at times live chats can be horrible, horrible chaos. And along with Twitch's explosion, the top three games that are the most popular, long lasting, and carry the most prize money today were released around the same time. League of Legends in 2009, Counter- Global Offensive in 2012, and Dota 2 in 2013.

Last year, tournaments for those three games alone made up half of the $159 million available in prize pools. And when you look at some of the most important tournaments for those games since Twitch came out, it really just shows how much esports has taken off in recent years. The audience has grown, events have become huge productions, both computer and non-computer brands alike

are investing in and sponsoring tournaments. For example, this was the League of Legends World Championship back in 2011. A $100,000 tournament held by League of Legends and Riot Games with a pay-safe card, HD stream is what you're viewing, SteelSeries helping out with some of the peripherals, and as well as the Alienware computers taking these guys all the way to the finish line. Right, there's some computer and non-computer brand sponsorship, there's a commentator team, but that tournament also wasn't held in a massive convention center. Now, fast forward to the 2018 League of Legends Championship

between Fnatic and Invictus Gaming, which, by the way, pulled 99.6 million unique viewers and 44 million concurrent viewers at its peak. And the sponsorships at the bottom of the screen, they're not just computer brands, you've got State Farm and MasterCard, you've got a very professional looking commentator team hosting the games in a huge stadium in South Korea.

And the awards ceremony is very pumped up too. Riot Games, the game's developer, also told us that besides the World Championship, their sponsors in other leagues include Nike, Mercedes-Benz, and Gillette. And that's hugely important because it means that not just computer or game-relevant companies are paying attention.

It's past the small bubble, and when you have these kind of household names that you would see on legacy sports properties, it helps legitimize the newer things, and with eSports, it also allowed for bigger prize pools. Just actually on that note, the prize pool for last year's League of Legends Championship was about $6.5 million,

with the winning team taking home almost two and a half million dollars. And you can look at the contrast between Dota 2's tournament, the International in 2012 and 2018, and it really makes some things clear. The prize pool back in 2012 was $1.6 million. The audience didn't quite fill up the auditorium

for the event. And then we fast forward to the 2018 event and the growth is incredible. For one thing, the prize pool was $25 million, the most of any esports tournament ever. And for Dota 2, the way that the prize money was raised is unique. Fans have the option,

and I apologize for the gamers out there, fans have the option to buy something called a Battle Pass. Right, it features various perks, features, cosmetic items for fans. For example, this year there are different levels of Battle Passes ranging from 10 to $45, and you can buy an unlimited number of those since they just give you more items.

But the key here is that a portion of the money for the Battle Pass goes directly to increasing the prize pool. In other words, the prize pool is somewhat related to the popularity of the game. And looking at the prize pool, as well as, the prize pool is somewhat related to the popularity of the game. And looking at the prize pool as well as just the production of the broadcast, you know that there was a lot of money involved.

There were 3D animated characters, a sleek commentator stage, even infield reporting everything that you'd expect from a major sports event. And of course, the branding and the sponsorships. And the reason sponsorships and how the audience engages are so important is because companies are very interested in reaching the esports audience. Especially because they're considered far more difficult

to reach than non-esports audiences. And Nielsen, the market analytics company probably best known for the rating system on broadcast television, they sum up why that's the case in their esports playbook for brands, writing, "'Interest in professional competitive video gaming "'is growing, with one in five fans globally beginning "'to follow esports just within the past year.

"'Esports fans around the world include some of the hardest "'to reach consumers for brands because of their cord cutting and ad blocking tendencies. And so as a part of this, there's the question of, well, just how big is esports now that it's convincing some of the biggest household names to sponsor teams and events?

And the focus here is eyeball economy, right? Attention. The top three games in the space each carried more than 250 million watch hours in 2018. And keep in mind, that is just esports. That's not Let's Play videos. That's not casual gaming streams. It is an audience that is dedicated, it's interested,

it is engaged, it's large, and it's growing. Last year, there was an estimated audience of 395 million people, or just so you understand the growth here, about a 17% increase from the year before. And when making comparisons, right, if you're looking at just American men aged 21 to 35, esports popularity is on par with baseball and ice hockey.

And so now the money just seems to be pouring in. Total esports revenue is projected to jump to $1.1 billion by the end of this year, with sponsorship and ad revenue alone making up more than half of that. And while these numbers are significant, they look even larger at the individual level. The top earning esports professional Kuro

has made $4.2 million in lifetime earnings from Dota 2 tournaments. The top 50 esports professional Kuro has made $4.2 million in lifetime earnings from Dota 2 tournaments. The top 50 esports pros have made at least $1.3 million each. The top 500 are said to have each made at least 200 grand during their careers. Understand that's not even including signing bonuses, sponsorship deals, the money made during streaming.

And so unsurprisingly, these numbers have made it so those on the outside have become very attracted. For example, Fnatic, who has teams across Counter-Strike, Dota 2, League of Legends, and more, has attracted venture capital investment from places as far as London and Hong Kong. We've also seen people like Drake and Scooter Braun investing in 100 Thieves.

You have the likes of Steph Curry and Andre Iguodala getting in on a $37 million investment with Team SoloMid. And the names getting involved, it goes on and on. You have the likes of Shaq, Alex Rodriguez, Mark Cuban, Jennifer Lopez. And as of right now, it goes on and on. You have the likes of Shaq, Alex Rodriguez, Mark Cuban, Jennifer Lopez. And as of right now, everything is still projected to get bigger and bigger. Analytics groups are projecting continued growth

of audience and continued growth of revenue. New Zoo Market Analytics Group even openly shows where brands can get involved in different esports leagues. There's still tons of opportunities in League of Legends leagues and the Overwatch League, which actually in recent days, Overwatch League has been a particularly unique success. Blizzard, who owns the game, struck a deal and the Overwatch League, which actually in recent days, Overwatch League has been a particularly unique success. Blizzard, who owns the game,

struck a deal to broadcast Overwatch League on Disney XD, ESPN, and ABC. Overwatch League and Twitch have also introduced a new way to make esports tournaments even more engaging with their audience. Last year, Twitch introduced a viewer reward system where Overwatch League fans could earn in-game skins and exclusive emotes,

but how they showed their support was a bit different. By using Twitch currency, known as Bits, they could share with specific emotes that would go towards unlocking skins and exclusive emotes, but how they showed their support was a bit different. By using Twitch currency known as bits, they could share with specific emotes that would go towards unlocking skins and emotes for the entire Overwatch community. And fans ended up spending about $150,000 on those bits. And that is the kind of engagement, of course, that an advertiser would be interested in. Right, we kind of talked about this a little bit on the last Friday show, right, with the choose your own adventure genre. The more an audience participates, the more likely they're gonna see sponsorship spots, the more likely it's going to stick. But the thing is, this is not a win for everyone. The future of individual esports titles

can seem a lot more uncertain if you compare them to traditional sports. The unique thing about esports is that games aren't quite as static as, say, basketball or soccer. It's not like the fundamental mechanics of playing soccer are going to change so much that they have to make it like a soccer tube. You get to use your hands now, the legs are too OP.

Whereas with video games, the technology and game engines are constantly advancing. Well, some of the still major e-sports titles have been around for years, right? Like the Counter- Global Offensive, the Dota 2, to the point that they almost look graphically low quality. You still have to be on the lookout for the new stuff taking over, kind of like a game cycle.

Last year, for example, I know people at this point have been like, how is he not talking about Fortnite? Last year, for example, Fortnite tournaments offered the third most when it came to prize pool money, with $20 million, which put them behind Dota 2 and Counter-Strike. And behind Fortnite, you had Overwatch and PUBG, relatively newer games,

followed by the 10-year-old League of Legends. Right, so this is signaling a potential change in the top esports titles. And in case you're wondering how this year is shaking up in terms of prize money, Epic Games, the developer of Fortnite, is putting up, and we talked about this on the show when they announced it, $100 million in prize pool money.

Right, so it's incredibly likely they're gonna take that number one spot in the category this year. But one of the big things to understand is that is this year and anything could change. I mean, maybe Fortnite and the Battle Royale game style will fall out of popularity. I think that it's not likely anytime soon. I mean, you're talking about a genre and specifically games

that have lowered the bar as much as you can. And I mean that in a positive way. They're free to play, it's on PC, consoles, you can get it on your phone. I don't know how people effectively play the game on their phones, although I see kids doing it. And I think that specifically is only gonna get bigger and bigger with the introduction of 5G.

But hey, maybe it changes, maybe people start finding the genre stale and they wanna go back towards narrative. You can't, it's hard to predict the market. But with all that said, in the meantime, esports as a whole will almost certainly continue to grow. And it's really gonna be up to the big stakeholders in the community to figure out the best way to push the esports industry forward. For example, Twitch, you know, I'll also say YouTube Gaming, boys, I know you're already texting me. They have a responsibility, need, and benefit from figuring out how to keep viewers engaged, kind of like with the partnership we saw

with the Overwatch League. And developers will be tasked with creating and definitely updating games that are competitive. But with all of that said, that's the end of the video, and it brings us to where I pass the question off to you. What are your thoughts about esports in general now? What do you think in regards to the future? Do you think the games that we're seeing at the top right now are gonna be the top games

in three years, five years, 10, 20? Or do you maybe disagree with me? Do you think that e-sports is a fad? That this is kind of in the large scale of entertainment, just kind of a flash in the pan? And in all thoughts, I'd love to hear from you in those comments down below. And while you do that, I once again wanna thank

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or head over to manscaped.com and just enter in code PHIL20 and start manscaping today. And, or, also remember to go subscribe to youtube.com slash rogue rocket. Oh, wow, the pairing of these two things together didn't just hit me till right now. Oh, yeah. Oh yeah. Bill 20.

But with that said, that is the end of this Friday deep dive. Thank you for hanging out. I hope it was a pleasant way to enter the weekend or something you watch during the weekend because you don't watch my videos in the first hour they're released, how dare you? But with that said, if you liked today's video, hit us with a like.

If you're new here and you want more, hit that subscribe button. Sorry, I'm laughing because I'm slowly going crazy. I haven't slept. Also, if you're not 100% filled in, if you missed the last deep dive or yesterday's Philip DeFranco show, you can click or tap right there to watch those. But with that said, of course, as always, my name is Philip DeFranco. You've just been filled in. I love your faces and I'll see you Monday.