Esports is gaining popularity and receiving significant financial support.
- The inaugural Esports World Cup, held in August, boasted over 1,500 participants and a staggering $60 million prize fund.
- Video games are contested by teams or individuals in esports, with players training and having coaches, similar to traditional athletes, in order to excel in their specific game category.
The global video gaming market is projected to reach $187.7 billion by 2024, as predicted by data firm Newzoo.
In the gaming industry, there has been a significant push to transform esports, a form of competitive gaming, into a professional sport on par with soccer or football.
Video games are contested by teams or individuals in esports, with players receiving training and coaching similar to regular athletes in order to excel in their specific game category.
The inaugural Esports World Cup, held in August, boasted over 1,500 participants and a staggering $60 million prize fund.
Ralf Reichert, CEO of the Esports World Cup, stated on CNBC's Beyond the Valley podcast that they are achieving mainstream coverage worldwide.
In this episode of Beyond the Valley, Tom Chitty and I are joined by Reichert to discuss the growth of esports and its future.
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The "Beyond the Valley" episode, released on August 21, 2024, has been edited for clarity and brevity.
Tom Chitty
While Paris hosted the Olympic Games a few weeks ago, another sports tournament was taking place, not necessarily with the same prestige as the Olympics, but certainly with a bigger prize pool. The winners of the Esports World Cup shared more than $60 million. This weekend brings the conclusion of the first Esports World Cup, which has been taking place in Riyadh for the last eight weeks, featuring 23 events in 22 different video game titles, including Call of Duty and Fortnight. The event was part of Saudi Arabia's Vision 2030, a government program to diversify the country's economy away from its reliance on oil. For the gaming community, uniting the industry under one competitive umbrella could bring this to a scale similar to the largest traditional sports events around the world. Our special guest this week, Ralf Reichert, is the Esports World Cup CEO. He grew up an avid gamer before co-founding one of the first esports teams. He then went on to co-found Electronic Sports League Gaming, a German esports organizer and production company that produces video game competitions worldwide. It's the oldest esports company that is still operational
Ralf Reichart
Thanks for having me.
Tom Chitty
What is the history of professional esports gaming and how close are we to making it more mainstream?
Ralf Reichart
In the late 90s, the internet was available but there was no live video streaming or social media. The first areas of podcasting emerged, but access to the internet was limited. It was mostly accessible to students, who had to pay for it or save on the internet provider cost. This created a super elitist, limited community based mostly on students who started to compete against each other online. I was part of that community and was lucky to be at the right place at the right time. We founded a team and competed in a German national championship with no prices or structure. In 1998, we went to a tournament where my mom first attended, and when we returned home, she said that watching us play football was not so different from traditional sports. If she had any understanding of video games, she would enjoy them the same way.
We knew that gaming would become a spectator sport due to its low barrier to entry and immersive experience. We aimed to build it as a professional sport, requiring players to compete and make a living. To achieve this, we focused on creating viewership and monetizing it. However, in the early 2000s, there was no YouTube Live or Twitch, making it difficult to create viewership. We took the first 10 years to work as an agency and fight for acceptance of the sport and athletes. In 2010, with streaming and social media, we were able to create our own coverage platform, endemic to the fans.
The games were there, they progressed. Free-to-play became a thing, so less barrier to entry. The internet was ubiquitous over almost all over the world. Smartphones even lowered that barrier to entry, with the iPhone out for three years. All of this came together, and now it's been 15 years of immense growth. With the Esports World Cup, we're hitting the nail of having mainstream coverage around this all over the world. We have 60 media partners who broadcast this, and press from all over the world, bringing it on an annual basis. This is the final hammer that smashes through the wall of resistance.
Arjun Kharpal
Ralf, I've always said that if I were born five or six years later, I wouldn't be a journalist and would instead be pursuing a career as an esports star. Many people may be considering the things you've said about the spectator side of esports, including acceptance, and wondering how one can get started in this field.
Ralf Reichart
Esports has a lower barrier to entry compared to traditional sports. To compete, you need to learn the game and play it. While you can do this alone, you'll need to find like-minded people to compete with and against. Depending on your location, there may be local infrastructure available, ranging from grassroots to community-based. Even in Bangladesh, there are local esports tournaments in most games. So, start making your name and competing in them.
Esports has a unique ecosystem with its own leagues and tournaments leading to the ultimate qualification for the Esports World Cup. Unlike traditional sports, there is no barrier to entry, and it is possible to qualify within a year. However, the competition is high, and it may take two to three years of training to become a top player. From a theoretical level, if you are the best player of all time and train a lot, you can qualify through public ways without needing to go to a backroom. Additionally, esports does not require money or financial infrastructure as most qualifications start online, and you can make your way up and even win the trip to the offline qualification.
Arjun Kharpal
One of the most significant changes in the competitive gaming industry, as I have observed over the years, is the professionalization of esports. When discussing competitive gaming with many people, it's essential to understand that there are teams, leagues, coaches, and training schedules for players. Can you provide some insight into what a team does and what these players do?
Ralf Reichart
There is a common misconception that traditional sports have always been the same and are highly logical, transparent, and have a clear ecosystem. However, this is not entirely accurate. For example, football's MLS is vastly different from the Premier League, and everything is highly inhomogeneous. Similarly, esports also have stakeholders that help everyone in the ecosystem grow. Clubs play a crucial role as they train and support players, provide them with nutritionists and psychological help, and create an environment where they can thrive. Sponsors also benefit from clubs as they can target local markets and gain recognition. As a game publisher, having clubs join your game gives your game relevance and accelerates the professionalism around it. Therefore, the Esports World Cup places a significant importance on clubs.
Tom Chitty
What is the best way to continue growing esports? Is it simply about acquiring more funding?
Ralf Reichart
I am a big fan of almost network effects and ecosystems. However, I am not a big fan of something centrally controlled, even though we are going in a top-down approach with the Esports World Cup, where we are adding the biggest prize pool ever in the industry. We are trying to complement the industry, not compete with anyone. We haven't scheduled a tournament of another one, and we haven't tried to have the clubs play with us but not with someone else who's out there. We did all the things to add value to the industry. If you look at all the different stakeholders that are important, players, fans, games, sponsors, media partners, and press, I think we are trying to bring more into that world and grow it, grow the pie, rather than try to take a piece of the pie.
The gaming industry is growing rapidly, with 3.4 billion gamers worldwide. This is an incredible number that is mind-blowing. As a non-profit foundation, my job is to grow this industry and focus on making more money. However, I believe that this is someone else's job. For esports, there are currently 700 million fans, and the goal is to bring this number over a billion. The Esports World Cup is an opportunity to help achieve this goal by enabling more stable clubs, different teams, and increasing participation in games. This will ultimately help drive the growth of the industry.
Arjun Kharpal
What are some of the key business models that are emerging in the esports industry? How does the esports industry generate revenue?
Ralf Reichart
Esports is similar to traditional sports in that it has smaller participants and starts with ticketing and merchandise. However, unlike traditional sports, esports rarely becomes rich due to the lack of pay-per-view. Instead, sponsorship and media rights have been the driving force behind esports' growth in the last two decades. While sponsorship has always been higher than media rights, this is because pay-per-view has never been a thing in esports. In a world of infinite content, game developers and publishers have an incentive to make esports as broad as possible, advertising the game. As a result, fan monetization through pay-per-view is unlikely to become a significant source of revenue for esports anytime soon, maybe even never. What is missing in esports is proper fan monetization, specifically how fans contribute financially to the sport. In football, pay-per-view is a common model.
The video game industry experienced a significant shift in 2010, transitioning from a pay-to-play model to a free-to-play model with in-game purchases. This innovation originated in China and lowered the entry barrier, leading to a dramatic increase in the market. Esports is now considered a business model, with potential revenue streams including ticket sales, merchandise, sponsorship, media, and rights. However, the focus should be on monetizing the fan and player through fantasy games and other forms of engagement around the content, which are not subscription-based.
Tom Chitty
The Middle East and north Africa region is the fastest-growing region for esports and gaming, especially in terms of players and fans. As such, it makes sense to host the first Esports World Cup in Saudi Arabia. However, like other sports that have showcased the professional side of their sport, such as tennis, boxing, and golf, there are financial benefits to hosting events in Saudi Arabia. However, it also comes with a level of criticism or scrutiny. What has been the response to the first Esports World Cup in this regard?
Ralf Reichart
Government subsidies are prevalent in the world of sports, with most sports facilities and competitions funded by the government. At the grassroots level, sports are heavily subsidized, while at the top level, hosting fees and stadium construction are also government-funded. The misconception that traditional sports do not receive government funding is false, as it is a significant source of support for the sporting industry.
Saudi Arabia is the first government in the world to treat esports the same way as traditional sports, and it's a fantastic development. We knew this would happen eventually, even 20 years ago, but we never knew when. The new generation of leaders, who grew up with video games, doesn't think esports should be treated differently than traditional sports. Saudi Arabia is the first country to make this happen, and it's an important public perception challenge for the Kingdom, which has been opening up for the last seven years. There were no cinemas or tourist visas 10 years ago.
Saudi Arabia is a rapidly changing country with a growing population. When the country began to engage with esports publicly in 2020, there was a lot of backlash, questions, and boycotts. I was involved in organizing the Gamers Without Borders charity tournament. To address the misconceptions about the country, we brought players, teams, and fans to the Kingdom to experience it firsthand. The Esports World Cup 2024 is now almost complete, with eight weeks of esports, 1,500 players coming to the country, and the 100 biggest clubs and teams participating.
Despite having over a million visitors, including locals, and no negative feedback about the venue, the World Cup's positive impact on the country will continue to be a topic of discussion. To truly understand the openness and progress of the society, a critical mass of people must visit the country and experience it firsthand. While it is essential to acknowledge the need for change and progress in many societies, as long as there is a clear path forward, I am optimistic about making a difference.
Arjun Kharpal
Will you renew the Esports World Cup in Saudi Arabia next year?
Ralf Reichart
Saudi Arabia is currently the only place in the world that supports esports at the scale it is, as we discussed earlier. Therefore, it is clear that Saudi Arabia will be the home of the Esports World Cup for the foreseeable future. However, it is important to note that there is no statue or rule that states it always has to be in Riyadh. In fact, I would argue that there needs to be a bigger collaboration so that the entire world can benefit from esports, going beyond just broadcast. While this may not happen in the next few years, it is something to consider for the future.
Arjun Kharpal
What does esports look like to you in the future? With gaming innovations such as mobile, you mentioned, the world is also looking towards virtual and augmented reality technologies to play a role in esports. What are your top points as you view the future of esports?
Ralf Reichart
The answer to esports being a viable discipline is all about penetration. VR has been overhyped in the past, but with 20-30 million active users, it's almost there. Technology is advancing at a brutal pace, lowering the barrier to entry, which means more people are playing video games. This is a driving force.
Tom Chitty
Ralf, we only have a limited amount of time, but your insights were incredibly fascinating. We appreciate your contribution. Before our listeners depart, we kindly request that you follow and subscribe to our podcast. Additionally, leaving a review would be greatly appreciated. Thank you once again for your time and valuable insights, Ralf.
Ralf Reichart
It was a pleasure to see what you guys are doing. Keep it up.
Tom Chitty
Thank you, Arjun.
Arjun Kharpal
Thank you, Tom.
Tom Chitty
There will be no podcast next week due to holidays, but we'll return for another episode of Beyond the Valley the following week. Farewell.
