The Esports gold rush is on

“It's more important to master the cards you're holding than to complain about the ones your opponents were dealt,” is advice that the character Grimsley offers to trainers going into battle in the game Pokemon Black and White. It is advice that should be kept in mind by those doing trying to do business in esports scene in Hong Kong. Esports offers a multitude of opportunities and profitable endeavors, but Hong Kong is far from the only player in the game. Hong Kong has a financially generous government that can fund an esports ecosystem, but there’s very much a Wild Wild West aspect to the scene right now as multiple players jockey for position in an ever-changing and ever-expanding landscape.

The esports ecosystem offers a multitude of opportunities that almost preclude the need for government support; it’s just that robust. The private sector should be more than ready to step in as the profit potential is vast and multi-level. Situated right next door to a country that is home to over 100 million gamers, who battle it out on MMORP games like League of Legends every month, Hong Kong is uniquely positioned to create an esports ecosystem that can profit a multitude of industries, including advertising, branding & marketing, events/production, publishing, merchandising, manufacturing (hardware), social media, analytics, and education.

According to Newzoo.com, with over 500 million gamers, China is the number one gaming market in the world, with an annual spend of about US$27.5 billion. China is also building an esports infrastructure that is leading the world, with new esports arenas opening up throughout the country, with well-funded leagues backed by companies like Ten Cent and Alibaba, and strong governmental support overseeing it all. Hong Kong should recognize that it is uniquely positioned to take advantage of this exploding market. Every American, European, and African country must be salivating at the opportunity to sell into China's gaming market and Hong Kong is perfectly positioned to be the beachhead for those companies.

Hong Kong should recognize the economic engine that is esports. The esports ecosystem is a vast, worldwide network of companies that include game publishers like Tencent, Riot Games, Valve, etc. Esports competitions are hosted by companies such as ESL, PGL, and the E League. Hardware manufacturers like Intel, AMD, Nvidia, BenQ, ASUS create the computers, chips, and gaming peripherals that these games require. Telco providers in Hong Kong are also recognizing the branding opportunities inherent in the space, as is Chinese cloud provider Alicloud.

Branding & Advertising

There is probably no better sport that combines fandom with marketable product opportunity than esports, not only because the esports market is massive and growing, but also because the items that are being sponsored are products used in these games. Some products even offer verifiable competitive advantage; a BenQ monitor might actually be the best type of monitor a League of Legends player can use because it’s fast frame rate helps battle scenes render quicker, which might give a player a subtle but highly important competitive advantage; if you can see your enemy quicker, you can kill him or her quicker. So, unlike drinking Gatorade – which hasn’t really been proven to rehydrate the body than water has – the synergy between esports and its sponsors is real and quantifiable.

Advertisers worldwide are recognizing the massive, highly interactive and up-market audience that follows esports today. Gaming and esports is probably one of the best ways to capture the attention of today’s youth market, who can’t be reached through standard advertising channels like television, print, radio, and even Google ads. Today’s millennials are tech savvy and they know how to install ad blockers so advertisers have to find a way to circumvent this personal censorship. Esports can be that way. Today’s marketers talk about the need to develop one-to-one relationships with their customers and esports allows this type of interaction through live streaming channels and group communities.

Currently, some of the biggest esports sponsors are companies like Samsung, Google, Sony, Microsoft, Coca Cola, Pepsi, Doritos, and Red Bull, as well as content platforms like Twitch, and retailers like Gamestop, but any company wanting to reach a young, affluent, and thriving demographic should look at esports sponsorships. Companies as varied as airlines, apparel, automobile manufacturers, banks, beverage companies, breweries, broadband services, credit services, film distributors and movie theaters, health insurers, insurance brokers, media companies, resorts and casinos, restaurants, software publishers, sporting goods, and the sin stocks of tobacco, alcohol and sports betting could all benefit from esports’ wide reach. Hong Kong-listed companies Razer, Kaisun Energy, Galaxy Entertainment, Melco International Development, and Malaysian-owned Genting have jumped aboard the esports band wagon as they recognize teaming up with esports is a winning formula.  

Sponsors of computers, monitors, chips, graphics cards and headphones fill the stage at the Girl Gamer Festival in Macau

Events/Production

For those who aren’t plugged into the scene (no pun intended), esports might seem like a strange mix of sport and carnival, but odd cosplay scene aside, esports events sell-out stadiums worldwide. Tens of thousands of screaming fans watch young men and women play video games for hours on end on giant screens for massive prize pools; millions more watch online and betting odds are offered on major and minor tournaments alike, from all of the well-known bookmakers.

Anyone who isn’t awed by the colossal opening production of last year’s 2017 League of Legends championship isn’t alive. Filled with ten of thousands of screaming fans at the Beijing’s Bird’s Nest Stadium, a hundreds of dancers decked out as characters from the game marched in lock-step across the stage, while world-renowned DJs provided a rousing call to arms, and a foreboding digital dragon swooped in from the darkening sky above. This was a production worthy of an Oscar set and these types of scenes require an enormous, highly technical staff, and they don’t come cheap. Events and production companies in Hong Kong might find considerable work if they focus on producing and crewing up these large-scale esports events as Asia is becoming a hot bed for esports competitions.

 Cosplay characters battle it out for the best dressed at Macau’s Girl Gamer Festival

The esports ecosystem has a large human element as well. This includes the teams, players and managers who vie for an ever-growing slice of the prize money and revenue sharing pie. As with every other sport, fans are an integral part of the game, but esports fans have unique opportunities to directly connect with their heroes beyond what normal sports fans can do.

The esports subculture is filled with virtual characters, virtual currencies, and virtual goods. Cosplay characters have their own scene, bringing virtual game characters to life. Players, broadcasters, and fans alike speak in a language and vernacular of their own, and it is filled with an odd assortment of military-sounding acronyms (FPS, MMORPG, nOOb, FTW!). In some ways this scene resembles a bazaar of the bizarre, flesh-and-blood humans wander around in the costumes of virtual game characters. It does all make strong financial sense. Esports fans not only buy match tickets and purchase team and player merchandise, but they can also directly monetize the players they love through live streaming subscription platforms like Twitch, Facebook Live, YouTube Gaming, as well as the plethora of Chinese comparable live-streaming sites. These live streaming channels have even become direct competitors to standard cable channels like ESPN and Turner, which jumped aboard the esports bandwagon a decade ago. Opportunities also abound for live streamers based in Hong Kong who want to report on the Chinese esports scene.

Software and Game Development

Of course games like LOL and DOTA 2 cost millions to produce; some have budgets larger than Hollywood blockbusters, so the price to enter this space is prohibitive for most publishers. However, the history of mobile games is filled with stories of bootstrapped games that took off and made millions for their developers. For every Flappy Bird “failure” (because of copyright infringement), there is a Temple Run success, that made millions for their developers.

According to R-Style Lab, a “typical casual game costs around $50 thousand to make”, while a social game can run into the hundreds of thousands of dollars. Building a complex and visually rich mobile game is a time-consuming and expensive process, often costing upwards of $2 million. Game production includes development and design, prototyping, market research, coding, UX/UI design, editing, testing, and then marketing and selling. A large team of unique and highly skilled technicians is necessary to develop these games. These people need to be trained and educating them and incubating these companies could also prove highly profitable over the long run.

Game development isn’t the only game in town either. Companies like Overwolf — a software platform designed to help developers create extensions for video games — is gaining traction in esports and with MMORPG games. In these games, native extensions are often forbidden due to concerns of cheating. Overwolf extensions operate exclusively on the overlay created by the main Overwolf program, therefore they do not interact with the game engine itself, which does alleviate concerns about cheating.

Although many might wish to sideline gambling, that’s just not possible; anytime athletes suit up to play in organized sport, people are going to want to bet on the outcomes of that sport, and nefarious parties will try to fix those games for personal profit. However, money can be made ensuring playing fields are level, and more so in esports than any other sport. These games are built on complex computer programming code and powerful gaming engines, which can be overseen by sophisticated AI algorithms that ensure the game play is both fair and level. 

Machine learning and analytics technology is another area that Hong Kong is investing in and these kinds of skills are highly valuable, not only to social game developers but also for ICOs, as well as a whole host of other industries. China is leading the way in AI so the talent is here, but Hong Kong, with its censorship-free environment, might have a few good cards to play in this tech area.

Conclusion

In September 2016, at the Grow uP eSports’ Girl Gamer Festival in Macau, Kaisun Energy Group’s Brian Anderson spoke eloquently about his company’s move into esports, as well as esports’ ability to connect disparate societies. “This is a sport that will be growing very quickly. Right now, we see boundaries and barriers that used to be open starting to close up,” Anderson lamented about today’s current geopolitical climate. “Esports allows borderless communication, it’s a way for people to meet each other without barriers. We don’t see those barriers – we think borders and barriers are one of the worst things that can happen. Esports provides a way for people to communicate, to make friendships and stop the encroachment of barriers,” added Anderson.

Anderson’s is a hopeful vision of esports’ ability to bring people together and why shouldn’t sport lead this movement? Sports has a long history of bridging divides and esports could just be the latest chapter in the saga of how games bridge a cultural and political divide. The language of competition is a language understood by all, speaking directly to the heart, free of culture, devoid of politics, knowing no mother tongue, even when it is delivered on massively multiplayer online battlegrounds and death of the enemy is the game’s ultimate goal.

For Hong Kong, opportunities in game publishing are a drop in the bucket compared to profit opportunities throughout the entire esports ecosystem, which includes event tickets, merchandising, education (these are complicated games that require real skill), gambling, F&B at the arenas, sponsorship, advertising, hardware manufacturing, software development, as well as a whole host of other potentially profitable endeavors.

With strong government and commercial backing, Hong Kong is uniquely positioned to build a highly lucrative esports ecosystem, as well as, potentially, produce world-class esports athletes. An esports revolution is happening in countries throughout the ASEAN region and Hong Kong would be wise to acknowledge and embrace it —and embrace it now. Hong Kong should follow the advice of the great Chinese philosopher Sun Tzu’s: “Quickness is the essence of war.” South Korea, China, Malaysia, the Philippines, Australia, and even India are all actively fostering robust internal esports scenes, so the time is nigh.

We often look down upon things we don’t understand, but, in the case of esports, the profit potential should make us all sit up and take notice. While the characters might be virtual, the profit is very real. An opportunity exists in esports that is unlike anything that has come before in sports. The ecosystem is just that vast, that open, and that new. The esports gold rush is upon us and, as with most early adopter situations, those who get in on the ground floor and fully understand the scene can monetize it quickly and quite handsomely.

HK’s powerful financial industry, leading IT infrastructure, growing startup community, first-rate venues, world-class transportation system, and unique geographical location should give it a leg up on any esports competitor. Let’s just hope Hong Kong doesn’t waste its esports opportunity and it never has to look back at these times as its “Sonic 2006” moment, i.e., a horrible time from the past that one hopes is never brought up again in civil company.