Esports and video gaming are a rapidly growing segment of the broader entertainment industry, achieving strong year-over-year growth by both expanding market share and increasing revenue generated from each unique viewer or user. As in most emerging industries, companies within Esports and video gaming stand to benefit from guidance regarding their technology, business structure, and future growth prospects. In addition, there are a number of strategic and corporate planning concerns that are both specific to the industries of Esports and video gaming, as well as experienced by most emerging growth industries. Given the relative “newness” of Esports, many organizations operating in this space may be unfamiliar with how to interpret and address these challenges. Furthermore, as organizations in the Esports and video gaming industries mature, operational elements such as financial reporting and tax compliance must be addressed proactively. At Teknos, we are able to aid companies from both a strategic and corporate planning perspective, as well as from a financial reporting and tax compliance standpoint.
Both the Esports and video gaming industries are experiencing significant growth. In order to sustain this growth, organizations within these industries must focus on building strong product and service offerings, requiring robust internal research and development efforts. Equally important to internal efforts, these organizations must do a good job of communicating with the communities that support them, whether that is casual players, streamers, or professional athletes. A number of high-profile missteps by leading publishers in the video gaming industry has resulted in extensive reputation damage to firms such as Activision-Blizzard, Bethesda Software, and Electronic Arts (EA); this reputational damage has also led to financial ramifications, with Activation-Blizzard and EA’s stocks suffering corrections as a result of their missteps with their communities. This issue can extend to Esports leagues and teams; in the Summer Split of the 2018 NA LCS, relative newcomers 100 Thieves benched a fan favorite player without providing context around the action, triggering an outpouring of anger from fans on social media.
Rapid growth can be a double-edged sword for some organizations, as it can lead many to scale too quickly – resulting in cutbacks and layoffs down the road. In fact, OpTic Gaming parent organization Infinite Esports & Entertainment laid off 19 individuals in Q4 2018, directly stating that they believed they “grew too fast”. It can be difficult to limit expansion in an environment where venture capitalists are injecting large sums of new financing into organizations seemingly every week but taking a disciplined approach to operations can yield long-term benefits for organizations, players, and fans alike. It can also be extremely difficult to discern the stickiness of the newest viral gaming trend; while Fortnite’s Battle Royale mode has experienced sustained success over the course of 2018, precursors like H1Z1 have not been so lucky. It is imperative that Esports organizations and game developers address the risks around their strategic decisions in a proactive manner, so as to limit the fallout from any negative outcomes while also ensuring they are nimble enough to benefit from positive situations.
Valuing Esports and video game companies can be a very difficult task, particularly so for Esports as it is a novel industry. While Esports does share many characteristics with conventional sports, valuations associated with recent venture capital financing rounds show that investors view these opportunities more like tech companies than professional football or basketball organizations. Given Teknos’ decade-long experience valuing high tech and emerging growth companies, coupled with our team members deep knowledge of the space, we feel that we are particularly well suited to serve clients in the Esports and video gaming industries.
Are you an Esports or video gaming company looking for strategic advice or financial reporting and tax compliance support? Don’t hesitate to reach out to Teknos at firstname.lastname@example.org to see how we can help your organization succeed.