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Esports: private equity becomes a player

Posted on 10 February 2021

Esports, the professional competition of playing of video games, is no longer a niche phenomenon. With an estimated $950m in revenue in 2020, esports is often touted as a billion dollar industry. Forbes now releases an annual rich list of the world's most valuable esports teams.

Esports teams in the UK

The UK is home to several esports success stories and some of the world's leading esports teams, tournament operators and technology and service providers.

US sports teams were first to invest in UK esports. In 2016, Team Dignitas, founded in 2003 by Michael "ODEE" O'Dell, was acquired by the Philadelphia 76ers, making them the first North American sports team to own a UK esports team.

Further investment in UK esports teams followed, but now high net worth investors and investment funds were in on the act.

Headquartered in Twickenham Stadium, Excel Esports is a British esports organisation founded by two brothers in 2014. In 2018 Excel received a substantial investment from JRJ Group to fund its multi-million euro buy-in to the League of Legends European Championship. It now boasts competitive rosters in Fortnite and League of Legends.

Founded in 2004, Fnatic is one of the world's most established brands in esports. With its headquarters in Shoreditch, Fnatic has an impressive roster of professional players and content creators around the world. In 2019 Fnatic raised $19m in Series A funding, led by founder of VK (Russia's largest social network), Lev Leviev of LVL1 Group. More recently Fnatic raised over $2m in crowdfunding following an announcement that it had closed a $10m raise earlier this year.

Guild Esports, which is co-owned by David Beckham, was launched in June 2020. Taking a different route from other more established esports teams in the UK, Guild completed its flotation on the London Stock Exchange in October 2020, raising £20m with a market capitalisation of £41m. Its strategy is to acquire and develop a talent pipeline based on the traditional academy model.

It's not just teams

Whilst investment in esports teams has dominated headlines, it takes video game developers, tournament operators, broadcast platforms and venues to create an ecosystem in which esports can thrive.

Without video games, there is no game to be played. Without tournament operators, there are no events to attend. And without a broadcast, there is no audience to watch. The technology and IP behind the scenes that makes esports possible can be just as valuable and even disruptive to other industries.

Keen to take advantage of the exponential growth in the esports sector, we have witnessed a rise in esports specific private equity funds being established. In 2019 Vindex launched a $60m global esports fund, headed by co-founders of Major League Gaming Mike Sepso and Sundance DiGiovanni. Not to be left behind, investment management firm Artist Capital Management LLC raised $100m to establish its first fund, the "Artist Esports Edge Fund", which aims to provide its institutional investors with exposure to esports companies, such as US esports team 100 Thieves.

In the UK, Hiro Capital has launched a €100m fund to invest in innovators in the EU and UK's video games, esports and digital sports ecosystem. The team of games industry veterans behind Hiro have together co-founded and invested in over $9bn in games, sports and technology companies, ranging from Games Workshop to Mediatonic.

Given the rise in private equity funds established specifically to invest in esports and the technologies behind it, the strongest businesses in the sector will find themselves in demand. As PE funds seek out best in class assets (with strong management teams) which they can back for growth, businesses in the space should see a corresponding rise in valuations.

Private equity becoming a player in esports will create a host of opportunities for the sector – and for the founders of high quality businesses in the space.

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