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The days when esports were dismissed with laughter and jokes are behind us. Today, the esports industry spans the globe, forming an international business that is more legitimate industry than punchline.

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And it鈥檚 not only gaming-friendly brands that are helping power the esports boom. Sure, Need4Seat and Razer are still helping finance tournaments. But State Farm now sponsors the competitive League of Legends circuit, and more traditional brands are expected to hop on the bandwagon.

But underneath the esports glitz, the huge events, the growth in online audiences, and the rapid rise of new titles and streaming brands, trouble lurks.

Concerns are growing among industry participants, observers, and skeptics alike that esports-focused startup valuations are too high, and that monetization still lags audience growth. And until those issues are resolved, the rise of esports will flounder.

Few expect a collapse, but a reckoning is not outside the realm of possibility. We reached out to investors and founders in the esports arena to reconcile the hype versus the reality.

Placing Bets

To say global VC firm Partner is bullish on esports would be an understatement. During an animated phone conversation, Yang explained that esports is 鈥渁 pretty nascent space with a lot of promise.鈥� NEA looked at esports companies for about three to four years before investing in South Korea-based (previously known as KSV Esports) and . PlayVS, which we covered here, as well as profiling its co-founder here, is focused on building an infrastructure for esports in high schools.

For Yang, a lot of the excitement stems from his own personal experience as a gamer in high school.

鈥淚鈥檇 have my swim club practice and then come home and wake up in the middle of the night to start gaming with my friends,鈥� Yang said. 鈥淎t that time, gamers were considered to be 鈥榥erds.鈥� But that has massively changed as gaming has become more mainstream and melding with pop culture. We鈥檝e seen this shift in gaming and gaming culture over the past few years. And that鈥檚 sort of indicative of why we鈥檙e so excited about this space.鈥�

One reason esports struggles, Yang believes, is that people who aren鈥檛 in the industry, or aren鈥檛 familiar with it, view it very 鈥渘arrowly.鈥� And even though it鈥檚 more mainstream, it鈥檚 still young. Yang points out that there are less than 1,000 professional gamers out there. And professional leagues have (on average) been around for only about three years.

Yang also acknowledges that the monetization aspect is a valid concern. To him, the clearest value creation is on the side of the publishers and game developers, who are increasingly finding ways to make money with in-game purchases (Epic鈥檚 Fortnite is a prime example) of virtual goods. Historically the gaming industry has grown up very siloed, with each publisher carving out their own piece, he said. As the space matures, that鈥檚 slowly changing. The second most mature sector within esports is the distribution of live gaming.

鈥淭he broadcasting layer is super dominated by Twitch and YouTube,鈥� he said, estimating that the top 10 earners on YouTube last year were related to gaming. 鈥淧eople have claimed it鈥檚 silly for people to want to watch other people play video games. But you could make the same argument for other sports. People watch so they can better. And so now. in the last few years, you鈥檝e got this massive audience of both gamers and people watching gaming.鈥�

Just as sports players are conscious of what shoes they were, gamers being watched by millions of viewers have a vested interest in looking good, too.

鈥淕amers want to look cool while playing the game so they spend money on skins (items that players can acquire in games) for example, and now you鈥檙e starting to see more offline and real-life brands tapping into this channel because there鈥檚 a bunch of eyeballs,鈥� Yang said.

For example, Fortnite recently collaborated with the Michael Jordan brand and Nike to get Jordans in the game. Electronic music producer DJ Marshmello also performed a concert in the middle of a Fortnite game with 10 million different participants from around the world watching, he added.

鈥淒o you know how many years and hours of travel of tours it would take to get 10 million viewers,鈥� Yang asked. 鈥淚t鈥檚 mind-blowing.鈥�

The global aspect is not to be underestimated, he believes.

鈥淭here鈥檚 a huge opportunity to tap into all aspects鈥� of gaming across its social, content, and virtual goods components, he said. And to , monetizing analytics around gaming is a huge opportunity as well.

The 22-year-old co-founded an Austin-based startup called out of his personal desire to improve at playing League of Legends. Essentially, the company employed machine learning algorithms to help gamers get better at playing games.

Ultimately, in 2018, the bootstrapped Asuna was acquired by Swift Media, the company behind esports team , after being sponsored by Microsoft and Xbox. The technology he helped develop is now being incorporated into Swift鈥檚 overall infrastructure so that its whole network of analytics websites (used by players of games like League of Legends and Fortnite) will be powered by the technology Asuna built. It will power a new personal assistant called Pix.

鈥淪o many people are competitively playing, so there鈥檚 a very big market there to sell tools,鈥� he said. 鈥淚t鈥檚 almost like automated coaching tools to help these people play better, even those who are not (yet) getting paid to play. There鈥檚 a huge market to bring a lot of knowledge to.鈥�

For , CEO of Mark Cuban-based esports startup , esports presents a big opportunity considering that so many people 鈥渉aven鈥檛 figured out how to monetize it.鈥�

His company recently launched streamer betting with a system that uses AI trading bots, based on computer vision technology and predictive analytics, to come up with live odds.

鈥淚n other words, you can be watching your favorite streamer play Fortnite and the system places odds on certain things happening during that match while they鈥檙e playing live,鈥� Sood, who sold a previous startup to in 2006, told 附近上门 News.

His company also launched something called 鈥渦mode,鈥� which can connect to the platform and give users the ability to bet on themselves while playing games. It鈥檚 currently legal in 41 states, he said.

Overall, Sood (who also was the creator and general manager of Microsoft Ventures), is naturally bullish on the space and believes the wagering side of esports has 鈥渉uge鈥� potential.

鈥淭here鈥檚 very few people who understand it so those building on it are building on the future,鈥� he said. 鈥淎 lot of people don鈥檛 get the full potential of the space. I still talk to people who have never heard of it. Yet there are hundreds of millions of people who watch it. So raising awareness is part of the battle.鈥�

Today, the esports industry is an international business that is more industry than cottage endeavor.

Powered by the growth in high-speed Internet connections, streaming technology, and rising decoupling of consumers鈥� viewing habits, esports fits neatly between a number of changes in the media and technology landscape. But has the hype outpaced reality? Some would say yes.

In May, Kotaku reporter that: 鈥淢ore and more, esports is looking like a bubble ready to pop.鈥� She went on to say that 18 鈥渆xperts鈥� on the North American esports industry expressed concerns to Kotaku, with 鈥渟ome describing it merely as 鈥榠nflated鈥� and others as 鈥榗ompletely unsustainable.鈥欌��

Yet others point to statistic such as Goldman Sachs that the esports industry will see annual revenue jump from $655 million in 2017 to $2.96B by 2022. (For other similar stats, see my previous story on esports funding.)

Time will tell if concerns about monetization in particular are a real threat. Ultimately who wins in the esports game will be those companies that can crack the profit code.

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