The esports market should look to WWE for its inspiration

Video gaming and wrestling are not the most likely pairing; however, those hoping for some perspective on how the esports market could develop over the next few years should look to the meteoric rise of World Wrestling Entertainment Inc (NYSE:WWE).

Despite being around for more than 40 years, and listed on the stock market for 20, since 2014 WWEs share price has risen close to 365%, causing its market cap to balloon to US$4.4bn.

The dramatic ascent followed a decision that many considered very risky at the time, transferring content away from the traditional pay-per-view (PPV) cable TV model and towards an online subscription service, the WWE Network.

In an interview with business magazine Inc. in 2018, WWEs co-president Michelle Wilson said the transition to digital had been a “smart choice” as the firms data had shown that “digital consumption and subscription services were the future”.

The move has proven to be a shrewd one, as by 2017 the company had raked in US$801mln in revenues, the highest in its history, and now counts over 1.5mln paid subscribers on its network in addition to a raft of content distribution deals with major networks such as Fox and BT Group PLC (LON:BT.A).

The company also still retains its large “tent pole” events such as Royal Rumble, SummerSlam, Survivor Series, and WrestleMania, with tickets for the latter selling at over US$330 a pop.

What has this got to do with esports?

While WWE had to make the transition from terrestrial TV into digital, the groups success provides something of a read-across for esports.

One of the crucial factors is media rights (i.e. the right of specific broadcasters to show content), which is becoming a key source of revenue as streaming providers battle over exclusive content to replace income lost from traditional TV advertising.

According to research from Goldman Sachs, media rights as a revenue stream accounted for 14% of total esports sector revenues in 2017, however, by 2022 this is expected to grow to 48% of the total.

Esports is also attracting major network interest for its content, much like WWE, with ESPN+, Walt Disney Cos (NYSE:DIS) subscription sports service, inking a streaming deal last year for League of Legends, an online video game with a large esports player and fan base.

Esports events will also serve as a major draw as the global audience expands, and with it, opportunities for sponsorship and merchandising that is already attracting interest from major brands.

One example is motor racing franchise Formula 1, which is currently running the second season of its esports racing championship in partnership with Gfinity PLC (LON:GFIN).

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