Most GenX men can probably remember begging parents and older siblings for quarters and a ride to the nearest video game arcade. Games like Computer Space, Asteroids, and Pong helped create a cultural phenomenon in the late 1970s – 1980s as an entire generation of (mostly) boys embraced video games.
From arcades to televisions, dial-up modems to streaming video on mobile phones, the video game industry’s growth curve has mirrored technological advances in computer hardware, software, and connectivity.
Atari’s 1972 release of the home version of Pong played on the TV sparked the home video game revolution, along with even more arguments in American living rooms about who got to use the TV and when.
When desktop computers went mainstream, video game technology shifted to computer-based games. Later, the advent of the internet led to massive growth in social gaming, or multiplayer video games, where players from all over the world meet and compete online. These players and fans have created a new industry called Esports.
Web3 is the most recent innovation now influencing video games, giving rise to the GameFi sector. For at-home gamers, web3-based games are innovating traditional gaming rewards with play-to-earn (P2E) options and other opportunities to earn rewards tied to real-world value, primarily via NFTs.
Web3 expands monetization options with unique in-game assets that players can buy, sell, and use beyond gaming. On July 18, 2023, CoinMarketCap valued the gaming token market at USD $9.1B.
Not only is Web3 revolutionizing the experience for individual gamers, it’s also creating new opportunities in the growing Esports industry. Much like traditional sports, Esports is based on people watching top gamers and teams compete in tournaments.
Let’s take a closer look.
Rise of Esports
Playing a game usually implies a competitive activity. Internet connectivity and streaming video platforms created the opportunity for gamers to compete in front of an audience. By the early 2000s, people began to not only play video games but also watch their favorite gamers and teams play on platforms like YouTube and Twitch.
The ability to compete and watch other players at scale led to Esports, a fast-growing segment for both professional sports and the video game industry. In Esports, teams compete to win tournaments in the most popular video games, with final rounds often played in front of millions of streaming fans.
Where there is a growing, fiercely loyal fanbase to monetize, business interests are not far behind. In the early 2000s, Esports began to attract sponsors and investors. Now some teams have investors and sponsors that pay for the team members’ training and other living expenses. In the last five years household celebrity names have even jumped into the fray, with stars like hip-hop artist Drake and basketball legend Michael Jordan investing in Esports ventures.
Spiked by demand during the COVID lockdown, the industry continues to grow, with a $1.39B market in 2022 and professional teams, leagues, and tournaments worldwide. Some popular Esports games include League of Legends, CS: GO, Dota 2, Overwatch, and Fortnite.
In professional sports all over the world, money talks. After initial resistance, the International Olympic Committee (IOC) hosted the first Esports virtual games in Singapore in June 2023, despite some controversy around the obvious fact that esports players are the very definition of armchair athletes.
In the US, over 20 universities are adding undergraduate courses in eSports to their curriculum. Major professional sports leagues are adding eSports to their portfolios. For example, the NBA’s NBA2K league has 25 teams, including teams from China, Mexico, Canada, and Australia.
Web3 and Esports: The Convergence
The traditional video game and professional sports industries are very centralized. Large corporate video game companies own the games and all rights associated with them. In professional sports the brand and owners reap the lion’s share of profits from the team’s activity.
Launched on a foundation of Web2 platforms and traditional sports business models, the esports sector already has a massive user base of almost 500 million global participants. Even more stunning are the viewership stats. Gaming fans watched 100 billion hours on YouTube last year on more than 40 million gaming channels. Juniper Research projects 70% growth rate in the global esports market from $2.1 billion in 2021 to more than $3.5 billion by 2025.
That growth is almost exclusively within the centralized Web2 business models. Web3 Esports startups want to upend the traditional profit model and transfer power to the teams and players.
They visualize a creator gaming economy where teams, players, and fans all have a bigger stake in success. Web3 technology opens up alternative funding models for esports organizations and players. Web3 even creates the possibility of fans participating in real-time in tournament decisions and outcomes.
MonkeyLeague and EV.io, for example, allow individual athletes to create and play games, compete against fellow gamers, and earn money (typically cryptocurrencies). Crypto platforms like Bitcashier and esports platform providers like Community Gaming are pursuing cryptocurrency-based prize pools.
In September 2022, Sky Mavis announced a $2.4 million grant to underwrite esports events on its Web3-based metaverse platform Axie Infinity. Cryptocurrency companies were among the biggest spenders on Esports sponsorships in 1H 2022, along with financial services, consumer electronics, automobiles, and energy drinks.
Other Web3 game examples include Decentraland, Phantom Galaxies, and Splinterlands. In July 2022, Axie Infinity introduced a $1M cash prize for Axiecon, its competitive tournament, establishing itself as a Web3 Esports title.
In November 2022, game developer Wemade and DRX, the 2022 League of Legends Worlds winners, formed a partnership with the shared objective of exploring new markets and business opportunities. Before joining forces with the DRX, Wemade secured a $14.8M investment from Microsoft.
Future of Esports
Web3 Esports platforms want to adapt Web3 tools like blockchain, smart contracts, crypto tokens, NFTs, and cross-chain access to improve the fan experience and increase the players’ profit share. Some innovations include:
- Tokenization of players, teams, and in-game assets will open up the market to many more participants and potentially bid up the value of the best teams and players.
- Enhanced fan experiences Web3 tools: NFTs can provide verifiable scarcity of digital collectibles, smart contracts can automate payouts and incentives to top fans.
- Decentralized streaming will bring down viewer costs and dismantle centralized control of one distribution channel. Web3 advertising models, which improve viewer experience by giving viewers control over what kinds of ads they see, will combine with Web3 streaming services to provide a personalized viewing experience which rewards the biggest fans and engage casual fans at a deeper level.
- Cross-Game interoperability and brand promotions: Web3 technology can enable cross-game experiences, allowing players to carry their assets, achievements, and fan base across multiple games.
- Players can build massive brands apart from agents, teams and Web2 social platforms that gatekeep fans from influencers. From decentralized tipping to asking fans to vote on their next professional career move, players can engage and monetize their fans directly at new levels.
Unlike consumers in some sectors transitioning to Web3, most Esports fans are digital natives who don’t question the value of intangible assets. They already live a significant portion of their life online in virtual worlds.
YouTube’s Esports video statistics foreshadow Web3 Esports massive potential in the metaverse. The metaverse’s development to encompass truly immersive worlds is sparking huge innovations in video gaming and Esports. As VR and AR hardware evolves, bodysuits will replace handsets in some video games, allowing players to fully embody their avatars. In fact, in an interesting reversal, esports in the metaverse may require that athletes train their human bodies once again in gymnastics, martial arts, and more.
Moving Ahead
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This material has been prepared for informational purposes only and is not intended to provide tax, legal, or financial advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction.
