SYLVIE DOUGLIS, BYLINE: NPR.
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ADRIAN MA, HOST:
INDICATOR producer Angel Carreras.
ANGEL CARRERAS, BYLINE: INDICATOR host Adrian Ma.
MA: Question for you. Do you like playing video games competitively?
CARRERAS: I usually get destroyed by what sounds like 8-year-olds in any game that requires more than one person, so, no, not really. More of a solo guy.
MA: That's a little bit of a shame, Angel, because you could really make some good cash if you got good at your Sonic Booms instead of just talking about economic booms.
CARRERAS: I get it. Sonic Boom. You're making a pun. You're talking about the Sonic Boom move from the popular game Street Fighter.
MA: Street Fighter. That's right. I mean, think about it. If you brushed up on your fighting game moves, you know, your Get Over Heres and your Yoga Fires, it could change your life if you've got the skills.
CARRERAS: Yeah. Sure. I could become a professional, well-paid gamer like Dominique McLean, or as many people know them, SonicFox.
DOMINIQUE MCLEAN: Imagine, like, like being, like, a 13, 14-year-old and, like, bringing back home, like, $2K. Like, that's pretty exciting, right?
CARRERAS: $2K as a 13, 14-year-old. Yes, that's a lot of money for video games, no less. I wonder what SonicFox's parents thought about this.
MCLEAN: My mom didn't want us playing video games all the time. But then when she saw, like, I was bringing home money from, like, these kind of things, she's like, no, no, go do more events, right? Like, it was a complete total shift. It was pretty cute. And that was like the start. I was like, oh, esports is ascending right now.
MA: Oh, man, a teenager's dream. SonicFox, by the way, is not a teenager anymore. They're now 26 years old and one of the most successful gamers in the world. They've made over $700,000 from the esports tournament earnings alone.
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MA: This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma.
CARRERAS: And I'm Angel Carreras. This week at THE INDICATOR, we have a whole series dedicated to the economics of the video game industry. Today, pro gamers game competitively, AKA esports. A few years ago, this thing was growing, but it's since slowed down. Is this a market correction, a bubble bursting or just a temporary slump?
MA: We go two-player mode on this after the break.
According to the video game news site Kotaku, the earliest known esports competition was in 1972. A group of Stanford students competed against each other in a game called Spacewar! And the grand prize - a year's subscription to Rolling Stone magazine.
CARRERAS: How times have changed.
MA: Yeah. I'm not sure how popular that prize would be nowadays. But anyway, the next wave of esports went to arcade game competitions and e-cafes. Cecilia D'Anastasio is a gamer and reports on the industry for Bloomberg News. And she says, picture this.
CECILIA D'ANASTASIO: A bunch of guys in their basements lugging over their huge, like, 2000s-era computer towers, a bunch of cables and setting up LAN parties and competing that way. And when people got good enough, they would begin assembling at local venues and then national venues to compete at a variety of games like Quake.
CARRERAS: Cecilia says from there that growth in esports and gaming generally just took off.
D'ANASTASIO: Everybody plays video games, from a grandma playing Candy Crush to a 17-year-old playing Fortnite or Minecraft. So it would follow logically that a lot of people would want to watch other people play games they love at the highest level possible.
MA: But to be an esports star takes dedication to get and stay at the highest level possible. SonicFox, for instance, says their days are long and busy.
MCLEAN: Like, wake up, eat, play Mortal Kombat, study, stream a little bit, maybe even do a workout, and then chat for, like, the next six to seven hours, and rinse and repeat.
MA: And you know what? It's worth mentioning here that being a competitive gamer isn't just about playing the games. It's studying movesets and fighting animations. It's viewing other players' matches, interacting with other gamers, fans, content creation. This is not just a hobby - right? - it's an entire lifestyle.
CARRERAS: OK, so, rising skill levels, eminently likable gaming personalities like SonicFox, that attracts big names, big money, many eyeballs.
MA: Exactly. And with all this, the industry grew and grew and then skyrocketed around 2016.
CARRERAS: And investors were paying attention.
MA: Oh, yeah, they were. So get this. According to a report by the consulting firm Deloitte, in the year 2018, investors pumped $4.5 billion into esports. That is more than 10 times the amount from the previous year.
CARRERAS: That is quite the jump.
MA: Absolutely. And Cecilia says, you know, investors thought that esports could be the next NBA or the next NFL.
CARRERAS: And for a time, it kind of was. Franchising started to happen with the gaming publishers that make some of the industry's biggest games, like Activision and Riot Games. They established city-based esports leagues centered around their games, a Call of Duty League, an Overwatch League and so on. Viewership of some of these leagues reached over 1.3 million unique viewers for some events.
MA: And on top of that, Activision and Riot Games also charged these leagues a franchise fee for competing with their games. And those fees were expensive. Leagues were paying fees as high as $20-odd million.
CARRERAS: Oh, baby, money was a-flowing. Arenas were getting built up solely for the purpose of playing esports in them, and players were getting paid - some in the hundreds of thousands of dollars.
MA: Yeah. And even celebrities, names like Drake and Steph Curry got involved with the business. Cecilia says ecosystems have grown to support all this.
D'ANASTASIO: There are professional masseuses. There are professional makeup artists who deal with esports stars. It's, in a lot of ways, been created in the shadow of the sports industry, and I think a lot of people would argue at this point that that's been one of the esports industry's greatest downfalls.
CARRERAS: Cecilia says investors expected esports to generate the same revenue as traditional sports leagues.
D'ANASTASIO: What we've seen since then is that, unfortunately, esports is very expensive to run like professional sports. And there just wasn't the same business model that could support operations at this international level.
MA: Yeah. 'Cause think about it. The NFL, the NBA, they have broadcast rights and tickets and sponsorship, all driving revenue. For esports on the other hand, it's still pretty young, and tickets to events are cheaper. And also, sponsorship hasn't been reliable or consistent. And this is a problem because sponsorship is a huge source of income for esports leagues, about 60 to 70% by some estimates. Jason Chung is director of the Esports and Gaming Initiative at NYU.
JASON CHUNG: Ultimately, what was really fueling everything was this combination of hype and the opportunity on the part of investors to probably make a quick buck here, right? The thinking was, if there was enough runway and enough fandom to really, you know, gravitate towards this new sort of category of sport, they thought they could actually grow the asset value of the teams and then make a killing off of it.
CARRERAS: Jason says investors just expected a faster return on their investment, and that didn't happen. Sure, there was a huge bump in gaming viewership during COVID, but that didn't translate to lucrative broadcast deals. Esports fans were happy watching on Twitch and YouTube for free. And, you know, maybe merch sales. Cecilia says, don't count on it.
D'ANASTASIO: The average esports enthusiast will spend $5.30 on their esports fandom every year. That's it. Money's tight for a lot of people, and esports is just not high on their list of stuff to spend on.
CARRERAS: Many investors pulled out. Advertisers went directly to gaming influencers, and now, we're in this corrective period.
MA: There's also been a brutal wave of layoffs at companies since late last year, and still going into early this year.
CARRERAS: Yeah. But, you know, some light is shining through. I mean, some investors are bullish and in this for the long haul. Advertisers are cautiously returning. Viewership numbers, they're still high. Game publishers like Activision and Riot Games, they're devising schemes to share their profits with the esport leagues. I guess they want them to stick around.
MA: And for another notable sign that esports might not be going away just yet, get this - the Saudi sovereign wealth fund is planning to spend some $40 billion to try and make the country an esports and gaming hub, though this has been controversial among gamers because of Saudi Arabia's record on human rights.
CARRERAS: You know, regardless of the money that comes in and out of esports, people are still going to gather to play games. I mean, whether it's in a stadium with thousands cheering them on or, you know, huddled up in front of a small monitor in a very tiny dorm room.
MA: Or, in your case, playing online and getting crushed by 8-year-olds.
CARRERAS: I will find them, and I will beat them, Adrian.
This episode was produced and fact-checked by Corey Bridges with engineering by Josh Newell. Kate Concannon edits the show, and THE INDICATOR is a production of NPR. Tomorrow, as we continue our week-long series in the gaming industry, we're going to talk about crunch, AKA the brutal hours workers in the gaming industry deal with as they get ready for a launch. Is it unavoidable or signs of a toxic workplace?
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