Duncan Stewart – Deloitte – A response to SBC’s esports report analysis

Deloitte recently released its TMT 2016 predictions which included a fascinating and debatable section on esports, and its projected growth.

Duncan Stewart. Photo courtesy of CES.

Following an analysis of the report by SBC’s Sam Cooke, Deloitte Canada’s Director of Technology, Media and Telecommunications Research Duncan Stewart has responded to it with an explanation of their findings and the all important differences in the analytics of esports and traditional sports.

SBC: What is your take on the belief that it’s too early to be making predictions on esports based on current levels of revenue?

Duncan: My job at Deloitte is to make annual predictions on multiple topics across all of tech, media and telecom. Sometimes we write on things like US TV usage, a mature industry with extensive reliable data publicly available but we don’t always have that luxury.

Sometimes we feel we need to write about important topics (like esports) before they are well studied. That isn’t necessarily a barrier to accuracy: in 2010 I predicted that sales of ~10″ tablet devices with touch screens would be 10-12 million units for the year. The Apple iPad hadn’t even been announced yet, so we were sticking our necks out but we were vindicated when end sales for the year were 12.1 million units!

Equally, we sometimes need to write about industries when usage is high, but monetisation is low. Examples include messaging apps or things like YouTube. Although there were many more instant messages being sent than SMS text messages, the dollar value of those IMs was a small fraction of SMS revenues. That was an important point to make: billions of messages doesn’t necessarily translate directly into revenues or profits.

SBC: It’s a reasonable point of view that some sources seem to be overhyping their predictions on  the predicted growth of esports. To what do you attribute the differences between your estimates and others which forecast much larger and more immediate growth?

Duncan: We actually aren’t that far off consensus. With one exception, the analyst studies we have seen suggest that annual growth in eSports revenues are about 25-30% year over year. That is superb growth, and much higher than any traditional sport.

There is one US analyst who is forecasting over 90% compounded growth from 2014 to 2018, but we cannot find any data that corroborates those levels of growth. It could start happening tomorrow, but it doesn’t seem to be happening yet.

SBC: Can you detail for SBC readers the differences in terms of data and analytics available for esports as opposed to other more established sports such as football or basketball? Is this set to change in the near future?

Duncan: Great question! Traditional sports sometimes have their mysteries, but in general the level of transparency is very high.

Ticket prices and sales are published by individual clubs and league revenues are reported annually. Our friends at Forbes aggregate those and give us league numbers across multiple sports. TV deals are in the billions, and publicly announced by both the leagues and TV networks. The audience for traditional TV sports is measured to death, whilst merchandise sales and sponsorships are usually disclosed too.

When I want to look at revenues for American football for instance, as a very concentrated sport if I know the numbers for the NFL I have a really good sense of the overall sport, since the NFL makes up such a large part of it.

In contrast, there is no single dominant (80%+) league in eSports. We try to aggregate a whole group of leagues and events and tournaments…many of which don’t publish audited numbers. There is no real equivalent to TV networks at this time for esports, and even audience measurement is not the same. The Nielsen figures for who watches a football game may have some flaws, but the way we measure online eSports streams or views  is likely even less reliable.

You might say this lack of transparency cuts two ways: maybe esports revenue is smaller than some think, but couldn’t they also be larger? And the answer (of course) is yes…it is possible, but it isn’t probable.

In my experience, a lack of reliable published revenue numbers almost always indicates that revenues are smaller than thought. Think about sales of eReaders in the early days: nobody disclosed how big they were, and that was because they weren’t as big as hoped.

SBC: How telling do you think 2016 will be in terms of whether esports will become a major sport?

Duncan: A lot of people think it is too early to say that 2016 numbers are indicative. I know what they mean: football and baseball have been around for over a century, and esports has really only been around for a decade. On the other hand, it has been around for a while now…this isn’t year one or two.

So I am willing to be open minded. Esports could still have a growth surge and start growing at well over that 25-30% rate…that wouldn’t surprise me. That said, even at 50% growth, it would still be “only” a billion dollars in 2017 or 2018. Big, but still well short of things like basketball, baseball, or European football. The idea that esports will be “bigger” (in dollar terms) than any single traditional big league sport seems incredibly unlikely.

Don’t get me wrong…I want eSports to be bigger than anything. My kids aren’t athletically gifted, so if they are ever going to buy their Dad a Porsche with their tournament winnings, esports is my main hope! My eldest has won some online gaming tournaments already, so I’m keeping the parking spot open.