Market Overview

Riding The Esports Excellence With ESPO

Riding The Esports Excellence With ESPO

Video game and esports exchange-traded funds are getting plenty of love this year and rightfully, but software sales surging owing to coronavirus shelter-in-place directives, the esports in these funds is going overlooked.

What Happened: That should be a temporary condition because as the VanEck Vectors Video Gaming and eSports ETF (NASDAQ: ESPO) proves, the esports space is firing on all cylinders, putting this fund among the best thematic ETFs this year.

ESPO is higher by 57.64% year to date. Yes, semiconductor names and video game publishers are propelling that run, but so is esports growth.

“According to Newzoo, out of the $159 billion in revenue that the global video gaming industry is expected to generate in 2020, roughly $1.1 billion will be generated by esports,” said VanEck in a recent note. “In other words, the global video gaming industry should generate around 144 times the revenue of the global esports industry in 2020.”

Why It's Important: Proving that investors will allocate to the esports theme, ESPO is about two months shy of its second birthday and has $441.1 million in assets under management. Of that total, nearly $269 million has flowed into the fund just this year.

It's easy to conflate video game publishers and esports operators, but the truth these segments are intersecting and that intersection brings with it opportunities for investors.

“Over the past few years, video game publishers have invested millions of dollars in developing, launching and running professional esports leagues,” according to VanEck. “Previously, esports leagues were run by independent third parties separate from the publishers who make the games. We believe the end result of this development is that video game publishers are now primed to gain the most from the esports phenomenon.”

For ETFs and the underlying indexes, that intersection is important because the universe of publicly traded pure-play esports names is still small and many of the stocks that have that status don't yet qualify for entry to ETF benchmarks.

What's Next: Growth in esports betting, particularly in the U.S., and media revenue are two additional, long-term catalysts for funds such as ESPO.

“According to Goldman Sachs, media rights are expected to grow from representing around 20% of all esports revenues to 40% by 2022,” notes VanEck. “This means that, after factoring in other revenue sources like sponsorship and game publisher fees, video game publishers are in a position to potentially own the majority of revenues coming from esports.”


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