Calling it like it is, video game publisher Electronic Arts Inc. (NASDAQ:EA) was seemingly slower to wade all the way into eSports waters than rivals like Activision Blizzard, Inc. (NASDAQ:ATVI), Take-Two Interactive Software, Inc (NASDAQ:TTWO) and Tencent Holdings Ltd (OTCMKTS:TCTZF).
Whereas those other game makers offer fantasy and fictional game play that couldn’t be witnessed any other way, EA — perhaps best known for its sports games — was largely competing with actual sports for viewers.
There’s been a subtle but not insignificant shift in that paradigm, though, that current and potential owners of EA stock may want to take note of. That is, 2018 could be something of a breakout year for Electronic Arts’ eSports efforts, just judging from the partners that are finally working with the video game giant.
The eSports Opportunity
Yes, eSports — professional video gaming. While it seemed laughable several years ago, the next few years will likely usher in its mainstreaming.
The dollars involved certainly say so anyway. A recent PwC Global Entertainment & Media analysis reckons that the business of eSports (sponsorships, media rights, streaming advertising and ticket sales) reached $620 million last year and should reach $1.6 billion by 2022.
And, these figures arguably underestimate the true value of the industry and the positive impact it may create for ATVI and EA stock and their peers. Just like actual sports, fans will spend money on merchandise, including buying a video game in an effort to become the next eSports star.
Professional players, gamers, are getting paid well, too. Some of the top earners pocket more than a million dollars per year.
An Evolution
The advent of eSports has been a tricky one for Electronic Arts, though. While its BattleField series has been the basis for gaming tournaments, those tournaments were arranged without EA’s involvement. Ditto for its popular Madden football lineup and its FIFA soccer games.
The company turned up the heat in late 2015, though, officially forming the EA Competitive Gaming Division that’s still pushing its way deeper into the market.
Problem: Why watch pretend sports when you can watch actual sports?
The company recognized this was a hurdle as far back as 2016, and addressed it in seemingly nuanced ways that’s only now starting to be fully appreciated. One of them was the development of games that actually lent themselves to professional gaming (which its games hadn’t up until that point).
Case in point: EA’s “Ultimate” team mode lets players custom assemble a football or soccer team roster. It’s still not the real thing, but it’s a whole lot more like the real thing.
Another nicety that Electronic Arts has cultivated is the idea that any player is able to take a shot at winning a tournaments, rather than limiting access to pre-determined (albeit proven) gamers. It’s working, too.
Fast forward to right now.
Believers on Board
If there is a “You have arrived” milestone on the eSports road, Electronic Arts just passed it.
The evidence? Though EA has always had a good relationship with Major League Soccer and FIFA, that relationship was limited to use of the FIFA logo and names. Both parties were content to let the other do its own thing.
Not anymore, though. In February, MLS announced it was developing its own video game tournament ultimately as a means of cultivating video gamers as fans of the real sport as well.
Blurring those lines is a win for both sides.
Meanwhile, though some video game league play and tournaments have made their way onto the lesser-watched channels on the small screen, Electronic Arts’ Madden series is being thrust into the spotlight. Early this year, Walt Disney Co (NYSE:DIS) confirmed that the Madden NFL 18 Championship Series would be aired on ESPN, with support from the NFL itself.
The Coca-Cola Co (NYSE:KO) is even getting in on the act, co-sponsoring a FIFA tournament in Russia being called the Russian Interactive Football Cup that will serve as a qualifier for the FIFA eWorld Cup 2018.
It’s the kind of support Electronic Arts, not to mention the eSports industry as a whole, has been waiting for. EA is arguably best positioned, though, as professional sports leagues wield incredible influence. The melding of real sports and eSports is a great way to connect with younger fans that have been largely losing interest in the real thing.
Bottom Line for EA Stock
As for the measureable upside of eSports and the impact it may have on the value of EA stock, it’s still difficult to say. As much as is now known about the visibility and marketability of eSports, there’s still more that we don’t know.
That could change soon. In April, Activision hired Nielsen Holdings PLC (NYSE:NLSN) — as in Nielsen TV ratings — to gauge the fiscal benefit of eSports events. It was the next natural evolution of the industry. Other publishers may follow suit, or maybe they’ll just “borrow” what Activision learns.
Whatever the case, the findings of Nielsen’s digging and a better understanding of the business of professional gaming in the future will likely reveal that the video game industry has undervalued the impact gaming events have.
Electronic Arts’ findings should be especially interesting, in that it’s melding its lineup with actual professional sports. That could be a surprisingly powerful team-up that EA stock holders will want to keep in mind.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
