Although Esports has been around for years, it’s only recently that people have been interested in investing in esports. If you’d like to capitalize on the increase in esports, we have two good ways for you to do it. But first, let’s back up and look at what esports actually are.
Why invest in Esports?
Technically speaking, the very first esports contest took place in 1972 when two dozen students at Stanford University competed in a tournament for the game Spacewar. Put on as a media stunt by a journalist, the winner received a year’s subscription to Rolling Stone as a prize.
It wasn’t called “esports” at the time, but that humble tournament has since grown into a massive industry. In 2020 the esports market was valued at $947 million, and it’s poised to grow fast — up to $1.618 billion by 2024, according to one estimate. That’s a 71% increase in just four years, if things pan out. Even colleges and universities are getting in on the action now, with 175 new college esports teams as of May 2021.
While the majority of Americans get together every February for Super Bowl Sunday, it’s not too much of a stretch that within a few years we’ll all be getting together to watch Counter-Strike tournaments, Rocket League rallies or hosting Fortnite Friday parties.
With all of this explosive growth happening, there’s money to be made. But to actually make money through investing, you have to do it the smart way.
How to Invest in Esports
When it comes to sports, the first thing that comes to mind is probably sports betting. And you can certainly do that, but it’s just that — gambling, and not investing. Here are Good Financial Cents, we like to use a little more sense in our money strategy.
Instead, there are actually a couple of ways you can invest — really invest — in esports. The strategy mostly involves investing in companies or funds that directly support esports. So you’re not necessarily investing in the tournaments or the teams yourself, but rather the companies that make those tournaments possible.
When you view it this way, suddenly your investment strategy looks a lot broader than just esports. It’s egaming as a whole, including non-esport people. If you’ve got an Xbox, you’re an egamer, too, after all. And this industry is even larger than esports itself: in 2020, the video gaming industry was valued at $175 billion.
Here’s how you can get a slice of that for yourself.
If you’re interested in investing in esports it’s probably fair to say you’re a gaming nerd yourself, but that doesn’t necessarily mean you know the ins and outs of all the companies involved. If you’d rather just play the games and earn money passively rather than actively combing through company investor reports, Exchange-Traded Funds (ETFs) might be your best option.
Bonus points: since you’re invested across so many different companies with ETFs, it’s a safer way to go. You’re invested more across the whole esports sector rather than just one company. If one company tanks, you’re still generally OK, unlike if you invest directly in a single business.
Right now there are three main esports ETFs, but keep an eye on the market as more options are likely to pop up as esports continue to grow.
Launched in 2019 by Roundhill Investments, NERD is composed of 35 companies broadly involved in gaming, such as video game producers, hardware manufacturers, streaming services, and holding companies that themselves invest in a wide range of esports-related businesses. The top five holdings include:
- Activision Blizzard (ATVI) – 5%
- Corsair Gaming (CSRS) – 5%
- Modern Times Group (MTGB SS) – 5%
- Tencent Holdings Ltd (700 HK) – 5%
- AfreecaTV Co Ltd (067160 KS) – 4%
NERD carries an expense ratio of 0.50%, with a market price of $31.87 per share (as of May 8, 2021). NERD’s performance history is quite impressive: an annual 127% increase. It’s available to buy on many platforms you’re probably already familiar with, including Robinhood, TD Ameritrade, Etrade, and Fidelity.
HERO was also launched in 2019 by Global X and is composed of 39 companies, many of them the same as NERD. The top five holdings include:
- Nvidia (NVDA) – 7%
- Sea Ltd (SE) – 7%
- NetEase (NTES) – 6%
- Activision Blizzard (ATVI) – 6%
- Electronic Arts (EA) – 6%
HERO’s expense ratio is also 0.50%, with a share price of $31.35 as of May 8, 2021. It has a slightly smaller average annual return than NERD, but still manages an impressive 92% increase. You can also buy HERO on many common platforms, such as Robinhood or Fidelity.
ESPO is just about the oldest esports ETF, having launched in 2018 by VanEck. It’s composed of 25 different companies, a smaller amount than NERD or HERO. Here are the top five holdings:
- Nvidia (NVDA) – 9%
- Tencent Holdings Ltd (700 HK) – 7%
- Sea Ltd (SEA) – 7%
- Advanced Micro Devices (AMD) – 7%
- Nintendo (7974 JP) – 6%
ESPO is slightly more expensive than the other two options, with an expense ratio of 0.55%. Shares are also slightly more expensive, at $69.02 as of May 8, 2021. It also earned an average annual return of 70%. ESPO is also available through brokers like M1 Finance and Stash.
If you’re the true nerd of nerds and you know the companies that make esports possible just as much as the gaming itself, you might consider investing directly with them rather than a middleman.
Choosing which stocks to invest in is a bit beyond the scope of this article. But if you’re interested, here are some quick details on some of the top esports companies to pique your interest. All information is current as of May 8, 2021:
|Ticker||Company||PE Ratio||Share price||52-week change|
The Bottom Line
The esports industry holds a lot of promise for rapid growth. Of course you’d want to cash in on that, and if you’re interested, you should. But it’s also important to remember to keep things in balance, and keep esports to just a portion of your total portfolio.
It’d be cool to say you funded your retirement by investing mostly in esports, but you’re also taking a big risk if you do that. Any new industry that’s poised for rapid growth can also experience rapid failure, too (remember Beanie Babies and pogs?).
Instead, we recommend just dabbling in it for funsies with an amount of cash that you can afford to lose. If you’re serious about it and you’d like to make it a bigger portion of your portfolio, we recommend seeking out a fee-only financial advisor.
Even if you’re confident in what you’re doing, it’s helpful to get a second opinion. After all, esports are best played as a team, and so should your financial strategy.