As has been widely documented, these are go-go days for video game equities and the related exchange-traded funds, many of which are also levered to the burgeoning esports industry.
What To Know: Up 60% year to date, the Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSE:NERD) represents a best of both worlds approach to these high-flying segments.
As is the case with rival funds in the category, NERD is more than adequately levered to the stay-at-home theme that is boosting sales of video game software and the ETF stands to benefit as the hardware upgrade cycle emerges in advance of the 2020 holiday shopping season.
Why It's Important: However, NERD, more so than many of its rivals, offers investors more esports purity and data confirm that's an enviable trait.
“According to its predictions, eSports sponsorship deals will generate at least $636.9 million in 2020,” notes SafeBettingSites.com. “This would mark a Compound Annual Growth Rate (CAGR) of 16.6% and make commercial partnerships the top revenue source for competitive gaming globally.”
The total esports revenue ecosystem will exceed $1 billion this year, but sponsorship rights are the primary driver. At nearly $640 million this year, sponsorship rights will drive more than triple the amount of turnover of media rights at $185.4 million.
The top sources of esports revenue are the aforementioned sponsorship rights, media rights, merchandise and ticket sales, game publisher fees, digital and streaming. Digital is the fastest-growing member of that group.
“It is interesting to note, however, that digital revenues represent the industry’s fastest growing revenue stream. Expected to generate $21.5 million in 2020, the digital revenue is growing at an astounding CAGR of 72.4%,” according to SafeBettingSites.com.
What's Next: As an industry, esports is attracting some big-name companies as sponsors. For example, Dow components Intel (NASDAQ:INTC) and Nike (NYSE:NKE) plunked down a combined $244 million on sponsorship rights.
That figure is impressive because, in 2014, combined spending on esports was just $194 million, meaning it's increased more than fivefold in six years.
Adding to the long-term allure of an ETF like NERD is that the aforementioned revenue forecasts don't mention betting, which is widely viewed as a new frontier for esports revenue.
With states scrambling to find new sources of revenue in the face of COVID-19, expect some where sports betting is already legal to at least entertain the idea of adding esports to the roster of offerings available to bettors.