How Europe’s Tech Hubs are Pushing Esports to the Next Level

Europe’s technology hubs play a pivotal role in expanding the market for esports and associated start-ups and scaleups. However, challenges still exist, as the continent is playing catchup to developments in other markets.

Just outside Amsterdam in the Netherlands, the H2O esports complex recently opened its doors. Its 10,000 square metres include the Rabo Esports Stadium multipurpose arena, esports Gaming Club, and VR esports. Workspaces, desks, and dedicated office areas for esport and gaming-related start-ups and scaleups are also found on the premises.

“The facility is the biggest of its kind in Western Europe, and we are already getting close to full capacity for start-ups. Many of them have been searching for a space like this for a while. Here, they can leverage a community of likeminded entrepreneurs and direct contact with the esports community to accelerate product development and deployment,” Dirk Tuip, co-founder of H2O, says.

H2O is an example of how European tech hubs, like those profiled in the recent editions of BDO’s International Tech Hubs publications, are accelerating growth in a globally booming sector.

The German Esports Market

Germany is one of the most important markets worldwide for computer and video games; it is also Europe’s largest esports market. The country is home to 343 gaming start-ups and ESL One Tournaments, one of the world’s most important organisers of esport tournaments, is headquartered in Cologne.

By 2023, Germany’s market for esports is projected to reach just below €200 million, equal to an annual growth rate of 21 per cent. Sponsorships, events, and advertising are the three main growth drivers. Another growth factor is many traditional sports organisations, particularly in the football Bundesliga, creating esports teams and affiliates.

With around 140 gaming companies, Berlin is the capital of games in Germany. From start-ups to international players and many medium-sized tech businesses in between, the city offers developers the chance to work on some of the world’s most innovative projects.

Esports’ Market and M&A Growth

In 2019, the global gaming market was valued at $152 billion, cementing its place as one of the world’s leading media spaces. Revenue from game franchises like the Call of Duty series now beats box office revenue for Marvel movies. In Q2 2020 alone, gaming fans watching a staggering 5.07 billion hours of mostly gaming content on Twitch. For reference, that equals well beyond half a million years.

Esports, also sometimes referred to as competitive gaming, has, in part due to streaming services like Twitch and YouTube, seen explosive growth. In 2012, viewership was around 134 million unique individuals. By 2018, that had tripled to 395 million and is forecast to reach more than 600 million by 2022.

Europe shows similar growth. Video games and esports market research firm Newzoo predicts that the European esports audience will reach 92 million by the end of 2020, a 7.4% increase from 2019.

M&A activity in the gaming and esports space has also been increasing. Several large deals involving European companies were completed during 2020, including Take Two’s acquisition of Codemasters for almost $1 billion and Platinum Fortune’s purchase of Jagex for $530 million. 

The UK Esports Market

The UK’s computer game industry generates more than a billion pounds of revenue every year. A BBC report puts the estimate at £1.57 billion. Revenue in the video games industry has been growing at a compound annual rate of 7.7% over the five years through 2019-20.

According to the British Esports Association, the United Kingdom has lagged behind other countries in esports, despite it being the fifth biggest consumer market for games.

Part of the reason has been a slower uptake in sponsorship and influx of funds, including from the UK Government. In both instances, that is gradually changing. Large-scale events, such as the 2020 UEFA EURO esports competition at Wembley Stadium (was held online due to COVID) has helped.

Furthermore, the emergence of successful esports teams and games from especially London has stoked interest and created a blossoming scene in the country’s capital.

Diverse, Growing Market

Misconceptions surround much of gaming. Esports is no different. One issue concerns viewers who, according to a Newzoo survey, are more mature and diverse than casual observers may think. Approximately 33% of respondents aged 18–20 watch esports several times a month, while those 21–25 were “most likely” to be frequent viewers.

37% of men in Europe are likely to be esports enthusiasts, compared to 27% of women. However, the number of women participating in, watching, and making purchases related to esports is growing rapidly. Furthermore, 48% of women identifying as esports fans said they had spent money on esports-related products in the past 12 months, compared to 46% of men.

Companies across many industries are increasingly involved in esports. Ferrari provides a good example. The venerable car manufacturer is set to launch an esports championship where the winner will have the opportunity to join Ferrari’s official FDA Hublot Esports team in 2021. The move is closely linked with COVID’s impact on the racing calendar and rise in popularity of sim racing games. Ferrari’s F1 driver Charles Leclerc emerged as one of the stars of the action.

The French esports market

A Newzoo report found that France is home to 32.8 million game players who spent $3.1 billion in 2018, making the country the world’s seventh-largest games market. On the production side, powerhouses like Ubisoft and Gameloft are driving forces.

For esports, part of the growth comes from teams in ‘classic’ sports, such as football, partnering with esports players and franchises. A prime example is Paris Saint-Germain’s Dota 2 team, which has finished second in the Dota 2 world championships.

France has been an early mover in implementing regulation for competitive gaming, to provide better protection and a clear legal framework for professional players, esports organisations, and tournament organisers.

On the deal-side, we have seen some movement and interest from media, including French TV network M6, a subsidiary of RTL Group, taking a minority stake in Glory4Gamers.

Partnerships across Europe

Renault is another car manufacturer looking to expand its esports presence through collaboration with Team Vitality and a new training facility in Paris.

Many other examples of similar collaborations and new sponsorship deals are happening throughout Europe. Team Liquid, which was founded in The Netherlands, has extended its partnership with Marvel. In the UK, Manchester City-star Sergio Aguero has launched an esports organisation. The European Golf Tour is following up its inaugural eTour Championship with a continent-spanning competition with winners getting a trip to play alongside the tour’s pros. Other examples include Ireland’s inaugural e-Sailing Championship.

Partnerships between clubs and players across all sports on the one hand and esports teams and professionals on the other are racing ahead. It is one of the driving factors behind 2019’s $1.95 billion invested in esports. We are also starting to see esports IPOs, like Guild Esports’ £41.2 million listing on the London Stock Exchange.

Legislation is also developing. A prime example comes from Germany which has introduced new dedicated esports visas that accommodates esports athletes from outside of the European Union.

The Dutch esports market

The Netherlands has a long history with esports seeing the early rise of teams such as Team Liquid, who earlier this year opened a new facility. Amsterdam is the central nexus for the country’s gaming scene. 

Gaming has a broad appeal, and many entities are looking at the space with interest. One example is the Dutch Department of Defence’s CS:GO team – which admittedly got off to a rocky start in its early competitive outings. One of the popular leagues is the eDivisie, an esports version of the country’s premier football division. Popular esports titles include FIFA, League of Legends, Call of Duty and Counterstrike.

The interest in esports extends beyond advertisement and team-sponsoring to early signs of M&A and broader investments. The latter includes the likes of Rabobank, who has co-sponsored the H2O complex.

Immature Areas to Overcome

While the ongoing activity is impressive, much remains to be done.

“Based on what I have seen during my travels to North America and Asia, I would say that the European market for esports is behind. From an investment perspective, that does create opportunities, and the scene has a lot of potential. However, there are areas where companies and organisations are still relatively immature,” Dirk Tuip says.

One area is adapting to increased regulatory demands. Esports’ global nature means that teams and start-ups not prepared for meeting those demands can find it harder to create sustainable growth. Changes to regulations are also going to affect financial and tax aspects, led by initiatives like the one launched by German tax authorities of 2018 to examine the sector. In the United States and other countries, tax authorities are also becoming increasingly vigilant to ensure the sector’s rising sales figures match the respective tax obligations.

It brings financial matters and operations into focus, and many esports entities will likely find that they are not equipped to deal with this on their own. Terms like ‘withholding tax’ and ‘protection of intellectual property’ are two areas where they may need assistance.

BDO works with companies throughout the esports space providing a range of financial, tax and business advisory services, such as securing funding or M&A. Contact us to hear more about how BDO can help take your company to the next level.

The Irish esports market

Ireland has been described as a sleeping esports giant. That is changing. The country recently saw the launch of a not-for-profit national body established to promote esports in Ireland with a focus on education and stakeholder support,

Established sports franchises are also investing in the space. For example, Munster Rugby how have followed in the footsteps of many commercial US and UK sports clubs by signing a partnership bringing Ireland’s top League of Legends team under its banner to compete as Munster Rugby Gaming.

With a fanbase that largely consists of the valuable, hard-to-reach 18-24-year-old audience, advertisers are starting to increase their presence in the space.

However, there is still much work left to be done for the esports scene in Ireland, which still suffers from a lack of exposure and little investment.