[Column] Essential and Sufficient Conditions for Becoming a Global Leader in the Esports Industry

Hyuncheol Kim, Senior Advisor at the International Esports Promotion Institute
Global Esports Market Grows Rapidly,
But Domestic Industry Faces Structural Challenges
Revenue Distribution and Technology Innovation
Are Key to Securing Korea's Leadership

Dr. Hyuncheol Kim (Senior Advisor, International eSports Promotion Agency)

According to the market research firm Newzoo, the global gaming market was valued at $183.9 billion (approximately KRW 247 trillion) in 2023 and is expected to grow to $207 billion (approximately KRW 278 trillion) by 2026. Additionally, more than 1.1 billion people worldwide, primarily in East Asian regions such as Korea, China, and Japan, enjoy online games. The Middle East and Africa are also identified as regions with growth potential due to an increasing number of users.

The domestic gaming market showed steady growth with an average annual rate of 16.0% from 2015 to 2019. Although growth temporarily slowed due to COVID-19, the "2023 Korea Game White Paper (Korea Creative Content Agency)" indicates that the market reached KRW 22.2149 trillion in 2022, a 5.8% increase from KRW 20.9913 trillion in 2021.

The global e-sports market was valued at $4.3 billion (approximately KRW 5.7 trillion) last year and is projected to reach $5.7 billion (approximately KRW 7.6 trillion) by 2028, with a compound annual growth rate (CAGR) of 7.1%. The domestic e-sports market is also expected to grow from approximately $297 million (approximately KRW 400 billion) in 2024 to $388 million (approximately KRW 500 billion) in 2028, with a CAGR of 6.95%, according to the market research firm Statista.

Despite this growth, the domestic e-sports industry is far from rosy. There is a high dependence on volatile revenue sources such as sponsorships and advertising, and there are structural issues where the popularity of games, players, and teams does not translate into company revenue and growth. For the industry to grow, the scale of returns proportional to investment must increase, but profits are actually declining.

The largest portion of the domestic e-sports industry is accounted for by team budgets. These budgets include corporate sponsorships, player salaries, and team infrastructure. In 2022, team budgets amounted to KRW 96.3 billion, representing 63% of the entire industry, while sponsorships and advertising expenditures were KRW 9.4 billion, a 32% decrease from KRW 13.9 billion in 2021.

Sponsorships always carry the risk of being withdrawn if a team performs poorly or loses its fan base. In fact, after a controversy over a posting supporting China's sovereignty and territorial integrity, several companies withdrew their sponsorships from Gen.G.

Player salaries, which make up the majority of team budgets, are also an issue. Although there is a bubble in e-sports player salaries, the total salary of the top five players on each LCK team increased by 71% in just two years. This is partly due to the natural rise in salaries as the e-sports market grows, but also due to strategies to attract fandom by recruiting popular star players.

Low profits relative to revenue are another problem. In 2021, game companies and others invested KRW 83.9 billion in broadcasting, tournaments, player, and team operations, but profits amounted to only KRW 32.9 billion, or 39% of the investment. In 2022, investments fell by more than KRW 10 billion to KRW 70.3 billion, while profits were just KRW 19.9 billion, or 28.3% of the investment.

Although the e-sports industry is clearly growing, the issue of returns on investment is structurally very different from other sports industries. No matter how much the e-sports industry grows, if team operations continue to run at a deficit, the industry will shrink. To overcome this, the revenue distribution structure in e-sports must first be improved. In e-sports, the game company providing the game owns all IP (intellectual property rights), which poses a significant limitation on expanding derivative products and services.

Riot Games' new revenue model, which allows teams to pay an entry fee to join the league and then receive a share of 50% of league-generated revenue, including a portion of game sales through digital content-based income, is being positively received by teams that have felt burdened by team budgets.

To enhance the global competitiveness of the domestic gaming and e-sports industries, attention and investment in technology must be prioritized. Game companies also need to actively respond to trends and technological changes. The emergence of streaming platforms utilizing cloud technology has made it easier to watch and participate in e-sports matches, while technologies such as virtual reality (VR) and augmented reality (AR) are providing even more immersive e-sports experiences and enjoyment.

The use of artificial intelligence (AI) for match analysis, player training, and strategy development is also providing a wider variety of stories and content. The advancement of mobile e-sports platforms will further enhance convenience and provide various ways to enjoy e-sports.

Technological innovation and advancement are creating growth opportunities and new leaders in the e-sports industry. Efforts to improve industry and revenue structures to stay ahead of competitors, as well as understanding and adapting to trends and technological changes, are the necessary and sufficient conditions for maintaining Korea's status as the home of e-sports and as a global leader in the industry.