Esports, or competitive video gaming, have exploded in popularity in recent years. What was once a niche hobby has now become a multi-billion dollar industry with billions of players and fans worldwide.
In this article, we’ll explore the best way to invest in the esports industry and how you can gain exposure to this growing asset class.
What are esports?
Esports, short for electronic sports, refers to competitive video gaming where players or teams compete against each other in various video games, often in organised tournaments or leagues with a set of rules and prize money involved.
Esports tournaments draw in massive audiences, with some events even selling out entire stadiums – for example, New York’s iconic 18,000+ capacity Madison Square Garden. Popular esports games such as FIFA, League of Legends and Fortnite have world championship events broadcasted to millions of people worldwide, fuelled by online communities and streaming platforms such as Twitch.
The video gaming industry has become the largest category in the entertainment industry, generating more revenue than the film or music industry. There are now approximately 3 billion gamers globally according to video games data provider Newzoo.
How can I invest in esports?
As technology continues to advance and gaming becomes even more accessible, it’s clear that esports is here to stay. So, how can investors participate?
Some of the world’s leading video games and esports companies are listed on international share markets. Investors can buy shares in these companies which include Roblox, Nintendo, and Electronic Arts.
As most of these companies are not listed on the ASX, it can be complicated to gain direct exposure to these international shares. However, exchange traded funds (ETFs) are an easy and convenient way for Australian investors to gain exposure to the esports and gaming industry via one simple trade.
What is the best esports ETF on the ASX?
Each year we compare all of the 300-plus ETFs in our Stockspot ETF Report. Here we road-test the best esports ETFs listed on the ASX:
- VanEck Video Gaming and Esports ETF (ESPO)
- Betashares Video Games and Esports ETF (GAME)
ESPO is the largest esports ETF on the ASX with $70 million in funds under management (FUM). ESPO was launched in September 2020. GAME was launched 18 months later in February 2022. Both ETFs have struggled to gain much investor traction over the last 12 months, as $10 million was withdrawn from ESPO, while GAME only saw $1 million of net inflows.
Costs and slippage
ESPO is slightly cheaper, charging 0.55% per year while GAME charges 0.57% per year. ESPO has tighter spreads of 0.24%, half the amount of GAME at 0.41%.
|TICKER CODE||COST (INDIRECT COST RATIO)||BUY/SELL SPREADS (SLIPPAGE)|
Liquidity is important as it helps gauge your ability to get into and out of an investment product. Both esports ETFs have relatively limited trading compared to most Australian and global share ETFs, due to their niche nature. In February 2023, ESPO traded around $246,000 daily, while GAME only traded $12,000 daily.
Returns and track record
ESPO has lost investors almost 15% over the past year. GAME fell -20% during the same period. While ESPO had a terrific 2020 and 2021 period, our research has shown that thematic ETFs, such as esports, are generally outperformed by a broad market index over the long-term.
|Ticker Code||ETF Name||1 Year Return||3 Year Return||5 Year Return|
|ESPO||VanEck Video Gaming and Esports ETF||-14.9%||N/A||N/A|
|GAME||Betashares Video Games and Esports ETF||-19.8%||N/A||N/A|
ESPO and GAME track different underlying indices. ESPO’s index has been around for longer but is more concentrated in terms of holdings. Over a three-year period, ESPO’s underlying index has outperformed GAME.
|Ticker Code||Index Name||ETF Inception Date||Index Inception Date||Dividend frequency||Number of holdings||Index 3 Year Return|
|ESPO||MVIS Global Video Gaming & Esports Index||8 September 2020||16 July 2018||Annual||34||7.43%|
|GAME||Nasdaq CTA Global Video Games & Esports Index||7 February 2022||9 November 2021||Annual||51||-1.38%|
Exposure and holdings
ESPO includes companies involved in video game development, esports and related hardware/software companies. It only selects the largest and most liquid companies that have at least 50% of revenue generated from video gaming and/or esports.
ESPO weights companies by size and caps each individual holding at a maximum of 8%. ESPO has a greater weighting to technology and consumer cyclical companies, particularly those involved in entertainment and semiconductors. ESPO has greater exposure to the U.S. and includes Australia.
GAME has a similar objective where only companies that derive at least 50% of revenue from video games and esports are eligible for selection, based on classification by the Consumer Technology Association (CTA). While it also caps the maximum holding at 8%, it places a greater focus on the esports revenue generated by companies to decide which stocks get the biggest weighting (called theme-adjusted market capitalisation).
GAME breaks companies into sectors of developers, publishers, esports, hardware, consoles, digital, sports media, mobile, PC, and augmented & virtual reality (AR/VR). The ETF has an investment committee that inputs qualitative data to help determine input on the universe which can add some individual bias. GAME does not allocate to Australian companies and has greater exposure to Japan, Asia and Europe. It has a smaller cap focussed with more diverse holdings and a greater focus on the communications sector.
|Top 10 Holdings||ESPO||GAME|
|1||Nvidia (11.1%)||Tencent (9.6%)|
|2||Tencent (8.8%)||Roblox (9.0%)|
|3||Advanced Micro Devices (7.5%)||NetEase (8.7%)|
|4||Activision Blizzard (6.2%)||Take-Two Interactive Software (8.6%)|
|5||NetEase (5.5%)||Nintendo (6.8%)|
|6||Nintendo (5.2%)||Electronic Arts (6.6%)|
|7||Roblox (5.1%)||Sea Ltd (5.1%)|
|8||Take-Two Interactive Software (4.7%)||Nexon (4.4%)|
|9||Electronic Arts (4.6%)||Bandai Namco (4.0%)|
|10||Aristocrat Leisure (4.6%)||NCsoft (3.5%)|
|Weighting in top 10||63.1%||66.3%|
Verdict and conclusion – is ESPO or GAME worth investing in?
Both ESPO and GAME provide exposure to companies involved in the esports industry. However, both ETFs have a relatively short track record and their underlying indices also lack a substantial time period of performance.
Investors can choose to invest in a broader technology ETF that has a small exposure to esports such as the BetaShares NASDAQ 100 ETF (NDQ) which we offer as a theme to Stockspot clients and has a 5% allocation to esports related companies.
Investors may notice common names such as Microsoft (developer of the Xbox), Sony (developer of the PlayStation) and Amazon (which owns streaming platform Twitch) are excluded from both ETFs, even though they seem to be related to video gaming and esports.
GAME does not own NVIDIA or Activision Blizzard, but ESPO does not own NetEase Games or SEGA. This is where index methodology and looking under the hood of the ETFs come into play to determine revenue thresholds and align with your own definition of the esports theme.
If you’re interested in exploring investing in esports, we’d suggest only allocating a small percentage of your portfolio to thematic ETFs and for the bulk of the portfolio to be invested in low-cost index fund ETFs like the Stockspot Model Portfolios for broader exposure to other sectors of the economy.