How to Invest in E-Sports

Video games are not just a pastime, but also a high-revenue industry. This moneyland.ch guide explains how to use stocks and ETFs to invest in this growing sector.

What are e-Sports?

The term e-sports is the abbreviated form of electronic sports. It refers to competitive play with computers and video games. There can be different disciplines, depending on the game, and matches between individuals and teams. E-sports are only officially recognized in a handful of countries, including China, France, and the US. In Switzerland, e-sports do not have an official designation.

What makes e-sports an interesting investment?

The e-sports market – like the video game sector as a whole – is growing enormously. According to predictions, global e-sports revenues will quadruple by 2032. Those who invest in this relatively young market early on may potentially participate in strong future growth. As with any market, predictions about future developments should be taken with caution.

International e-sports tournaments are followed by millions of viewers. League of Legends, the game that enjoys the greatest popularity as an e-sport, currently has more than 100 million active users. Even though e-sports are hardly recognized as sports, many professional sports clubs now have their own e-sports divisions. That makes it clear that competitive video gaming is no longer a fringe phenomenon, and that established organizations believe that e-sports have huge potential.

It is also worth noting that the video game market is one of the industries that profited from the Corona pandemic.

Which companies make up the e-sports industry?

Numerous companies are active in the e-sports and video game sector. You can invest in many of these companies by buying shares in stocks or exchange-traded funds (ETFs). You can find a selection of games that are widely used in e-sports in Table 1.

Table 1: Selection of games that are popular as e-sports

Date: June 28, 2024.

Are there stock indexes that track e-sports?

There are multiple stock indexes which focus on the video game and e-sports markets. But just two of these indexes are particularly relevant for investors in Switzerland because it is possible to invest in them using ETFs.

One of these indexes is the MVIS Global Video Gaming & eSports Index. It is calculated in both a price index version (without dividends) and a performance index version (with dividends), and tracks 25 stocks (as per June 2024). An ESG version of this index is also published, but it hardly differs from the standard version. Both indexes include the same stocks, with only marginal differences in the weightings given to the different stocks.

The index only includes companies that generate at least 50 percent of their revenue from video games and/or e-sports. Officially, the maximum weighting of any one stock cannot exceed 8 percent. That means one company cannot account for more than 8 percent of the total index. However, Tencent’s weighting currently exceeds that threshold.  

Table 2: The ten stocks with the heaviest weighting in the MVIS Global Video Gaming & eSports Index (MVESPO)

*Stock listed in the Cayman Islands
Source: Index publisher. Date: June 27, 2024.

The Solactive Video Games & Esports Index tracks 41 stocks, so it more diversified in terms of numbers. Its makeup strongly differs from that of the MVIS Global Video Gaming & eSports Index. That is surprising because the main criterion for selecting stocks is the same for both indexes: At least 50 percent of a company’s revenues must come from the video game and e-sports sectors. The index has a weighting limit of 6 percent, but two companies currently have higher weightings (as per June, 2024). Weightings are shown in Table 3.

Table 3: The ten stocks with the heaviest weightings in the Solactive Video Games & Esports Index

Source: Index publisher. Date: June 27, 2024.

Can I invest in e-sports using ETFs?

Yes. Each of the two indexes has an ETF that tracks it (as per July 2024). ETFs provide a way to invest in an index without having to buy each of the stocks tracked by the index individually. You can buy and sell shares in an ETF at any time during trading hours using a stock brokerage account at a bank or other stockbroker. The annual fees charged by the ETF are shown as the Total Expense Ratio (TER).

You should also pay attention to the following fees and charges: Banks and other stockbrokers typically charge you brokerage fees to buy and sell shares, and custody fees to hold your shares. Additionally, you also pay Swiss stamp duties, which are always the same no matter which Swiss bank you use.

Table 4: Overview of e-sports ETFs

Source: ETF managers. Date: June 28, 2024.

What are the risks of investing in e-sports?

Investing in securities like stocks and ETFs always comes with risks. There is never a guarantee that you will make a return. That is even more true when you invest in just one industry sector, because you are putting all of your eggs in just one basket. In addition to the standard investment risks, the e-sports market is exposed to these other risks:

• Volatility: E-sports and video gaming are fast-moving markets marked by trends that can disappear as quickly as they come. That can result in high volatility and major price fluctuations.
• No diversification: ETFs that track e-sports indexes are not a particularly well-diversified investment. The MVIS Global Video Gaming & eSports Index only includes 25 stocks, and the Solactive Video Games & Esports Index only includes 41. What is more, they only invest in their one industry sector. By comparison, the FTSE All-World global index tracks more than 4000 different stocks across numerous industry sectors.
• High costs: The annual cost (TER) of using e-sports ETFs is relatively high, at 0.55 and 0.50 percent for the two funds explained above. By comparison, there are ETFs that invest in the global MSCI World index and the Swiss Market Index (SMI) that have TERs of just 0.20 percent.

How well do e-sports stocks perform?

There is no way to accurately predict how well e-sports stocks will perform in the future. It is only possible to look at past developments, which are not a clear indicator or future performance.

A comparison of past returns shows that e-sports stocks have delivered weak performance compared to the stock market as a whole (see Table 5). The exceptional performance of the VanEck Video Gaming and eSports UCITS ETF over the five-year term is likely due to the coronavirus pandemic. Important: The figures shown in Table 5 are only based on a maximum timeframe of five years. But for secure investing, it is beneficial to use much longer investment terms and to invest in a broadly diversified investment portfolio (using ETFs, for example).

Table 5: Historical performance of e-sports ETFs

Source: Justetf.com. The performance figures are based on the maximum timeframe for both the VanEck Video Gaming and eSports UCITS ETF (24.06.2019 to 28.06.2024) and the Global X Video Games & Esports UCITS ETF Acc USD (22.12.2020 to 28.06.2024), based on when the funds were established. The performance figures account for dividends, but do not account for possible brokerage fees, custody fees, and stamp duties. Date: 01.07.2024.

Note: This article is published for educational purposes only, and should not be considered investment advice. moneyland.ch does not accept any liability in connection with this article.

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