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Video gaming is big business. The global market is expected to reach $187.7 billion in 2024, according to data firm Newzoo.
And in the industry, there has been a big effort to boost esports, which is competitive gaming, and turn it into a professional sport on part with soccer or football.
Esports involves teams or individuals competing against each other in different video games. These players train and have coaches like regular athletes in a bid to be the best in their game category.
In August, the first ever Esports World Cup concluded. It featured more than 1,500 players and a prize pool of $60 million.
“We’re exactly hitting that nail of having mainstream coverage around this all over the world,” Ralf Reichert, CEO of the Esports World Cup, told CNBC’s Beyond the Valley podcast.
In this episode of Beyond the Valley, Tom Chitty and I are joined by Reichert to discuss the growth of esports and its future.
If you have any thoughts on this or previous episodes, please email us at beyondthevalley@cnbc.com.
You can subscribe to “Beyond the Valley” by clicking the links below to your chosen platform:
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Here is a transcript of the “Beyond the Valley” episode released on August 21, 2024. It has been edited for clarity and brevity.
Tom Chitty
While Paris hosted the Olympic Games a few weeks ago, nearly 3,000 miles away, another sports tournament was taking place, not necessarily with the same prestige as the Olympics, but certainly with a bigger prize pool. The winners sharing more than $60 million. This weekend brings the conclusion of the first Esports World Cup, which has been taking place in Riyadh for the last eight weeks, featuring 23 events in 22 different video game titles, including Call of Duty and Fortnight, the event was part of Saudi Arabia’s Vision 2030, a government program to diversify the country’s economy away from its reliance on oil. But for the gaming community, uniting the industry under one competitive umbrella could, in the words of our special guest this week, bring this to a scale similar to the largest traditional sports events around the world. Let’s introduce our special guest. He couldn’t be better placed to tackle the subject for this week’s episode. Firstly, he grew up an avid gamer before co-founding one of the first esports teams. He then went on to co-found Electronic Sports League Gaming, a German esports organizer and production company that produces video game competitions worldwide. It’s the oldest esports company that is still operational. Finally, and most importantly, for the subject for this week’s podcast, he’s the Esports World Cup CEO. Ralf Reichert, welcome to Beyond the Valley.
Ralf Reichart
Thanks for having me.
Tom Chitty
Give us a backstory about how the professional esports gaming came to be. And it’s always kind of, as you’ve suggested, been a niche kind of thing. But how far down the road are you to make it more mainstream?
Ralf Reichart
In the late 90s this became a hobby, right? The internet was there, but there was no live video streaming, there was no social media. There was the first areas of podcasting. But access to the internet was super limited. It was mostly actually limited to students, because back at that time, in most countries, you either had to pay your phone bill to go to the internet, and the internet provider, so almost double down on it. So it was like a few dollars an hour. So very few people could actually afford it. Or you would be in in the university, and then either had it for free as part of your dorm room and stuff like this, or you would at least save the internet provider cost, so it only cost half. So it was a super elitist, limited community based mostly on students, and they started to play online against each other and immediately competed. I was part of that. I was super lucky. I was, you know, at the right place, at the right time. So from there, humans are creative, right? Humans build. And there was a German national championship back at that, no prices, no structure, but we could compete. And this just snowballed a little bit. And, you know, we founded a team, we competed. And in 1998 we went to a tournament where my mom first attended, you know, think about that. And when we went home, it was in Gothenburg, Sweden, she said, look, you know, I’m watching you play football all my life and this is not so different. So if I would have any idea, any understanding on video games, right, I would watch that too. I would enjoy it the same way as with traditional sports.
Fast forward, I don’t want to go too deep, but what did that mean? We knew it’s going to be a spectator sport. That was a given. We knew gaming will grow because it’s such a great low barrier entertainment. There was one other thing, technology always gets cheaper, right? That’s a history of mankind. So we knew that the barrier to entry will go down over time. We knew it’s an immersive experience, and we knew it’s going to be a viewership sport. So we went out and tried to build it as a sport. And when I say, I try to build it as a sport, it’s always two things. Number one, that players can compete and ultimately make a living out of it. Then it’s a professional sport. Let me [be] precise, we wanted to build a professional sport. How do you do that? Most of the time if enough people watch, and you can monetize those people watching and therefore make itself sustainable. That was how we went into it, that’s what we did in 2000. All the right thinking, just 10 years too early, because there was no way to watch it properly because there was no YouTube Live, nor was Twitch out there. So actually creating viewership wasn’t a revenue like a traditional sport, but it was a cost center, almost. So we took these first 10 years to work more as an agency. And the other thing is we continued to fight, and fight is the right word, for acceptance of the sport and acceptance of the athletes, and acceptance of this being taken serious and not stigmatized. And in 2010 it was ready again, as I said, streaming was there, social media was there. So it was its own coverage platform, so to speak, endemic to the fans.
The games were there, they progressed. Free-to-play became a thing, so less barrier to entry. Internet was basically a commodity, ubiquitous over almost all over the world. And smartphones even lowered that barrier to entry at that point, the iPhone was out for three years, right? It was 2007. So all of this came together, and then it was 15 years now of immense growth. And I would argue that with the Esports World Cup, we’re exactly hitting that nail of having mainstream coverage around this all over the world. We have 60 media partners who broadcast this. We have press from all over the world and really bringing this on an annual basis, hopefully the final hammer that smashes through, through the wall of resistance.
Arjun Kharpal
Ralf, I’ve always said that if I was born maybe five, six years later, I’d probably not be a journalist, and I’d be trying to make my way as an esports star. A lot of people probably thinking about some of the things you’re saying about the spectator side of things, about the acceptance, and wondering, well, how do you even get into something like this?
Ralf Reichart
I think it’s almost like in any other sport, right? You actually need to locally or regionally look for a club or for other friends who do this. The barrier to entry in esports is lower. For every sport, you need to start to compete you need to know the game so you play actually the game. It’s easier, you can do this alone. And then you need to find like-minded people to compete with and against. And depending on where you live in any country, there is always a local infrastructure. It can be very grassroots. It can be very, you know, almost local community, like we had this 25 years ago when I started. But, you know, even in Bangladesh, there are local esports tournaments in most of the games. So then you start to make your name and compete in it.
Think about it like traditional sports and the discipline you’re in, let’s say you’re playing Fortnite. There’s always a clear qualifying way to go to the Esports World Cup, right? There’s an ecosystem. It has its own leagues and tournaments where you would go first, and then the ultimate qualification would be to the Esports World Cup, like again, you would have this in athletics, in football, in whatever. I think the barrier to entry, that’s a huge difference, I don’t think there’s a single ecosystem which we have, a single sport where you can’t qualify within a year. While in football if you would build a new club, it would take you ages. There is no fast track. In esports, there is no fences built. These qualifications are always open. You probably need to train two, three years to [do] this, don’t get me wrong because the competition is so high. But from a theoretical level, if you’re the best player of all time, have the talent and train a lot, you can qualify through public ways, and don’t need to go to a backroom. And I think that’s one of the beautiful things in esports. And last but not least, you don’t even need money or financial infrastructure, right? Because most of these qualifications start online, and you can make your way up and even win the trip to the offline qualification. And we had plenty of those Cinderella stories.
Arjun Kharpal
I think one of the interesting things you said there is talking about teams, about leagues, about the path to the Esports World Cup. You know, when I when looking at this industry over the years, you’ve seen how it’s sort of professionalized. I think when you talk to many people, and you talk to them about competitive gaming, about esports, and you say, no, look, there’s teams that exist, there’s leagues that exist, there’s coaches, there’s training schedules for players as well. Is that professionalization of competitive gaming one of the biggest changes you’ve seen over the years? And just give our listeners a bit of insight into, you know, what that looks like. What does a team do? What do these kind of players do?
Ralf Reichart
100%. I think there is a misconception in two things. Number one, people think that traditional sports always has been like it is, and that it’s super logical and transparent and makes perfect sense and has a very clear, cohesive ecosystem. I can tell you, it doesn’t have. I mean, just look at football, right? The MLS has very little to do with the rest of the world, with the Premier League, they are completely different, right? Everything is incredibly inhomogeneous, and that’s the same for esports. But what is similar, and what’s great, is that you have these stakeholders, these parties, in the ecosystem, which help everyone who comes into it to grow. So clubs have a super important lighthouse function. If you look at it as a player perspective, they train you, they teach you, they give you nutritionists, they give you psychological help, they give you a surrounding where you can grow, where you can strive, and where this can help. But then if you look at it as a sponsor, you can look at clubs, which games they are playing, right? So that gives you a feeling as local press, you have someone with local pride. And even as a game publisher, as someone who develops a game, think about it as the discipline, right, the sport. To have these clubs join your game gives you recognition, it gives you relevance, and it accelerates the professionalism that that’s happening around it. And therefore, with the Esports World Cup, we have set an incredible importance on the clubs.
Tom Chitty
How do you then go and sort of continue to grow esports? Is it just more money?
Ralf Reichart
Look, I I’m a big fan of almost network effects and ecosystems. I’m not a big fan of something centrally, top down, even though, with the Esports World Cup, we’re actually going in top down, we’re adding the biggest amount of prize pool that has ever been in the industry. We’re trying to literally complement the industry, we’re not competing with anyone. We haven’t scheduled a tournament of another one. We haven’t tried to have the clubs play with us, but not with someone else who’s out there. We did all the things to add value to the industry. And I think if you look at all the different stakeholders that are important, players, fans, games, sponsors, media partners, press and so on and so forth, I think we are trying to bring in more into that world, and therefore grow it, grow the pie, rather than try to take a piece of the pie.
And I think if you look at the future of video games as a whole, there’s 3.4 billion gamers out there, which is incredible, right? It’s completely mind blowing. And you can really focus on trying to make more money with the 3.4 billion. That’s probably other people’s job. My job, my approach, is specifically a non-profit foundation, which is fantastic. Our job is really to grow this. And then for esports, there is the numbers, like the 700 million esports fans out there at this point in time, right? So, so even to bring that over a billion, even to bring that over to 2 billion, is something we were trying to help with, and what’s a natural, logical goal. And then for the Esports World Cup to enable all of these clubs to be more stable, to have more different teams, to be in more of these games, to help to or even drive growing these numbers I was just talking about, that’s a little bit where I’m coming from, and that’s the opportunity we all have. And that’s, I think, what the Esports World Cup adds to the overarching industry.
Arjun Kharpal
I know your job isn’t necessarily to focus on sort of the money side of the equation, but as you look at the industry more broadly, what are some of the key business models that are emerging right now? How is the esports industry making its money right now?
Ralf Reichart
It’s actually very similar to sport, you could argue. You have the smaller ones. I’ll start with ticketing and merchandise, how every sport starts but how it never gets rich, or very rarely, you have sponsorship and media rights, which have been the incredibly big driver in the last two decades. While saying that, sponsorship has always been significantly higher than media rights. Why? Because other than in some of the traditional sports which come from a completely different time, pay-per-view has never been a thing. We’re living in a world of infinite content and the game developer publishers have a clear incentive to make the esports as broad as possible because it’s advertising the game. So I don’t see a world where the fan monetization will go to a pay-per-view model anytime soon, maybe even never. So what’s actually missing there, you could argue, is the proper fan monetization, how they contribute financially to the sport. Again, in football, it is pay-per-view.
As I said, video games actually exploded in 2010. Why? Because they went from an, I pay $60 to buy a game, box model, to a free-to-play model where I can play the game for free, but I’ll pay for things within the game. That innovation actually came from China, and what it did, it lowered the barrier and grew the market dramatically, because you didn’t have to pay an entry fee to even get there in the first place. Going forward, what does that mean? I think esports specifically is you should just accept that this is a business model, right? Ticket, merchandise, sponsorship, media, rights, and work with that money. But that should be your base case and assumption. And then what we’re all working on is, again, monetizing the fan and the player, and that will come through fantasy games, through engagement around the content, which is not a subscription, but other things.
Tom Chitty
Ralf, the fastest-growing region for esports and gaming, especially when it comes to players and fans, is the Middle East and north Africa region, so it kind of makes sense that you are hosting the first Esports World Cup in Saudi Arabia. But like other sports that have gone to sort of showcase the professional side of their of their sport, whether it’s tennis, boxing, golf, there are financial benefits to hosting your events in Saudi Arabia. But it also comes with a level of criticism or scrutiny. What’s been the response to this first Esports World Cup in that respect?
Ralf Reichart
Let’s talk about money first, which is super interesting. If you look at actually any sport in the world, it is heavily subsidized by government money. There’s not a single one which is not, and it’s different from country to country, but most of the time, almost all of the football pitches, or the tennis pitches, are paid somehow by the government, or they are introduced by schools. So on the grassroots level, almost all sports are fully paid, even by government money to start with. If you look at the top of the sports, it’s the same, right? I mean, in stadiums, security is being paid by the state for big competition, like a World Cup, right? They build new stadiums. All of these hosting fees are part of the equation. So I think, to start with what is an illusion is that traditional sports doesn’t take government money, because it’s complete opposite, and there’s nothing bad about it.
I’m not criticizing, it’s just people don’t look at it that way, which is interesting. So why I’m here is because Saudi Arabia has been the first government in the world to do the same thing with esports that is done with traditional sports all over the world, and it’s fantastic … I’m proud of it. We knew it’s going to happen always, even 20 years ago, but we never knew when, right? When will the new generation of leaders of prime ministers of countries grew up like we’ve grown up with video games, and don’t think it should be treated different than any of the traditional sports. And Saudi is the first country where it happened. That is public perception, which is obviously super important, and there is nothing to hide that public perception for the Kingdom has been a challenge for the last five, six, seven years, right? That country started to open up seven years ago. There was no cinemas 10 years ago. There was no tourist visa 10 years ago.
So this is a destination, a country, a population changing, at probably the most rapid pace anyone has ever done in the history of mankind. So that’s a fascinating place to be and to see in. And when Saudi Arabia started to engage with esports publicly, which was around 2020, was called Gamers Without Borders, was a charity tournament. There was lots of backlash. There was lots of questions. There was lots of boycotts as well. And I was involved in that in terms of organizing it. So we sat down is we basically said, look, we’ve been here in this country, it’s very different than the outside perception is. The only way we can do whatever we want, but we need to bring people here to experience [it] themselves, and then go back and tell if that perception, if that framing is correct or not right? So what we did, we brought players, teams and fans, step-by-step to the Kingdom, and now we’re in almost done with the Esports World Cup 2024, eight weeks of esports, 1,500 players coming to the country, the 100 biggest clubs and teams, all of them participated.
We’ve got over a million visitors, a lot of them local, but to the venue, even in the first four weeks only, and there has not been a single incident where someone went home and said, this is a bad place to be, these are bad people. This will be continue to be topic because seeing is believing, and we need to get a critical mass of people to the country to experience the World Cup, experience how open it is, and experience how some of that framing is wrong, while still obviously saying that it’s a society and change and progress needs to continue to be made, which is true for many places in the world, and as long as it’s a clear path forward, I am very, very bullish to actually make a difference.
Arjun Kharpal
And Ralf are you likely to keep the Esports World Cup in Saudi if you renew this next year?
Ralf Reichart
I think we’ve been we’ve been vocal about this as well. Saudi is the only place in the world right now which is supporting this at the scale it is, as we deep dived into earlier, right? So for the foreseeable future, it’s very clear that Saudi is a destination to go and will be the home of the Esports World Cup. Saying that though, there is no statue, there is no rule, that it always needs to be in Riyadh. I would even argue the other way around, there needs to be some bigger collaboration so the whole world has a piece of it which goes beyond broadcast, but it’s something for the future, nothing for the next few years.
Arjun Kharpal
And what does esports look like to you going forward? You know, when it comes to gaming, you mentioned some of the innovations around mobile, etc, the world’s looking towards things like virtual and augmented reality creeping their way into gaming as well. Do some of these technologies play a role for you in the future of esports? What does it look like? Give us some of your top points as you view it.
Ralf Reichart
I’d argue all of them. So the answer is very simple. Whatever technology is out there allows you to play digitally, and which gives you the opportunity to compete or watch is relevant for esports. Saying that you need critical mass for any sport in the world to be a viable discipline, right? So it’s really only about penetration. VR has been overhyped a few years ago, it’s actually almost there now, right? It has like 20, 30 million active users. So it is close to that critical mass. It needs to, to have the relevance. But I mean, looking forward, technology is brutally quickly advancing, right? The barrier to entry gets lower and lower and lower and lower, therefore, more people play video games, and that’s a driving force.
Tom Chitty
Ralf, that’s all we have time for. But thank you so much for all that insight. That was really, really interesting. Before our listeners go, if you could follow and subscribe to the podcast, that would be great. And you can even leave us a review. Ralf, thank you again for all your time and all your insight.
Ralf Reichart
Thank you so much. Was a great pleasure. And keep it up. I mean, this is fantastic, what you guys are doing.
Tom Chitty
Thank you, Arjun.
Arjun Kharpal
Thank you, Tom.
Tom Chitty
We won’t have a podcast for next week, blame holidays, but we’ll be back for the following week for another episode of Beyond the Valley. Goodbye.
