Minnesota companies pull back on e-sports, which has an audience but little revenue

The once-booming e-sports industry is now crashing.

E-sports — the elite level of video game competition where individuals or professional teams compete in everything from first-person shooters, such as Call of Duty, to sports titles, like Madden NFL — surged in popularity during the pandemic. Despite the games themselves generating billions in sales annually, interest in watching people play them has waned as people are no longer stuck in their homes with limited entertainment options.

And finding a way to monetize the substantial audience that still exists remains a conundrum. As a result, many investment firms that backed e-sports teams and organizations are pulling out, while some organizations have decided to discontinue fielding teams.

The Wilf family, who own the Minnesota Vikings, began their venture into the e-sports industry in 2019 with Version1 e-sports, which the Wilfs back through their investment fund based in New York. In April, the Wilfs announced plans to re-evaluate the company, including a possible merger. Last week, the Wilfs decided to cease fielding competitive teams through Version1 and relinquished the operating rights of their most-valuable Call of Duty League team to Berlin-based G2 Esports. Wilf Innovative Sports and Entertainment (WISE) Ventures is now a shareholder of that venture.

A course correction is unfolding in the e-sports industry, said Kevin Hitt, senior e-sports writer for the Sports Business Journal, a publication focused on the business dealings of sport organizations, including competitive video gaming.

Venture-capital funds and sports organizations threw cash into the industry, "thinking e-sports was a viable investment vehicle that is the biggest new thing," Hitt said. That led to "a lot of inflated valuations in e-sports," that didn't pay dividends.

"Now we're here with a bunch of jaded investors that were sold a bill of goods that didn't come to fruition," Hitt said.

In 2021, video gaming content reached a peak of 9.7 billion hours watched globally as people focused on devices and streaming after the shutdowns of in-person events and the stoppage of major league and collegiate sports.

But live streaming of video gaming has declined the past two years, falling 9% to 7.5 billion hours through the first half of 2023, according to a Stream Hatchet report. That's on top of a 15% decline for the same period in 2022.

The declining viewership, mixed with venture dollars drying up, has led to brands becoming more hesitant to sponsor teams, a major source of revenue for e-sports organizations.

"All of these things add up to a lack of real growth," said Andy Selness president of Wisdom Gaming.

The Bloomington-based content creation and e-sports experiences company opened an 18,000-square-foot gaming venue — also the home facility of T'Wolves Gaming, the Minnesota Timberwolves' e-sports team — inside the Mall of America in 2022. But earlier this year it decided to discontinue fielding its professional e-sports teams amid shrinking audiences for live gaming streams, Selness said.

"It was just hard to keep that as a profitable part of what we're doing," Selness said.

The company is instead focusing on building a community hub at MOA around e-sports, where members of the public can pay to play in cash-prize tournaments on its 40 or so gaming systems, which is a more sustainable model, Selness said.

Though in decline, 2023's numbers for live video game streaming are twice that of 2019, when the sector generated 3.8 billion hours watched.

"The audience is there, and the eyeballs are there," said Brett Diamond, chief operating officer of Version1. "They're just on platforms that aren't paying media rights revenue."

Media rights deals continue to push the NFL, NBA and NCAA to higher riches, but they continue to become less of a driver of revenue in e-sports, according to a 2022 report by Milwaukee firm Foley & Lardner and the Sports Business Journal. Facebook, Microsoft, Turner and Fox have all made unsuccessful attempts at e-sports media rights deals.

Since 2018, viewership of e-sports has increased from 208 million hours watched to 717 million in 2023 on major streaming platforms such as YouTube, Facebook Live and Twitch, which this year owned 71% of the market for video game streaming, per Stream Hatchet.

A more competitive e-sports media market would create a meaningful stream of revenue for the U.S. industry, Diamond said.

Despite having the most active e-sports competition players in the world with about 4,000 in 2022, according to the research firm Statista, the United States still trails China in e-sports market share. Asia overall owns more than half the market, but China takes in 34% itself, per the MIT Technology Review. That's because competition within a larger gaming community focused on mobile gaming motivates gamers there, and many tech companies there are developing games.

It's not all gloom for local e-sports organizations. Some still see the industry's potential to attract younger viewers who are becoming less inclined to watch traditional sports.

Wisdom Gaming is looking to grow the Minnesota Varsity League, the state's high school e-sports league that it owns and operates. In fall 2021, the MNVL consisted of 800 students and teachers representing 45 schools across the state.

By spring 2023, the league had grown to 2,000 members across 69 schools. Wisdom Gaming this month announced it is launching a similar scholastic e-sports program for middle-schoolers.

The company is also marketing its venue at the mall to corporations to rent for events, a model trending in cities across North America in places like Toronto, Hitt said.

Investors and corporate sponsors will have to be patient with e-sports, observers said.

"The important thing to keep in mind with e-sports is it's such a young industry," Diamond said. "It really has only existed in any meaningful form for about five or six years."

Whether on mobile devices, personal computers or gaming consoles, video games aren't disappearing anytime soon, Hitt said.

"The gamers are there," he said. "But how do you turn that into e-sports revenue? Well, that's what every e-sports organization in the U.S. is trying to answer."