2021 Esports Investments Outlook: COVID-19 to Continue Dictating Availability of Capital

Usually, giving an outlook on the upcoming year’s financial trends within an industry is likely to be pretty straightforward. The most critical step is identifying trends that are currently developing and offer the most potential to all parties involved. In 2020, several initial public offerings (IPOs), a couple of crowd equity campaigns, and a lot of movement in the Chinese market, such as Huya’s and DouYu’s plan to merge, coined the financial movement trends in the esports ecosystem. Going into 2021, though, the overall economy is exceptionally uncertain, which can completely disrupt the investment trends that evolved in 2020 based on a few key factors.

A primary factor will be the progress that can be achieved by the recently introduced vaccine against the COVID-19 virus. Ideally, sports and esports are back to live and in-person events by mid-June, which would reinstate several existential revenue streams for a large number of esports companies. If that happens, expect an influx of esports IPOs and mergers and acquisitions driven by international sports, media, and entertainment holdings looking to build long-term revenue streams in the esports ecosystem.

Furthermore, the development of global financial markets in 2021 could impact investments into the esports industry. One of multiple possible scenarios would be a market crash caused by the long-term economic consequences of COVID-19 could stall the esports industry’s recent upward trajectory. Such a scenario would likely cause a significant decrease in esports investments in 2021.

A different possible scenario that would have less of a negative impact on the availability of capital in the esports ecosystem would be a cyclical stock market rotation. The Nasdaq just closed the year around its all-time high, while the S&P 500 came out of 2020 more than 15% up year-over-year. However, a closer look at the S&P 500 reveals that only about one-third of the stocks within the index increased their value year-over-year, of which a majority are companies representing the digitalization push with was significantly catalyzed by COVID-19 policies, while the rest decreased in value. Those companies include e-commerce platform Etsy, semiconductor and graphic cards manufacturer Nvidia, payment platform PayPal, and semiconductor maker Advanced Micro Devices (AMD), which all at least doubled their stock price in 2020.

In case of a stock market rotation, capital would be taken out of growth stocks with high market capitalization, such as the aforementioned tech companies riding the digitalization wave, and reallocated into recovering value stocks, including major transport, travel, and hospitality companies. While that will affect some companies that generate some of their revenue within the esports ecosystem, such a development wouldn’t harm most core esports companies seeking capital.

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