There have been few industries that have seen surges in popularity and demand since the start of the pandemic in early 2020. Among the most dramatic has been in the Esports and online gaming arenas which boasted a market value, for the first time in its short history, of over $1 billion at the end of 2020 and is expected to double to just over $2.1 billion by 2025, and then to almost $4 billion by 2030.
The driving force behind such gaudy market value predictions comes from the availability of the entertainment across a multitude of platforms that broadcast various competitions and content creators. Twitch, which has become the largest live-streaming platform in the world, garnered 1 trillion minutes of content watched in 2020 alone. At the time this article is being written, 4.2 million people are currently watching Twitch over approximately 120,000 live channels, and the medium continues to grow.
Venture capitalists and private equity firms have also been tipped off to the rapid growth of the industry, which is apparent from the volume of investment seen in recent years. According to Insider Intelligence, total investments from 2017 – 2018 grew from $490 million to $4.5 billion, spread over individual players, tournaments, and other organizations. The clear excitement of investors presents new challenges and opportunities for accounting and consulting services to tackle a multitude of issues surrounding the industry, from controls surrounding tournament integrity to wealth management services for prosperous athletes.
From purely an accounting perspective, revenue from Esports and online streaming is derived from multiple sources, such as revenue-sharing arrangements between the content creator and the platform that hosts their program, sponsorships, tournament winnings and direct donations to content creators. As with any company with multiple revenue streams with various performance obligations, the topic of addressing complex accounting revenue recognition rules is surely to be an important one for companies and individuals within the business. In addition, the IT environment and control systems appear to be among the hottest of topics regarding tournament integrity and hosting services. Understanding the control environment and structure of these sometimes-complicated processes will be imperative to meet the needs of our clients.
As the scope of Esports and online gaming continues to expand, providing the proper consulting and advisory services to these entities will no doubt be sought after. Withum Advisory Services and Withum Digital can provide cyber security solutions and controls to ensure gaming integrity, SOC consulting and auditing services to assure investors that such controls are secure, and IT management services to keep those controls in place and functioning. A partnership with Withum will undoubtedly serve the needs of this growing industry and take it to the next level.
Author: Michael Pahira, CPA | [email protected]
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For more information on this topic, please contact a member of Withum’s Sports and Entertainment Services Team.
