Some Perspective On The Potent Esports ETF

Up nearly 25% year to date, the VanEck Vectors Video Gaming and eSports ETF ESPO is proving to be one of the year's most rewarding thematic exchange traded funds and a variety of research points suggest ESPO's long-term potential is solidly in tact.

What Happened

ESPO debuted last October and tracks the MVIS Global Video Gaming and eSports Index. Since ESPO came to market, the size of the esports and video game ETF field has doubled to four, indicating issuers see opportunity in this niche. Today, ESPO has over $30 million in assets under management, an admirable tally for a thematic ETF that's less than a year old.

The booming esports industry looms large as part of the thesis for embracing an ETF like ESPO.

“Over the last two years, media coverage of esports, a form of competitive video gaming, has reached a fever pitch,” according to VanEck research. “News of sold-out stadiums, multi-million dollar franchise fees for professional teams and big-brand sponsorship deals have driven the esports mania narrative. However, comparing esports revenues to the broader video game industry can help keep things in perspective.”

Why It's Important

In terms of holdings, ESPO is driven by hardware, software and components, confirming that fund is not overly reliant on video game publishers. Four of the fund's top five holdings are NVIDIA Corp. NVDA, Electronic Arts EA, Advanced Micro Devices AMD and Activision Blizzard ATVI.

While ESPO is not overly dependent on a particular segment of the video game industry, it's well-positioned to take advantage of the industry's robust growth expectations.

“According to Newzoo, out of the $134 billion in revenue that the global video gaming industry generated in 2018, roughly $865 million was generated by esports,” notes VanEck. “In other words, the global video gaming industry generated around 154 times the revenue of the global esports industry in 2018.”

What's Next

Obviously, esports will be a clear, bullish catalyst for ESPO in the years to come and data confirm as much.

“According to Goldman Sachs, media rights are expected to grow from representing around 20% of all esports revenues to 40% by 2022,” said VanEck. “This means that, after factoring in other revenue sources like sponsorship and game publisher fees, video game publishers are in a position to potentially own the majority of revenues coming from esports.”

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