This article was first published in the April 2018 China edition of Accounting and Business magazine.

As with almost everything else in the highly digitalised modern world, the giant industry that has grown around video games is also changing drastically, especially with the rise of millennial gamers. The group that not long ago was seen as ‘not having a proper occupation’ by parents can now can earn millions as e-sports have transformed into a billion-dollar business.

In April 2017, the Olympic Council of Asia announced that e-sports would be included in the 2022 Asian Games in China, underlining the popularity of these new ‘sports’.

‘E-sports has a long history; it’s not at all something new,’ says Cecilia Yau, China and Hong Kong entertainment and media leader at PwC. ‘Instead of the US, South Korea used to be the leading country for e-sports in the world. It’s still in the lead per capita and it’s the first country where the government supported the building of e-sports facilities and the industry started to attract a lot of sponsorship.’

‘China, Korea and Japan have seen immense growth in their e-sports industries, despite having ageing populations,’ says Daryl Teo, CEO of Singapore-based Spout Entertainment. ‘What easily slips our gaze is that South-East Asia actually has a huge, growing number of millennials who may power an even stronger gaming rise in this region.’ 

Key role of government

Government policy and regulatory control are likely to play a key role in the development of e-sports, particularly in mainland China, even if the authorities are still playing catch-up to the private sector. Since 2003, the Chinese government has become increasingly aware of the potential of e-sports. There are now several government ministries overseeing e-sports, including the ministry of culture; the ministry of industry and information technology; the State General Administration of Sports; the State Administration of Press, Publication, Radio, Film and Television; and the Cyberspace Administration of China.

In 2015, the State General Administration of Sports published the ‘Interim Provisions on the Management of E-sports Events’, which set a positive tone for the development of the sector. The following year, multiple policies were published to support the growth of e-sports, including a decision by the State General Administration of Sports to add e-sports to the Thirteenth Five-year Plan of the Sports Industry, the founding of the China Culture and Entertainment Industry Association under the ministry of culture’s e-sports branch, the establishment of e-sports management majors in universities, and policies to encourage local governments to create e-sports game and industrial parks.

Still, ‘compared with the rapid development of industry, the regulatory environment for e-sports in mainland China is still rather primitive, whereas the market has taken action establishing industrial and league rules to keep the industry developing healthily, for example the Esports Integrity Coalition,’ says Zara Zhang, consulting associate director at Deloitte China.

‘What really boosted the growth of the e-sports industry is the popularity of live TV streaming,’ Yau says.

At the same time, a number of Chinese platforms dedicated to e-sports events, such as Douyu, Huya, Zhanqi, Panda, Quanmin, are gaining a lot of popularity. The five live streaming platforms were founded between 2014 and 2016 and all bloomed within a year or two, adding millions to the ranks of a growing audience that is online 24 hours a day. 

‘A couple of popular games also entered China, such as the multiplayer online battle arena video games League of Legends and Dota, which created even more buzz surrounding e-sports,’ says Yau.

Huge ecosystem

Hong Kong is also looking seriously at e-sports. ‘The Hong Kong government is quite keen to develop this segment; they have some initiatives in place and are also working with some e-sports start-ups from different aspects,’ says Yau. ‘But it’s also a wide segment with a huge ecosystem – from facilities like arenas, internet connection, logistics and equipment to advertising sponsorship, merchandising and ticketing.’

Last August, the special administrative region hosted its first big e-sports event, the Hong Kong E-sports Festival, at the Hong Kong Coliseum. The Hong Kong Tourism Board organised the event and invited popular gamers to participate in a series of tournaments. The event received almost US$4.5m in funding from the government and attracted around 50,000 visitors. 

‘But still, some education needs to be done in Hong Kong because even when they’re hearing the term “e-sports” a lot, they don’t really understand the whole ecosystem behind it – not just some gamers put together for a game, but many big business cycles related to this segment,’ says Yau.

Other than the basic accounting needs of most businesses, the industry also needs plenty of support from accountancy firms in the areas of marketing analysis, consumer insight, loyalty management, strategy planning, business model design, outbound investment services, risk management and even human resource management.

‘We can give input in terms of how to work out a successful business model, build up the projection, business plan and valuation services when they go out to the capital market,’ Yau says. ‘Accounting firms can also help during the negotiation process with the investors.’

‘Given the large amount of games to choose and the fierce competition, how can they do effective marketing to target customers? We can help by doing innovative marketing analysis,’ says Po Hou, media and entertainment sector leader at Deloitte China. ‘We can also offer M&A related services when traditional sport or entertainment giants want to enter the e-sports area.’

Billion dollar opportunity

Different countries, even different provinces within China, have different tax incentives for start-up companies; accountancy firms can also help set up the most tax-efficient structures for e-sport-related businesses. And all this adds up to large mandates.

‘Accounting-related services is a billion-dollar opportunity right now for the e-sports industry,’ says Teo. ‘Just like in the English Premier League, all professional teams are required to register corporate entities via which they raise investors’ money. There is also stricter emphasis on proper bookkeeping to minimise fraud, match-fixing and ensure the financial sustainability of the teams.’

Teo founded Spout Entertainment Group in late 2016 with the vision of bringing the best of global e-sports into the region, and also to be a platform for South-East Asia’s gamers, brands and publishers to expand worldwide. Today, Teo’s team operates Singapore’s biggest e-sports assets, and owns proprietary technology in cloud-based streaming and internet management systems.

The group owns, a leading e-sports content portal; Spout Agency, an e-sports-focused agency to help brands connect with the fast-growing millennial consumers; Spout Arena, the biggest e-sports gaming stadium in Singapore with franchise and partner cafés across South-East Asia; Cite, an e-education company with proprietary video-streaming technology in emerging economies like Myanmar, Philippines; and VulcanPost, one of the top lifestyle, start-up and entertainment media portals in South-East Asia. 

Spout closed 2017 with an estimated US$1m in group revenue, from sponsored editorials, brand campaigns, e-sports events-hosting, local area network-gaming revenue and SpoutPay subscriptions from internet café partners.

As e-sports players increasingly get traded around for higher fees and sponsorships break records, player salaries are also commanding higher premiums as well. E-sports platforms are aiming to offer a whole range of services to the players so they can focus on what they do best.

‘Most e-sports stars generate income not only from traditional ways like club salaries, competition prizes and brand endorsement fees, but also live streaming and e-commerce,’ says Zhang.

‘Spout Agency has seen an unprecedented increase in players and teams wanting to focus on putting their best performances in competitions, and leaving the operational nitty-gritties to us,’ says Teo. ‘We welcome accounting services providers to reach out to us, as we continue building out a fully-integrated support package for e-sports enthusiasts in the region.’

‘E-sports is yet to achieve comparable levels of recognition and investment from the Singapore government, as compared to traditional sports such as football and table tennis,’ he adds. ‘As per all new industries, we ought to be patient and I am very positive about the prospects in the next five years.’ 

Cornelia Zou, journalist