Economics of Esports

Abstract

In this paper, esports market development is exhibited and analyzed through various data sources and literature review. Additionally, economic concepts are applied to the esports environment. Demand characteristics of this emerging market are analyzed by applying the concept of competitive balance as commonly used in economics of sport scrutiny. The elite esports demand is proxied by gathering data on total prize money in the elite esports tournaments and explaining the esports demand by testing various factors measuring the competitive market properties. The most commonly used measurement in economics of sport for measuring withinseason competitive balance is calculated as the actual standard deviation of winning percentages to the hypothesized ideal standard deviation. Nevertheless, unique market properties of esports require novel methods and measurements. Therefore, alternative methods for measuring competitive environment properties in esports markets are developed and tested. Statistical moment methods enable the measuring of the distributional properties of prize money deviation. Distributional information is applied for constructing various index measures for testing the esports market competitive balance and that information is modeled in regression estimations for explaining the demand properties of elite esports markets. One of the main contributions of this paper is to underline the different characteristics of the esports market compared to the traditional sport environment. Finally, esports market UOH testing results are contrasted with research findings from traditional elite sports markets. It appears that esports market demand is better modelled by applying “superstar” models by Rosen (1981) and Adler (1985) than traditional within-season variation UOH models.