First eSports ETF Debuts

Today, Van Eck is rolling out an ETF that will focus on the global video gaming and electronic sports industry. The VanEck Vectors Video Gaming and eSports ETF (ESPO) tracks an index of 25 securities.

The new fund comes with an expense ratio of 0.55%, and lists on the NYSE Arca.

Michael Cohick, director of ETF product marketing at VanEck, said that ESPO basically represents “an opportunity to invest in the future of sports,” describing the audience as young, affluent and very engaged with the “athletes” competing in the activities.

“We look at it as sitting at the heart of an ongoing revolution in how people consume media, entertainment and sports,” said John Patrick Lee, associate ETF product manager at VanEck.

He notes that the eSports event called the Midseason Invitational in 2018 drew larger viewership than traditional televised sports events such as the NBA playoffs, baseball’s World Series and the Stanley Cup. According to Lee and Cohick, 380 million people are expected to watch eSports in 2018. 

Essentially, the popularity of video games has been amplified by the rise of internet connectivity and social media, with the eSports concept connected to a range of revenue streams beyond just the development and sale of video games such as ticket sales, licensing of streaming rights to competitions, and membership fees related to the various leagues. Colleges have even begun to fund eSports programs and offer scholarships for students who compete in such events. 

Methodology

ESPO’s underlying index basically includes companies that produce video games and their related hardware, software and equipment. It also covers companies that offer streaming services and companies that are involved in eSports events. To be eligible for inclusion, companies must derive at least 50% of their revenues from business activities related to video gaming or eSports, according to the prospectus.

As such, Lee notes, the index doesn’t include some very large companies with significant involvement in eSports, such as Microsoft and Amazon, because despite that involvement, it simply is not a large enough part of their revenues. Plus, investors will generally get exposure to those companies through their core investments.

As of June 30, the underlying index included 25 securities, with Asian issuers warranting a weight of 60%, and Japan specifically representing 29% of the index. Individual components are weighted by modified market capitalization, the document says. 

Immediately prior to the fund’s launch, the five largest companies in the index included Tencent Holdings (7.76%), NVIDIA (7.41%), Activision Blizzard (6.95%), Nintendo (6.81%) and Electronic Arts (5.44%). 

Contact Heather Bell at [email protected]