The emergence of esports represents a fundamental cultural shift in the world of sports and entertainment. That’s the view of Clayton Larcombe, Chief Investment Officer P.A.C Capital who runs an active index fund (P.A.C. Capital Global Esports Fund) investing in esports opportunities around the world.

For now, at least, the local sector lacks investable opportunities, according to Larcombe. “There’s nothing onshore in Australia that I like and nothing big enough.”

“I think Australia is a bit far behind in our education on esports. Last year a new ETF (Electronically traded fund)  came to the market by VanEck (Video Gaming and eSports ETF) which I actually use throughout some of my portfolios and this gives exposure to 25 of the top names around the world now. Australia is a bit far beyond, so you have to be global in the listed space.”

Internationally, however, the story is more positive.

“There’s a huge amount of money that’s getting pumped into companies around the world. There are acquisitions going everywhere, and that led me down this path where I saw a niche setting up a global active esports fund.”

Clayton Larcombe, chief investment officer, P.A.C. Capital

From an investment perspective, esports is a relatively new industry, and while there are some ETFs in the market there are very few active funds. (Active funds involve managers making active decisions as opposed to taking a set and forget approach where you just track an index for instance.)

Describing the different approaches, Larcombe says, “The difference is they have a set parameter around the portfolio, you have to 50% of your revenue has to come from gaming to make their index in that. And with an index, they have 25 names.”

Another way that the P.A.C. Capital’s fund is different, is that Larcombe has the ability to go long or short (betting the price will rise, or betting the price will fall). “Last month, we saw a big tech sell-off in the NASDAQ, you know, we saw companies report. We saw Activision Blizzard, we saw Take2,  we saw some smaller companies that are coming out of Germany and France all reporting their numbers. I took long and short positions.”

As a fund manager in esports, he says it is important to be active. “There’s a lot of acquisitions happening, EA Sports has $4 billion in money on their balance sheet now right to buy companies, Nintendo has 16 billion.”

He believes these companies are building up a war chest to go hunting for acquisition.


Traditional investors need to appreciate that investment in esports is analogous to investment in early-stage or even mid-stage tech companies because a lot of the fundamentals around valuations such as price-earnings ratios get thrown out the door.

“This is a growth area, not a fundamental portfolio.”

The ecosystem extends far beyond just the game owners. “[It’s] the software owners. Also, who owns the hardware? Who owns the cloud devices? Who owns the pipes? There are obviously big players like Ten Cent who are just going after everything. But there are other big players there like Corsair Games or Netease.” 

Forecast revenue for the gaming industry, of which esports is a sub-category, in 2020 was US$159.3 Billion and is expected to grow to US$200bn by 2023. For perspective the combined Film and Music Industry was worth approximately $US100 Billion

In a report from August 2020 called The Global Gaming Industry Takes Centre Stage, Morgan Stanley analysts identified a range of current and future growth drivers including “… new ways to play (multi/cross-platform, streaming), pay (full price, free-to-play, and subscription) and engage (esports and live streaming), which Morgan Stanley Investment Management estimates will result in double-digit industry sales growth globally through 2025.”

“Furthermore, they wrote, “High levels of player engagement within global gaming franchises, the opportunity for operating leverage as businesses increasingly transition to a recurring-revenue subscription offering, and the vast opportunities in mobile gaming, particularly in the emerging world, only enhances the industry’s appeal.”

We’ve seen this before

There is another huge potential revenue pool for the gaming sector – marketing. 

The immutable law of advertising is that money follows eyeballs. Just ask any newspaper editor. And while there are strong sponsorship dollars in the sector, those advertising dollars do not yet nearly reflect the buying potential of the eyeballs of the world’s 2.6 billion gamers.  

 In some ways, esports is showing similar characteristics to the digital media industry – where it took two decades for the money to catch up with the audience. Now, of course, now it is the largest advertising category in the world.

For investors though, while there is a lot of money coming into the sector there is also a large amount of money sitting on the sidelines.

“But it’s a leap of faith to establish Australia’s first active esports fund,” Larcombe acknowledges.

“People say it’s a bit of a risk, but I don’t think it’s a risk. I feel like this is a fundamental change in the world that’s not going to go anywhere.”

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