JAPANESE ESPORTS ON THE RISE: FIVE TEAMS TO WATCH

Feb, 2023 nikopartners.com | research@nikopartners.com | @nikochina | Silicon Valley . Shanghai . London . Bangkok . Jakarta

JAPANESE ESPORTS ON THE RISE:
FIVE TEAMS TO WATCH

Free Downloadable Report
February 202 3

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Asia Games Market Intelligence: Japanese Esports on the Rise
About Niko Partners

We are a market research and consulting firm covering video games, esports, and streaming
throughout Asia, including China, East Asia, Southeast Asia, South Asia (India) and West Asia
(Middle East). We provide qualitative and quantitative data collection and analysis, market
models, forecasts, and strategic advisory services to give you the intelligence and ans wers you
need to truly understand the region. Founded in 2002, we ha ve helped game publishers,
platforms, hardware makers, esports, payments providers, hedge funds, consulting firms, and
consumer brands — in the West and in Asia — understand and succeed in the world’s largest
and fastest growing games markets.
Niko News – free weekly market intelligence
Niko blog – articles, industry updates, and free reports
Twitter @nikopartnersinc

Related Research:
Esports in Asia Report
Esports Value Added News Analysis
Asia and China Esports Tracker
Japan and Korea Regulations Report – to be released in March 2023

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Asia Games Market Intelligence: Japanese Esports on the Rise
Table of Contents

About Niko Partners 2
Table of Contents 3
Introduction 4
Building an Esports Ecosystem 5
5 T eam Profiles at a Glance 7
Report Findings 11
Conclusion 15

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Asia Games Market Intelligence: Japanese Esports on the Rise
Introduction

Japan is a video game superpower, with world -class video game franchises such as Zelda , Final
Fantasy , and Street Fighter , to name only a few. However, in the field of esports, Japan has
historically lagged behind development in countries including China, South Korea, and the
United States. In recent years however, the growth of esports teams in Japan has been
remarkable, and Japan is quickly becoming an important and unique esports market.

Niko Partners estimates that the esports industry in Japan generated $69.4 million in 2021 ,
growing by 11% to $77 million in 2022, or nearly 10 billion yen. The Japan E sports Union (JeSU)
has published similar predictions , valuing the market at approximately 7.8 billion yen in 2021
and growing to 11.6 billion yen in 2022. We note that JeSU’s prediction does not include team
revenues, meaning the actual impact on the market may be higher i n their estimation.

Esports was not a developed market in Japan before 2019 for three
key reasons. First, prize pools were capped and regulated like
gambling earnings, making it impossible for professional
tournaments to operate in Japan. Second, there were no policies
promoting the development of the domestic esports sector. Third,
and most important ly, esports has been and continues to be
primarily a marketing channel for the developers of the titles used
in competitions. Japanese developers generally do not develop
games in the genres played in esports, such as M OBA and Battle
Royale. Giants including Nintendo have not had esports titles, and
even have even sought to limit esports competitions featuring th eir gam es .

The momentum of esports globally is so strong that a gaming powerhouse such as Japan had to
eventually join the excitement. Through policy changes, investment flow ing into Japan ’s esports
market, and strong domestic excitement around streaming and esports , Japan has become an
esports market to watch . We see the future of esports in Japan as very bright .

A database of Japan’s
esports industry,
teams, tournaments,
sponsors and more is
available in Niko
Partners’ Esports
Tracker. Subscribe
now.

5
Asia Games Market Intelligence: Japanese Esports on the Rise

2022 VALORANT Champions Tour Challengers Japan Stage 2, © Manabu Okayasu

Building an Esports Ecosystem

Much growth in the Japanese esports market is attributed to regulation and policy changes. In
2019 Japan ese authorities eliminated most of the legal restrictions on esports and large
tourn aments and leagues that offer high prize money for both domestic and global game titles,
regardless of game genre. Historically, prizes were regulated as an anti -gambling measure, but
had the added effect of restricting esports competition.

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Asia Games Market Intelligence: Japanese Esports on the Rise

Another factor was the establishment of the JeSU . JeSU was formed
by consolidating three Japanese esports organizations : the Japan
eSports Association, the eSports Promotion Organization, and the
Japan eSports Federation , with added support from several other
business organizations including the Computer Entertainment
Suppliers Association (CESA), Japan Online Game Associat ion
(JOGA), Japan Amusement Machine and Marketing Association
(JAMMA), and the Association of Media in Digital (AMD), as well as
a number of game companies. Using pro fessional player and
pro fessional team licenses, JeSU was able to navigate prize
regulatio ns and support the growth of an esports ecosystem in Japan .

This has given rise to a growing number of domestic esports leagues and tournaments , for
example, the PUBG Mobile Japan League (PMJL), sponsored by NTT docomo, a major Japanese
telecommunications carrier. PMJL , an esports league with 16 teams, and the annual champion
is awarded 100 million yen ($700,000). In addition, emerging titles such as Apex Legends from
Electronic Arts, Rainbow 6 Siege from Ubisoft, and Valorant from Riot Games are tremendously
popular, and players in these titles are beginning to establish themselves as true talent on a
global scale. Finally, mobile esports are also pop ular in Japan, with Knives Out, PUBG Mobile ,
and Brawl Stars as key examples. Niko Partners track esports leagues in Japan and across Asia in
our Esports Tracker .

Under these circumstances, teams with popular players are attracting the attention of
investors, sponsors, and fans. Historically, Japan’s t op esports teams and players have struggled
to exist solely on their esports income. In recent years, however, esports teams have been
raising funds and participating in major capital events one after another, and investment in
esports teams is increasing.

In this report, we will introduce 5 of the most promising and valuable esports teams in Japan
today, including interviews with management team members. The goal of this report is to
explain what makes Japan one of the fastest growing and most promising esports markets in
Asia.
For more in sights on
esports and
livestreaming in
Japan — its growth
drivers, trends and
ecosystem — check out
Niko Partners’ Esports
in Asia report .

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Asia Games Market Intelligence: Japanese Esports on the Rise

Source: Niko Partners

5 Team Profiles at a Glance

Team Name Titles
Represented
Results in International
Matches
Talent/
Streamers Website
Crazy
Rac coon
APEX, Clash
Royale,
Fortnite,
Valorant, Super
Smash Bros.
[Valorant ] Qualified –
VCT Champions 2021
Berlin

[Apex Legends ] ALGS
Championship 32nd
20 Creators https://crazyracc
oon.jp/

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Asia Games Market Intelligence: Japanese Esports on the Rise
DetonatioN
FocusMe
League of
Legends,
Valorant, APEX,
PUBG Mobile,
Shadowverse,
Splatoon3,
Super Smash
Bros., eFootball,
Fighting Games
(SFV, Others)
[League of Legends ]
Best of 16 – LCS 2021 2 Creators http://team –
detonation.net/
FENNEL
Knives Out,
APEX, IdentityV,
Valorant, LoL:
Wild Rift
[Valorant] 1st place –
Game Changers EAST
ASIA
11 Creators https://fennel –
esports.com/
SCARZ
APEX, IdentityV,
Rainbow 6,
PUBG Mobile,
COD Vanguard,
COD Mobile,
Honor of Kings,
Fortnite,
Winning 11
[Apex Legends ] EMEA
ALGS 2021 9 Creators https://www.scar
z.net/about_eng/
ZETA
DIVISION
Brawl Stars,
Fortnite,
IdentityV, Super
Smash Bros.,
Valorant
[Valorant ] 3rd place –
VCT Masters Reykjavik,
2022

[Brawl Stars ] 1st/2nd
place – Worlds Final
2022
14 Creators https://zetadivisi
on.com/
Source: Niko Partners , in alphabetical order

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Asia Games Market Intelligence: Japanese Esports on the Rise
1. Crazy Raccoon

Crazy Raccoon was established in 2018, it was originally founded as a team focused on Fortnite,
by Epic Games. Crazy Raccoon has a strong popularity among esports teams, especially among
teenagers. CR is unique since their members have their own “anime icons”, and their fans are
enjoying the items sell items as icons by creating animated visuals of players/streamers and
have a capital alliance with UUUM, a YouTube company.” Crazy Raccoon has its official store at
Shibuya of Tokyo, and it opera tes a free PC café for young fans.

2. DetonatioN FocusMe

DetonatioN FocusMe is one of the oldest Japanese esports teams in existence, having been
founded in 2013. The team is most recognized for its roster in League of Legends , a regular
participant in world championships, and was the first Japanese team to achieve the best 16th
place at Worlds in 2021.

In 2021, the team became a subsidiary of GAMEWITH, a publicly traded company that operates
a game strategy website, and team management rights were tran sferred. Entering 2022, the
company merged with the esports team owned by GAMEWITH and announced that it would be
active in 2023. This precipitated a name change from DetonatioN Gaming to DetonatioN

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Asia Games Market Intelligence: Japanese Esports on the Rise
FocusMe. Like ZETA DIVISION, it is supposed to compete in Valorant Champions Tour APAC in
2023 .

3. FENNEL

FENNEL was established in 2019 with the title Knives Out , a battle royale published by NetEase
Games. The team is positioning itself as a lifestyle brand with an affinity for street culture by
releasing apparel in collaboration with Diesel, joining OZ world, and partnering with famous
musicians. FENNEL are high ly competitive among emerging teams. Notably, purchasing an
esports team, Rascal Jester, to enter the League of Legends Japan league (LJL) in 2023.

4. SCARZ

SCARZ was established in 2012 by XENOZ Inc. The team is top class in terms of the number of
competition divisions it fields, and their abilities. They regularly participate in world
tournaments for some of its titles and have a reputation for creating strong teams. In 2022,
XENOZ, the management company behind SCARZ, raised funds from J . Front Re tailing, which
operates major department stores and joined its corporate group to enhance their popularity.

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Asia Games Market Intelligence: Japanese Esports on the Rise
5. ZETA DIVISION

ZETA DIVISION was founded in 2018, and as of December 2022, owns several team rosters. The
team was originally named Jupiter wh en it was founded but rebranded to its current team
name in July 2021 with the signing of a sponsorship agreement with Nissin Cup Noodles and the
participation of a star streamer, Stylish Noob (a.k.a Seki Yuta). The team has an excellent
exposure strategy f or its players and streamers, and its apparel brand is doing very well.

ZETA DIVISION’s Valorant and Brawl Stars teams have been particularly successful, with the
Valorant team defeating the Korean team, DRX, in the Valorant Champions Tour, an
international tournament, and achieving new records of No. 1 in Asia and No. 3 in the world. In
Brawl Stars , the team has won three consecutive official world championships, with one of the
finals being played between two teams from ZETA.

Report Findings

The five teams studied here represent leading esports organizations operating in Japan. Their
success is a lesson for other teams seeking to establish themselves or grow their presen ce in
the Japanese market, as well as businesses interested in the esports landscape of Japan.
Through a review of these teams, supported by interviews with team executives from ZETA,
SCARZ and DetonatioN FocusMe (DFM ), we identify several factors that mak e Japan a unique
esports market and the opportunities there.

The main sources of revenue for Japanese esports teams are (1) prize money, (2) sponsorships
and partnerships, and (3) merchandise and goods. These are akin to the primary revenue
streams of developed teams in other Asian markets, Europe, and the U.S. This was not the case
5 years ago. Mr. Tomori Yoichi of SCARZ explains, “Since the issues surrounding prize money

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Asia Games Market Intelligence: Japanese Esports on the Rise
have been mostly settled, I believe that it’s bec ome a lot easier to navigate and make progress
on the regulatory side of things now.”

A fourth revenue stream , taking a special importance in Japan compared to the other global
markets, is content partnerships. Players and streamers are increasingly appea ring in
promotion s for games, and game -related events are held every week in online and in -person
formats. There is also a growing interest in keeping steamers and content creators on the roster
for esports teams.

Mr. Tomori Yoichi and Mr . Kashiwagi Toshihiro of SCARZ stated , “We want to increase the
amount of content creators that we have, since esports players cannot stream when they’re
practicing. That way there are livestreams being done by full -time content creators in their
place .” SC ARZ even employs creators from other key markets like EU, China, and Chinese
Taipei , seeing these as cultural ambassadors for Japanese esports teams and their sponsors.
Revenue from talent -like appearances at events and online is not small, and this is a u nique
feature of Japan compared to teams in Europe and the U.S. which have been slower to turn to
international creators.

More and more teams are using video creativity for sponsor announcements, player sign -ups,
and more. ZETA DIVISION is at the forefron t of this trend, with each team hiring its own in –
house creators to specialize in this area.

It is important to have a competitive and strong roster in popular game titles. Now, Apex
Legends and Valorant are the most popular PC titles in Japan, and teams with high rankings in
these two titles remain popular. However, Japan also has a distinct taste in titles, with games
Rainbow 6 Siege , Identity V , and Brawl Stars more popular in Japan than in other espor ts
markets. Mr. Tomori of SCARZ describes this as “Galapagos syndrome,” expressing concern
that, “it may be said, a negative factor right now is the difference in games that are popular
here and those that are popular overseas. We are afraid that global es ports publishers may
reduce their budget in Japanese market due to a lower popularity of global titles.”

Spectator trends are also understood to be different in Japan, with a high number of spectators
who are not gamers themselves. Mr. Daisuke Nishihara, ZETA DIVISION, CEO, explains “I get the
feeling that in Japan there’s a stronger culture of ‘watching games but not playing them’

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Asia Games Market Intelligence: Japanese Esports on the Rise
compared to other regions in Asia. Video game livestream and let’s play culture has existed for
quite a while on platforms su ch as NicoNico Douga . But , with the COVID -19 pandemic, it has
become influential . Before I entered the esports scene, I saw quite a number of lighter or casual
video game streams. Most fans start watching livestreams of game influencers and gradually
get i nto the competitive scene.” Mr. Tomori of SCARZ suggests something similar, “I have the
impression that passive viewers or lurkers who do not play video games are increasing in
number . They really focus on watching players, not video games.” Niko sees that this feeds into
a stronger value placed on esports and game content creation as well as the importance of
esports companies as lifestyle brands. Growing and wider awareness of esports among gamers
and non -players alike is changing the way partnerships are valued.

Before 2019 , sponsorships were limited to PC makers and other companies with direct
synergies with esports, but now sponsorships from other industries such as Nissin Foods
(known for Cup Noodles) and other non -endemic brands are increasing. According to Mr.
Nishihara of ZETA, team owners feel that sponsorship fees have also exploded and are expected
to grow more than tenfold compared to five years ago. Still, the companies we spoke to express
the feeling that their activations and partnerships are undervalued and underutilized.

Another way teams tap into this growing audience is through merchandising with many teams ,
including FENNEL, ZETA, and SCARZ , building lifestyle brandi ng. Teams are opening more and
more retail stores . These facilities are quite active due to the popularity of players and
streamers and have the potential to become a powerhouse for esports in Japan. Mr. Tomori of
SCARS told Niko, “I get the feeling there are a lot of stylish gamers. The idea that playing games
is cool encourages fans to purchase team merchandise .”

One other potential area for audience growth that is still to be developed is attracting women
to esports, as players and fans. The growing leg itimacy of esports – which is leading to more
interest in esports careers overall – is also helping to attract a wider audience demographic,
including women . Mr. Nishihara of ZETA explains, “Attaining female fans is very important.
Female fans tend to supp ort their favorite teams longer than male fans, and they also play a
role in attracting other female fans. There is an environment in Japan where females are also
familiar with video games from an early age.” Titles are also playing a role in this, Mr. Tom ori of
SCARZ explains that with the popularity of titles like Identi ty V more women are getting into
esports games.

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Asia Games Market Intelligence: Japanese Esports on the Rise

On the business side esports teams continue to seek funding and partnerships as key to their
business. They need a good deal of business in vestment, particularly as international
organizations that hope to expand overseas and participate in large international leagues. As a
result, some teams are raising small amounts of capital from VC firms with the aim of going
public in the future, while others are joining groups of major companies to obtain large
amounts of funding, such as DFM and SCARZ.

The number of foreign investors supporting or partnering with Japanese teams remains low.
Japanese teams ’ valuations are low in light of their revenue and growth potential, which may
bring more foreign investors into this market . Japanese teams are also seeking to expand
internationally. SCARZ employs international creators, while DFM is actively looking to expand
its p resence into South Korea. Mr. Tomoyuki Umezaki of DFM said, “Our expansion into Korea
will begin in 2023 with the Valorant International League. DetonatioN FocusMe is a popular
League of Legends team in Korea, and since there aren’t many Korean players, we are aiming to
take root there.”

One point of concern for the teams we interviewed was the nature of esports as publisher
driven events. Esports teams and players are affected by changes to games and league formats
implemented by publishers and organizers , without much recourse or security. Mr. Umezaki of
DFM explained , “Teams are vulnerable to the will of publishers, there are no restrictions on
changes to rules/formats in major tournaments of official leagues.” Mr. Nishihara of ZETA told
us, “The power balance between games publishers and teams is an ongoing challenge. If a
publish er says ‘no’ then there are things that ultimately the team cannot oppose, unlike
sports.” Famously, Nintendo has sought to block esports competitions around its popular
brawler series Super Smash Brothers . Lack of regulation around tournaments is a wider issue in
the esports ecosystem. Korea, as a more mature esports market , has even begun to introduce
some legislation around this but it is unclear if or when this approach may be adopted in Japan.

There is excitement for the future of esports in Japan. T here is a sense among the companies
Niko Partners interviewed that the culture of esports in Japan is changing and growing and will
be different in the next five years. There is a sense that esports in Japan are five years behind
other leading markets. Mr. Umezaki of DFM says, “Currently, whether pros or amateurs, Japan
has quite a lot of esports teams. It resembles the esports scene of the US and EU in 2010 -2015.

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Asia Games Market Intelligence: Japanese Esports on the Rise
Teams will get weeded out and consolidation will increase.” While this means there is some
vol atility in the market, it also is a sign of significant opportunity for the teams that succeed .
Mr. Tomori and Mr . Kashiwagi of SCARZ tell us, “The size of the esports fanbase and number of
players will increase in five years. Current players will begin to retire, and new players will
pursue their career in esports, different from the current players. They will have been inspired
by current esports players.” He also predicts that as the environment matures, Japan will be gin
to attract players and fans from overseas.

Conclusion

Overall, the Japanese esports market is moving up and to the right – growing as we speak . Its
combination of a strong gaming culture and publisher support, unique streaming and fan
ecosystem, and distinct pool of popular titles make Japan a market with strong opportunity and
rapid development. Looking forward, Japan has strong growth potential if i t can tap into the
wider international esports market, encourage and capitalize on esports tourism , and if
Japanese developers show stronger support for the domestic esports market.

This report was made possible thanks to interviews with Japanese esports leaders Mr.
Tomoyuki Umezaki of DetonatioN FocusMe, Mr. Daisuke Nishihara of ZETA DIVISION, and Mr.
Yoichi Tomori and Mr. Toshihiro Kashiwagi of SCARZ, as well as Yuki Matsumoto , a Japanese
lawyer from Nishimura and Asahi, who has played a part in shaping the current regulations and
policy that will help build the domestic esports industry. You may learn more about Niko’s
ongoing esports research at nikopartners.com .