Esports is a pretty expensive business, and both the success and collapse of esports organizations can be recalled in the short history of the niche. However, strategic investors have learned how to make money on it and the ways of earning can be called quite confident.
Esports is a popular trend in the information technologies sphere: according to the predictions of the famous service Newzoo, the market volume will be about 2 billion dollars in 2025.
The news about large esports investments appears more and more frequently. Why do investors need this and what benefits do both sides of the deal receive?
Teams and players
Standalone players and esports teams participate in tournaments and marketing activities. They are usually represented by esports organizations: they take over the functions of agents and managers to leave only one objective for gamers — to play.
Due to agiotage, there can be an impression that players, managers, agents, and roster owners swim in money. The situation is the opposite: there are very few esports organizations, which are profitable on their own.
Costs of having teams, which could compete on the highest level, are pretty high right now — for example, a League of Legends roster costs about $0,5-0,7 million a year. The market is still growing: there are not that many sponsors and money but the income of esports organizations has not reached its peak either. This applies especially to the sources, which will generate the biggest profit in the future. It can be franchise leagues or a strategic partnership between teams and big companies.
Prize money at tournaments
Despite the giant numbers of prize money, this is one of the smallest sources of income for organizations because the majority of prizes (as a rule, not less than 70% but sometimes even 100%) is earned by players. There can be issues with receiving prizes. There were cases of delay or non-payment. There are organizational issues: let’s say, the organizer of a tournament can demand to go to China and take the prize money in cash.
Important! Although the problems are slowly disappearing with the growth of infrastructure and practice, including the legal one, it is unlikely to build an organization, which would pay off only (or at least mainly) with the help of prize money.
Esports is similar to traditional sports: although the skills required to prevail at competitions differ a lot, the competitive spirit, the principle of building the infrastructure, ways of working with the audience, brand monetization, and marketing opportunities are all the same. At the same time, the esports audience has already surpassed many traditional sports, and, considering its growth rate, it will be able to catch up to hockey, basketball, and football (soccer), according to some (optimistic) estimations.
Many sports clubs, which decided to take part in the developing industry, made the same conclusion. However, many only hired one or a few players to play a football simulator — FIFA — just because it is close and understandable for them. However, the FIFA audience is far from the popularity of the discipline — for example, the top-tier tournaments in CS:GO, Dota 2, Valorant, and League of Legends (LoL) can reach millions of viewers in peak views even without the Chinese audience, and achieve the mark of dozens of millions with it.
The sale of merchandise
This option is almost unavailable for solo players but it works nicely for organizations and teams — the revenue depends directly on the popularity and the size of the fan base. They, in turn, depend on not just results but the media popularity of players: their brand, fame, and social network activities. By the way, that is why teams frequently include the points about the mandatory minimum of public activities in their contracts.
Branded merchandise is one of the sources that significantly benefits from the cooperation between esports and sports clubs. On the esports side, besides traditional t-shirts and souvenirs, gaming devices can be branded: for example, there are gaming mice and mouse pads in the colors of famous Na’Vi or Team Liquid, the NAVI or Vega Squadron DXRacer chairs, and other similar items.
Revenue from franchise competitions
Initially, organizers and participants of esports tournaments operated in their financial interests. However, the players’ salaries and infrastructure costs (gaming houses, coaches, psychologists, social welfare, etc) have increased with the growth of the market and even the most popular teams in the world had to work at a loss to stay on top — for example, the heads of the American Team SoloMid and European H2k released such statements.
The solution is to transfer to a franchise system when a league shares its income with participating teams. It is usually made in the following way: organizations pay a solid entry fee but they can’t be eliminated from the league, which means that they buy a slot forever or, at least, for a very long time. For example, the American League of Legends league moved to this system in 2018 — NA LCS.
The Overwatch League by Activision Blizzard is hosted by the same system. 12 teams from all over the world have purchased slots for $20 million. Sports clubs, big companies, and rarely private persons have become the investors of teams. The organizers promise an income of $3,5 million for a club in the first season of the Overwatch League.
Interests of sponsors
Esports is a multi-million audience of the so-called generation Z (not only, but mostly), people who are not necessarily buyers now but will become them in the future. Those who start working with esports today understand: the value of the contract will grow tomorrow. For now, those who are ready to sell to gamers here and now work with it but the list of cases is not limited. The main examples are listed below:
Gaming devices and other electronics. The companies Razer, Steelseries, Zowie, BenQ, Lenovo, HP, Roccat, and Thermaltake support, at least, one of the large teams.
Digital trade platforms. G2A, one of the biggest sellers of digital keys to games and software, is advertised by many teams. For example, one of the most famous esports organizations in the world, Na`Vi (Natus Vincere), was playing under the tag of G2A during the last year.
Bookmakers and online casinos. This sphere has complicated relations with esports — many game publishers do not allow them to enter its territory, however, there are enough cases: Natus Vincere works with GG.bet, Ninjas in Pyjamas with Betway, .
The banking sector. Banks prefer working with the gaming audience mainly by releasing cards with cashback for game purchases but there is an esports case: the payment system VISA became a partner of SK Gaming, one of the oldest European teams at the beginning of 2017. MasterCard also does not stay behind – the system is a partner of the strongest CS:GO team, G2 Esports, at the moment.
Energy drinks. The makers of such products work actively with the esports audience, which is its target. The list includes Red Bull, Adrenaline Rush, TORNADO, and Monster.
More players that do not relate to any of the above-mentioned categories have emerged on the market recently — it is Gillette, Borjomi, and even manufacturers of the products that seemingly are unavailable for the young esports audience, like Audi and Mercedes. But all of them understand: the esports audience is not just teenagers, and even teenagers will grow up one day, and many of them will achieve success. So it is better to build the foundation for loyalty to your brand now — it will be way more difficult and expensive in the future.
Investing in an esports team is a step that helps not just to reach the audience of the team and esports in general but to get part of its revenue in the future. At the same time, the team can solve various marketing objectives.
The unique case of South Korea
More unusual cases can be met in South Korea where esports has grown into a complete business, for example, the company STX, which operates in shipbuilding and the production of engines for the heavy and oil industries, was the title sponsor of the StarCraft team SouL from 2004 to 2013. Besides, the state-owned airline Korean Air entered Korean esports more than five years ago and founded its team under the tag of the subsidiary company that specializes in low-cost airlines, Jin Air.
The thing is that the popularity of esports in Korea is at a level, which can be difficult for us to imagine: three-quarters of the country’s population is fond of video games. The main tournaments are broadcasted on TV and it means that the support of the teams is advertising that not only brings contacts at a cost, which is commensurate with conventional channels but provides way bigger loyalty from the giant audience of fans of teams and esports in general.
One of the long-livers of Korean esports and one of the biggest corporations in the country, Samsung, sold its League of Legends team after its victory at the World Championship for $100 million at the end of 2017. Now, the roster plays under the tag KSV, the biggest investor who has already invested in the team Seoul Dynasty in the Overwatch League and KSV Black in Heroes of the Storm, a popular discipline in Korea. The company now aims at the Chinese market. They do not have an objective to promote their brand, instead, it is said that KSV is a temporary name: they are going to make money in esports.
The Korean telecommunication companies, SK Telecom T1 and KT Rolster can be called to be the most successful and long-term examples of the strategic partnership between business and esports. SK Telecom and Korea Telecom were one of the first to enter the esports market and held the leading positions from the very beginning, and they are not going to give up because the need to attract a young audience for telecommunication companies increased over the years (and the emergence of the affordable mobile internet).
Esports is a big business that keeps growing. Organizations have more opportunities to earn high profits but to reach this level, investments are required, instead, they are doomed to stay in the middle of the standings and balance on the brink or even beyond the brink of payback.