Find out how this fast growing industry makes its money and gains popularity.
Esports specifically refers to the competitive play of video games by professional players. There are many games that fit into this realm of competitive gaming; however there are some games that tend to do better than others. The most popular games for esports are team-based multiplayer games that can be anything from first person shooters to online battle arena.
Spectators can watch these matches either by going to the event in person or by watching the games online on streaming platforms.
Esports revenue, in descending order, is comprised of: sponsorships, advertising, media rights, game publisher fees, and tickets and merchandise. The growth in esports can also be assessed by more factors than just these aforementioned methods of revenue. The industry as a whole can be measured by looking at Twitch viewership data, meaning how many people are watching these tournaments, and prize pools for major tournaments.
The esports industry right now is growing at a very fast rate. In 2016, the total revenue was $493 million and that jumped up to $655 million in 2017. Experts are now predicting that this number exceeds $900 million in 2018. Another number obtained in a report by Reuters has the estimated revenue for the gaming industry in 2017 at $116 billion, a 10.7% growth over the past year. As for the difference in numbers, judging by the articles it can be assumed that the Reuters report contains in-game purchases as well as the sale of games and game systems.
The article claims the revenue produced by the gaming industry beat television and television streaming services such as Netflix or Hulu which produced a revenue of $105 billion. It is said that this is the closest the numbers got to each other since the movie industry produced $41 billion and the music industry produced $17 billion. It was not explained how these numbers were obtained.
The article notes some of the major events leading to this is the recent opening of the Chinese gaming market, the rise of Fortnite with its profitable microtransaction model, and Grand Theft Auto V since it sold more than 90 million copies, grossing more than $6 billion, making it the most profitable release of all time in the entertainment industry via any medium. In the microtransaction model games are free to play, but allow players to buy items, such as cosmetics, for an additional price.
Some other notable events mentioned is the diversification efforts of esports, the release of the Nintendo Switch, Xbox One X, and PlayStation 4 Pro. The gaming culture is now moving past simply being a participant activity and now exists in many forms since people can now watch and play.
The concept of esports has helped insert video games into many lifestyles, especially now since many colleges and high schools are creating esports teams for a variety of different games.
The release of the Nintendo Switch allowed for people to take their video games on the go with them due to the Switch’s handheld mode. Even though the Switch is not able to support some of the popular games that appear on other consoles like the Xbox One or PlayStation 4, it does have some exclusive games.
Media rights are a huge part of the esports industry. Much of what happens within the esports industry happens online with viewers watching tournaments or professional players play games on platforms such as Twitch or YouTube. This is leading to many companies competing for the right to broadcast these events. The leaders in these fields, Twitch and YouTube Gaming, witnessed huge revenue increases over the past year.
Even though the field is dominated by companies like Twitch and YouTube, new companies in the field such as Facebook also saw growth which provides hope for the industry’s near-future growth.
Many of the esports tournaments are being watched online, however, the finals of major tournaments can be seen in person. These tournaments generally take place at theaters or stadiums typically used by traditional sports teams. League of Legends and Overwatch tournaments have sold out arenas such as the Staples Center, home to the NBA teams L.A. Lakers and Clippers, and NHL team L.A. Kings, and Oracle Arena, home to the NBA’s Golden State Warriors. Rocket League held their Season 7 Finals of the Rocket League Championship Series in the Prudential Center in New Jersey, which is home to the NHL team New Jersey Devils.
Sponsorships and franchising are also expected to have influential roles on the esports industry as more brands are becoming interested in esports. In 2017 alone, revenue from sponsorships grew by over 55%.
Esports has started a move to franchising in some games. Game developers are looking into switching over to a franchising model and implementing it soon.
Many esports use a relegation system which means that teams can get relegated to a lower league based on performance and other teams can earn a spot in the higher league due to performance.
The franchising model is one that many traditional sports leagues use. It guarantees teams a spot in the league for a certain price and these teams can not get kicked out due to performance. This model creates a more stable foundation that investors look for. The Overwatch League (OWL) and North American League of Legends Championship Series (NA LCS) both introduced this franchising model in part to create this long term stability but also to incorporate concepts such as revenue sharing, salary minimums, players’ unions, and more benefits for players.
To be involved in the Overwatch League, there was a $20 million entry fee for every team and Twitch paid $90 million for exclusive rights to stream all the games. That is the biggest deal in the history of the esports industry. They also promised things such as teams tied to a location and home and away games.
The Overwatch League was also able to land sponsorship deals with HP Omen, T-Mobile, Sour Patch Kids, and Toyota, along with a deal with Twitter to advertise their content, and a deal with Disney to broadcast OWL games on television. Due to all the success coming in this first season, OWL added eight expansion teams and each of these spots were reported to cost $35-60 million.
The North American League of Legends Championship Series also introduced franchising in 2018 and saw success. To obtain a spot in the league it cost organizations $10-13 million depending if they had been in the league previously. The NA LCS signed sponsorship deals with Jersey Mike’s Subs and they also signed a deal with ESPN to stream games on ESPN+, ESPN’s paid streaming service, and a deal with We Are Nations to make game day jerseys for players, a common thing in traditional sports.
A players’ union has been created and salaries jumped 220% per year, according to OpTic Gaming’s General Manager, Romain Bigeard. Due to all the success they saw, League of Legends is also implementing this in their European league and their Turkish Champions League. Due to these results by both leagues, many investors who currently own a traditional sports franchise have been investing in teams in these respected leagues.
Esports agents are beginning to be a crucial part of the industry now, just like professional football players are expected to have an agent. As the contracts are getting bigger, the players need to know what they are getting themselves into. So far players and organizations have been making up the rules as they go. Players have simply signed the contract themselves without reading it properly. Having an agent would ensure the players are being paid and would be crucial for the players to understand exactly what they are signing. The founder of Team Dignitas, an esports organization that signs players to compete in a variety of games, expects most of the top players will have agents very soon.
Part of the struggle esports faces today is with regulating games. When it comes to creating rules for different tournaments, often times it is hard to do so and especially hard to make rules that will serve as the rules for every game.
There are so many different games and different types of games that it would be like having the same rules governing over the MLB, NFL, NHL, and NBA: it just would not work. There are so many different games that it is next to impossible to have a sports game being governed by the same rules as a first person shooter. Some game developers have started making their own rules for their own game, such as Riot who runs League of Legends.
Esports have a lot of working pieces to them, but each of these components combine to make up the fast growing and successful industry that esports is.
Sources:
Batchelor, James. “We Need to Reverse the Way the Media Thinks About eSports.”
Gameindustry.biz. Published January 10, 2017. https://www.gamesindustry.biz/articles/2017-01-10-we-need-to-reverse-the-way-the-media-thinks-about-esports.
CBS News. "Esports: Inside the Relentless Training of Professional Gaming Stars." CBS and
YouTube. Published December 23, 2018. https://www.youtube.com/watch?v=box4SFtGvA0.
D’Argenio, Angelo M. “Statistically, Video Games are Now the Most Popular and Profitable
Form of Entertainment.” Gamecrate. Published July 10, 2018.
“How Much Can The eSports Market Grow In 2018?” Forbes. Published July 11, 2018.
Miceli, Max. “How the Franchising Model Shook Up North American Esports in 2018.” The
Esports Observer. Published January 28, 2019. https://esportsobserver.com/franchising-north-america-2018/.
Shah, Murty. “RLCS Season 7 World Championship Headed to the East Coast.” Psyonix.
Published April 6, 2019. https://www.rocketleague.com/news/rlcs-season-7-world-championship-headed-to-the-east-coast/.