The Rundown: How do esports organizations generate revenue?

The crash has made it clear that many esports gamers and fans don’t know how esports organizations make money – and how much they make. Many esports organizations still struggle to generate a profit, even though gaming has grown to be one of the most popular forms of entertainment in the world. Although the number of esports viewers rivals those of traditional sports, esports audiences spend much less money than traditional sports fans, in large part because the average esports fan is younger and has more. less disposable income. Additionally, while traditional sports leagues can generate revenue by granting media rights to broadcasters, most esports events are streamed for free on digital platforms such as Twitch, blocking this potential revenue stream for esports leagues and teams. who share their loot.

Despite these challenges, the biggest esports organizations are already raking in millions of dollars in revenue each year. To bolster their pre-existing revenue streams and earn new ones, some of the larger esports organizations either acquired smaller businesses or went public in 2021. Digiday spoke with esports experts and executives to shed light on the different sources of revenue exploited by the main esports. organizations.

The key details

• Many leading esports organizations prioritize three main sources of revenue: esports, entertainment, and clothing. Esports covers revenue generated by organizations’ competitive teams: revenue sharing with esports leagues, tournament earnings, and team-wide branded partnerships. Entertainment includes income generated by creators and team-affiliated influencers who do not play competitively; many of them have their own branded partnerships and sponsorships.
• Each of these three pillars accounts for about a third of 100 Thieves’ income, according to COO John Robinson. “Part of the reason we believe in this diverse model is that these three things have been successful in our first four years,” said Robinson. The organization’s recent acquisition of peripheral company Higround is part of the clothing arm of this strategy, allowing 100 Thieves to expand its merchandise offering from clothing to keyboards and mouse pads.
• The ranking of these income sources varies from team to team. “Merch is a great deal for a lot of teams, but I would say that for most esports teams, league revenue share and sponsorships are probably a higher margin,” said Jordan Sherman, CEO of ‘Immortals, which has grown to be a nonprofit commodity. strategy last year. “For us, the revenue sharing and sponsorship, then the merch, was sort of the order.”
• However, these aren’t the only sources of revenue for esports organizations: some have started positioning themselves less as competitive teams and more as full-service agencies offering brands a seamless connection with a preloaded fan base. “We have a pretty strong marketing or branding consulting group that represents clients like State Farm in games and esports,” said Dave Bialek, co-founder and CEO of esports company ReKTGlobal. “So we have this very strong branding and media buying division, which is more of a B2B game – but it’s a very solid company operating under the umbrella of ReKTGlobal, and people are probably not not even aware that they are part of our organization. Of ReKTGlobal’s approximately $ 15 million in revenue in 2021, “two-thirds of our revenue comes from it,” said Amish Shah, co-founder and chairman of ReKTGlobal.

Non-traditional sports

The importance of merchandise as a source of esports revenue highlights some of the fundamental differences between the way esports organizations and traditional sports teams generate revenue. Traditional sports leagues such as the NFL, MLB, and NBA often offer manufacturers collective rights for league jerseys: for example, Nike is the only jersey manufacturer licensed for the NFL. “The big soccer teams in Europe will contract with an Adidas, a Puma or a Nike, and they in turn will sell their own individual licenses to make t-shirts, cups, whatever,” Alex said. Romer. , CEO of the freight company We Are Nations. “Some market part of their product directly, others allow it completely, but at the jersey level, they grant it in exchange for a royalty.”

Esports organizations often field teams across multiple competitive leagues, making this type of league-wide licensing deal difficult. Instead, organizations will partner directly with manufacturers to lead their production of merchandise, like Immortals does with We Are Nations, or handle design in-house, as is the case with 100 Thieves.

Scalable models

As esports becomes more entrenched in popular culture, it is likely that more and more esports organizations will transform from competitive teams into agencies and brand consultants designed to connect brands to brands. players. Most of them already have all the talent and resources to offer this type of service; the streamers and gamers who make up esports organization rosters know better than anyone what makes gamers tick. With independent designers such as Imane “Pokimane” Anys already forming their own consulting firms, organizations that do not provide this type of branded service risk falling behind or finding themselves trapped in an old esports modality. “We think there is just a great opportunity for us, in terms of growing the business – and the right business,” said Bialek.

The bigger picture

Some esports teams have demonstrated viable paths to profitability. In 2020, the SoloMid team claims be profitable ; last year, Sherman told Digiday that many of Immortals’ individual sub-businesses were profitable. What is clear is that simply copying the revenue streams of traditional sports leagues, or focusing solely on competitive esports in general, is not profitable. As esports organizations seek to move away from old, competitive models, it is more imperative than ever for them to fuel this expansion with new investment rounds and public offerings, bringing new ideas through Mergers and Acquisitions.

“If you look at the different businesses that a TSM, Team Liquid, or Cloud9 is in, it goes beyond selling tickets and merchandise – you know, traditional revenue streams,” said Ann Hand, CEO of esports entertainment company Super League. . “There is far more potential than anyone has ever seen in the professional esports category; however, there is no doubt that it takes longer, and everyone wanted it to be just that rocket overnight.