In recent years, esports has emerged as a global phenomenon, captivating millions of viewers and attracting substantial investment from both traditional sports organizations and major corporations. As the industry continues to grow exponentially, it is crucial to understand the various revenue streams and monetization models that power the business of esports. This article will delve into the key aspects of the esports ecosystem, including sponsorship deals, advertising, media rights, merchandise sales, ticketing, and the potential for new revenue opportunities in the future.
Although the valuations of esports organizations are rising significantly and causing concern globally, it remains widely acknowledged that the ability to generate revenue from fans lags far behind that of major sports clubs. The notion that the economic dynamics in esports differ from those in traditional sports is frequently disregarded.
Let’s understand one by one about different aspects of the esports ecosystem now:
- Sponsorship Deals: Fueling the Esports Economy
Sponsorship is a primary revenue stream in the esports industry, providing financial support to teams, tournaments, and individual players. Companies from various sectors, including technology, apparel, food and beverage, and automotive, recognize the immense marketing potential of esports. According to a report by Newzoo, global esports sponsorship revenue reached $1.1 billion in 2020, representing a significant increase from previous years.
Major brands are attracted to esports due to its vast and engaged audience, which primarily consists of tech-savvy millennials and Gen Z. Sponsorship deals involve branding placements on team jerseys, in-game advertisements, and collaborations with esports influencers. Companies also sponsor individual players, providing them with endorsement deals and exclusive merchandise. Sponsorship, the most lucrative esports revenue stream globally, will bring in $636.9 million in 2020, up from $543.5 million in 2019. One of our newest revenue streams, digital, is the world’s fastest-growing esports revenue stream with a CAGR (2018-2023) of +72.4% compared to sponsorship’s +16.6%. Additionally, we’ve included streaming as a source of income, which will bring in $18.2 million in 2020 and $31.6 million in 2023.
- Advertising: Tapping into Esports Viewership
Advertising plays a vital role in the monetization of esports. Brands can reach a massive global audience through in-game advertisements, live-streaming platforms, and tournament broadcasts. In-game advertising allows companies to display their products or logos directly within popular esports titles. These integrations can range from subtle placements to more overt branding, depending on the game and sponsorship agreement.
Advertising in esports has two advantages. First of all, because the audience is youthful, extremely engaged, and devoted, businesses that carefully advertise and fully integrate their brand identity to “get in the game” succeed in the ecosystem.
Brands can also sponsor specific streamers or create their own esports-related content to engage with the audience. Additionally, tournament broadcasts often feature commercial breaks, during which brands can showcase their products and services to a captivated audience. To fulfill marketers’ desire to promote their products, the platform provider can present advertising opportunities to these marketers while subscribers are watching a streamer’s live show. Apart from the ads facilitated by the platform provider, the streamer has the ability to create personalized content during the live show to showcase these marketed products.
- Media Rights: The Rise of Esports Broadcasting
Similar to traditional sports, media rights are becoming a significant revenue stream in the esports industry. Media companies and streaming platforms compete for exclusive broadcasting rights to major tournaments and leagues, aiming to capitalize on the growing viewership. In 2020, the League of Legends World Championship attracted over 45 million peak concurrent viewers, demonstrating the potential for esports as a lucrative broadcasting market.
The tremendous surge in popularity of both professional and amateur esports and gaming over the past 18 months is widely known. This growth, which has occurred amidst a global pandemic, is a testament to the industry’s resilience and appeal. However, despite the exponential increase in viewership and revenue, there are still significant underlying challenges that this emerging industry faces. Streaming platforms like Twitch, YouTube Gaming, and dedicated esports platforms such as ESL-owned ESEA provide live coverage of esports events, while television networks like ESPN and Turner Broadcasting have also entered the market. These broadcasting deals involve substantial financial investments and help elevate the visibility and professionalism of esports.
- Merchandise Sales: Engaging Fans Beyond the Game
Merchandise sales are a popular revenue stream for esports organizations and players. Fans show their support by purchasing team jerseys, player merchandise, and other branded products. Physical merchandise sales, including apparel, accessories, and collectibles, contribute to the overall revenue and help build brand loyalty. As the esports industry continues to develop, it is expected that merchandise will remain a relatively minor source of revenue for teams in the long term, primarily due to the distinct consumption patterns and fan support discussed earlier. This reality further supports 100 Thieves’ perspective that team merchandise contributes to their overall value rather than serving as a significant profit generator.
Additionally, digital merchandise and in-game purchases have gained prominence in esports. Popular titles often offer virtual items, skins, and customization options that players can purchase to enhance their gaming experience. This form of monetization has proven highly successful, with games like Fortnite and League of Legends generating millions in revenue through in-game purchases.
- Ticketing: Filling Arenas and Stadiums
As esports continues to gain mainstream popularity, live events and tournaments have become a significant part of the industry. Fans eagerly attend these events to witness their favorite teams and players compete in person. Ticket sales provide a direct source of revenue for organizers and serve as a testament to the thriving esports community.
Large-scale esports tournaments, such as The International for Dota 2 or the League of Legends World Championship, sell out massive arenas and stadiums, attracting audiences from around the world. The ticket sales are often complemented by additional revenue from merchandise booths, concessions, and partnerships with local businesses.
- Future Revenue Opportunities: Exploring New Frontiers
While the current revenue streams in esports are well-established, the industry continues to evolve, presenting new opportunities for monetization. Here are some potential avenues for future revenue growth:
- Streaming and media platforms: As the number of streaming platforms and their user base continues to grow, exclusive broadcasting rights and content partnerships will become increasingly valuable.
- Esports betting: The legalization of sports betting in various regions has opened up the potential for esports betting markets. This offers an additional revenue stream and increases fan engagement during tournaments and matches
- Brand collaborations: Esports teams and players have a significant social media presence, making them attractive partners for brands looking to connect with younger demographics through collaborations, product placements, and influencer marketing.
- Virtual and augmented reality: With the advancement of virtual and augmented reality technologies, esports organizations can explore immersive experiences, such as virtual ticketing, virtual merchandise, and VR tournaments, providing new monetization opportunities.
The business of esports is a dynamic and rapidly growing industry with diverse revenue streams and monetization models. Sponsorship deals, advertising, media rights, merchandise sales, and ticketing form the core revenue drivers, fueling the economic success of esports organizations and players. As the industry continues to expand, new opportunities are emerging, such as streaming platforms, esports betting, brand collaborations, and virtual reality experiences. Understanding and leveraging these revenue streams will be key to unlocking the full potential of the business of esports.