Money is an important factor in esports. We would like to think that it isn’t, but unfortunately, money is what keeps the tournaments and leagues running. We have discussed esports history in length before. Back in the first few years of competitive gaming, when esports was largely practiced from the basements of core gamers, the industry didn’t really depend on outside financing. But as tournaments grew in scale and started to fill stadiums and players started (rightfully) demanding salaries, organizers and teams had to find a way to make money.
Where Does Money Come From in Esports?
This question is actually quite difficult to answer and depends on the type of company within the scene. Organizers get their money in a different fashion than the teams. But generally, both sides largely draw their budgets from sponsorships.
Ever seen the “Mountain Dew League”, the “Acer Predator Masters” or those big DHL logos hanging outside of the arena at ESL’s Dota 2 events? Well, they’re not just there for decoration. Sponsors pay huge amounts of money to see their brand or products featured and mentioned throughout the show.
Take Astralis as an example. The CSGO team has partnered with Audi and Jack&Jones. They regularly collaborate for content and wear the companies’ logos on their jerseys. The players are essentially being used as advertising space. The sponsorships in esports are similar to those of traditional sports. There, the teams gladly build those partnerships and finance their operations this way. But for esports, this may not be enough. Why is that?
Esports as an industry is young and, most crucially, volatile. In the recent decade, player salaries and tournament prize pools have risen to unprecedented heights. This of course means that teams and organizers have to play catch-up with those rising costs. Many experts call esports a ‘bubble ready to burst’. With this phrase they refer to the inflation within the scene, which they think is unsustainable.
What would happen if, someday, the increasing demand becomes too much for sponsors? What if they decide that pumping millions of dollars into one team is not worth the effort anymore? Then, we might experience a mass exodus of sponsors and advertisers. Suddenly, teams would not be able to pay those ridiculous salaries and organizers wouldn’t be able to stem those multi-million dollar prize pools anymore. Esports desperately have to find a way to make money apart from relying on outside investors.
Thankfully, there is a silver lining. In recent years, organizers and teams have come together to create events and leagues where the participating clubs were fixed and could compete for the years to come. This gave both the organizers and the teams much more stability, which resulted in increased sponsorship opportunities. Investors are much more likely to sign deals if they know that a team or an event will still be relevant far in the future. Franchising offers a lot more opportunities when it comes to the monetization of esports fans.
We shouldn’t forget merchandising. Both teams and organizers feature huge merch shops at their events, which allows fans to buy and wear jerseys, jackets, caps, even pants. There aren’t any official figures as to how much esports teams make off of selling these products, but it is safe to say that the biggest clubs run away with a lot of money. Unfortunately, this support most certainly breaks away at the lower end of the scene. Especially when it comes to smaller quantities of merch items, the margin of profit shrinks considerably. Merchandise doesn’t provide a huge financial boost to Tier 3 or 4 teams.
Organizers obviously draw huge amounts of money from their physical live crowds. If we estimate that 15.000 people bought the 3-day tickets for ESL One Cologne 2016, then ESL would have made 900,000€ from those admissions (not counting ticket provider fees, etc.). That’s just 90% of the CSGO Major’s prize pool at that time. Add to that millions of euros in costs for renting the venue, building the stage and broadcasting to online and offline audiences and the money made from ticket admissions is barely a factor.
Obviously, the sales from food and drinks increase this figure a lot. But still, the raw money made from the event itself is dwarfed by the overall costs. In fact, ESL One Cologne has never been able to make a profit. So organizers have to look for additional means of making money.
ESL reportedly made $90M when they transferred most of their high-profile events in CSGO, StarCraft II and Dota 2 over to Facebook Gaming. Handing the exclusive streaming rights for a competition to one specific broadcaster has become a common practice in esports. This is a great way to monetize esports viewership.
For instance, ECS, before their cancellation, signed with YouTube Gaming to broadcast their CSGO leagues. Overwatch and Call of Duty also have given exclusive broadcasting rights to YouTube Gaming as part of Activision’s multi-year partnership with Google.
But all of that comes at a price, as it appears that esports fans are creatures of habit. They tend to stay with their favorite streaming platform, Twitch, no matter what. As ESL moved their flagship events to Facebook, their viewership tanked. All of these high-profile tournaments were suddenly reduced to footnotes in terms of esports viewership. It didn’t help that Facebook Gaming was an unfinished platform and lacked most of the features that fans like about Twitch.
This is one thing that organizers haven’t dared to try yet. They fear huge backlash from the community. Having so many fans jump ship after the Facebook deal must have really scared the likes of ESL. Imagine if fans who wouldn’t even try to use a different streaming platform suddenly had to pay to watch these events?
Because of this, pay-per-view events are likely off the table for quite a while. One should also not forget that the esports viewership is predominantly young, which makes soliciting money even more complicated. But since games have no issue collecting ridiculous sums through loot boxes or cosmetic items, there probably is a way for those players to pay for watching an event.
For that to happen, the mentality of the esports fan has to change. We’re too used to getting stuff for free on the internet. We expect our entertainment, our music, our news and our learning resources to come without a price tag. But just like we have to pay for premium services like Netflix or Spotify, should we maybe also pay for watching a professional esports event live and in HD?
Premium Tournament Features
Right now, paywalls would fragment the scene far too much. Instead, organizers have sometimes opted for providing premium features for a small fee. For instance, viewers could switch between player perspectives and the map in real-time, view additional statistics or specially prepared content. Unfortunately, no organizer ever published figures for these programs. Since very few tournaments still offer these features, it is highly likely that they weren’t in high demand anyways.
Overall, there are limited opportunities for organizers and teams to find new monetization options, as the viewers still expect their entertainment to arrive free of cost. But setting a paywall in front of high-tier events is unfortunately one of the very few opportunities they have to establish a revenue stream independent of outside investors. So there are probably no radical changes in sight when it comes to the business models in esports.