Last year, NBA legend Michael Jordan joined his former NBA rival Magic Johnson to become co-owners of aXiomatic, an eSports financing company. Jordan invested $26 million to join several other investors in the company.
Earlier in 2018, Twitch paid over $90 million to have exclusive rights for showcasing Overwatch League tournaments. YouTube, Toyota and more brands also shelled out millions finance eSports businesses. But brands are not the only way the industry is making billions of pounds each year. Here are several of the many ways eSports businesses make money.
Sponsorship Deals
Sponsors like Twitch, YouTube and Honda contribute most of eSports’ annual revenue. Without big brands investing in the industry, most leagues would close down regardless of how popular they are. Of course, the same could be said of many traditional sports, but sponsors have a lot more influence in the eSports business.
Team Liquid, for instance, receives over half of its annual income from NEED for SEAT, HyperX, Monster Energy, Honda and Marvel. It also supplements its revenue by selling merchandises but receives consistent income from the big brands.
Leagues and teams spend sponsorship money to pay their players, scout new talents and run daily activities. Some experts believe relying on sponsorships as the primary income source is not the perfect business model for eSports. But until leagues find new ways to make hundreds of millions without sponsorships, they will continue to accept Money from Fortune 500 companies.
Tournament Money
When they are not sponsoring leagues and teams, brands sponsor entire tournaments. This helps increase the prize pool at times to over $50 million. For many teams, earning even a fraction of the money can be game-changing.
Imagine a team of four gamers earning £500,000 throughout the year. It’s enough money to pay their salaries and cater for maintaining their team. Luckily, tournament organizers are always holding competitions. So, a team interested in grabbing tournament money could sign up for competitions nearly every week.
Besides sponsorships, tournaments also rack up their revenues through ticket sales and selling merchandises. Twitch and YouTube nowadays also pay to live stream tournaments—creating another income stream.
Unfortunately, most eSports tournaments operate on a “winner takes it all” model. Where runner-ups get a share of the prize pool, it’s usually considerably small.
Game Developers
Game developers are avid proponents of eSports. Valve Corporation, for instance, runs one of the biggest eSports leagues in North America. Epic Games, on the other hand, sponsor most Fortnite tournaments held annually.
Although not as famous as LOL tournaments, some of the best new casinos also hold gaming competitions with cash prizes as huge as £100,000. Players compete in non-skill games like slots, blackjack, poker and baccarat.
Similarly, tournaments held by video game providers have some of the biggest prize pools for players. There are many reasons for this. Valve, for instance, releasing exclusive skins weeks before a tournament. That drives enormous interest, and the company can sell millions worth of merchandise in the process.
Earlier this year, Valve used the same business model to raise $34 million for its International 2019 Dota 2 event. Valve didn’t partner with any brand for sponsorships, and the company certainly didn’t sponsor the tournament from its profits. It was the sale for new skins helped the developer raise the enormous amount of cash.
Advertising
If you have watched tournaments held by ESL One, you’ve probably spotted ads for Mercedes-Benz. The ads appear in between every game, so they are impossible to ignore. Mercedes pays millions for the ads and even donates a new car to every tournament’s MVP.
Most tournaments run adverts primarily designed by long-term sponsors, but they also welcome independent adverts during major competitions. Twitch, for instance, runs numerous ads whenever it showcases games on its network.
The ads generate about 20% of the industry’s revenue according to Round Hill Investments. But the figure also includes ads run on players’ streams, social networks and merchandised products.
Selling Merchandise
Similar to traditional sports, eSports businesses generate significant amounts of money by selling branded hoodies, T-shirts, shoes, and bags. Developers have a bigger advantage in that they can sell video game copies, skins and other products to increase their revenues.
For better or for worse, developers don’t control every aspect of merchandise inspired by their games. There are lots of independent companies that sell branded clothes. Esports professionals also sell some of their skins.
100 Thieves, for example, is a company that deals with selling videogames’ inspired clothes. The startup recently raised $35 million in funding and hopes to expand beyond the US.
Ticket Sales
Nearly 70,000 fans showed up at the Arthur Ashe Stadium in New York when Fortnite held a tournament there earlier in July. The three-day event cost $435 per day and helped Epic Games raise over $30 million in ticket sales.
Overwatch holds its tournaments at Blizzard Arena in California, unfortunately. But there are lots of tournaments held throughout all major cities around the world, including Glasgow. While most of these events don’t help raise $30 million each time, they earn leagues and organizers value revenues.
Broadcasting Rights
Twitch has a $90 million partnership with Overwatch to broadcast its tournaments. The Valve owned network also broadcasts numerous other competitions, mostly at no cost to viewers. You can also watch matches on YouTube or MLG.tv.
Facebook is also a major player in the streaming business these days and recently acquired rights to stream ESL North American and European Pro League tournaments. Again, you can watch many of these tournaments free of charge even if you don’t have a Facebook account.
Facebook recoups its broadcasting fees through adverts. YouTube also uses ads in addition to subscriptions to YouTube Pro as monetization methods. As such, the companies see plenty of benefits in sponsoring eSports tournaments.
To Conclude
Esports is worth more than £2 billion thanks to sponsorship deals, ticket sales and broadcasting deals. Sponsorships contribute the highest chunk of money, but organizers are increasingly tapping on merchandise and broadcasting as adequate methods to fundraise money. Considering the industry is growing in popularity every year, capital will continue to flow in.
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