As of late, venture capitalists are steadily investing into esports teams.
According to an article by Reuters.com, “…esports revenues will hit $1.1 billion in 2019, up 27 percent since last year amid ballooning revenues from advertising, sponsorship and media rights…”
What does this mean for the future of esports?
The promise of a billion dollar industry is looming.
Esports teams such as Cloud9, Team SoloMid, and Vision Venture Partners are all benefiting from the hype by receiving large investor attention (and $$$$).
At present, we see the industry feeding off three trends:
1. The gaming market is exploding, and it only continues to grow.
2. Live streaming is becoming more popular.
3. Traditional sports do not carry longevity in the same way.
So, what’s the business model?
Teams compete against each other in tournaments or leagues for championship titles and prizes. Esports teams can also earn money through advertising, league revenue shares, live broadcasts on streaming platforms like YouTube, Twitch, and Facebook, and more.
(citation: Alejandro Guerrero, Medium)
In 2018 alone, the estimated revenue model was:
Sponsorship – $359 million
Advertising – $174 million
Media Rights – $161 million
Game Publishing Fees – $116 million
Merchandise and Tickets – $96 million
Last year, Forbes named Riot Games and Activision Blizzard the world’s most valuable esports companies for their feats in online gaming.
With League of Legends franchises holding a value of $50 million by bankers and Overwatch sitting at around $80 million, numbers are only expected to increase.
The reason for all of the success is the worldwide cult following, which reached roughly 165 million last year. The Forbes article cited that media rights were expected to jump to over $320 million by 2021.
Now that we’ve talked about the general business model, let’s discuss the expenses that come with funding esports teams. Player contracts are costly.
Tyler Belvins has suggested making roughly seven figures in a month. Belvins has sponsorships with large entities like Uber Eats and Samsung. Then there’s Andy Dinh, CEO, and founder of Team SolodMId (TSM), an esports team worth roughly $225 million in 2018.
With the rising costs of salaries, raising capital is imperative. In 2018 alone, there were 63 deals worth $2.34 billion in 2018.
As the monetary benefits of esports continue to rise and games continue to change, we should expect to see a spike in advertisers and sponsors who traditionally work with mainstream sports.
While the fluctuations in game popularity might concern some advertisers, it’s no secret that esports are challenging NFL and the NBA in size.
Entities like CNBC have noted that as esports leagues continue to grow, they might be on par with the traditional sports industry.
According to CNBC’s research, it appears that viewership for the League of Legends World Championships in November of 2018 rivaled the Superbowl’s 103 million viewers with almost 100 million unique views.
With a steady stream of tournaments flowing in each year, we can only imagine how much more venture capital will influence the esports and traditional sports industries.