September 26, 2020

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Are esports fans spoiled? Industry figures weigh in on paths to profitability

Fans of traditional sports are used to opening up their wallets. Commercials, ticket prices, blackouts...

Fans of traditional sports are used to opening up their wallets. Commercials, ticket prices, blackouts of games in select markets and complicated cable packages are just some of the inconveniences sports fans put up with – and pay for – every day to watch sports. In comparison, esports fans have it easy.

Broadcasts are free to watch, commercial breaks are few and far between, and corporate branding hasn’t nearly approached the levels of a traditional sports stadium. But Jason Lake, CEO of Complexity Gaming, doesn’t think it’s fair to call them spoiled.

Photo credit: Riot Games

“I don’t think gamers are spoiled,” said Lake. “I think it’s normal to expect a generation that has free Twitter, Instagram, and YouTube to be naturally averse to pay-per-view systems. Esports companies need to understand this and be creative with other ways of driving revenues.”

Ryan Friend, the owner of Counter-Strike: Global Offensive publication Rush B Media, agrees with Lake in that it’s not the fans fault that everything is free. 

“It’s easy to say ‘yes, gamers are spoiled’ and point to everything and say ‘everything’s free,’” said Friend. “We are essentially spoiled as fans of esports because we have so much accessibility to content. At the same time, that’s just how things have been online. It’s not fair to call esports fans spoiled necessarily because things have always been free, they didn’t demand it to be free, it just was. People are always going to be resistant to paying for something that was free in the past.”

On the other hand, esports companies aren’t making a lot of money. Game publishers are doing well but companies such tournament organisers need something to change if they are going to be sustainable long-term. 

“At some point, you have to look at what tournament organisers are announcing in losses and wonder what the next monetisation is going to be,” continued Friend. “One of the options is pay-per-view, which was used for UFC and extensively talked about as an avenue for revenue generation that simply doesn’t exist within this space right now. It’s all about market capitalisation. As an esports organisation, you are trying to connect with fans, to get passionate fans, but that doesn’t always translate to revenue.”

“The esports audience doesn’t want to pay for anything,” esports consultant Rod ‘Slasher’ Breslau told Esports Insider. “MLG’s attempt at a pay-per-view model during the StarCraft II days was actually pretty innovative at the time, trying to get people to pay directly for the tournament themselves so that it could make money.”

“Since then, the esports audience has been so adverse – even hostile – towards paying for anything,” Slasher continued. “For fans to continually perpetuate that everything is free and that it can be done this way forever is ridiculous; fans will eventually have to pay directly to be able to watch events in some fashion, whether it’s a pay-per-view model or paying for a pass that gives full access.”

IEM Katowice 2020
Photo credit: ESL

Esports as it currently exists is unsustainable, but the massive influx of capital over the last few years is mostly a testament to the industry’s ability to change and figure out paths to profitability on the fly.

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“I think the current model is sustainable – as long as we continue to innovate,” said Lake. “As it sits today, we are in need of other ways to monetise this activity. As we’ve seen with tech companies in the past, the important thing is to grow your audience to a critical mass. Once you reach a certain number, whatever that number might be, then a percentage of that number will be monetisable. I do believe that esports is going to be sustainable.”

Esports is still moving rapidly. When looking at the sports world now, it’s easy to look past the days of tape-delayed NBA Finals and bankrupt football clubs. Esports is effectively a network of startups at this point.

“All these models need to change,” said Andy Miller, CEO of NRG Esports and a co-owner of the Sacramento Kings in the NBA. “Esports is a bunch of brand new leagues that, for the most part, are copying the models of established traditional sports leagues that have been around for a long time and have a much older fan base. If we just try to match those traditional models then they will not sustain themselves. We need to adapt these models to fit the way the generation that watches and plays games consumes content.”

“I don’t believe we need to perfectly mimic traditional sports in order to be successful,” Lake agreed. “There are helpful things to be gleaned from the history of traditional sports like media rights but in other ways we are always going to remain different. Most notably, someone owns our football. But many of the downsides are offset by the ubiquity of video games around the world. We might not have as many ticket sales as the NFL but we’re going to have more global viewers. We just need to figure out how to properly monetise them.”

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Sports is intricately tied to the cable TV model while esports is more tied to social media. With time, companies like YouTube, Facebook, and Twitter were able to make money from their free products by opening up other revenue streams. That didn’t happen right away. Twitter famously operated at a loss for a decade before turning a profit in 2019. Esports is currently at a similar spot. Get viewers now, figure out monetisation later. 

“We’re trying to work closely with the publishers to really lean into the unique aspects of the digital nature of esports,” said Miller. “That’s where the revenue model will eventually come from. I don’t think esports fans are lazy or spoiled, they are just different. Sports operates with a scarcity model. It was a big deal when my dad came home with Red Sox tickets. Now I can get anything I want, anytime I want, anywhere I want. That scarcity model doesn’t work as a revenue model anymore.”

Esports fans can’t necessarily be expected to pay for broadcasts – and esports organisations aren’t expecting them to do so. Instead, the hope is that an evolving relationship with publishers will be the revenue stream that pushes esports into sustainability. 

“The biggest change that needs to happen is the relationship between the organisations and the publishers,” said Miller. “The relationship has always been a weird one. There wasn’t really a relationship before these franchised leagues. Before franchised leagues, esports organisations were fungible goods. If you left, there would be another one. Now with teams like Cloud9, NRG, 100 Thieves, etc, esports organisations are big brands with fans. We’re not fungible goods anymore… We need a closer relationship with the publishers especially when it comes to how esports leagues are being marketed.”

“Publishers are going to maintain the lion’s share of the leverage in esports because they own the property rights,” agreed Lake. “Forward-thinking publishers that want their game to be a sustainable esport need to understand that every part of the ecosystem, from the players to the teams to independent organisers, need to be able to generate profits from this ecosystem or it’s doomed to failure.”

Rocket League Esports Shop
Image credit: Psyonix

Some esports titles like Rocket League, Rainbow Six Siege, and Overwatch have introduced branded in-game skins that provide a new revenue stream. That’s the type of publisher partnership that could end up pushing esports organizations towards profitability.

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As esports fans, paywalls to content aren’t going to pop up soon. Down the line, some broadcasts will likely experiment with higher quality production or different aspects of the broadcast requiring extra money, but not for a while. As more brands enter esports, fans will need to welcome new partnerships. Both Lake and Miller agree that esports fans are abnormally welcoming to new brand partners when compared to traditional sports. 

Unfortunately, the current state of esports can’t continue to exist forever. While the publishers have most of the money, esports fans still aren’t opening their wallets often. As the esports audience continues to age that could change. For now, instead of forcing the sports model on esports, esports organisations’ focus is on the companies that own the basketball, the court and the NBA – not the audience in the seats.

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