Whether it be purchasing their own eSports team or acquiring a majority stake in some the scene’s most established brands, the eSports market has been pitched as the next global sporting phenomenon. No-one wants to miss out on the opportunity – but how exactly do investors expect to earn a dime from eSports?
To understand this predicament requires an understanding of the revenue model by which eSports teams make money, a topic that has caused a great deal of controversy in the past 12 months. To gain an insight from within the industry, we spoke to Fnatic’s Chief Gaming Officer, Patrik “cArn” Sättermon.
To understand how eSports teams make money, it’s often easier to first outline the ways in which eSports teams don’t make money in contrast to traditional sports:
Arena Ownership & Ticket Sales
“A sports team has a venue in most cases and they benefit from ticket sales.
“In eSports that’s not a luxury we have as of today, but at the same time we can run our business more cost efficiently – we do not need to operate a stadium.
“We have our centralised location here in London, we have gaming houses round the world; everything is run online.”
Whilst major traditional sports clubs can charge a premium for court-side or halfway line tickets, the idea of team-owned eSports arenas are yet to be realised. The prospect has been entertained once more with a potentially geographically linked Overwatch league in North America, yet as a European organisation, Fnatic will continue to compete at neutral stadiums at the expense of tournament organisers or game developers.
“In the most cases, [traditional sports clubs] have broadcasting rights; they get a hefty portion of money injected into their organisation.
“The broadcasting aspect is interesting, it’s something we are now trying to participate in by further building on our relationships with game developers and tournament organisers.”
It is one of the most controversial topics of discussion within the professional eSports, notably erupting during the summer of 2016 where a number of eSports teams approached Riot Games – the game developer for eSports’ most popular title, League of Legends – in a bid to negotiate terms for a revenue sharing deal and broadcasting rights.
The dispute highlighted the level of power that game publishers hold over the eSports teams competing within their leagues, as negotiations fell flat once Riot decided to decline the team’s demands.
“It’s a significant difference between football, for example, and League of Legends: in League of Legends you have someone with ultimate power, the people who constructed and developed that game – that’s on a perpetual basis.
“Obviously, unless they open up and realise that the only way this is gonna work is that it makes sense for all stakeholders: the players, the teams, [the developers] and the fans.”
This is a primary issue that is so frequently overlooked when considering the value of owning an eSports organisation. Holding a spot in Riot Games’ League of Legends Championship for example, will provide just enough cash (in the form of a stipend) to play for your team’s player wages, but nothing more than that.
“In sports, I can go and create my own football league – I just need to find the right source of capital to make it viable and relevant for anyone!
“That is a key difference that these guys need to have in mind when they enter the eSports space.
“It’s political, it requires a deep understanding of how game developers and tournament organisers think.”
Without a reliable source of income from broadcasting rights or a revenue share deal with games publishers, it is estimated that around 95% of the money generated by eSports teams comes directly from sponsorship deals. Importantly, this is widely accepted to be a very poor revenue model.
Whilst the rapid evolution of the eSports industry presents a series of exciting prospects in the future, similarly it creates an unstable environment in the present day. This is a reality exploited by sponsors at the expense of eSports teams, who rely on their support to survive.
A team that is at the top of today’s major eSports titles, may fade into obscurity within 12 months as the scene continues to shift. To return to the example of League of Legends, suffering relegation from one of the major regional leagues (and subsequently losing the viewership attached to those leagues), makes a eSports team far less valuable to a sponsor. eSports teams are beholden to their sponsors far more so than traditional sports teams.
The current eSports model is not one of a long-term, sustainable industry, but it’s something that Fnatic and Patrik are working to address:
“We’re trying to build a sustainable business here; a model for the sport that makes sense for everyone involved.
“We’re nothing near where we want to be with that, but we at least starting to take some relatively big leaps towards that.”