But esports’ growth, and the increasing hold it’s taking on the attention and spending of consumers, especially younger ones, means the segment presents exciting and potentially unique opportunities. Past experience in segments like social media shows that where the attention of young consumers goes, dollars soon follow. As esports gains critical mass as a business, companies are asking how they can monetise the rising level of interest.
The rapid rise of esports is a trend that we’ve tracked for several years in the PwC Global Entertainment & Media Outlook. From a relatively niche global market worth US$194m in 2014, esports saw its total revenues leap five-fold, to US$980m in 2019. Spending on esports is projected to surge at a compound annual rate of 18.3% between 2018 and 2023 to reach almost US$1.8bn.
That’s a small part of the total global video games and esports market, which is expected to be worth US$162bn in 2023. But esports’ growth, and the increasing hold it’s taking on the attention and spending of consumers, especially younger ones, means the segment presents exciting and potentially unique opportunities. Past experience in segments like social media shows that where the attention of young consumers goes, dollars soon follow.
To date, organisations involved in esports, many of which are navigating their own journey from startup to profitable enterprise, have looked at many different commercial avenues to secure revenues: sponsorship, ticket sales, merchandising, even prize money. The goal, of course, is to pursue profitability and become commercially sustainable. As established sports organisations have found, the best and least risky way to do this is to tap into several sources of revenue rather than one or two main lifelines.
The good news is that esports offers a wide range of monetisation options to choose from. This diversity of revenue opportunities reflects the innovative, agile infrastructure and passionate user base underpinning the esports market — strengths that are coupled with a frontier mindset and a relative lack of industry regulation. Together, these elements create an environment that encourages participants to try out new things, commercialise them at pace, and transfer them freely across borders into new markets.
Franchising — owning teams or leagues that compete in esports — creates its own ecosystem of revenue streams. This avenue provides a solid platform that can underpin a range of longer-term commercial strategies. Franchising enables the creation of a narrative — seasons, series, competitions, rivalries — that will last years rather than months. As such, it offers esports teams and players the time and security needed to create a legacy and grow additional revenue streams, such as advertising, ticket sales, or media rights. Along with a narrative comes content to leverage — merchandise, video, podcasts — contributing further to the building of a storyline that people will spend money on.
Franchising enhances sustainability and creates fertile conditions for commercial innovation and new revenue models. Esports teams operating within a franchise structure no longer need to rely on winning competitions and prize money as their core revenue source. This in turn gives greater confidence to investors and sponsors, who don’t feel their investment can be put at risk by the next bad performance.
Currently, esports franchises appear to be evolving in one of two ways. They can become media companies focused on creating content around their narratives, such as stories about their players or rivalries with other teams. Or they can morph into lifestyle brands based on products and diversity — witness how the Fnatic family of esports teams’ equipment and clothing have the feel of Rip Curl to surfing or Burton to snowboarding.
A further effect of the success of franchising — already seen in traditional sports leagues, such as the NBA — is that the value of the franchise itself rises strongly, bolstered by the surrounding ecosystem of revenue streams, such as media rights and merchandising. It’s been reported that the first 12 teams joining Blizzard Entertainment’s Overwatch League (OWL) paid US$20m each for their franchises. Just a year later, the reported price had leapt to between US$30m and US$60m. Over time, as expansion slots in successful franchises become harder to get, buying out an existing franchisee can become the only way to gain entry, boosting teams’ value still further.
Overall, the key benefit that franchises bring is security — something that can also come from leagues. Could a CS:GO league structure provide security in the same way as franchises do? Put teams within a recognisable framework, with promotion and relegation helping to spur intense rivalries, and the answer could be yes. After all, League of Legends used to work this way. Although leagues and franchises may not necessarily offer a rags-to-riches route for new teams, they could do so for individual players.
PwC’s sports business advisory practice recently met with Amit Jain, CEO at Rewired.GG Esports Venture Fund, to discuss his fund’s esports investments and the future of the industry. You can read the full interview here. During it, we asked him why he has invested in esports, and what makes it an attractive investment opportunity. Here’s his reply:
“It’s best to compare esports investment to technology investments. Technology businesses often build a platform and attract users, and only then work out how to monetise their users. Esports is similarly attracting rapidly growing global audiences, and so the focus right now is building up that fanbase globally, and full monetisation will inevitably come later on. Predictions suggest that esports is heading towards one billion viewers globally. Getting a significant slice of that action is priority number one.”
Just as is the case for traditional sports, media rights are a natural — and potentially substantial — source of revenues for esports. Our Outlook projections show media rights will be the fastest-growing source of esports revenues between 2018 and 2023, rising at a compound annual growth rate (CAGR) of 25.0% to reach US$506m.
Although this projection is encouraging for esports organisations, physical sports’ varying experiences with media rights may present some valuable lessons. After 2006, when live coverage of England’s home cricket test matches moved from free-to-air television to pay-TV satellite channel Sky, the number of viewers declined significantly.
More positively, English Premiership football’s move to Sky — and the sale of the US rights to NBC — has been seen as a resounding success on all counts, making the product even better while also boosting its global profile and profitability. Given the right approach, the same can happen in esports, triggering a virtuous circle of rising revenues and an improving product. New access and monetisation models could also emerge: By way of example, Sky’s no-contract Now TV streaming service now offers a “day pass” for live football. Going forward, there’s the clear potential for one or more of the FAANG global tech platforms (Facebook, Amazon, Apple, Netflix, Google) to pick up esports and take it to a global mainstream audience.
Consumers are a relatively small but expanding source of revenues for esports. According to the Outlook, the consumer contribution to esports will rise at a CAGR of 14.4% through 2023, reaching US$254m, while esports ticket sales will rise at a 17.3% CAGR to US$129m. Together, these consumer revenue streams will be bigger than streaming advertising but less than media rights.
How will esports realise this consumer opportunity? Charging for top-tier events makes commercial sense, even if the fee is just a token amount: a fan may well be prepared to pay US$20 a year to watch NBA or La Liga their favorite esports league. But questions remain, even in long-established sports, about who they pay this money to and whether they feel they’re getting the value for it. That said, some fans may regard additional content such as behind-the-scenes access and stories as more valuable than the main live event. In the spring of 2019, Riot Games introduced the US$15 Pro View pass for fans of League of Legends (LOL) esports, which enables viewing of multiple streams and creation of personalised fan experiences. Revenues from the pass are split between regional LOL leagues and teams.
What’s clear is that if esports can identify the right consumer payments models and implement them correctly, fans will stay on board. There’s a useful precedent in the way video gaming revenue has boomed with in-game purchase models. Gamers are happy to pay for features that enhance their experience and allow them to customise it.
Sponsorship is currently the single biggest source of revenues for esports, and the Outlook forecasts that it will retain that position over the coming five years, growing at a CAGR of 16.3% to US$598m in 2023. Rather than grabbing the first sponsorship deal that comes along, companies are increasingly looking for additional value — value that might include access to other markets or hard-to-reach consumers, access to other companies that the investor has invested in, or access to infrastructure.
This added value flows both ways — to sponsors and to esports businesses. Toyota’s partnership with Blizzard Entertainment’s Overwatch League included a documentary-style video series called “Access Granted” featuring Toyota vehicles. For a traditional sports club, an esports sponsorship could present an ideal entry point for getting into a new market such as China.
Betting is a further potential revenue source, which, fully embraced, could be transformational for the industry. Currently there is resistance in the industry, given the risks of exposing esports’ generally young fan base to gambling. But the resistance may weaken for a number of reasons. First, betting already surrounds traditional sports that youngsters have access to, like football. Second, betting on esports is already happening anyway — but, at the moment, it doesn’t usually include in-play betting or live feeds to the events, and the industry has no control over the gambling that’s taking place.
Against this background, allowing esports companies to partner with betting firms would give esports firms a greater ability to control and influence the activity and narrative around betting, including protecting consumers by encouraging responsible gambling and acting as ambassadors for the industry. Allowing betting partnerships would also introduce a revolutionary new revenue stream that could be invested in creating a better product and growing the industry’s size and reach. Given these benefits, there’s an increasing probability that betting on esports is a concept that will become more familiar with time.
The esports genie is out of the bottle, and it’s clear that it’s an E&M segment that’s here to stay. But how the industry evolves over the next few years will largely be determined by the money that flows through, and the ways in which participants in the ecosystem aim to establish sustainable business models.
That said, esports organisations can exist in an amateur setting as well as a money-rich environment. And to be sure, there are many fans who will be very comfortable with amateurism. But it is highly likely that, as the businesses surrounding esports continue to gather strength, the entire ecosystem will become more hospitable to professionals and professionalism. For those that opt for the commercial route, the good news is that there are several potential sources of revenue to fuel their journey.