Jan 1, 2021

How Do Esports Organizations Make Money?

by
Nicolas Lucente

The esports industry consists of a couple different fields for income and each income varies by organization, team, and the game itself. Each company involved in esports has its own role to play in making the esports industry as productive and prosperous as it is currently. Generally, when it comes to esports organizations and franchises, the money comes from sponsorships, advertising, ticket sales, merchandising, and media rights.


Sponsorships and Advertisements

Organizations like Team Liquid and Cloud9 have a ton of sponsorships from numerous companies. These big time companies bring more attention to not only the organization, but also to the esports scene itself. Each organization signs deals with sponsors in order to fund their teams in an appropriate manner-- including gaming equipment and team attire. Recently, Team Liquid’s jerseys have featured logos from brands such as Monster Energy and Honda, while Cloud9’s jerseys feature logos from the likes of Red Bull, BMW, AT&T, and even Microsoft. This concept basically uses the team’s jerseys as an easy advertisement for its sponsors, much like how professional soccer teams do.


As for other ways to advertise products and services, streamers on such teams have their own discount codes for sponsored products. While each team has sponsors, individual players can also have their own as well. The streamer will mention the product in their videos and mention to use their promo code inorder to receive a discount. The streamer will receive a cut of the purchase and the company receives another customer through the transaction. Esports organizations, however, do not receive revenue from individual player’s streams. Though, when the team is together competing in a tournament, the organization does receive money from sponsors through both on-site and streaming advertisements. When it comes to competition time, most of the audience members are watching online and that is where sponsors thrive. Of the $1.1 billion that was made in the esports community in 2019, sponsors walked away with about $456 million of it, so sponsors are definitely getting their money’s worth investing in esports.


About 80,000 people poured into the arena to watch the League of Legends World Championship in 2017. The opening ceremony featured a CGI dragon that flew into the stadium. Image courtesy of YouTube.

Ticket Sales

Just like any other sport, organizations make money from ticket sales. Live events and tournaments range in attendance size of typically between 10 to 15 thousand people, with the majority of people watching online. However, depending on the event, attendance numbers can reach absurd numbers. At the 2017 League of Legends World Championship in Beijing, the estimated crowd size was about 80 thousand people with another 90 million watching online. Also in 2017, the International Dota 2 Championship was in Seattle and brought in around 52 thousand people with another one million people watching online. Since esports teams do not have their own stadiums to compete at, these events are held at neutral locations. As a result, teams and organizers have to share the ticket revenue. Who knows though, with the leagues for Overwatch and Call of Duty that consist of location-based teams, owners may begin to make the move to have their own stadiums.


Merchandising

Again, a very similar way typical sports make money, esports organizations also sell merchandise. Fans can go to their favorite team’s website and buy all kinds of apparel and other accessories. One of the most popular teams in the esports community is FaZe Clan. One of the first things you see on the organization’s website is its merchandise, anything from hoodies to jerseys to slides to even a FaZe mousepad. The same goes for the Cloud9 and Team Liquid organizations that have store tabs on their websites.


One thing that is different in esports merchandising that typical sports do not do is merchandise within an actual game. Through the purchasing of in-game skins, fans can show their support for their favorite teams. The term “skin” refers to the way your in-game character looks and some games have added purchasable skins to make characters look like members of professional esports teams. In-game purchases actually accounted for more than half of Activision-Blizzard’s 2017 revenue, adding up to about $4 billion.


Games like Overwatch, League of Legends, Halo 5, Gears of War 4, and Call of Duty: Modern Warfare all have this feature allowing people to purchase character and weapon skins. Specifically in Modern Warfare, fans can purchase packs to support any of the Call of Duty league teams and dress their character and gun to match the team’s design scheme. These in-game purchasing not only provide a new revenue stream for game developers, but also for esports teams themselves as they receive a cut of each purchase. On top of that, if fans want to support a specific streamer, they can use the streamer’s content creator code while purchasing the in-game skins. This process will also give that specific streamer a small cut of the purchase.


The Overwatch League signed a deal with ESPN for broadcasting rights in 2019. Image courtesy of Gamers Classified.

Media Rights

While there are those that purchase tickets and watch esports teams go at in person, the majority of viewers watch the events online. Having the rights to the broadcasting or streaming of the big esports tournaments is important in order to make money. Esports organizations then have to negotiate deals with broadcasting networks or streaming services to be able to reach cable or online viewers. Some of the bigger leagues, like the League of Legend league, are big and popular enough to land network deals.


However, most organizations have to sign contracts with online streaming services to get their events broadcasted. The most popular streaming service for these contracts is the Amazon-owned Twitch. In September 2020, there were over seven million streamers active on the site with over 1.5 million hours of view content by fans. The numbers for both hours watched and hours streamed each month almost doubled from 2019 to 2020, so Twitch attracts more and more viewers everyday and continues to grow. The media rights to an esports organization’s event also involves prime real estate to sponsors and advertisers previously mentioned. So, the streaming or broadcasting service, the sponsors, and the esports organizations all receive a cut of the money earned from online viewership.


Through streaming services like Twitch, streamers and organizations also make money from donations. Fans have the ability to send money to their favorite channels where they see fit. Donations can be as low as two dollars, but can also reach tens of thousands depending on the channel. The channel can receive a donation through either PayPal or by “cheering,” which is with virtual Bits that can later be exchanged for money.


Channels of organizations and streamers also collect money by accumulating subscribers on Twitch. Subscriptions cost five dollars and last a month, Twitch takes about half of that money while the channel accumulating the subscribers takes the rest. Paying for the subscription gives fans benefits including ad-free viewing and certain chat options that people who watch for free do not have.


July 22, 2014, team Newbee from China won one of the biggest Dota 2 tournaments to date in Seattle. Image courtesy of Gamespot.

Winnings

Something not previously mentioned is the money organizations and teams win when competing in tournaments. That 2017 League of Legends World Championship that had 80 thousand people in attendance also had a $4.5 million dollar prize pool. However, this form of revenue is not guaranteed and is extremely inconsistent. That is why esports organizations use all of the other methods mentioned to make a majority of their revenue. Plus, while the organization does get a portion of the winnings, typically the reward is distributed evenly amongst team members that actually competed for the reward.


What Does the Future Hold?

According to Newzoo, in 2020 global esports will have “a year-on-year growth of +15.7%.” While the total esports audience will grow to about 495 million people, “a year-on-year growth of +11.7%.” Once the Coronavirus pandemic is over, the Overwatch League and Call of Duty League will start to reap the benefits of hosting home tournaments through their city-based team models. With rising deals, like the one the Overwatch League made to air on ESPN, Disney XD, and ABC, esports will continue to thrive. Television broadcasting is more of a comfortable and familiar place for large brands to advertise on, after seeing success through this platform, they may follow esports to the online streaming community. With that comes more attention and more viewers, and more viewers means more money to be made in the industry.


However, unlike traditional sports, the games esports teams play are always changing. Now, that is not necessarily a bad thing, but that also means game developers have a lot of control over the esports industry. If Activision Blizzard ceased to exist, the Overwatch and Call of Duty leagues would also cease to exist. As of right now, the industry continues to grow and shows no signs of slowing down, even with new games coming out all of the time. It is hard to see what the future holds for esports organizations, but one thing is for sure-- people will not stop playing video games. Video games will continue to get more and more advanced and esports organizations will have the challenge of advancing along with them.