Demystifying Esports Revenue Streams in the New Blockchain Economy
Esports is on the rise, along with growing awareness of the ebbs and flow of the revenue market among the gaming community. While big companies like McDonald's, Burger King, Visa, Mastercard, Mercedes Benz, and Coca-Cola are joining the space and creating their own esports teams, there is still a lot to explore and unearth when it comes to discovering and maximizing avenues of revenue in this exciting, new terrain. And, although large companies are now getting involved and spurring an increase in fanfare, revenue streams still remain largely unstable. While the esports industry has grown and matured, it still needs to take a qualitative leap towards other business models to find the break point that has proven so elusive to most teams.
A pie with unequal slices
Annually, the specialized consulting firm, Newzoo, publishes an analysis of the global esports market. In 2021, the report showed sector-wide revenues of $1B, a 14.5% increase from 2020. In 2021, Spain's La Liga soccer league had a revenue of $2B, Formula 1 grossed $2.14B and the UEFA Champions League pocketed some $2.4B.
An analysis of these revenues for esports reveals that 75% comes from just two sources: sponsorships ($641 million) and broadcasting rights ($192.6 million). By contrast, in traditional sports, the revenue comes from a variety of sources.
Looking further, roughly 6% of esports revenues come from merchandising and ticket sales, but in traditional sports this kind of revenue typically equals 30%, possibly due to a greater sense of physical place and tradition.
Is abundant income from sponsorships a sign of success or failure?
In analyzing these revenue streams of e-sports, we come away with two main potential takes: it’s either a sector with major commercial success in seducing brands, or it’s a sector that has failed to generate a sense of belonging to the teams and whose audience is only loyal to the activity and not to any particular standard bearer.
Image: (Newzoo report)
The comparison with traditional sports seems unfair given that the latter industry has more than 150 years of history, whereas competitive esports have been around for about 30 years with a massification of the last 20 years. Even the big esports teams are less than 20 years old, so the idea that large swaths of the public will identify with esports seems far-fetched. It should also be noted that esports is a digital native activity, with global audiences and followers. It’s very common for someone to root for an esports team that is based in another country than their own, making location less significant.
What is becoming increasingly clear is that esports has been able to capitalize on audience levels that continue to grow, often to the detriment of traditional sports, which continue to lose followers, especially among the youngest demographic. The fact that it has been able to attract the most important non-endemic brands, which today have full confidence in their investment in the sector, is one of esports’ greatest achievements and will help attract more such brands in the near future.
"What is becoming increasingly clear is that esports has been able to capitalize on audience levels that continue to grow, often to the detriment of traditional sports, which continue to lose followers, especially among the youngest demographic."
Are there alternative sources of income?
Newzoo’s analysis leaves out one item: investments. The vast majority of esports teams have not yet reached the break-even point between their expenses and the aforementioned sources of income, relying on investment rounds to stay in the black. Whether classic financing, crowdfunding or even tokenization of its value as a company, esports teams are constantly in the news for closing multimillion-dollar investment rounds that allow them not only to operate, but also to project new strategies in the short, medium and long term.
Blockchain represents a breath of fresh air in terms of revenue for esports. The sponsorship agreements being signed will certainly grow the sponsorship piece of the pie, but they will also open numerous opportunities for companies to generate their own revenue. NFTs are becoming increasingly common among teams and competition organizers, and some organizations have even created their own tokens to build loyalty and monetize their huge fanbases.
This technology, which not only provides transparency and security, but also fosters fan engagement in a sector with impressive existing loyalty, is creating a universe of possibilities. Companies can now leverage memberships, collectibles, badges and even exclusive benefits and experiences to generate revenue and build loyalty. They can organize tournaments to encourage existing fan bases to spend their NFTs, and as a vehicle for reaching new users.
Continuous but balanced growth
Esports is undoubtedly one of the most prosperous sectors in the entertainment world, with a growth curve that shows no signs of flattening. Revenue is climbing and predicted to reach about $1.6B by 2024 with more and more brands either participating or realizing that they must participate. Though sponsorships will continue to grow, esports will have to find new sources of income to have more balanced sources of revenue and to shore up an industry that seems robust, but that still has to ride out in order to find its sustained stability. Blockchain technology will surely be one of the most important answers to this problem, and the time is ripe for everyone to get on board.
