Esports and its revenue streams

A cursory glance at the esports world could lead one to think that money is pouring in and all is well in the industry. But is that really the case? Today's eSports market is much more complex, and there’s a lot to analyze in revenue streams going forward.

It’s clear that esports enjoys good health and a growing awareness among large audiences and, above all, big brands. Thus, it’s no longer strange to see names such as McDonald's, Burger King, Visa, Mastercard, Mercedes Benz, Audi, Red Bull, Coca-Cola and many others linked to influencers, clubs and competitions in the sector.

Perhaps therein lies one of the industry’s problems: sponsors are generating the biggest buzz and are providing the lion’s share of the revenue. What about the other sources of income that nurture an industry that has grown and matured to be able to make a leap in quality towards other business models in search of a still elusive break-even point?

A pie with lopsided slices

Every year, the specialized consulting firm Newzoo publishes an analysis of the global e-sports market. Figures for 2021 showed sector-wide revenues of US$1.084 billion, a 14.5% increase over the previous year. For context, in 2021 Spain's La Liga soccer league had revenues of $2 billion, Formula 1 grossed $2.14 billion and the UEFA Champions League pocketed some $2.419 billion.

An analysis of these revenues for esports reveals that 75% comes from just two sources: sponsorships ($641 million) and broadcasting rights ($192.6 million). The pie is divvied up quite differently in traditional sports.

Whereas barely 6% of esports revenues come from merchandising and ticket sales, in traditional sports this figure rises to 30%, possibly due to a greater sense of physical place and tradition. Still, several esports teams have physical stores around the world, where they not only sell merchandising but also offer fans experiences with professional gamers.

Is abundant income from sponsorships a sign of success or failure?

If we analyze the 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.

The comparison with traditional sports seems unfair given that the latter industry has more than 150 years of history, whereas competitive esports has been around for about 30 years and undergone only 20 of massification. Even the big e-sports teams are less than 20 years old, so the idea that large swaths of the public will identify absolutely with esports seems a bit 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 from another country.

E-sports 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.

Are there alternative sources of income?

Newzoo’s analysis leaves out one item: investments. The vast majority of esports teams have not 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 also 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. Memberships, collectibles, badges and even NFTs…companies can use them all to generate revenue and build loyalty. Companies may even decide to organize tournaments solely to encourage the consumption of NFTs, whether for the fandom itself or to reach 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 forecast to reach about $1.6 billion 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 its initial boom to find sustained stability.