Monetisation - Esports revenue models in 2020 and beyond

The joy of esports is that the industry is still young, and business models are still very fluid. Every month – even during a global pandemic – new deals are being signed, and new esports revenue streams explored. It’s still a time to experiment, rather than only to look for familiar templates to follow.

That said, some patterns are clear. Research firm Newzoo regularly publishes its forecasts for the sector, breaking down esports revenue streams by category. Its latest figures, published in July, are its latest revision to account for the likely impact of Covid-19 on the esports business.

The company estimates that esports revenues in 2020 will be $973.9m globally, with sponsorship accounting for the biggest portion of those revenues: $584.1m. It’s followed by media rights ($163.3m); publisher fees ($108.9m); merchandise and ticket sales ($76.2m); digital revenues ($21.5m) and streaming income ($19.9m).

The latter two esports revenue streams may be the smallest, but they are also the fastest growing according to Newzoo: it predicts year-on-year increases for them of 60.9% and 44.9% respectively in 2020 – although that’s from a small base.

Of course, 2020’s Covid-19 pandemic is having a disruptive effect: the predicted merchandise and ticketing revenues are down by 27.9% year-on-year, due to cancellations of physical esports events and the merch opportunities they present.

 

The business of esports: diversification is good

Even including Covid-19, the story of esports business models in 2020 has been one of diversification, with companies in the sector keen to spread their eggs among as many baskets as possible, rather than relying on just one or two.

In January, PwC UK’s esports analyst Andy Fahey wrote about the efforts of esports companies to “pursue profitability and become commercially sustainable” in 2020, adding that

“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”.

Fahey praised the agility of the esports business:

“its frontier mindset and a relative lack of industry regulation” which “create an environment that encourages participants to try out new things, commercialise them at pace, and transfer them freely across borders into new markets”.

That extends to the teams and franchises building new esports revenue streams, whether that be with brand partners or through their own products.

“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,” suggested Fahey.

 

Esports business opportunities to get revenues

One of the best ways to understand the new ways to invest in esports is to look at the kinds of deals that those top franchises have been announcing in 2020, even with the Covid-19 pandemic looming overhead.

Fnatic, for example, began the year with a charitable partnership with Unicef; has launched its own gaming PC through a deal with PCSpecialist and an official gaming chair with AndaSeat; began creating a range of educational courses with esports and gaming learning platform GamerzClass; struck a multi-year partnership with carmaker BMW (one of five teams to do so); via an agreement with Ask Corporation; and launched a limited-edition collection of watches with fashion brand Gucci.

Or look at FaZe Clan, which raised a $40m Series A funding round in April 2020 led by music industry veteran (and former Apple executive) Jimmy Iovine and digital shopping brand NTWRK, with a number of other musicians, sports stars and entertainment industry executives chipping in.

While also a veteran of branding and merchandising deals, FaZe Clan is also setting its sights on Hollywood. In April, it founded FaZe Studios, a film and TV production division to develop long-form projects in partnership with producer Sugar23. Then, in June, it announced plans to produce a series of ‘The FaZe Clan Universe’ movies, in a separate deal with producer Invisible Narratives.

News sites like Esports Insider are doing an excellent job of cataloguing the increasing scale and variety of esports business opportunities. A glance down the recent news stories in its partnerships and sponsorships category reveals deals with watchmakers, telcos, banks, sportswear firms, betting companies, nutrition brands, gambling companies, traditional sports entities and many, many more.

 

Why invest in esports? Funding continues

FaZe Clan’s $40m round shone a light on another aspect of the business of esports in 2020: funding from institutions and high-net-worth individuals alike. Esports continues to be a magnet for investment, which in turn is fuelling the top companies’ exploration of new opportunities.

In 2020 so far, there have been funding rounds for companies in and around the esports industry including Midnite ($2.5m), Allied Esports ($5m), Juked ($800k), Minute Media ($40m), Veritas Entertainment ($10m), Simplicity Esports ($500k), Tribe Gaming ($1m), Rally Cry ($1.2m), Anybrain (€1m), Raven ($1.4m), Meta (€1m), Blast (€12.5m), Vodafone Giants (€3m), Luckbox ($3.8m), Replai ($1.3m), PlayBrain ($6m), Mission Control ($1.8m), and Mobalytics ($11.3m) among others.

“Right now there’s a lot of interest and focus on the teams, either growing teams geographically or across multiple games. That has the highest level of interest… that was about 40 percent of the deals done last year,” said Alina Soltys, co-founder of Quantum Tech Partners, in a January 2020 interview.

“But if we look at it more holistically, there’s also a lot of great investment going into the underlying infrastructure that’s incredibly important to have available, both for engaging players and measuring what that engagement level is.”

At this point, the wider esports business plan is looking like a virtuous cycle, where the funding coming into the sector is helping companies and teams to up their ambitions for partneships and exploring esports revenue streams, which in turn makes the sector still more attractive for investors.

We have Newzoo’s figures as a guide to these various revenue streams in 2020, but in its report earlier this year, PwC looked further ahead to 2023, by which point it expects sponsorship to still be the single biggest esports revenue stream at $598m that year. However, it sees strong growth for media rights (which it thinks will be worth $506m in 2023) as well as payments from fans ($254m) and ticket sales ($129m).

Three years is a long time in a still-young industry, however: thriving esports businesses are keen to explore as many opportunities as they can to unlock new revenues, and continue the work of building the global audience for esports.

These and other topics will be discussed during a future-facing panel – ‘Growth through a diversity of revenue sources’ – at Esports BAR+ Americas, which takes place on 22-25 September, See the whole programme here.

About Author

Stuart Dredge

Stuart Dredge is a journalist who's been writing about media, technology and games for 21 years. He's the editor in chief at music industry knowledge company Music Ally; covers tech and games for The Week Junior magazine; and since 2010 he has been one of the official bloggers at the MIPTV and MIPCOM shows.

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