September 01 2022 | Sector Insights

Monetization in Esports — What it is Now & What’s Next

Sector Insights
Monetization in Esports — What it is Now & What’s Next

Esports as an industry is continuously evolving, and with that, the monetization potential of this industry remains largely untapped. This, in turn, offers a unique business opportunity for technology creators, esports industry heads, and investors.

 

Some of the leading segments of revenue generation in esports are similar to that of any other leading sports — advertising, media rights — streaming and broadcasting, brand sponsorship, merchandise, and ticket sales from the live event. Esports, however, has a lot of untapped potential in the digital space. With live streaming of league matches and growing online viewership, any monetization strategy which can harness fans by creating engagement and conversions is a sure-shot winner.

 

Global Esports market revenue by segments
Global Esports Market Revenue by Segments

 

Sponsorships

Esports and gaming, offer a unique value proposition to the brands that wish to engage with Gen-Z and millennial consumers in a visual, responsive, and interactive environment. According to Newzoo, over $641 million of revenue is raised from sponsorships alone. These include brands from across segments — auto, consumer packaged goods, beverages, alcohol, entertainment, telco, restaurants, apparel, and financial companies. Below is a list of a few brands that frequently sponsor esports tournaments, teams, and players.

 

Louis Vuitton was the first luxury brand who partnered with League of Legends to create for the first time ever an exclusive trophy case and skins for characters in the game (left), Burberry partnered with Tencent games for Chinas biggest video game — Honor of Kings character skins (right)
Porsche & TAGheuer have been the lead sponsors for iRacing’s Esports Supercup

 

Merchandise

Branded merchandise may not be the highest grosser among all the segments but brands take this opportunity to create items that can be marketed and sold as collectibles, limited editions, and since this sport is in the digital format — in-game purchases like skins, customizable avatars, cars or upgrades.

 

Branded Merchandise — Nike’s exclusive League of Legends jersey’s (left) & Fnatic and GUCCI’s created a limited edition watch that sold out in minutes

 

Ticket sales

Tickets to watch league matches in-person in a stadium or a gaming arena range from $10 to $150, and the average ticket price for a League of Legends tournament is $70. Sang-am World Cup Stadium in Seoul had once hosted close to 45,000 fans for the League of Legends 2014 World Finals.

 

Source — uthmag.com | Sang-am World Cup Stadium, Seoul, League of Legends 2014 World Finals.

 

Broadcasting & Media Rights

In traditional sports, media rights account for a significant portion of the revenue. Sports Business reports that 40% ($49.5 billion) of total sports revenue globally came from media rights in 2018. Esports media rights, in comparison, were valued at $93 million, which was about 14% of the total industry revenue.

 

 

Unlike traditional sports that are usually regional and watched on linear TV globally, esports, as an industry, is digital-first, and fans follow their favorite teams from games they love and enjoy from across different countries.

 

Activision Blizzard is one of the largest video game makers in the world, with well-known franchises ranging from “Call of Duty” and “World of Warcraft” to “Candy Crush”. Their Overwatch League with a 20-team international circuit dedicated to one of their most popular games made the headlines in January 2018, when Amazon-backed Twitch reportedly signed a two-year deal worth $90 million to broadcast it. The league then went on to sign another multi-year partnership with Google to broadcast its esports leagues exclusively on Youtube.

 

Game Publisher Fees

Game Publishers like — Valve Corporation, Riot Games, and Activision Blizzard organize their own esports tournaments and big-league matches, but many tournament organizers are active in the esports circuit with many regional game leagues.

 

Tournament organizers have to pay a license fee to game publishers to gain rights to use their intellectual property, which is the game, for an event, tournament, or league. According to Newzoo, game publisher fees have generated $116.3 million in revenue but have seen a 0% YoY growth in 2020. Game publisher fees have remained the slowest growing revenue stream for the esports industry.

 

Digital

Micro-transactions within the game or in-game purchases drive the revenue in esports digitally. According to NPD Group’s report — esports and Streaming Gameplay (2016), the eSports industry has encouraged large audiences to spend money on in-game purchases. It suggests that nearly 70 percent of people watching have purchased the game in question or some form of DLC.

 

The actual impact of competitive gaming events on viewer purchasing habits is hard to ascertain, but tournaments are a platform for game publishers and smaller game makers to — showcase, launch, and popularise their DLC offerings.

 

Types of digital products that are popularly bought by gamers:

  • Game Extensions / Add-ons
  • New features, like extra characters, levels, and challenges
  • Bonus items that help progress through the game, such as weapons and power-ups
  • Cosmetic extras, such as character outfits and weapon skins
  • Loot crates containing a random assortment of in-game perks

 

Streaming

According to Twitch, the highest-paid streamer earned $2 million in revenue last year. On average, the top 20 streamers (by audience size) make around $1 million in revenue each year. The three main revenue streams for gamers are subscription (80% of total), ads (16% of total), and donations (4% of total) (Twitch, 2020).

 

Overall, there are about 8 million streamers that stream live content each month, but 98% of them are considered micro streamers (have less than 100 viewers). Subscription revenues are allocated by streaming platforms, such as Twitch and YouTube Gaming, are mainly based on three criteria: generated content ($1 for 100 bits-worth of cheers), the number of hours streamed, and the number of viewers. Similarly, donation revenues are correlated with the number of viewers, with larger streamers generating larger revenue. Hence, the only revenue source accessible to micro streamers is advertising.

 

 

Monetization in esports continues to be the biggest pain point for investors in the industry. The key to maximizing the revenue generated in esports lies in harnessing the fans & viewers in esports. The increase in the overall viewership of esports tournaments, both major global leagues as well as small regional tournaments, and fan engagement with action-driven rewards are some key metrics that will drive brands and sponsors to spend more in the esports ecosystem.

 

About Rocket Equities

Rocket Equities is a Southeast Asia-focused financial advisory firm experienced in capital raising, M&A, and buy-outs.

 

Rocket Equities works with market leaders in tech and tech-enabled companies to raise capital in debt & equity markets, acquire competitors locally and regionally, and create an exit for founders by leveraging its network of 300+ professional investors composed of VCs, PEs, Corporates, and CVCs in APAC.

 

Latest fundraising news on gaming & esports from Rocket Equities — Philippines-founded esports startup Mineski Global nets $10.6 million Series A Funding

Carl Garcia

Carl Garcia

Vice President

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