Monetizing esports is still a work in progress. The idea of watching people get paid to play games seemed far-fetched not long ago. But market researcher Newzoo estimates that 165 million esports enthusiasts are now watching esports, with that number expected to reach 250 million by 2021. Occasional viewers will drive those numbers to 557 million by 2021.
That means that esports has a huge chance to surpass both the revenues and the viewership for traditional sports — if only the teams, leagues, broadcasters, streaming companies, and video game publishers can figure out the best business models for monetization.
We talked about this challenge in a recent webinar on esports monetization. Our expert panelists included Jonathan Singer, industry strategist at Akamai; Robb Chiarini, director of esports at Ubisoft; and Kent Wakeford, chief operating officer at Gen.G, an esports organization.
Esports has many different avenues for driving revenue. Those include advertising, sponsorship, merchandising, ticket sales, concessions at events, media rights, streaming videos, and prize money. There are many ways to innovate across all of those categories.
The session was moderated by VentureBeat’s Rachael Brownell and me. It was sponsored by Akamai. Here’s an edited transcript of our conversation.
Dean Takahashi: We have a great panel here today to talk about esports and monetization. I’ll ask our panels to introduce themselves a bit first. Let’s start with Jonathan, from Akamai.
Jonathan Singer: I’m our gaming industry strategist, which means I get to talk about video games all day, which is pretty cool. At Akamai we secure and deliver fantastic digital experiences for the world’s top brands. We were instrumental in helping the video game industry move from physical to digital distribution as the primary model of game distribution. That’s the quick rundown on Akamai and myself.
Robb Chiarini: I’m director of esports at Ubisoft. I’ve been there for five years now. I’ve had a great career in video games with Blizzard before that, IGN before that. I’m a community guy that’s done this for a very long time, long before we had the term “esports.” I’m an evangelist about esports. Anything I can do to help the ecosystem. I’m super excited to talk about this today.
Kent Wakeford: I’m co-founder of Gen.G Esports. Gen.G is a global esports company that owns and operates seven esports teams, including the Seoul Dynasty in the Overwatch League. We have the 2017 world championship League of Legends team, a two-time world championship Heroes of the Storm team, a championship PUBG team, our Clash Royale team in China, which plays in Shanghai, as well as our newly announced Fortnite team, which trains and plays in the U.S.
Takahashi: Everybody’s here because we all know esports is a big deal. Compare that to where it was just two, three years ago. Newzoo, the market researcher, anticipates that esports is going to be a $1.7 billion industry by 2021. The excitement around deals is all over the place. I happen to be writing esports stories every week, if not a few times a week these days.
Since we’re VentureBeat, we’ll go straight to the money talk here. Kent, what are the current esports revenue models, and where is the bulk of the revenue coming from today?
Wakeford: If you think about esports at the league and the team level, the easy analogy is with traditional sports. Let me start with an analogy to the 2018 World Series, Boston Red Sox and LA Dodgers, and the 2018 League of Legends world championship, with China’s Invictus and Europe’s Fnatic.
If we think about revenue coming out of these games, we can start with media rights as the first pillar, which we know is the big revenue driver for traditional sports. In the World Series we had Fox as the broadcaster. The World Series had about 14.3 million average viewers for the games. Compare that to League of Legends. Their broadcast rights are more on digital streaming platforms like Twitch, with worldwide viewership of 78.5 million. Media rights is a key and dominant revenue driver, both in traditional sports as we’ve seen, and now quickly gaining in esports, because of the massive viewership.
That’s number one. Number two, you see live events. Going back to the analogy of the World Series versus the League of Legends world championships, live events, sold-out stadiums—for League of Legends it was in Korea. For the World Series it was New York and Boston. But you have tens of thousands of people buying live tickets, concessions, and everything else.
Then you get to sponsorship. Sponsorship is a big, big area of growth for esports. You’re seeing, at the league level, great brands coming into esports like Toyota and T-Mobile and others. On the team level you’re seeing big brands, both endemic brands and non-endemic brands, coming in and sponsoring teams and players.
So you have media rights, sponsorship, and live events. Merchandise is another big area. You’re starting to see that grow. There are some great esports teams doing a great job, whether that’s 100 Thieves or Fnatic. And then the last area – and this is revenue that ultimately flows down mainly to the players – is prize winnings. Whether it’s the player pool for the World Series that goes to the players, or the prize pools for League of Legends or DOTA or any other games, that money flows to the teams, and the majority ultimately goes to the players.
From a revenue perspective, media, sponsorship, live events, merchandise, and prize winnings are the pillars. The biggest revenue driver to the leagues, currently, is media rights. What we’re seeing today is that the largest revenue driver for the teams is sponsorship revenue.
Takahashi: Robb, I guess we shouldn’t forget that sales of games going directly to game publishers is a big part of this too.
Chiarini: Yeah, exactly that. When we look at esports in the current revenue models, as he mentioned, we look at a lot at traditional sports. I’d always say to look at traditional entertainment, too. Look at TV shows. At the end of the day, esports itself is a viewership phenomenon. There are players and all these mechanics within it, but it’s no different from actors and players in other sports. We all agree that the viewership is what’s super impressive. From viewership you get merchandise, people viewing and traveling and spending. That’s where you get the buying power for sponsors and others.
On top of that, for us, when we compare ourselves to traditional sports—traditional sports had to go this rate. If you’ve ever heard me talk about these things, I talk about how traditional sports have to sell media rights. They have to have sponsors. They have to have advertisers. They have to have all this influx of money, because they don’t have anything, at the end of the day. They don’t own the ball. You and I could start up a new football league tomorrow if we wanted to and no one can stop us from using that sport as a vehicle for a program. We’d get our own sponsors, do our own things, and we could do anything we wanted. Nobody owns the IP of the football.
With video games, we’re in a very different place, in that we can look at things differently if we choose to. As many esports start up, they look at it going, hey, this is a marketing a vehicle, a messaging vehicle, an engagement vehicle, a community retention and engagement vehicle, rather than a P&L against a thing to provide an entertainment that creates profit. For us, owning the game gives us the opportunity that every activity we do, every dollar we spend on an esport, is actually a way for us to engage with our existing communities, create viewership, create playership, create opportunities for monetization within the game and on the game itself.
All of that is super interesting. I believe esports has the biggest leg up against traditional sports in that way. Adding to that—I agree with your list, merch and media rights and things. There are some other things that are interesting. Gambling is out there in the space, not that I’m a proponent or otherwise, but that’s a revenue stream that’s out there in the world. Fantasy leagues, gambling sites, things like that. Another thing we do in esports, or in gaming in general, is interactive money. When you look at things like Twitch Bits and things of that nature that allow people to purchase around the game, that’s different from the traditional sports. That’s another revenue opportunity within the ecosystem, and for all of gaming.
Takahashi: A lot of influencers out there are making a lot of money from esports-related live streams and other things.
Chiarini: I go back to the drops and items and things inside the game, different layers of monetization. We’d categorize that underneath gaming. But there’s the whole other platform life. Twitch Bits is a good example, an external currency that’s involved in the ecosystem. Somebody is spending to do things with that.
Subscriptions are subscriptions. Move that to one side. It doesn’t matter if you subscribe to Netflix, which is a very strong competitor to esports. Anything that takes eyeballs away from something else is a competitor. Not everyone looks at it that way, but I think gaming companies, esports companies, everyone of us is an entertainment medium and we should look at all of those spaces as potential threats. Subscription models are just another source of revenue.
Jonathan Singer: I have a little bit of a bomb to throw, which I feel is a good way to start off a panel. [laughs] That is, we talk about where the revenue is growing to. I think it’s supposed to be $904 million this year and then a billion soon enough, with 380 million global viewers. That’s a nice size of audience. But when you do the division there, you’re talking about $2.60 a user.
If you look at the companies that are coming in, you have all the big names in video games. You have big names from outside. Again, this is VentureBeat, so people are worried about the money. Is that enough money to go around? It’s not a lot of money yet. I know we’re growing as an industry, but when we’re talking about revenue models, you have to talk about how we’re getting there and how we get—everyone’s fighting for a slice of that pie.
Wakeford: I think what you just framed up is one of the most exciting opportunities in esports. Goldman Sachs had a report recently where they showed that the average esports consumer monetized to about $3.94. Whereas the average consumer in traditional sports is monetizing to about $54. That means there’s a 10X opportunity within the esports market to grow and build those connections with fans, to bring them things they’re willing to pay for, for their excitement and their fandom and their engagement with teams and players. I view that as an opportunity.
When I look at the revenue growth drivers in esports, I think they’re all way under what the reality is going to be. We see it in the viewership. We see what’s happening on a global basis with stadiums being built all around the world – in the U.S., in China, in Korea. We see brand sponsors coming in. We see bigger media rights deals happening. We see merchandise. We just saw the announcement with the Overwatch League and Fnatic doing merchandise. It’s moving at a much faster speed than a lot of the industry reports have been putting out. That’s the opportunity. That’s why you see so much capital coming into esports.
Chiarini: When we talk about esports, we’re comparing this giant macro of a term, across a huge industry, multiple titles, multiple games, multiple sports if you will. It’s a gigantic term we use to encompass everything. Different publishers, different games, different titles, these are all different points along that cycle. Some further along, some back behind. Some new, some starting, some growing. It’s not equal across the board. We’re talking from a very macro view. I think that’s important, because I know some of the people watching are new to esports and trying to understand that. It encompasses so much when we talk about esports as a class.
Takahashi: There are definitely winners and losers already at this stage in the game. Everyone saw the news that the H1Z1 league shut down in mid-season.
Chiarini: I would never say that there are necessarily losers. Again, it’s a strategy. Esports itself might not meet certain games and certain appetites for different things. They might feel that some other marketing strategy or activity that they’re doing is more beneficial and this isn’t proving out the results that they want. It’s tough. What scope works for your game at that time, and things change.
Singer: Kent’s response was pitch perfect. What I was looking to get at, when you talk about the difference between the ARPPUs for esports and for traditional sports–when you look at the demographics, if you look at baseball in the U.S., the bulk of their demographic is over 55 years old. Versus esports, it’s millennials and Gen Z. You need to think about — we’ll get to that in the next question as well — engagement, and how you’re engaging with them from a technological standpoint, because these are the digital natives everyone in advertising has been talking about for years.
How are they going to interact with esports? Where are they going to interact with esports? What do they expect from their viewing experience? That’s where you see, as we move from traditional revenue models around the base that traditional sports built to future interesting revenue models Robb alluded to with perks and in-game currency, to other ways of interacting with fans. That’s my point I want to make until we get to the next question.
Takahashi: That’s a good point. The perks part of streams, tips that happen in those streams, those are things that don’t happen in the traditional sports revenue picture. That’s something interesting about how much more digital the esports infrastructure is.
Chiarini: You brought up age, the 55-year-old average age of baseball viewers. All of our esports fans are growing older too. As they mature and raise families on esports, just like previous generations did on baseball–not that I’m saying baseball is going away, but we’re starting to see legacy now like traditional sports have had. Your parents may have been sports fans, so they took you to games and you became a fan. We’re seeing that same thing happen with esports. Even for us, for all of us looking at esports now, and what that demographic is–as it’s aging and maturing, what’s the value proposition for those people, as well as new fans? It’s going to be an exciting elongated process for that.
Singer: Just to make sure, Robb, Ubisoft isn’t bringing up a public stance that they’re going to kill baseball.
Chiarini: Uh…no? I think there’s enough room for everyone, for all these games, for the different sportsballs and everything else. There’s plenty of room for everyone, an appetite for each of us.
Takahashi: We’ve gone into a bit of this already, but what lessons can be learned, both positive and negative, so far? Traditional sports lessons, but other lessons as well.
Wakeford: As a team owner, I think there’s a lot of great lessons from traditional sports. There’s a lot of areas to innovate, especially with the digital connection between fan and player. We talked about a lot of the traditional revenue streams and media. There’s a lot of room for improvement in looking at how traditional sports have been able to really engage fans in broadcast and go deep into player backgrounds and create a connection with storytelling around players. You’ll see that emerge in this coming year in esports.
Sponsorship we touched on. The gates are open and that’s happening. Another big area is live events. As I mentioned before, there are stadiums and arenas opening up all around the United States and the world for esports events. You’ll see a lot of innovation in how events are put on and engage people to come and have a great time. And then merchandise is another area that traditional sports teams have done a great job with. You’ll see that evolve.
One other area that’s also evolving, and we’ve spent a lot of time on this at Gen.G–we planted a flag in South Korea, the birthplace of esports. If you think about a lot of the players within esports, so many of them are from Korea. It’s like Brazil in soccer in terms of so many great players coming out of South Korea. What you’re seeing now is a whole infrastructure being built around the trading of players. That’s another area of revenue that you’ll start to see. Whether you look at the soccer teams or other professional teams, you’ll see trading of players become another big area of growth. As an esports team owner, I’m looking a lot at traditional sports for best practices in that area.
Chiarini: As I alluded to earlier, monetize everything. Traditional sports, they do a great job of every potential revenue source around the thing they create and how to monetize that, how to build upon that. To Kent’s point, how do we create deeper connections with fans, through storytelling and other pieces of content? How do you tell the story and own this ecosystem that you’ve created? Some of the traditional sports team and sports leagues do a great job of revealing that humanity that we all can connect to and do something with that.
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