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Esports: Monetising the momentum

Esports: Monetising the momentum

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A recent feature by the excellent video gaming writer, Kellen Browning, published in the New York Times, speculated that the esports flame may be burning out, with revenues starting to fall below expectations, and investors becoming increasingly concerned of the industry’s true potential. The Times is widely regarded as the No.1 newspaper for quality journalism in the USA, so this hypothesis is worthy of further examination.

It is undoubtedly true that there have been unusual levels of hype surrounding the genre, with huge numbers being liberally quoted and millions of speculative dollars invested throughout the world. And yet now, burning questions are emerging. Can the sector deliver on its promise? Is it all a passing flash in the pan? Do the business models stand up to the scrutiny of economic reality? Or is, as the New York Times headline suggests, the esports world starting to teeter?

Searching for the Exit door

In reality, it appears that this may be primarily a US problem. Recent months have seen a number of reports of esports team owners posting losses, cutting costs and terminating player contracts. And according to data analysts, Esports Charts, audience viewing figures for the largest esports league in the US, the League Championships Series, are this year down by 13% on 2022 and 32% on 2021. This is a curve that is moving in the wrong direction.

High profile names such as FaZe Clan, previously championed by serial entrepreneur, Snoop Dogg, has laid off 40% of its staff and been threatened with NASDAQ delisting. Other teams are resigning from leagues and, even more concerning, seeking to sell up and get out altogether.

A decade of dynamic growth

The past decade has seen professional leagues spring up all around the world, with games such as League of Legends, CS:GO, Dota 2, Overwatch and more becoming global phenomena, joined by a plethora of further titles and even Olympic recognition. Finals have filled arenas, big brand sponsorship has flooded in and investors, including several celebrities, have poured money into ‘the next big thing’.

Around the world, in Europe, Latin America and especially China and the rest of Asia, there seems to be little to divert this upward trajectory, but in the US the returns on investment are few and far between.

Clouds and silver linings

Madison Square Garden Sports, home to the nation’s most iconic live entertainment venue, was an early adopter, buying into esports as the shape of things to come. Just a few years later, having failed to find an outright buyer for its own esports business, Counter Logic Gaming, it was reduced to laying off staff and merging its one remaining esports asset, its League of Legends team, with another esports company, NRG Esports, and agreeing to pay its new ‘partner’ several million dollars to absorb the ongoing operational costs and salaries of what remained of Counter Logic. Not exactly a sequence of events to write home about.

Monetising creativity often takes time

Despite this air of negativity, there is much cause for optimism, largely based upon precedent. Most new-borns suffer teething problems, and it frequently takes time for creative visionaries to get their brilliant heads around effective monetisation, commercial reality and the tedium of day-to-day business management.

The esports audience is mostly young, a group that has always appealed to and been out of reach of advertisers. This group is the generation that is bringing ‘tech’ to the masses and buying into in-game advertising and all forms of online retailing. And it is this that will prove to be one of the keys to commercial success. Last year, sales of themed in-game items in Valorant from Riot Games topped $42m. This should be a marker for those seeking to profitably evolve. In addition, if the actual viewing figures are anything close to those quoted, then failing to maximise subscription opportunities will be a crime.

Stepping into a whole new world

In short, it may be too pessimistic to suggest that the world of esports is starting to ‘teeter’. Continuing the human development analogy, it may be more realistic to suggest that the new-born is now a toddler, taking those early steps that are always somewhat delicate and unbalanced, but usually soon become firmer, more reliable and, eventually, powerful strides forwards.