Can esports organisations allocate resources more effectively to unlock growth?
Photo: Josh Berendes
Esports events bring thousands of viewers from around the world into a shared space. Despite being major spectacles, these events are often a high-risk high-reward opportunity for esports organisations.
When looking at the August SEC filing for the only publicly traded esports organisation, Faze Clan, the following was clear:
- Revenue from other sources was almost three times higher than from tournament winnings
- Sale of digital goods holds a majority share of revenue generation for major esports organisations
- Brand awareness from global audiences is invaluable to sponsorship development
In 2021, Faze Clan brought in roughly $1.5 million from esports tournament winnings across their ten esports teams (an average of only $2,700 per pro player). Benchmark this against the full-time payroll that many organisations entertain for their esports athletes, and it is obvious that this will seldom be the part of esports organisations that make their long-term unit economics work. However, esports organisations are arguably heavily over-extended in the number of pro players versus the number of creators they sign and pay. Arguably, sponsorships are a big caveat to the financial security of esports, but athletes are not the most effective for driving sponsorships – not if they are also meant to compete at the highest level.
Most creators at esports organisations have much broader fanbases than players. For sponsorship, media rights, and brand IP deals to keep growing, brands will need esports organisations to keep growing audiences time and / or money spent. These are metrics that esports athletes struggle with when compared to their creator counterparts (i.e., non-athlete, creator members of esports organisations). The paradox is that players account for the majority of esports organisation members but bring in the minority of revenues. Meanwhile, they account for a significant portion of esports organisation costs (since athletes are often on payroll), while creators often have simple affiliate deals rather than being full-time paid employees.
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While building a reputation as an esports company is often born out of its esports tournament success, the longevity of their business models sits with creators. However, for now, esports organisations only have a partial grip on the creators as they are not always employees, and partly because the largest ones feel they have enough power to ‘do what they want’ – as opposed to activate a brand at the snap of a finger. This needs to change if esports organisations are to unlock the next growth chapter of their journey. They need to start thinking of themselves as media, entertainment, and talent agencies, rather than sports clubs, to allocate resources more effectively. Only this will unlock their full growth potential.
Stay tuned for an upcoming MIDiA report on key performance metrics of the top ten most valuable esports organisations, thus illustrating some of these growth barriers and opportunities. If you would like to find out more about this report, please contact firstname.lastname@example.org, or email@example.com to find out more about how to access it.
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