How Esports Make Money: The Business of Competitive Gaming

In recent years, esports has become a big business. From professional leagues to college tournaments, there are plenty of opportunities for gamers to make money from their passion. But how does esports make money? In this blog post, we take a look at the business of competitive gaming and how it generates revenue.

Introduction

The business of esports has been on a tear in recent years.

Revenues have been growing steadily, reaching $696 million in 2017, and are expected to top $1.5 billion by 2020, according to market research firm Newzoo. Meanwhile, the number of people watching esports is also rising rapidly. Newzoo estimates that there were nearly 380 million esports viewers around the world in 2018, up from about335 million the year before.

With all this growth, it’s no surprise that investors are pouring money into the esports industry. In 2018, investment in esports startups hit a record $4.5 billion, according to data from PitchBook.

So how do esports make money? There are a few main ways: advertising, sponsorships, ticket sales and merchandising. We’ll take a closer look at each of these revenue streams below.

How do esports make money?

Competitive gaming, or esports, is a billion dollar industry and is only getting bigger. But how do esports make money? This can be broken down into three main ways: 1) through sponsorships, 2) through advertising, and 3) through prize money.

Sponsorships

Like traditional sports, esports teams are able to secure sponsorships from a variety of businesses looking to reach the young and engaged esports audience. These sponsorships can take many forms, but most often they involve the sponsorship of a specific esports team or athlete, or the sponsorship of a specific esports event.

Sponsorships of teams and athletes are the most common form of sponsorship in esports, and they work in much the same way as they do in traditional sports. A company will provide financial support to an esports team or athlete in exchange for some form of brand exposure. This brand exposure can take many forms, but it typically includes having the sponsor’s logo displayed on the team’s jerseys or uniforms, or having the sponsor’s name included in the team’s name (e.g., “Team SoloMid”).

Event sponsorships are also common in esports. These sponsorships typically involve a company paying to have its name associated with a specific esports event (e.g., “The Intel Extreme Masters” or “The Call of Duty World League”). Event sponsorships can also take the form of product placement, with companiesPay-per-view (PPV) is a type of event sponsorship that allows companies to associate their brand with an eSports event in exchange for a fee paid by viewers when they watch the event. This fee is usually charged on a per-view basis, but it can also be charged as a monthly subscription fee.
Many companies have also begun sponsoring specific types of tournaments known as invitationals. Invitationals are tournaments that are not part of a larger league or circuit, but are instead organized by a single company or organization. These tournaments usually feature some kind of prize pool that is provided by the sponsor, and they often offer significantly more money than other types of tournaments. As such, invitationals are often seen as prestigious events that offer high levels of competition.

Media rights

TV networks, streaming services, and event organizers all want a piece of the estimated $1 billion esports industry.

Media rights are the biggest source of revenue for esports, accounting for 42% of the total market in 2017, according to industry research firm Newzoo. The sector is expected to grow to $1.4 billion by 2020.

Television networks including ESPN and TBS have started airing esports competitions, while Amazon’s Twitch and Google’s YouTube Gaming have become go-to destinations for esports fans to watch live streams of their favorite players and teams.

Event organizers such as ESL and Major League Gaming also bring in revenue from media rights deals. They sell the broadcast rights to their tournaments to publishers, sponsors, and other third-party broadcasting platforms.

To cash in on the growing popularity of esports, publishers are also creating their own leagues and tournaments. For example, Riot Games’ League of Legends Championship Series is one of the most watched esports leagues in the world with millions of dollars up for grabs each season.

Advertising

As with any sport, one of the main ways that esports makes money is through advertising and sponsorships from companies looking to reach the key 18-34 demographic that watches and plays competitive gaming.

Advertising comes in a few different forms in esports. The first, and most obvious, is traditional commercial ad spots that play during breaks in the action, similar to what you see during NFL or NBA games. These are generally sold by the tournament organizers or media rights holders and can fetch a pretty penny from some of the world’s biggest brands.

Another way for brands to reach esports fans is through so-called “shoulder content” around live broadcasts. Shoulder content generally refers to any supplemental programming that runs before, after, or even in between matches during an event broadcast. This could be things like post-game interviews, highlights shows, player profiles, or other types of features designed to give viewers more insight into the competition and players. These are generally produced by the tournament organizers themselves or the broadcaster carrying the event, and they offer another avenue for potential sponsors to get their brand in front of viewers.

Sponsorships are another big source of revenue for esports organizations and players. In addition to traditional “title sponsorships” where a company puts its name on an event or team in exchange for a fee, there are also “content sponsorship” deals where brands sponsor specific pieces of integration into live broadcasts or digital content around an event. For example, a company might sponsor the post-game show following a competition or pay to have its logo appear on loading screens during an online tournament broadcast.

Merchandise and ticket sales

Merchandise and ticket sales are often the first thoughts that come to mind when discussing how esports earn revenue but they are a small slice of the pie. In 2017, merchandise and tickets brought in $69 million dollars which accounted for 3% of the overall pie. The stigma around esports being a “man’s hobby” is slowly going away which is translating into more women attending live events and buying merchandise. In terms of tickets, prices can range from $20 for a general admission seat to $250 for VIP packages that include access to player meet-and-greets or other benefits.

Prize money

The most obvious way esports athletes make money is through prize earnings. Tournaments typically have large sums of money up for grabs, with the International – Dota 2’s annual world championship – offering a record-breaking $34 million in prize money in 2017. The Money in the Bank event for League of Legends offered $5 million in 2018, and even smaller tournaments often have six-figure prize pools.

With such large sums of money at stake, it’s no surprise that many professional gamers view winning tournaments as their primary source of income. But how does the prize money actually get distributed? It depends on the tournament organizer, but typically, the bulk of the prize pool goes to the first-place team, with gradually smaller amounts of money awarded to subsequent finishers. For example, at The International 2017, first place took home almost $11 million, while fifth place only earned around $1 million.

Of course, not every esports athlete is lucky enough to win a major tournament, and even those who do usually can’t expect to win first place every time. That’s why many pros supplement their tournament earnings with other sources of income.

The business of competitive gaming

According to a recent report, the global esports market is worth $1.1 billion. That’s a lot of money. But where does it all come from? In this article, we’ll take a look at the different revenue streams for esports and how the industry makes money.

Game publishers

In the early days of esports, game publishers took a hands-off approach to competitive gaming, seeing it as a niche interest at best and a threat to their games’ reputations at worst. But as esports has mushroomed into a worldwide phenomenon with huge audiences and big prize pools, publishers have had to change their tune.

Nowadays, most major game publishers have established esports divisions with staffers dedicated to supporting competitive gaming. They’re investing in tournaments and leagues, signing teams and players, and creating content to appeal to esports fans. And they’re reaping the benefits: according to SuperData Research, game publishers generated $865 million in revenue from esports in 2017, and that number is expected to grow to $1.4 billion by 2020.

There are several ways that game publishers make money from esports. The most obvious is through licensing fees: when a tournament organizer wants to use one of their games as the basis for competition, they have to pay the publisher for the privilege. This is why you often see multiple tournaments for a single game: each one has its own licensing deal with the publisher.

Publishers also make money from esports through sales of in-game items. Many games now have virtual items that can be purchased with real money, and some of those items are used exclusively in esports competitions. For example, Dota 2 has “Compendiums” that unlock special features like exclusive hero matchups and predictive statistics; a portion of the proceeds from each Compendium sale goes directly to The International, Dota 2’s premier annual tournament. In-game item sales are also a boon for free-to-play games like League of Legends and Overwatch, which make most of their revenue from cosmetic purchases rather than traditional sales models.

Finally, game publishers also benefit from increased attention on their games thanks to esports. Even if they’re not directly involved in organizing or running competitions, the mere fact that their games are being played at a high level draws attention (and potential new players) to them. This halo effect has been well documented in other sports; now it’s happening in esports as well.

Tournament organizers

Large esports tournaments are organized by a number of entities, including game developers and publishers, and offline event companies. Tournaments may be organized for specific age groups and you may find age limits on who can participate. For example, the World Cyber Games (WCG) competition is only open to participants who are 17 years of age or younger.

The Esports Tournament Organizers Association (ETOA) is a trade body representing the interests of esports tournament organizers worldwide. Its stated goal is to help promoters and rights holders in the industry to stage successful events, and it offers advice on a variety of topics, including licensing, insurance, and venue selection.

Tournament organizers usually generate revenue from a combination of registration fees paid by teams or players, sponsorship deals, and advertising. Some large events also have broadcasting rights deals in place, which can provide a further source of revenue.

Professional teams

Like traditional sports, esports teams are organized into professional leagues with tournaments and drafts that determine which players make up each team. These teams are then sponsored by brands and compete for prize money in matches or tournaments. Some of the biggest names in esports today have their origins in traditional sports, like the NBA2K League, which is run by the NBA, and the Overwatch League, which is run by Blizzard Entertainment.

But unlike traditional sports, esports teams don’t necessarily have to be affiliated with a particular league in order to compete. In some cases, teams will form around particular players or specific games. For example, FaZe Clan is one of the most successful professional esports teams out there, and they’re not affiliated with any one league; instead, they sponsor players who compete in a variety of different games.

Streaming platforms

The most popular way to watch esports is live streaming. Twitch, which was bought by Amazon in 2014 for $970 million, is currently the most popular platform with 15 million daily active users who watch 12 billion minutes of content per month. While Twitch is the leader in esports streaming, there are other platforms that are also popular such as YouTube Gaming, Azubu and Hitbox.

While most people watch esports on live streaming platforms, there are also a lot of people who watch recorded gameplay on platforms like YouTube and Twitch. In addition to recorded gameplay, people also watch “highlights” which are compilations of the best moments from a particular match or tournament.

Conclusion

As the popularity of Esports continues to grow, so does the amount of money involved. Competitive gaming is now a multi-billion dollar industry, with players, teams, and leagues all vying for a piece of the pie. While there is still some debate as to whether or not Esports can be considered a “sport”, there is no doubt that it is a thriving business.

So how do Esports make money? There are a number of different ways, but the three most common are through sponsorships, advertising, and tournament prizing.

Sponsorships are perhaps the most straight-forward way that Esports organizations make money. Much like traditional sporting teams, Esports teams will sign deals with brands and companies who will pay them to display their logos and products. These sponsorships can be worth millions of dollars per year, and help to fund the operations of these teams.

Advertising is another big revenue stream for Esports. Nearly all major tournaments will sell advertising space on their broadcast, which can reach millions of viewers worldwide. This provides a great opportunity for brands to reach this highly coveted demographic. In addition, many brands also sponsor individual players or teams, which gives them even more exposure during these broadcasts.

Finally, tournament prizing is perhaps the most directly beneficial way that Esports organizations make money. By winning tournaments, teams can earn large cash prizes which help to offset the costs of operating their organization (traveling to events, paying salaries, etc.). These prize pools can be worth millions of dollars, making tournament success essential for any serious Esports organization.

While there are many different ways that Esports organizations make money, these three are by far the most common and important. By understanding how Esports makes money, we can better appreciate the magnitude of this rapidly growing industry.