Game on: esport comes of age

Esport – competitive video gaming viewed by spectators – has become a global phenomenon with a fast-growing following. Tournaments now fill stadiums and draw millions of online viewers via platforms such as Twitch and YouTube. Top players can earn millions of dollars in prize money and sponsorship deals. Brands from Luis Vuitton and Gucci to Red Bull have staked a claim in this emerging domain, and synergies with the music industry are forming too. Rapper Travis Scott’s immersive digital concert for Fortnite was watched by over 27 million people, with the nine-minute gig reportedly earning him USD20 million, including merchandise sales.

One catalyst for the rise in esports is higher quality user experience in gaming overall. Increased mobile penetration and 5G allow data processing to be done on the cloud rather than on handsets, enabling gamers to play so-called ‘Triple-A’ games – those made with large budgets and high production quality, explains Dave Martin, head of skills for the British Esports Federation. For example, in India, according to Martin, 55 million people a day play PubG Mobile, a battle royale game in which players fight it out on a remote island to be the lone survivor.

Demographics is a second catalyst, with a new generation less wedded to traditional sports, according to Felix LaHaye, founder of Los Angeles-based United Esports, a marketing organisation. “There is no reason that a teenager today would prefer to see some guys throwing a ball and hitting it with a stick, rather than watching a fantastic game like League of Legends. The product is in many regards better,” he says.

Data supports his claim. One US survey found that only 27 per cent of Gen Z respondents watch traditional live sporting events on a weekly basis, compared to 48 per cent of millennials.¹ 

A winning business?

The fact that gaming and esports are followed by a passionate and young audience should make the sector tantalising to brands and advertisers.

“For people under 25, gaming culture plays a similar part of popular culture as MTV played for our generation,” says LaHaye, referring to an iconic music television channel launched in the 1980s. “When they come home, the first thing many watch is Twitch or YouTube Gaming. It has music, game shows, celebrities, personalities. Esports grows with the rest of that gaming culture”.

Esport revenues are flowing in from brand sponsorship and media rights through to licensing, ticketing and merchandise, and predicted to rise to near USD1.8 billion this year,² with viewership reaching 646 million.³ The ten most valuable esports companies were worth a combined USD3.5 billion in 2022, up 46 per cent from a ranking in December 2020.⁴

Whole countries are getting in on the game. Saudi Arabia plans to invest USD38bn of sovereign wealth to turn the kingdom into an esports hub by 2030, aiming to create over 35,000 jobs and contribute USD13.3 billion to the economy, by creating career pathways and offering professionalisation support through state-of-the-art business infrastructure.

Boban Totovski, secretary general of the International Esports Federation, says esports is a means to extend reach and influence and attract more tourists and businesses to the Gulf state as part of its modernisation drive. Esports’ nascency means countries can stake a claim in the new territory which is harder in established entertainment niches.

“You can’t buy Hollywood, but esports is still unstructured,” says Totovski.

Despite a positive trendline, the esports sector does face headwinds in the current economic environment, with some warning of an ‘esports winter’. The sector boomed during Covid as millions were forced to seek entertainment at home. Now, with advertising budgets falling and more people seeking out-of-home entertainment, the climate could get tougher. Cryptocurrency companies, once significant sponsors due to overlapping audiences, are in retreat and mainstream Fortune 500 brands have yet to pick up all of the slack. “They are clunky and not as agile, and they have brand safety concerns,” says LaHaye.

“A few years ago, people threw money at esports thinking the viewership revenue streams would unlock around 2022 or 2023. That has not happened yet," says LaHaye, citing the global economic downturn, investors’ aversion to growth without profits and the recent crypto collapse. “The main money that is coming through is linked to the broader rise in gaming.”  He says revenue shares from leagues and events, and prize money, are yet to deliver significant finance.

But business models are emerging. Talent management is one, as esports organisations become talent and ‘influencer’ agencies. Branded apparel and lifestyle products are on the rise, including gaming energy drinks to fuel marathon sessions in flavours such as raspberry, pink lemonade and grape popsicle. Auxiliary businesses are also popping up. TSM, a North American esports team, makes most of its revenue from an app called Blitz, which enhances the League of Legends playing experience by analysing stats and offering tips and training.

“A bunch of esports organisations have side gigs within gaming that generate their revenue,” observes LaHaye. He likens Blitz, which provides esports training, to a ‘pick and shovel’ business, referring to the entrepreneurs that prospered most in the California gold rush – those selling the shovels – demonstrating how business opportunities can often be found in the auxiliary services of a booming sector.

Arnold Hur, chief executive officer at Gen.G, which owns esport teams and runs educational initiatives, says esports organisations are tapping into marketing potential. “Some teams are realising they have something that generates a brand, marketing, and a community that cares. Some are creating media and entertainment companies. Others have launched their own games.” Hur says esports teams have built “an incredible marketing engine so, the question becomes; what businesses can we build on top of that?”.

Big brands are recognising the commercial value of the sector. Louis Vuitton has launched a collection in collaboration with League of Legends and Gucci has opened a gaming academy to mentor and coach up-and-coming talents. Nestle has advertised on Twitch, and in 2021 signed a sponsorship deal with NRG Esports, the largest such team sponsorship at the time. Red Bull has a ‘strong and consistent’ esports presence, according to LaHaye. It now hosts over 20 annual tournaments and sponsors some of the biggest teams and events across the world.

The question is whether these initial leaders will be followed by more mainstream large corporations to provide capital for the sector’s growth. Another challenge is improving diversity and inclusion. Esports should in theory be highly inclusive, as one of the few sports in which men and women can compete directly (other examples include horse-racing). But women have historically been under-represented or excluded, due to toxicity, sexism and misogyny among some gamers. Alice Leaman, head of operations at the British Esports Federation, says the industry is working to make the gaming environment more welcoming:

“A lot of what we do is showcasing role models and showcasing what the opportunities and pathways are for semi-professional players. There is a lot more to be done and it’s a long-term goal, but as long as we work together, we can make it inclusive and a safer space.”