With the rapid growth of the gaming industry, eSports has evolved into a massive global phenomenon. Competitive gaming teams, or eSports teams, have become a prominent feature in this landscape, competing in various popular video games and tournaments. But how exactly do these teams generate revenue and sustain their operations in this booming industry?
eSports teams are professional gaming organizations that field players to compete in video game tournaments and leagues. They operate similarly to traditional sports teams, with players training and competing in high-stakes events. However, the revenue generation for eSports teams is unique, relying on a combination of prize money, sponsorships, and content creation to stay profitable.
In this article, we will delve into the intricate world of eSports team economics, exploring the various revenue streams that contribute to their success. By examining case studies of top eSports organizations like Team Liquid and Evil Geniuses, we will gain valuable insights into the financial strategies behind these successful teams. Furthermore, we will also compare the revenue models of eSports teams to their traditional sports counterparts and analyze the differences in audience and reach.
What are eSports teams?
eSports teams are professional gaming entities that compete in organized video game competitions. These teams, such as Team Liquid and Fnatic, bring together individuals or groups of players to represent their brand in various gaming events and leagues. The operations of an eSports organization encompass team management, event participation, marketing of the players, and strategic roster decisions, similar to traditional sports teams.
As marketing powerhouses, eSports teams focus on growing their brand presence and sustaining their teams’ competitive edge. They achieve this by garnering substantial exposure through sponsorships, engaging with fans via content and influencer collaborations, and leveraging valuable data insights. Furthermore, they offer a unique platform for showcasing technological innovations and gaming-related products.
Through these activities, esports teams align with the broader marketing objectives of increasing brand visibility and customer engagement, much like their counterparts in traditional sports industries. Their role in the gaming community goes beyond competition, as they also serve as a conduit connecting game publishers, players, and the wider audience within the multi-billion-dollar esports ecosystem.
How Do eSports Teams Make Money?
eSports teams have evolved into significant entities in the gaming industry, much like traditional sports organizations, by adopting multiple sources of revenue to sustain and expand their operations. The financial success of these teams is not solely dependent on their competitive achievements but also on their entrepreneurial ventures. Below we discuss the primary mechanisms through which eSports teams like Team Liquid, Evil Geniuses, and others generate income, ensuring their place in the multi-billion-dollar eSports market.
Prize Money
One of the most visible ways that eSports teams earn money is through prize money from tournament wins. With a plethora of games like League of Legends, Dota 2, and CS:GO hosting competitive leagues and events, prize pools have escalated to millions of dollars, sometimes reaching extraordinary heights. For example, The International 8 Dota 2 tournament had a staggering prize pool of $24.8 million. While this money is often distributed among the individual players on a team, successful tournament performances can significantly increase a team’s brand visibility and attract sponsorship deals.
Revenue from Game Publishers
An innovative source of revenue in the eSports world comes from direct partnerships with game publishers. These collaborations can range from revenue sharing from in-game skin sales to exclusive content deals. Riot Games, Ubisoft, and Psyonix have been known to share between 20% to 50% of the revenue with the teams from in-game purchases. For example, 30% of Rocket League’s esports skin sales are shared with participating teams. This not only incentivizes teams to promote games but also serves as a reliable stream of revenue complementing their other financial strategies.
Sponsorships and Brand Partnerships
Sponsorships form the backbone of esports teams’ revenue streams, contributing over half of the industry’s earnings according to Newzoo’s report. These sponsorships range from product placement deals to extensive partnerships with non-endemic brands like luxury car manufacturer BMW and fashion houses Ralph Lauren and Gucci. Events like the United in Rivalry campaign underscore the broad appeal of eSports to various sectors seeking promotion. Sponsors typically look for product exclusivity, logos on team apparel, and a presence on different platforms, thus connecting with millions of fans worldwide and creating a robust revenue-generating ecosystem for the teams.
Content Creation and Streaming
Finally, in a world where digital content reigns supreme, content creation and streaming have become lucrative revenue channels for eSports teams. Platforms like Twitch and YouTube serve as venues for players and teams to engage with fans and monetize their efforts via ads, subscriber revenue, and brand deals. Prominent streamers drive significant attention to their teams, attracting more viewers, and creating additional sponsorship opportunities. The connection between streaming and fan engagement also opens the door to monetizing in-game purchases, where fans can directly support their favorite teams or streamers, sharing a slice of the revenue with the eSports organizations.
Case Studies of Successful eSports Teams
In the rapidly growing esports industry, adaptation and innovation are key to financial success. Both Team Liquid and Evil Geniuses serve as prime examples of how diversified revenue streams and strategic marketing can lead to profitability and enduring brand presence. Their approaches demonstrate that there isn’t a singular path to success in the esports realm, but rather a variety of methods can be used to create sustainable business models.
Team Liquid
Team Liquid’s journey from a humble Dutch StarCraft: Brood War team to a multi-game, multi-million-dollar esports organization is a case study in evolution and business acumen. The team’s expansion through a 2015 merger with Team Curse brought in fresh talent and management, while the partnership with aXiomatic in 2016 bolstered their financial framework.
Team Liquid’s dominance in the competitive scene was affirmed when they clinched the The International 7 (TI7), earning an astonishing $10,862,683 in prize money and firmly establishing themselves as top-tier contenders across various esports titles. However, their savvy doesn’t end at competition winnings. They’ve innovatively expanded their revenue streams beyond the norm, launching platforms like Liquid+ for fan engagement, which helps maintain a devoted audience.
With annual revenues surpassing $38 million, Team Liquid’s success is also attributed to ventures such as their esports encyclopedia website and the establishment of a professional training facility in Santa Monica. These investments not only showcase their dedication to excellence but also act as additional revenue channels.
Evil Geniuses
Evil Geniuses stands as a North American esports leader with a legacy beginning as a Canadian Counter-Strike team. Founded in 1999 by Alexander Garfield, EG rose to prominence under the wings of players like Sumail Hassan—the prodigy who propelled the team to victory in the Dota Asia Championships shortly after joining.
As a subsidiary of GoodGame Agency, belonging to Twitch’s expansive empire, Evil Geniuses have amassed prize money totaling over $21.5 million from a variety of tournaments. Their foray into the competitive scenes of Dota 2, Counter-Strike: Global Offensive, and Hearthstone have not only catered to diverse gaming audiences but have also contributed significantly to their financial portfolio.
Their innovative approach extends beyond just gaming; by partnering with conventional sports teams such as Wolves, Evil Geniuses bridges the gap between esports and traditional sports, tapping into new fan bases. Combining competitive success with strategic partnerships and a solid presence in content creation, EG has crafted a sustainable and profitable model within the esports landscape.
The Role of Competitive Leagues
The Role of Competitive Leagues
Competitive leagues play a central role in the financial ecosystem of esports teams, establishing various streams of revenue that can be immensely profitable. These leagues, structured similarly to traditional sports leagues, have initiated a revenue-sharing model that includes media rights deals, sponsorships, merchandise sales, and ticket revenue from live events. For example, the Chinese streaming platform Huya struck an impressive $310 million media rights deal for exclusive broadcasting of League of Legends esports, a portion of which is allocated to the participating teams.
However, the landscape is not without its challenges. In North America, most League of Legends events take place at Riot Games’ own arena in Los Angeles, which limits teams’ abilities to earn revenue from hosting games or building regional fan bases. Recognizing such limitations and seeking to evolve, Activision launched leagues for Overwatch and Call of Duty, based on city-based home and away matches. Unfortunately, these innovative steps were met with setbacks due to the cancellation of in-person events amidst the Covid-19 pandemic.
Nonetheless, competitive leagues remain a primary source of income for many esports teams, offering a stable stream of revenue that aids in their growth and sustenance within the multi-billion-dollar esports industry.
Riot Games and the League of Legends Championship Series
Riot Games, a major game publisher and architect of some of the most popular titles like League of Legends and Valorant, takes a particularly hands-on approach in the organization of competitive leagues. With Riot’s direct management, the League of Legends Championship Series (LCS) is structured into regional leagues and international tournaments, which not only facilitates the promotion of games but also enhances the competitive integrity of the tournaments.
Teams in the LCS can benefit from Riot’s revenue-sharing initiatives. Riot has set precedents by sharing between 20% to 50% of in-game content sales, such as themed skins, with the participating teams. For instance, during the Champions competition in VALORANT, the sale of themed skins generated a staggering $32 million in revenue, half of which was shared with the 30 participating teams, amounting to a $16 million payout. This collaboration showcases the immense potential of in-game content as a lucrative revenue stream for esports teams.
The LCS has played a pivotal role in shaping the success story of many competitive teams, including Fnatic, which boasts multiple EU LCS split titles and was the proud winner of the inaugural League of Legends World Championship. Riot’s dedication to the growth of competitive leagues is evident, and teams like Fnatic serve as a testament to the sustainable financial rewards that can be reaped within this structured ecosystem.
Overwatch League
Amidst a rapidly evolving esports landscape, the Overwatch League (OWL) represents an ambitious attempt by Activision to capitalize on the geographic loyalty present in traditional sports leagues. With its introduction of city-based teams and envisioned home-away match structures, the OWL aimed to foster local fanbases and enhance the spectator experience through localized in-person events. Despite the ideal, the league faced significant hurdles due to the global pandemic, which forced the cancellation of live matches, a key source of revenue and engagement.
Even with these challenges, the OWL has secured significant broadcasting agreements with mainstream networks like ESPN, Disney XD, and ABC, showcasing the growing interest in esports content beyond conventional gaming platforms. Additionally, the league’s franchises were required to pay substantial entry fees reported to be in the vicinity of $20 million—prices reflecting the high stakes and the potential rewards linked with owning an esports franchise within a competitive league.
The pandemic forced the league to allow teams to defer these fees and offered financial aids to cover costs, which highlights an adaptive approach to maintain league integrity during unprecedented times. As the global esports market continues to rise, the OWL remains a crucial player in the arena, contributing to esports’ reputation as a billion-dollar industry and offering a promising though complex, avenue for revenue for competitive teams.
The Comparison to Traditional Sports Teams
Esports teams have increasingly mirrored the financial frameworks and business acumen traditionally reserved for sports giants like the NBA. With player salaries reaching beyond the $100,000 mark and tournaments boasting prize pools that scale into the millions, esports is becoming a formidable counterpart to conventional sports. Such financial potential attracts heavy hitters from traditional leagues, as evidenced by the appearance of sports moguls diving into the realm of esports sponsorships and partnerships. This cross-pollination aims to leverage the buzzing esports scene to captivate the digital-native generation, expanding their fan base and anchoring their brands within the burgeoning community.
Moreover, the explosive growth trajectory of esports has piqued the interest of vast investment firms, each seeking to turn competitive teams into profitable ventures. Through several avenues like franchising, merchandise sales, and corporate partnerships, esports teams are laying the foundations to realize their financial ambitions, reshaping the economic landscape of digital competitions to mirror their turf-and-grass counterparts.
Revenue Streams and Business Models
Esports teams adopt diverse revenue streams to support their financial stability and growth. Tournament winnings form the bedrock of many teams’ finances, with prize money often reaching stratospheric sums. Beyond the battlefield victories, organizations generate significant income through merchandise sales, elaborately designed to resonate with the gaming community’s unique culture and fashion. Sponsorship deals are also crucial, as brands align with teams to target the vast, engaged audiences tuned into esports.
Some squads extend their entrepreneurial pursuit, venturing into related businesses. By creating PC bays and gaming cafes, these teams curate communal hubs that serve as both a source of revenue and a touchpoint for fan engagement. In addition, the recent crypto and NFT boom has seen several esports teams explore digital assets as a potential revenue stream. While enthusiasm has tempered due to market volatility and reputational risks, it reflects esports teams’ agility in exploring novel financial avenues.
Lastly, just like start-ups, many esports entities harness initial bursts of capital through fundraising. Crowdfunding, supported by an enthusiastic local community, can ignite the early stages of a team’s development before larger funding rounds involving venture capital or angel investors.
Differences in Audience and Reach
Unlike traditional sports teams that may struggle to reach digital-native audiences, esports teams are maneuvering within their natural habitat. Top streamers, wielding the power to reach thousands or even tens of thousands of viewers in a single stream, present lucrative partnership and sponsorship models for esports organizations. For example, notable streaming personalities and content creators such as those affiliated with FaZe Clan or Team New Age extend the reach and appeal of these teams, cementing their status as cultural phenomena rather than mere competitors.
Content creation has also emerged as a significant strategy. Team New Age’s $3 million gaming mansion—doubling as a content factory—is a testament to the evolving revenue strategies, where the lines between competitive play and entertainment media blur.
The audience’s potential reach is central when gaming teams consider signing new streamers or content creators. The focus isn’t merely on current viewership figures but also on growth trajectory and the creators’ potential to surge in popularity. By doing so, esports teams recognize that their influence can resonate far beyond the competitive arena, harnessing the expansive reach of digital platforms to cultivate their brand and develop new revenue streams parallel to those seen in traditional sports.