“People overestimate the short-term value of the esports industry, but underestimate its long-term value.”
About a year ago, the esports industry showed signs of decline.
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In the 2010s, the entire market was booming. Whenever a major game starts, the venue is always packed and the bright lights are dazzling. Professional eSports players often have huge fan followings, and the media often headlines events with multi-million dollar prize pools.
Old games such as “League of Legends” and “Counter-Strike” continue to be popular, while latecomers such as “Fortnite”, “Overwatch” and “Rocket League” are making the market even more lively. As the esports industry continues to grow, more and more brands, businesses and supporters are getting on board. Top professional players enjoy high salaries, with annual incomes often exceeding one million U.S. dollars, and this figure does not include competition bonuses and personal sponsorships.
Even the epidemic cannot stop the rise of e-sports. Event organizations will organize online competitions or conduct them in relatively safe closed venues. As players are unable to go out, sales of game software and hardware have increased, and some companies have further expanded their scale… But as e-sports events return to offline events, investors have found that their investments have not reaped the expected returns. A series of factors have made professional teams unprofitable, such as player salaries being too high, over-reliance on sponsors, and the reluctance of many players to spend money to watch games live.
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At the same time, inflation, soaring living costs and economic instability have also undermined investor confidence. The boom days of eSports are over, the gold rush is over, and many companies have to swallow a bitter pill. Business cuts, bankruptcies and consolidation are hitting the esports industry hard, and some even think it has entered an “esports winter.”
In 2018, sports investment company Guinvere Capital provided an investment in the British e-sports team Excel Esports. Dave Harris of this company said: “The shift from a long-term low interest rate environment to a high interest rate environment has had a huge impact on how investors allocate funds, causing them to tend to stay away from high-growth, high-risk assets. 2017~2018 In 2017, venture capital institutions around the world, especially in North America, have increased their investment in the e-sports industry. Now a standard 5 to 7-year investment cycle has just ended. The venture capital model aims to achieve a hockey-shaped growth curve in just 10 times. If there are two or three companies in the investment that can achieve the goal, the VC will be willing to accept it.”
“During that period, although all indicators of the e-sports industry have grown, many investors have not reaped the expected returns. In the past few years, due to investors’ aggressive pursuit of profitable growth, in some industries including e-sports, , companies receiving venture capital have been affected, and it feels like the faucet of investment has suddenly been turned off… If you look at the stock market, you will also find that the stock prices of most e-sports companies listed through SPAC have collapsed, and what happened to FaZe Clan This is by no means an isolated case.”
Harris noted that in addition to lower outside investment, professional esports teams have also been affected by declining sponsorship revenue. During the epidemic, supply chain problems prompted sponsors to cut marketing budgets. In the past year or two, technology product brands have generally shifted their marketing focus to cryptocurrency and AI, away from gamers. According to Harris, the esports industry is gradually moving towards a low-cost operating model, which means that all stakeholders need to appropriately adjust their expectations. “The market is undergoing consolidation so far and a larger shakeout is likely to occur in the future.”
Dave Martin, senior vice president of the British Esports Federation, added: “Professional esports teams are not without commercial value, but at some times, the valuation of teams by outsiders has reached 30 times their revenue. Considering that there are almost no For any team to truly make a lot of money, such a valuation is too high… E-sports teams will be valued like technology companies, but the latter has its own products, technical architecture, and customer base and people should not judge it by the same metrics. Measure e-sports teams because they are not technology companies, but more like marketing companies for brands and other partners.”
In order to cut costs, large publishers such as Activision Blizzard, Riot Games, and Epic Games, as well as event organizers such as ESL Faceit Group, have made large-scale layoffs in the esports department.
E-sports teams are being tested
The annual revenue of the global gaming industry has exceeded US$180 billion. Although e-sports is only a small part of the entire industry, it is very eye-catching and is a potential marketing tool for service-oriented games. But on the other hand, the e-sports industry is full of turmoil, and its development depends on the support of teams and players.
However, many teams are in deep trouble. 100 Thieves, TSM, Galaxy Racer, and others have all suffered layoffs, and the Quake Pro League, Gamebattles, and Overwatch League have also shut down. FaZe Clan, CLG, KOI and Movistar Riders were acquired, and Excel Esports and Giants Gaming merged and were renamed GiantX. In North America, Evil Geniuses and Golden Guardians have withdrawn from the League of Legends league, and esports bookmakers such as Luckbox, Unikrn and Midnite have significantly scaled back their operations. In the UK, we have also seen a large number of e-sports teams and leagues forced to withdraw from the stage of history. Those old teams that survived the difficulties have now become stronger, such as Fnatic, SK Gaming and Dignitas, while Misfits and others have taken the initiative to seek changes and gradually transformed into game video content creation institutions.
Jasmine Sitch, CEO of British e-sports company Guild Esports, said: “In the past few years, we have noticed that many teams are trying to diversify their revenue and become entertainment brands with e-sports and games as their core. Compared with traditional e-sports This business model is more feasible than the way a competitive team operates. In 2023, Guild also transformed from a pure e-sports brand to a pan-media and game brand, so that it can better generate revenue. For example, we launched production. and creative arm Guild Studios, which allows us to build closer connections with post-90s and post-95s audiences.”
“The esports industry is undergoing consolidation, but I believe those institutions with a strong foundation will become stronger. Annual revenue in the esports industry is expected to grow to $1.87 billion in 2028, so while many companies are facing pressure, But given the industry’s strong growth and player enthusiasm, the concept of an ‘esports winter’ is misleading.”
Guild, co-owned by former England football star David Beckham and several investors, has partnerships with companies including BSkyB, Subway and Samsung and is one of several major London-based esports companies one. Some e-sports companies are shifting their business focus to the entertainment industry, but at Guild, e-sports players and game anchors are still core members, but their wages have undergone adjustments.
Dave Martin of the British Esports Federation said: “The reason why the esports industry is temporarily in a downturn is because everyone was too excited about it in the past few years and never stopped to think about the business model. Everyone was a little hot-headed. Don’t want to miss out on the gold rush, so just grab assets and invest money. However, those days are gone. In today’s environment, if an esports team wants to raise funds or obtain sponsorship, it must have. Good data, business plan and financial plan, and a real understanding of the market and its growth metrics.”
“The story of the British e-sports team Resolve is a typical negative case. When the team's revenue has not increased, they still increased player salaries, and the profits flowing to the players have not declined. This needs to change… I want to take care of everyone E-sports players, but in the long run, the model of players and teams sharing 90% of the tournament prizes is not sustainable. We have begun to see some changes, such as the working length and terms in the contracts signed by players and teams. Becoming more flexible.”
In the North American division of League of Legends, e-sports players’ salaries have generally declined. In 2022, some players' annual salaries exceeded $1 million, and now annual salaries of hundreds of thousands of dollars are the norm. The “League of Legends” leagues in South Korea and Europe have also introduced salary cap policies.
In other ways, we can also feel the turmoil in the esports industry. Prize money for the 2024 Rocket League Championship Series dropped to $4.3 million from $6 million last year. The prize pool of the “Dota 2” International Invitational Tournament reached US$40 million in 2021, was halved in 2022, and plummeted to US$3 million last year.
new dawn
Of all the changes in the esports industry, the rise of Saudi Arabia is one to watch.
In early 2022, Savvy Games Group, a subsidiary of Saudi Arabia's sovereign wealth fund PIF, announced that it would acquire well-known e-sports event organizers ESL and FACEIT for a total price of US$1.5 billion, and merge the two companies into ESL FACEIT Group. This summer, a new eSports World Cup will be held in the Saudi capital of Riyadh, replacing the Gamers8 series, with prize money said to total tens of millions of dollars.
Savvy Games Group plays an important role in the overall strategy outlined by the Saudi government’s Vision 2030. Saudi Arabia hopes to use video games to boost its international image and reduce its reliance on oil exports. Currently, the company holds 8.2% of Nintendo's shares, has invested billions of dollars in Activision Blizzard, EA and Take-Two, and plans to invest approximately US$38 billion to promote Saudi Arabia as a new hub for the global gaming industry. In addition, Saudi Arabia also plans to develop the world's first multi-functional e-sports and gaming theme area in Qidiya City.
“Everyone may have different views on Saudi Arabia, but only those who bury their heads in the sand will not admit that Saudi Arabia is promoting the development of the e-sports ecosystem.” Dave Harris of Guinevere Capital pointed out, “Many companies are in the e-sports industry In contrast, Saudi Arabia has achieved an impressive strategic position by investing in game publishers, e-sports tournament organizers, associations and the e-sports World Cup.”
“I think the ‘Vision 2030’ is of great significance to Saudi Arabia, which can promote the economy to get rid of dependence on oil and become more diversified, and e-sports and gaming are one of the 12 economic pillars that Saudi Arabia focuses on. In recent years, Saudi Arabia has achieved great success in the traditional sports industry and has changed the inherent pattern of competitive sports such as golf and football to a certain extent, and I think e-sports will be no exception.”
Jasmine Sitch added: “Saudi Arabia’s huge investment in e-sports teams and events is driving the development of the e-sports industry. The Middle East and North Africa is an important e-sports market, and professional players are also willing to go to Saudi Arabia to compete because there are The largest e-sports event with the highest prize money.”
Looking to the future
Although the downturn in the esports industry has led to the disbandment of a large number of professional teams, many practitioners are still optimistic about the future of the industry. They believe esports is here to stay, but it’s just changing.
Robbie Dueck, CEO of tournament organizer BLAST, said: “There is no doubt that the esports industry has gone through a period of adjustment over the past year, with many stakeholders and companies leaving. But in the past year Esports is not the only industry facing challenges in the current economic environment, and there are many reasons to be optimistic about the future. At BLAST, we are very optimistic about the development momentum of esports and the entire gaming market in 2024. Esports events have a huge base. If we focus more on data-driven monetization models, we will likely find clearer business opportunities. I believe the market will continue to grow and our position and role will become increasingly important.”
Jasmine Ski said that e-sports companies should pay more attention to emerging markets, new technologies and diversification. “Emerging markets continue to rise, bringing huge opportunities for the growth and development of the esports industry. In addition to the MENA region, Guild also has many fans in Latin America. At the same time, I believe that more female gamers will participate in the future E-sports events.”
“As for the longer-term future, I believe that in the next five years, the e-sports industry will further utilize technologies such as AI to enhance player experience, improve gameplay and streamline operations.”
Dave Martin, senior vice president of the British Esports Federation, believes that as time goes by, more acquisitions will occur in the esports industry, some companies will develop more strategic business plans, and more publishers will partner with E-sports teams share in-game revenue, and e-sports and traditional sports are likely to further integrate… “People are still interested in e-sports. But the e-sports industry has entered the 3.0 era, and what we need to do now is to find ways to bring athletes and games together Only by uniting publishers, event organizers and other players to drive the industry forward can we get more people interested in esports and increase the participation of sponsors, brands and governments.”
Dave Harris pointed out: “I have said it a long time ago that people overestimate the short-term value of e-sports and underestimate the long-term value of e-sports. The pain in the e-sports market will not dissipate soon, but I believe the industry will continue to grow as investors adjust their expectations. Many people have exited the esports industry, and I hope players can unite to support those who persist in the industry under difficult conditions.”
Professional e-sports commentator Alex Richardson concluded: “E-sports needs to remain sincere and maintain a grassroots spirit, because that is what people really want. E-sports players just want to play the video games they like, even if Being eliminated on the field and watching other people play. Competition, friendship, taking your computer to a friend's house to participate in LAN competitions, and sharing happiness… These are the essence of e-sports. Therefore, I am optimistic about the future of the e-sports industry. “
This article is compiled from: significantly-more-market-consolidation-expected-in-esports
Original title: “'Significantly more' market consolidation expected in esports”
Original author: Dominic Sacco