As brands increasingly try to reach and attract younger consumers, esports has caught their attention for the many opportunities it offers. With a global audience of 335 million individuals in 2017, the majority of whom are aged between 21 and 35, esports provides a chance to capitalise on millennials’ favourite pastime: playing games and watching game content.
In terms of revenues, Newzoo’s upcoming Global Esports Market Report shows that the esports economy grew to US$655 million in 2017, a year-on-year growth of 33 per cent. Brands accounted for the majority of this, spending US$468 million in advertising, sponsorships, and media rights.
With the number of viewers esports attracts, there is no doubt it will grow to a multi-billion-dollar industry in the coming years. The only question is at what pace this will occur. After an initial growth phase, the overall structure of the esports industry has become clear. However, business models aimed at increasing revenues per entertained consumer are still being tested.
Esports has now moved into its adolescent phase and there are some key factors that will influence the speed of its growth. On its current trajectory, Newzoo estimates the esports industry will reach US$1.4 billion by 2020. Should any of these factors accelerate, a more optimistic scenario places the revenues at US$2.4 billion.
One of the most crucial elements is the upcoming implementation of the franchising system, which was announced in 2017. Longstanding publishers Riot Games and Blizzard Entertainment made it public that they will franchise the North American League of Legends Championship Series (NA LCS) and Overwatch League (OWL) respectively, creating leagues for two of the most successful games in esports. This system removes seasonal promotion and relegation of teams participating in the league, meaning they will instead have a permanent spot – a franchise – that they own.
The new structure comes with several benefits for the league itself, the participating teams, and interested broadcasters. It offers teams certainty, ensuring that they won’t lose their fanbases when relegated. Broadcasters are guaranteed rivalries that fans will tune into every year, and teams can invest in nurturing talent while omitting the risk of them dropping out of the league.
The franchising model is also a familiar format for content buyers, sponsors, advertisers, and their agencies, making it easy for the NA LCS and OWL to attract significant content and sponsorship deals. We therefore expect other leagues to follow suit in the next years. However, the NA LCS and OWL are currently heavily focused on the US market, where the system is common; major sports leagues in the US, such as the National Football League (NFL), Major League Baseball (MLB) and National Basketball Association (NBA), operate in a franchised model.
Such a system facilitates more long-term investment by all parties involved, accelerating the growth of the league overall. If the franchised structure can prove to be successful in regions that are not traditionally familiar with the system, it could be a huge, global accelerator for the industry’s growth.
Team profitability will be another key issue in 2018. Despite the industry’s constant growth, most teams are still operating at a loss as they struggle to keep up with rising costs, including fast-growing player salaries, team housing, and support staff such as analysts and mental coaches.
Over the past years, esports has seen many investments from parties in different industries financing the organisation of teams, such as media companies, venture capitalists and sports teams. These investments have greatly increased the salaries of successful international players without being matched by a similar spike in sponsorship and merchandise revenues for teams, resulting in gaps in the balance sheet.
It’s important for teams to be in a strong financial position, as they are key drivers of fan engagement, especially those with a long history. They’re increasingly at the centre of the industry, comparable to traditional sports teams and their followings. Team fans are more likely to buy merchandise, attend events, and watch tournaments regularly. The dismantling of teams would decrease this engagement and, ultimately, hurt the growth of the industry.
This will certainly be an interesting and formative year, with many learning points for all parties involved in the esports ecosystem. We look forward to seeing how these two factors, in particular, might influence the growth of the industry in 2018 and toward 2020. Other trends we’ll be keeping an eye on include mobile esports, the convergence of industries, and collegiate esports.
For more information, Newzoo’s 2018 Global Esports Market report provides an overview of ten of the biggest drivers and developments in the industry, along with market sizes and estimates per region. You can keep up with Newzoo’s latest insights and market estimates at newzoo.com/resources.
Jurre Pannekeet (pictured) has been a senior market analyst at Newzoo, the leader in esports market intelligence, for two years and was appointed head of the Newzoo Esports Division in 2017. An avid esports enthusiast, Jurre leads Newzoo in modelling the esports economy, finding and dissecting the key trends, and assisting both endemic and non-endemic brands in shaping their esports strategies.