Following the money in Esports

As esports completes its move from subculture to the mainstream, there are big rewards in store for those who grasp both its past and its potential. Ready, player one? By Hai Ng

Competition is in our blood. We have taken natural selection way beyond survival of the fittest to competition as entertainment. Trust humans to turn an evolutionary urge into ratings.

By now, most of you reading this publication should be aware of esports and what it is. Competitive computer gaming has been around ever since the first video games – Pong for two, anyone?

Today there are plenty of competitive video games to choose from but the moniker of esports is reserved for a select few titles, just as there are sports and then there are Olympic sports.

What has made esports especially interesting over the past couple of years is how much attention it’s attracting – and how much money too.

Money Talks
“People need to eat/To put shoes on their little baby’s feet.” Today you can do that by playing video games. With the current top earner in esports having made well over $3m, baby doesn’t have to worry about going barefoot.

In May, Epic Games – publisher of current hot game Fortnite – announced they were going to put up $100m in prize money for competitions.

While details are developing on how that’s going to work, it’s already making serious waves inside and outside the world of esports. If Epic drops that scratch as a single tournament prize pool, it will blow away the current record, held by Valve’s prize pool for The International 2017.

Here is a little perspective. The International 2017’s prize pool was $24,787,916, with the first-place team taking home a cool $10,862,683.

To make a comparison with traditional sports, each player in the winning team of Super Bowl LII is getting just $112,000 from a reported purse of about $11m. If you’re the top golfer at the FedEx Cup, your baby’s feet will fare better, with a $10m prize from a $35m purse.

It’s All About the Benjamins
“Wanna be ballers? Shot-callers?/Brawlers, who be dippin’ in the Benz wit’ the spoilers?” What becomes important is to follow the money and see what’s fuelling all of this esports spending.

That $24m prize pool from The International 2017? That was almost all crowdsourced by Dota 2’s developer, Valve, from players purchasing The International Battle Pass – a digital-download content package consisting of in-game cosmetics (aka skins), game play modes and more.

Prices start at $2.49 and top out at $36.99 and with every sale 25% of the proceeds go directly to the prize pool.

At the time of writing, The International 2018’s prize pool is up to $11,060,315 with about three months to go before the event. And Epic’s $100m for Fortnite? Well, estimates put the revenue for this free-to-play game at about $7m dollars a day, generating more than $223m in revenue for March 2018.

A figure of $100m suddenly doesn’t look so out-of-hand for an effective marketing play. Contrast that with the NFL’s revenue of $14bn in 2017 and it seems that games publishers are quite a bit more generous.

Gold Digger
“She take my money when I’m in need/Yeah, she’s a triflin’ friend indeed.” The world is buzzing over how to get a piece of esports action. From building arenas to building teams and from creating games to developing platforms, investing in esports is à la mode in many circles and the gaming industry is no exception.

While major esports events often still happen in traditional sporting venues, including stadiums and basketball arenas, purpose-built esports arenas are starting to pop up, varying from small, cosy facilities to much larger spaces. Las Vegas alone has two, with one more in the works.

The logic behind investing in venues isn’t difficult to figure out. Events need a space to happen and for those that require very specific infrastructure, such as esports, specialized spaces can drastically reduce costs.

Major esports events around the world can bring in significant numbers of attendees, even to locations that may otherwise seem challenging. One great example is Katowice in Poland. Every esports fan has heard of Katowice.

With a population of fewer than 300,000 people, the southern Polish city has hosted ESL’s annual Intel Extreme Masters since 2013.

The 2018 edition attracted more than 150,000 people to the 11,500-capacity Spodek arena and brought in a reported €22m of advertising value – all during the Polish winter, when temperatures of 5°F are not uncommon.

There’s an argument to be made that purpose-built esports venues provide spectators with a better experience, potentially leading to higher revenues. That’s certainly the view of the city government in Arlington, Texas, where plans are under way to build the largest esports stadium in the US.

While many in the bricks-and-mortar gaming industry are seriously considering esports venues in their properties, many in the igaming world won’t want to be left behind. Building or extending platforms to embrace esports wagering seems to be a natural step.

New entrants such as Unikrn and Esportspools join more traditional bookmakers, including Pinnacle in Europe, to offer esports wagering; with New Jersey being handed a win by SCOTUS on PASPA, we’ll be seeing many more esports betting options here in the US soon.

The team-investment option may be something of a different challenge for someone from the gaming world to undertake. But if Las Vegas can have an NHL team (one that might actually take the Stanley Cup in their first year), why not an esports team as well? Franchised leagues are becoming the norm, which provides the potential for a stable esports team ecosystem. 

With franchise fees starting at $10m, it’s not something for the faint-of-heart but it’s still a bargain compared with many traditional sports leagues (say, a reported $500m fee for Las Vegas Knights).

Some, then, are attracted to game development and publishing but picking a winner is not easy – and neither is buying one. Take Tencent, the world’s largest investment corporation. They bought some real winners but they couldn’t foresee Fortnite coming up to nip the heels of PlayerUnknown’s Battlegrounds.

Game development is no more of a sure bet than any of the other options.

Mo Money Mo Problems
“It’s like the more money we come across/The more problems we see.” In some instances that’s not just a catchy chorus. All this money is already transforming esports and, some say, not necessarily for the better.

What was once a geek culture is now very much pop culture, and painfully visible to a world that isn’t familiar with, or understanding of, its quirks. Many in the esports and competitive-gaming world are finding out the hard way that they can no longer get away with certain behaviors that were tolerated by a closed community.

While this may be a positive change for the community some will say that the surge in interest that’s put esports under the spotlight is the cause of degradation in behavior.

Then there is the challenge of esports being top heavy, with a large pro scene fuelled by lots of money but no real ecosystem to feed it. To make things worse, the level of social acceptance outside the community for esports professionals is often still a punchline or a nightmare, depending on your perspective.

The scourge of “gold diggers” in the industry doesn’t help, either. Everybody’s an esports expert now and many of them have never played a video game – competitive or otherwise – much less attended a real esports event. But they all “know” what’s best for the business or they know someone who knows someone.

In some ways esports is like Josh Baskin: a kid in a man’s body.

While many outside esports are drawn by the light of all that burning money, those in the industry know that cash isn’t what drives it. It’s the spirit of competition. Like Josh Baskin, we need to grow up fast without losing the magic that made esports what it is.

At the rate the sector is colliding with the mainstream world, it won’t take long for things to come to a head one way or another.

There is lots of potential for profits in esports if we simply look at the long game; till the land instead of pillaging the orchards. There’s plenty for all to build upon. Game on!

Hai Ng is iGaming Business North America's fantasy and esports editor. He is also co-founder of Neomancer, a unique technology strategy and management firm. Hai has more than three decades of experience in the technology sector, with a decade in igaming.