Last week, I was contacted by the data specialists over at Newzoo. Newzoo is the leading provider of esports marketing data in all its various forms. The company deals with all manners of data analysis regarding the entire gaming industry. The friendly folks over at Newzoo had good news to share with me: they’re releasing the third edition of their Global Esports Market Report this week.
Newzoo were thoughtful enough to let me spend some time with the Global Esports Market Report before publication, and the parts that stood out to me the most were the figures about the audience numbers and the way that large companies are turning a profit.
The future looks quite promising for esports. Peter Warman, CEO at Newzoo comments:
“Esports is not only growing exponentially as a new independent business and industry, it is also accelerating the convergence of various established industries. For brands, media, and entertainment companies, esports provides a chance to capitalize on the favorite pastime of digital narratives and Millennials: playing games and watching game content. With the arrival of live streams and events, gaming has entered the realm of broadcasters and media that can now apply their advertising business model to a market previously out of reach for them.
Newzoo has separated viewers into two categories: occasional viewers and enthusiasts. In 2016, there were 162 million enthusiasts and 161 million occasional viewers. It’s unsurprising that the number of gamers is increasing each year. But what is surprising is that the occasional viewers are growing rapidly as well. As esports reaches a wider audience, it’s fascinating to see so many people tune in occasionally to keep track of the games. These casual spectators often don’t have any vested interest or often any favourite teams, they simply want to see what the buzz is about. Esports has a ‘glance value’ that’s captivating, and it says a lot about the success of the industry as a whole if new viewers are easy to bring it.
Perhaps even more shocking is just how quickly the numbers are projected to increase. Between combined occasional viewers and enthusiasts, there were 323 million fans in 2016. That number is projected to rise to 385 million in 2017, an increase of 62 million fans. This number is expected to shoot far higher over the next four years. By 2020, Newzoo’s data estimates that there will be 589 million fans. Of those, a full 303 million are expected to be occasional viewers.
Audiences Giving Back
Clearly the esports audience is becoming one of the largest audiences in the world. With the numbers above, the global esports audience will be one of the top ten largest sports audiences on Earth. That’s enough to keep any industry flush, right? Well, potentially not.
In 2015, the revenue generated per fan was a mere $2.70 for the entire year. To put this in perspective, the average basketball fan gives $15 towards the sport, per year.
It is projected that in 2017 fans will give an average of $3.60, which will give a profit of $700 million. By 2020 it is expected that this will rise to $5.20 for each fan. These are conservative estimates, with the hopeful ones projecting $5.20 for 2017 and $11 for 2020. Even the hopeful, optimistic scenario has fans giving significantly less than other sports. When it comes down to it, esports fans simply aren’t motivated to spend–this is, it seems fair to speculate, perhaps due to the free and easily accessible nature of events that are livestreamed. Revenue in traditional sports is, it’s worth noting, strongly tied to the money generated by fans attending games. In the decentralized global esports market, team stadiums are nowhere to be seen, and events have more in common with a rock concert than a baseball game.
There’s a major issue that esports encounters when attempting to make money off of its audience. In traditional sports, fans go to a game or buy some memorabilia and they understand that they’ve done their part to support their team and the sport. Nearly every dollar they spend on the pastime goes directly back to supporting the sport.
Esports, however, encounters the issue that players are involved within the games themselves. If I, as a Hearthstone player, want to support Hearthstone’s competitive scene, I would buy packs, right? I would be giving money directly to Blizzard, who runs Hearthstone and the competitive scene. Therefore by buying packs I directly support the content I enjoy. Right? Wrong. While Blizzard may host many of the Hearthstone tournaments, giving them money does not directly support these tournaments. In fact, when you think about where your money is going, it’s quite difficult to directly support the competitive scene. Going to events or buying merchandise are some of the best ways, but these options aren’t available to everyone.
Another large issue is that gamers have an attitude of entitlement. We’re used to everything online being free, and it bothers us when they aren’t. If Riot were to charge for viewers to watch the League World Championship, fans would be out for blood. With this limitation in mind, companies have taken it upon themselves to come up with different ways of generating revenue. “Pay-per-view” esports is only being discussed behind closed doors by people with more knowledge and power than we’re aware of–for now, watching esports is free.
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Generating Revenue in Esports
Currently there are several large companies heavily invested in the success of eports. The three big names on the block are Riot, Blizzard, and Valve. Each company owns one or several games that are highly relevant in the esports scene: League of Legends, Overwatch, Starcraft, Dota 2, Counter-Strike.
In 2016, the League of Legends World Championship was at a stadium with nearly 20,000 fans in attendance. They also had 43 million unique online viewers throughout the finals.
With Riot’s success, the other two companies have tried to follow suit. The most notable differences have been professionalism and money. Valve and Blizzard have realized that fans appreciated esports being treated with the same level of pomp and circumstance that accompanies traditional sports. Professional commentators become commonplace, and production value has gone through the roof. Perhaps the most notable difference is the willingness to pump money into the ventures. Esports is no longer seen as a gamble, and prize winnings have soared over the past few years as a result.
Back in 2013, esports was still somewhere between fringe and mainstream. There were a few professional teams out there, but it was mostly treated as a novelty in the larger gaming industry. Several companies were willing to invest, and industry wages were going up, but the total prize money of every esports league throughout the entire year clocked in at a relatively unremarkable $20 million. In 2016, three years later, prize money for esports leagues has more than quadrupled, sitting at a comfortable $93 million. Of course, the vast majority of that money is from North America, but that’s no surprise considering the location of the big three companies, nor does it diminish the significance of that growth.
Global Esports Market Report: Current and Projected Esports Revenue
Despite all of this prize money and all of these viewers, esports revenue is still quite low. In 2016 the total revenue for all esports leagues was $492 million. Considering prize pool and expenses, this is quite low. The majority of this comes from sponsorships, which cover $169 million–in other words, companies willing to back teams, tournaments, or production teams bring in 34% of the revenue. The rest of that $492 million comes from advertising, publishing fees, media rights, and merchandising.
The money may not by stellar now, but by 2020, esports revenue is projected to have skyrocketed to nearly $1.5 billion. One of the largest obstacles to overshooting this projection is the ability to engage the audience. Currently merchandise and tickets are projected to bring in $63.7 million, or $0.33 per fan. Newzoo have noted, importantly, that with aggressive marketing and sufficiently enthusiastic fans, these numbers could be much higher.
Alternate Revenue Streams
However, the big three, as well as other companies, are searching for other ways to dip into the pot. We’re starting to see crossover between traditional sports and competitive gaming, and professional European soccer teams, North American baseball teams, and a number of wealthy basketball players are all attempting to tap into the esports scene by hiring gamers to represent them–look no further than EchoFox, NRG, or the Detroit Renegades.
Riot has tried to develop infrastructure that could bring in massive cash down the line, including adding a fantasy league to League of Legends. While the fantasy league offered by Riot is currently free, it would be very easy for them to monetize it in the future. And if they don’t, someone else will. There are already major betting sites up for most popular games, and trying to build safe and sustainable systems around betting income is the next logical step for Valve, Riot, and Blizzard.
The future of esports is bright. Companies are no longer scared to pump money into esports ventures, especially now that they’re able to see the benefits. Over the next few years, we’ll see explosive growth as fans and companies promote their favourite games with a vengeance. And many others will be attempting to hitch their wagon to the profit. It will be fascinating to watch the trends progress over the coming years.