How eSports Became Such a Lucrative Business

Jonatan Parski CEO

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How eSports Became Such a Lucrative Business

Playing video games used to be only a hobby, something gamers did to pass the time. Making money from video games wasn’t a thing, and if you did, it certainly wasn’t enough to make a living. Yet, in recent years, the popularity of gaming and the development of online games has significantly opened up the world of competitive video gaming.

Professional gamers compete in front of large crowds of eSports enthusiasts. While it may be hard to believe, some of these crowds are large enough to surpass fans of traditional sports like baseball. But how did this happen? How did eSports sneak its way into becoming a lucrative business? Keep reading to discover more about the eSports industry and its sudden rise to fame.

eSports has grown into a thriving, but competitive, industry.
eSports has grown into a thriving, but competitive, industry. – Source: Pexels

What Is eSports?

eSports is an abbreviation for electronic sports and refers to competitions around playing online games like Fortnite, League of Legends, and others. Professional gamers compete individually or in teams in these high-stakes competitions to win tournaments and earn cash prizes.

eSports tournaments are held in highly organized competitive environments. They can range from multiplayer online battle arenas (MOBA) such as League of Legends to single-player first-person shooters, like Overwatch.

The History of eSports

We can trace the origins of eSports back to 1972, when gaming consoles first became popular. The first well-known national tournament was held in 1980 and featured the video game Space Invaders. This tournament had 10 000 participants, showing just how popular eSports competitions were even back in the day.

A year later, the competition got even more difficult when the first-ever Donkey Kong tournament was held. The progress continued as we saw new competitive gaming tournaments in the 1990s with popular games like Street Fighter and Mortal Kombat. This brought about the first-ever first-person shooter tournament in GoldenEye.

All of these historic tournaments paved the way for major tournaments in online games such as Starcraft, Warcraft, Overwatch, Call of Duty and many others. In 1998, the Starcraft Brood Wars tournament on PC became legendary, boasting more than 50 million online viewers.

As the year 2000 rolled around, the eSports industry started to really gain traction. Online games were becoming more popular, creating more opportunities for professional gamers to compete. This was also when the first tournament hosts were born, World Cyber Games and the Electronic Sports World Cup.

The first ever televised eSports tournament happened in 2006 and broadcasted the Halo 2 tournament on the USA Network. However, broadcasting eSports tournaments didn’t really take off until Twitch was released in 2011. This is where a changing point in eSport occurred, and eSports fans could interact with gamers.

eSports can attract audiences to rival traditional sports such as basketball.
eSports can attract audiences to rival traditional sports such as basketball. – Source: Unsplash

The Appeal of eSports

eSports appeal to audiences for several reasons. The biggest reason is its strong social component. The eSports industry connects fans of popular online games with the top players in the field. Someone who enjoys a game can easily connect to professional gamers and teams through social media platforms like Twitch, YouTube and Discord.

The industry also poses many different opportunities in the eSports sector, such as gaming, media, pop culture, and commerce. Because of this, more businesses are starting to invest in eSports. The industry saw a massive increase in investments from $490 million in 2017 to $4.5 billion in 2018. While this was the most significant jump in investments, they continued to grow over the last few years.

The eSports Industry

The eSports industry is growing fast thanks to the advances in technology and the growth of the overall gaming industry. More people are becoming involved in online games, whether playing themselves, watching others play, or even combining the two. With an increase not only in players but viewers as well, eSports is thriving.

The global eSports market was valued at approximately $1.38 billion in 2022. Apart from these impressive stats, the industry was also forecast to grow to $1.87 billion by 2025. Currently, Asia and North America make up the largest eSports markets. China alone brings in about one-fifth of the global revenue of this lucrative industry.

Revenue Streams in the eSports Industry

With the rise in popularity and revenue in the eSports industry, more investments from venture capitalists and private equity firms happened. There are several revenue streams across the industry, and the investments made are distributed to players across the entire ecosystem. This ecosystem includes tournament operators, game publishers and more.

While many aspects of eSports are similar to general sports tournaments, the revenue streams vary greatly. Broadcasting eSports is not as financially rewarding as other sports because most eSports events are streamed via online platforms like Twitch. As such, eSports teams don’t have broadcasting rights that they can sell.

This means that eSports had to find alternative sources of revenue. The major revenue streams in eSPorts include:

  • Sponsorships and advertising for professional teams: This represents around 60% of all eSports revenue.
  • Tournament winnings: The money from winning global tournaments substantially supplement the professional team’s income.
  • Investor capital: With the success of online games, more investors are looking at opportunities within eSports games.
  • eSports teams merchandise: Merch can range from clothing, apparel and even event tickets and represents the only direct income stream between eSports teams and their consumers.
  • Alternative eSports media rights: Professional eSports players are looking for other sources of revenue when it comes to online games. These include monetized blogs, YouTube and Facebook Gaming.

Opportunities in the eSports Industry

While the biggest part of eSports revenue comes from sponsorships, numerous opportunities are still available for investors. The landscape is rapidly changing, bringing with it new and exciting opportunities for investors and eSports teams alike.

Brands that are investing in the best eSports teams are already seeing a significant return on investment (ROI). A recent study conducted by Nielsen Sports and Entertainment and Fnatic showed some promising results for investors.

The study concluded that companies that invested in the League of Legends European Championships have doubled their ROI between 2019 and now. Sponsorships are also well received, with eSports generating a 51% – 58% positive fan sentiment for brands. The eSports audience also shows continued growth between 10% and 20% each year.

It’s also worth noting that of the eSports audience, approximately 73% are using ad-blocking technology. As such, brands wishing to invest in the sector will be much more successful if they enter into partnerships rather than relying only on advertising through digital ads.

Stakeholders in eSports

While it’s evident that eSports is a billion-dollar industry, it’s not always clear who the key players are that make this industry possible. Any industry has key stakeholders that are responsible for making it what it is, and eSports is no different.

eSports is a massive ecosystem made up of many different people who all play their own roles. These processes range from developing online games to organizing tournaments, managing ticket sales, organizing leagues and more. Understanding how the industry is organized and who the stakeholders are is essential for identifying opportunities and eSports careers.

How Is the eSports Industry Organized?

The eSports industry consists of developers, publishers, tournament organizers, and professional teams. The developers are the creative force behind the online games used in eSports. These teams are usually well known and well funded, such as Blizzard Activision, which produced Starcraft, Warcraft and Call of Duty – popular eSports games.

Publishers facilitate the development of games by supplying developers with the required resources and funding. In most cases related to eSports, the developers and publishers belong to the same company, such as the case with Blizzard Activision. It’s extremely difficult for newer or smaller publishers to break into the eSports platform.

The next part of the industry is made up of tournament organizers. These are the league organizers responsible for bringing eSports to life. They get permission from the developers and publishers to host eSports events. They also make all the necessary arrangements, such as managing ticket sales, security, and more. Some publishers prefer to organize the tournaments themselves, whereas others are happy to outsource the responsibility to third-party tournament organizers, such as Major League Gaming.

Next are the professional gaming teams. In the past, most professional players managed themselves and participated in tournaments independently. While this still happens, there has been an increase in professional eSports organizations and gaming companies managing eSports athletes and teams in recent years. These include companies like Team Liquid, FaZe Clan, and 100 Thieves.

There are other stakeholders, such as the media, fans, gaming associations, and others; the four we mentioned above are the most important within the eSports league. Without the involvement of these stakeholders, the eSports industry would not exist.

eSports tournaments can be large events that attract many gamers and viewers.
eSports tournaments can be large events that attract many gamers and viewers. – Source: Unsplash

The eSports Audience

There’s no denying that eSports wouldn’t be where it is today if it wasn’t for the loyalty of the gaming audience. eSports viewership has skyrocketed to an amazing 532.1 million people, and that number is still expected to grow in the next few years, reaching 640.8 billion by 2025.

While eSports used to have a predominantly male following, there’s been a notable shift in eSports viewership. Currently, in the US, 72% of viewers are male, with the remaining 28% being female. However, there is a rise in female eSport viewership as more women start to enter tournaments.

Asian countries are showing the highest eSports engagement rates, with China leading the pack at 47%. The country is followed by Indonesia with 40% engagement rates and then Thailand with 39%. Although the US market is the second largest market for eSports, it has only an 8% engagement rate.

The eSports Gamers

While you may be familiar with the names of some of the popular traditional professional athletes, such as Renaldo and LeBron James, the stars in the eSports industry are less well known. Or are they? As the industry’s popularity grows, so does the number of gamers that play professionally and earn money through their efforts.

In 2022, the USA boasted 3731 active eSports competition players, more than any other country in the world. China follows them with 1710 eSports players, and Brazil is third on the list with 1380 professional players.

The Leaders in eSports

When we look at some of the leading gamers in the field, we need to distinguish between individual gamers and Esports teams. The popular online games that are frequently used in competitive video gaming are either single-player games or multiplayer (team) games. Playing as a team requires different skills and strategies than playing in a team.

Some of the most well-known eSports players include:

  • n0tail – Earned the most prize money to date
  • Ana – Won the International Championships in 2018 and 2019
  • KuroKy – The most experienced professional gamer, started his career in 2013
  • Moon – The greatest Warcraft 3 player of all time
  • Fatal1ty – Highest earning US player

When it comes to eSports teams, there are a few important ones that we need to highlight. These teams include T1, who competed in League of Legends and earned their spot as the most popular team of 2022. They earned more than five million eSports viewers.

There’s also Team Liquid, that’s earned over $42 million in winnings, and they’ve competed in over 2100 tournaments worldwide. FaZe Clan is another of the best-known eSports teams. FaZe Clan is considered one of the top eSports organizations because of their immense media reach and variety of player skill levels. Other teams that are also worth mentioning are Cloud 9, 100 Thieves, Fnatic, and DRX.

Competing in eSports

The leaders in eSports have worked hard and easily put in between eight and 12 hours of practice every day. For these professional athletes, it’s not just about playing games; it’s about walking away with the grand prize. Becoming a professional gamer requires a great deal of dedication and a constant need to improve your strategies and gaming skills to stay the best.

Finding success as a pro gamer is very difficult. This is because, like many traditional sports, the competition is fierce, and the window of opportunity is very small. Similar to most traditional sports, the peak performance period of gamers only lasts a short time. Most gamers start their professional careers while they’re still teenagers. The youngest signed professional gamer to date is Lil Poison (Victor de Leon III) who was signed at the age of six. Most gamers also reach their peak performance in their mid-twenties which adds to competitiveness of the industry. By their 30s, most eSports players retire as their skills and reflexes can no longer keep up with younger generations.

Another contributing factor that makes this a difficult career to get into is the long hours required. While most gamers have no problem playing games for a couple of hours, an eSports player often has to practice between eight to 12 hours a day. This significant time investment is not easy for everyone to maintain.

Different Types of eSports Tournaments

When it comes to eSports tournaments, there are two main formats, open and closed. Open tournaments enable any qualifying team or player to participate. In these cases, qualification matches will be held to determine which players or teams make it to the tournament.

Alternatively, closed tournaments are not open for anyone to try. In these cases, the organizers pick players or teams to compete. In this case, an eSports player’s only chance to compete is by getting an invite.

There are many different types of tournaments available today. These are based on the popularity of the online game and whether the developers have given the rights for a tournament. Some of the most popular eSports games include the following:

  • First-person shooters (FPS) – Call of Duty, Apex Legends, and Halo
  • Multiplayer online Battle Arena (MOBA) – League of Legends and Dota 2
  • Fighter games – Mortal Combat and Super Smash Bros
  • Sports game events – Madden and NBA2K
  • Other events like card games and real-life strategies – Hearthstone, Starcraft and Warcraft

The Future of eSports

We’ve already seen stats proving just how much the eSports market has grown in the last few years. That growth also shows no signs of stopping, and it’s estimated that eSports will reach a little over $3.5 billion in revenue by 2027. This indicates a healthy 21% growth for the sector.

One significant sign showing the growth of eSports is the fact that some universities and colleges are starting to offer scholarships to students with a bright future in the industry. This is similar to other popular sporting scholarships, such as those offered to star football or basketball players.

Not only are higher educational facilities offering scholarships, but they’re also introducing eSports courses. These opportunities give the younger generations a wonderful start at trying to make a successful professional gaming career.

There are still certain challenges facing the industry. Some of the biggest challenges include maintaining competitive integrity within the competitions, ensuring the player’s health and well-being, and developing a stable ecosystem to support the continued growth of the sector.

Some solutions to these challenges include adding strict anti-cheating policies to all competitions as well as enforcing a code of conduct to ensure fair play. An eSport player faces a rigorous training regime as well as a high-stress competitive environment. In order to ensure all players stay healthy, extra effort should be made to monitor a healthy lifestyle balance, including eating healthily, getting enough rest and physical exercise and not ignoring social activities.

Finally, in order to ensure that the market keeps growing, a sustainable ecosystem that supports all the key stakeholders needs to be developed. This includes finding and creating more revenue streams while also providing long-term career opportunities for eSports players.

Conclusion

eSports is well on the rise, and as the popularity and viewership continue to grow, we’ll be seeing more of these competitive tournaments. What started as small competitions where the prize of a bit of money and ten seconds of fame has developed into a highly organized and competitive arena.

Not only are the best eSports players well-managed, but they also follow rigorous training regimes, just like any other professional athlete. The prize pools for these competitions can run into the millions, not to mention the revenue earned through sponsorships and advertising. But the industry is highly competitive and will require that players prove they’re the best before they start making a huge difference.

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Chantelle

Chantelle started her career in IT before eventually finding her way into Marketing. This eventually became her passion, along with Digital Marketing, SEO, and Brand and Web Development. Today, she helps businesses find their voice and grow online.

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