I'll keep it short, but perhaps still too soft: the eSports industry is going through a difficult time. After the boom of five years ago, many important teams and organizations where this phenomenon exploded (the USA) are downsizing. The causes? Economic recession, a venture capital industry no longer interested in accepting growth without profits, and a cryptocurrency collapse that has weakened a significant source of funding.
ESports no longer seem destined to become as powerful as an NBA, or an NFL: this was the goal of executives and investors, and today it seems further away than ever.
Esports, from the bomb to the bubble
From summer to today Team SoloMid e 100 Thieves, the two largest esports organizations according to Forbes, they "dismissed" dozens and dozens of employees. Last month Evil Geniuses, one of the oldest groups in esports, disbanded its North American team in Defense of the Ancients 2 and moved its operations to South America. Publishers are also scaling back their esports operations, impacting tournament organizers, teams, and players: Riot Games has said it will close its Wild Rift leagues outside of Asia next year, to focus only on the world's largest mobile gaming market.
Misfits Gaming Group sold its slot to participate in the League of Legends European Championship: “we have run our eSports teams at a loss since the beginning,” says the founder Ben Spoont. “I thought by 2022 I would see enough data to say, 'We're there,' or 'We'll get there in the next year or two. And instead".
And instead?
Dissatisfaction reigns supreme. Investors are now taking a closer look at the fundamentals of the business, and they don't like what they see. Not even a little. According to a report by Deloitte, $2018 billion was invested in the sector in 4,5, a record amount, even by fledgling private equity firms. The number of investment opportunities is now the lowest since 2016, and the 2020 pandemic has caused further problems for esports tournaments that rely on live audiences.
The dissatisfaction is also reflected in the stock market. FaZe Clan, an organization of gaming celebrities and eSports professionals that helped pioneer the influencer marketing industry, went public last July: It has since seen its shares decline by around 80%.
According to what was initially foreseen, the eSports organizations were supposed to earn by selling tickets and merchandise in the arenas (someone even ventured the construction of ad hoc stadiums), or by sharing profits with game publishers through large sponsorship and broadcast deals. Hoping for success, executives from traditional sports franchises paid $20 million to get into Activision Blizzard's Overwatch League teams early and even more later for Call of Duty League teams.
Esports is not like other sports
If the title of this paragraph is obvious, it was not so obvious to investors. While major eSports events still sell out, tickets cost less than the average football or basketball game, and eSports fans spend significantly less on merchandise and digital goods. According to NewZoo, 261 million people around the world watch eSports at least once a month, but each fan only produces $5,30 in revenue. Per year.
And yet they are also declining. The League of Legends Championship Series, one of the top esports leagues, is drawing its lowest viewership in five years, according to data from Esports Charts. With viewership declining, broadcast and streaming deals have become less lucrative for US and European esports leagues. This fact has made the sector highly dependent on outside investment, with organizations' revenue from sources such as sponsors and advertisers (such as BMW or Red Bull) now accounting for 60% of total revenue. Is the advertising market shrinking? They contract eSports, if they don't have different sources of income.
And then the crypto avalanche. You know, we talked about it: some coin spills and some spectacular marketplace crashes (one in particular, FTX, will have consequences that we don't even imagine yet) have devastated the field of cryptocurrencies. Esports funding from that industry is literally drying up. It's not just about the $210 million FTX paid to the TSM team, now gone. Investors all realized that expectations were exaggerated, and now they're not casting anymore.
Now what?
While many esports organizations appear to be moving forward, focusing more on influencers and less on sports teams, some executives think game publishers should take more responsibility for the plight teams find themselves in today. After all, they are the only ones who are making a profit at the moment: everyone else is more or less at a loss from the start. The days of imagining that eSports would soon become an Olympic discipline are gone. I'm not saying it won't, but I doubt it will happen soon.
“It is important that publishers take action to find a solution. They need to create digital revenue opportunities for the eSports ecosystem that they have created and benefit from,” he says Arnold Hur, CEO of the eSports organization Gen. G. “It is clear that relying solely on media and sponsorship deals, especially in this type of market, will not work.”
In summary, it seems the good times are over for esports, at least for now. The market cooled down and investors lost interest, leaving teams struggling to make ends meet. Maybe it's time to focus on more traditional sports? Or maybe we should all go back to playing video games for fun instead of trying to make a career out of it. One thing is for sure: it will be interesting to see how this plays out.
