The declining of investors and sponsors in esports, explained
Why are esports struggling to get investors, despite the fact that the industry is thriving
Esports was once a prospering industry, but is now grappling with a set back that has investors pulling back and organizations reevaluating their strategies.
In this article, we look into the core issues that have led to today’s challenge and explore the shifting perspective of the competitive gaming industry.
The cost surpasses revenue
Misconceptions regarding the financial success of the gaming franchise abound. In reality, many major organizations operate at a loss or just manage to break even. The excessively high costs associated with hosting tournaments — including venues, flights, marketing, accommodation, staff, equipment, and more — often exceed the earning incomes.
With games like League of Legends and Valorant not capitalizing on viewer spending during championships, the esports model faces high risks and low rewards. Not to mention that fans can watch the tournament for free on live-streaming sites.
Esports organizations initially relied on revenue from stadium seats, merchandising, and revenue-sharing as a result of sponsorships and media contact, attempting to copy mainstream sports business models.
However, esports lacks the income from streams that have sustained traditional sports. Despite filling stadiums, ticket prices remain lower than those of football, soccer, basketball, etc, and esports enthusiasts devoted remarkably less on digital and merchandise products. This has created a disparity in earnings, with each esports fan contributing only US$5.30 annually on average.
The viewer base for esports, particularly evident in games like Overwatch, has witnessed a decline. In 2023, Overwatch competition saw a 20% decrease in viewers compared to the previous year.
This downward trend poses a significant challenge for gaming organizations that depend on a large audience for earnings from sponsorship.
Organizational layoffs
After much anticipation, Esports in America are succumbing to financial realization. In order to make a profit, organizations are downsizing personnel and terminating partnership with famous players. In other words, they are letting go of teams with a financial setback, providing a harsh real world perspective to those who thought esports would be the next great thing in entertainment.
Prominent esports organizations, including industry giant “100 Thieves” are feeling the economic strain. Layoffs and contract terminations are more commonly seen as teams struggle to turn a profit.
The reality check is stark, with team owners acknowledging that the rapid growth they anticipated has not materialized, forcing them to downsize and let go 20 percent of their staff.
Departure of sponsors and investors
Investors spent millions of dollars to purchase a majority stake in an esport team, Counter Logic Gaming in particular, that they believed had the potential to produce enormous development.
Alternatively, the growth has become trapped and the team revenue has fallen below presumptions. The group was later acquired by NRG esports in 2023, a well-known gaming and entertainment corporation that manages a professional esports team, with the staff and other players laid off.
Once major contributors to esports revenue, sponsors like BMW are cutting ties with the industry. BMW’s decision to cease esports sponsorship in 2023 highlights a broader trend of companies reallocating investments to other gaming-related areas. Esports organizations must now contend with the departure of key financial backers.
The rise of gaming influencers
Increasingly, sponsors are shifting their focus towards content creators and esports players. A notable example is Ten Z, a prominent Valorant player and content creator, who recently collaborated with Aimlab, a specialized training platform designed for FPS gamers seeking to refine their shooting skills.
This collaboration resulted in the integration of “Ten Z’s new Aim Lab routine” within the game, showcasing the crucial impact gaming influencers play in shifting the esports scene.
Beyond marketing, these individuals, ranging from amateur players to seasoned athletes, have amassed substantial followings by crafting diverse video game content. This rise of gaming influencers is not merely a marketing trend; it is a fundamental force shaping the future of esports. As essential drivers of the industry’s global success, these influencers offer more than just brand visibility.
They offer valuable insights, perspectives, and innovation in game development, forging a connection with audiences that goes beyond classic marketing approach. The collaboration between Ten Z and Aimlab exemplifies this dynamic synergy, as gaming influencers play a major role to the success of top esports games like Valorant, CSGO, and League of Legends.
Moving forward, these influencers will remain key players, driving audience interaction and promoting the continued growth of esports. Brands that recognize and effectively leverage their influence stand to benefit from authentic content that resonates with dedicated followers, ensuring sustained success in the ever-evolving esports landscape.
The future of esports
Many professional gaming organizations are adjusting to the changing situation by realizing that influencers frequently outperform esports teams in terms of income generating.
This shift in emphasis represents a strategy shift toward capitalizing on the popularity and profitability of specific gaming personalities. The esports sector is at a crossroads, with financial challenges, declining viewership, and the withdrawal of major sponsors and stakeholders.
The future of the esports sector is on adjusting to new trends, acknowledging influencer dominance, and setting a route that aligns with the developing dynamics of the gaming world.
Sources
https://interpret.la/interpret-esports-has-a-growth-problem/
https://www.latimes.com/business/story/2022-12-08/esports-hype-fading-investors-sponsors-dry-up
https://www.nytimes.com/2022/11/26/business/video-game-Esports-profit.html
https://www.billelafros.com/esports-project-management-budget-cost-of-a-tournament/
https://www.theverge.com/2023/11/2/23944060/100-thieves-layoffs-esports-apparel-core-juvee
https://www.oneesports.gg/valorant/valorant-warm-up-routine-tenz-aim-lab/
https://www.washingtonpost.com/video-games/2022/03/11/aim-lab-valorant-king-george-r6/
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