Every year, over 20 esports teams from across the globe gather to compete in the annual League of Legends World Championship—one of the world’s largest esports competitions.
The tournament brings together a global community, all united by their passion for League of Legends. Fans from all over the globe coalesce inside a stadium to cheer on their esports team and region, and still more watch from the comfort of their homes. In the 2022 League of Legends World Championship, online viewership peaked at 5.1M concurrent viewers. The event was streamed in real-time across a variety of platforms, including Twitch, YouTube, and Riot Games’ Lol Esports website. These broadcasts were re-streamed by a wide range of gaming influencers who provided color and commentary to their individual communities.
These events are the norm across the esports industry. Audiences are large and global, but competition is fierce. Game publishers and independent tournament organizers stream direct broadcasts across regions. Hundreds of streamers gather their individual communities on their channels, capturing a large portion of the audience. At the center are the esports organizations—the teams at the heart of the industry.
These teams represent global brands that have collectively captivated an audience of hundreds of millions, and their names are recognized by gamers around the world. But the key for any sustainable business is to convert brand awareness and their loyal audience into revenue. And currently, this is the biggest challenge that esports organizations face.
Challenges in Esports Monetization
The esports industry consists of many stakeholders: Game publishers, influencers, players, esports teams, and sponsors all coexist in this multi-hundred-billion-dollar market. And while it might look strikingly similar to the traditional sports industry, there are key differences to the esports industry that result in challenges for monetization strategies.
The State of Esports Monetization
While individual esports teams often have large audiences, they often struggle to find a definitive and sustainable way to monetize their core fanbase. In general, current monetization strategies for esports games can be summarized into three core verticals: esports, apparel, and entertainment.
One of the most straightforward elements of esports team monetization is esports tournaments themselves. But like traditional sports, an esports organization being able to dominate the competition to receive tournament cashouts with any semblance of reliability is far from guaranteed.
Esports revenue also encapsulates team-wide brand partnerships, often known as sponsors. Teams across esports will feature these brand partnerships in their content, on their apparel when showing up to tournaments, and in content videos highlighting competitive events. Revenue sharing agreements with game publishers are also a significant source of income, as a thriving esports league can be a key driver for game popularity.
As is the case for traditional sports teams, branded apparel can be a huge revenue driver for esports teams. From jerseys to caps, keyboards to computer accessories, esports teams can often leverage the loyalty and enthusiasm of their fanbase to earn revenue on apparel sales.
Apparel is one of the only direct-to-consumer revenue sources for esports teams, which often rely on sponsorships, tournament winnings, revenue-sharing agreements, and other B2B deals and events that don’t directly deal with the consumer. While apparel isn’t the largest revenue driver for esports teams, a strong apparel line is important for further increasing brand awareness, loyalty, and exposure.
Entertainment revenue refers to esports team partnerships with individual creators and players who have garnered significant viewership in the gaming industry. These creators are not professional gamers in the traditional sense. They don’t play in tournaments and they’re not part of a team that competes against others. Rather, they earn revenue by creating entertaining content and attracting a core community of viewers. Oftentimes, these individual creators will contract with an esports team to raise awareness with new audiences and promote the organization’s brand sponsors.
Revenue generated from the content esports organizations create on social media platforms such as YouTube or Twitch can also be considered entertainment revenue. From team member vlogs to hype videos, every esports team has its own content operations that aim to continuously engage its fanbase and supplement its brand awareness. But this also results in direct revenue from advertisements native to the platform.
Other Monetization Efforts
As noted earlier, esports organizations at large have historically struggled to monetize their businesses sustainably. Monetization efforts that have proven successful for some teams include:
- Training platforms—Esports teams such as Team SoloMid (TSM) have successfully leveraged their brand awareness to create paid platforms where players sign up for in-game coaching and other gaming services, such as overlays that provide real-time information in the video game.
- Branding and marketing agencies—Esports teams are often required to have a strong content operation, as video and streaming are the core pillars of the gaming industry in general. Some teams have leveraged this strength to offer branding and marketing services to larger brands.
Unique Challenges in Esports Monetization
Esports organizations operate in environments that they often cannot control, further exacerbating the challenge of monetization.
Unlike traditional sports teams, esports organizations often span a wide range of video games. From League of Legends to Apex Legends, Dota 2 to Hearthstone, Overwatch, Super Smash Bros., and Fortnite, the same esports organizations are often seen across different video games.
This adds increased overhead in management and talent acquisition compared to traditional sports. It also results in more complex marketing and branding efforts because esports teams must garner loyal audiences across games that likely have differing core audience demographics. Esports teams must also deal with the consistent risk that any video game may lose its popularity or prominence as new video games emerge because it can take significant resources to enter the esports scene for a new game.
Esports organizations largely depend on platforms over which they have no control. The most prominent platforms are the video games themselves. While nobody owns traditional sports games like football, the same is not true of video games. They are the proprietary intellectual property of business entities, and thus tournaments and other esports events must follow the rules of the underlying game publisher. For example, video game companies have the right to ban the creation of third-party tournaments.
This also limits opportunities for esports teams to pioneer digital merchandise. The underlying game is the primary medium by which esports organizations connect with their fans—and creating branded in-game merchandise could be a large revenue driver for esports teams. However, the teams themselves do not have control over the development of the game, making this almost impossible to implement in today’s ecosystem.
Ultimately, the three core pillars of esports monetization have thus far proven insufficient for esports team profitability. Large esports organizations have yet to prove profitability at scale, and those that claim to be profitable often have unique business models that cannot be readily copied by other teams, such as training platforms. Compounding this industry-wide struggle is the lack of control the teams have over the platforms which these organizations operate, as they are the core mediums that esports organizations use to reach their audience.
The Synergy Between Web3 Gaming and Esports
There’s no doubt that the Web3 gaming and esports industries are strikingly similar. They share the same core demographic, with the esports industry appealing to a wider underage audience. They’re both emergent industries that are natively digital and borderless. They both rely on building up robust communities that help support their operations and business models.
Like other sports organizations, esports companies are brands first and foremost. All monetization efforts rely on the community that these esports organizations are able to attract, grow, engage, and convert.
That’s why non-fungible tokens (NFTs) and blockchain games are a particularly promising opportunity for esports organizations to leverage to reach economic sustainability. The root of the esports community is online because video games are natively digital. The core audience for esports is well-versed in the demand for digital goods, like in-game skins, items, and battle passes. Blockchain technology is pioneering a new and better form of digital asset, one that’s often used already within Web3 to kickstart communities, deepen engagement, and inspire brand loyalty.
Benefits of Blockchain Technology for Esports
There are a multitude of opportunities for esports organizations to leverage blockchain technology to grow and monetize their core communities, as well as deepen the relationship they have with their fans.
Community Identity Through NFTs
Today, fan loyalty cannot be readily displayed and understood outside of specific platforms. For example, the League of Legends subreddit (/r/leagueoflegends) enables users to post “flairs” for specific teams as a way to showcase their fandom. But if a user migrates to Twitter, the same option doesn’t exist. Additionally, these loyalty signals are not directly issued by the esports team themselves, but are rather features of external platforms.
NFTs offer persistent, user-oriented digital ownership that can be powerful for esports communities if implemented correctly. By purchasing and owning an esports team NFT, players have a proven sign of their loyalty to the team that’s natively digital and that can follow them across platforms, powering a sense of persistent digital identity in the community.
NFT Loyalty Programs
If esports NFTs offer fans a sense of digital identity within their respective communities, NFT loyalty programs can be seen as a gamified experience designed to deepen loyalty and inspire engagement. They can be implemented in a variety of ways, and the design space for NFT-esport synergies is wide open for innovation.
For example, esports teams can reward early fans with dynamic NFTs that change as engagement deepens. Points can be awarded for taking positive actions, such as contributing to forum discussions on team-specific subreddits, attending tournament games in person, purchasing a sponsored product, or buying team merchandise. This can be accomplished by connecting esports NFTs to external data that automatically tracks player engagements and actions, perhaps in a way that also leverages aforementioned community identity initiatives.
In return, esports teams can reward players by offering special perks to NFT owners. This has already been implemented by esports team Fnatic, which created a membership program that provides fans who purchase an NFT exclusive opportunities to receive merchandise and meet professional players, among other benefits.
Team-Branded NFT Composability
As NFT games rise in prominence, it’s likely that much of the current gaming community will begin playing these cutting-edge games. This represents a singular opportunity for esports teams to create revenue streams that revolve around in-game assets due to NFT composability.
The reason that this is more likely with Web3 games is twofold:
- NFTs are interoperable—NFTs aren’t stored on a central server but on a decentralized ledger known as a blockchain. This enables interoperability between different applications and NFTs. For example, an esports team’s NFTs can be integrated into an NFT-based game to provide NFT holders with unique benefits, character designs, and more.
- The Web3 gaming scene is nascent—Gaming startups are eager for new ways to onboard players, and esports teams offer access to a robust audience of gamers. With existing community-based NFTs or NFT loyalty programs, NFT interoperability provides a win-win opportunity for esports teams to add another benefit to their NFTs, and for games to attract a new player base.
This model of NFT composability fits neatly into the previous ideas listed above as well as the gaming industry’s multi-channel, multi-stakeholder architecture. NFTs used in loyalty programs for an esports team can offer specialized access to a variety of NFT-enabled games, providing additional utility to NFT holders, increased awareness for Web3 gaming startups, and more revenue for esports teams.
The esports industry has seen tremendous growth in recent years, captivating millions of fans across the globe. But it still faces significant challenges when it comes to monetizing its fan base and reaching sustainable profitability. The complexities of multi-game environments, platform dependencies, and the evolving digital landscape make it crucial that esports teams explore innovative strategies that better engage and monetize their audience.
By leveraging blockchain technology and NFTs, esports teams can create unique and engaging experiences for their fans, deepening loyalty and strengthening their communities. As the esports and Web3 industries continue to evolve, organizations that embrace these new technologies and apply them innovatively will likely be at the forefront of shaping the future of digital entertainment and community engagement.