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How E-Sports ventures make money, and why the EU is falling behind

Analysis of the Esports business model, and what more Europe can do to compete globally.

Although the Esports genre has been around since 1978 when a bunch of Atari enthusiasts got together to play space invaders together, the Esports we know today has become a giant over the years, amassing billions of fans and millions in prize money.

Teams and individual players all over the world come together in events to prove their might and make a name for themselves in the Esports genre. With a highly digitized and a pandemic hit the world, esports has considerably gained more popularity and is literally one of the fastest-growing industries in the world.

The Esports era actually began with individual players making a name for themselves by showing up at lan and split-screen tournaments where they would beat the other players and become known as that guy/girl who’s really good at that particular game. With humble beginnings like those, today, there are fully equipped and sponsored esports teams that not only hire and house the players they get but actually make a fair bit of money out of it.

But how do they make that money?

How Esports teams make money?

A common misconception about Esports teams is that they make most of their money by winning tournaments. That is not correct. Since the players of the team are the actual people who do all the work to win that money, the majority of the winnings go to them, which is fair.

The biggest boost that winning a tournament does for the organization is bringing them fame, which can help them attract larger sponsors and help sell more merchandise.

Although some teams have contracts that bind the players to give a certain percentage of their winnings to the organization, that is still not enough for the team to sustain their costs and keep existing.

  • Sources of income.
  • Game Developers.
  • Sponsors.
  • Merchandising.
  • Game Developers.

In most cases, if a team is a major part of a specific game’s top tier, game developers can facilitate them in generating money through the sale of their rights to different platforms that can broadcast their games.

This can sometimes create a conflict when some tournament organizers have broadcast sale rights to themselves. If a tournament is sponsored by the developers themselves, the broadcasting rights money has a chance to facilitate the team in a big way.

This not only helps the team monetarily but selling rights to the most viewed platforms can also help the team build an image and sell more merchandise.

Sponsors

Sponsors can be divided into two categories, Endemic and Non-Endemic. Endemic sponsors can be categorized as those that were there in the beginning and are here to stay. These sponsors are mostly those who have some sort of affiliation to the gaming industry and are trying to target the gaming market to sell their own products.

They include:

  • Gaming Furniture Makers.
  • Software Providers.
  • Energy Drink Companies.
  • Specific Snack Companies.
  • Mice Manufacturers.
  • Keyboards Manufacturers.
  • Headphones Manufacturers etc.

In most cases, these companies will sponsor a gaming team, which means the players will be flaunting, wearing, and using their equipment while they continue to dominate the gaming scene.

Talking about Non-endemic sponsors, which are sponsors that don’t have much to do with the gaming scene but are big companies looking to expand their market reach. Previously companies like Coca-Cola and Gillette have acted like Non-Endemic sponsors for tournaments and events over the globe.

Either Endemic or Non-Endemic, the sponsors can help the team to a substantial level, but there is a lot more that can be done in terms of money through the Franchise system.

Difference Between the EU and US

A big advantage that the United States has is that they are a huge country that can market itself nationally without worrying about a specific culture to be targeted more. In the EU, things are very different. If a team belongs to a specific country and has players from all over the world, the marketing strategy and negotiations are vastly different.

In the US, gaming organizations can negotiate better terms because most of the sponsors are already on board with the idea. In Europe, a company belonging to a specific country will want to market itself the most in that country as they can sell more products easily there.

In these circumstances, bringing the sponsor on board is a tough enough task, let alone negotiating favoring deals that propel the teams financially forward. To tackle this situation, we may need to look at the US a little more closely and how they introduced the franchise system that they use for physical sports to esports.

Franchise System

The current system, which is slowly changing, is based on the league knockout where teams can be relegated and eventually knocked out of the league as their losses go. In the Franchising system, a team that operates as a franchise and buys a slot in the league, the bought slot allows them to stay in the league even after placing last in the tournament. This means the sponsors can stay on board for longer with multi-year contracts.

With a solid sponsor at the base and security of getting finances for a longer duration, teams can make investments which not only allow them to grow individually, but the whole esports system together can progress by supporting each other.

Globalized Sport

Although the world of esports is vastly growing, making money through it is still a tricky business. A good practice to go about this is by observing and learning through physical sports organizations and how they are able to generate such huge sums to support and even further the game.

Improvements in the sector of constant matches between nations and forming international leagues for games that do not only operate on specific tournaments but is all year round and then a world cup could give a boost to the way esports is viewed these days.

The esports world has figured out how to get the attention of the audience very well, but making that audience unified enough to support your region is a whole different game. People from all over the world log in to view players from different countries, but watching a tournament live has its own charm for the audience. The EU has a lot of potential and they have some of the biggest sporting events in the world. They just need to bring that experience to the digital front.

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