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How do Esports Teams make Money?
In recent days, the esports economy has been struggling. Over the past year or so, an increase in the number of esports organizations backing out of the major esports scenes has been noted. Some have even been noted to be taking steps or have shut down their operations entirely. Even big names such as FaZe Clan and Evil Geniuses are not exempt and have been reported to be struggling to keep up with the economy.
But it was not the case in 2021. Despite COVID, esports was making huge strides. The International 2021 had an enormous $40 Million prize pool - the highest in a single year - which in turn had followed a $34M TI prize pool in 2019. TSM and FTX had struck a $210 Mn naming rights deal. The success in the esports scene even managed to attract big time investment players like Kronke to invest in esports.
But how does playing games or streaming them or organizing tournaments earn any money? And enough money to attract a football club owner?
How does Esports make money?
To understand how esports teams make money, one has to understand all the stakeholders in Esports. A successful esports industry includes game publishers, tournament organizers (TOs), esports organizations, PR agencies, Media personnels, talent, and talent management agencies. Let’s decode what roles these stakeholders fulfill in a healthy esports ecosystem.
The Stakeholders
Game Publishers
Game publishers/developers are entities that own the game that is played. They are responsible for updating, maintaining and developing the game. A game publisher's involvement in the esport varies depends on their particular modus operandi.
Riot Games, who owns League of Legends, TFT, Valorant, etc uses a very hands-on approach and carefully selects a few TOs to represent them. They also individually manage their tournaments and organize regional leagues and international tournaments for each of their titles.
On the other hand, Valve usually has a hands-off approach for Counter-Strike and Dota 2. This approach allows big TOs such as ESL to organize the tournaments for their individual games.
Tournament Organizers
Tournament Organizers organize tournaments featuring the games owned by the Game Publishers. These tournaments feature multiple teams that represent esports organizations.
The TOs are also responsible for hiring talent, inviting teams and handling media coverage. The TOs usually employ PR agencies in order to communicate with the media and handle day-to-day communications with the teams.
Esports Organizations
Esports organizations field teams for the esports that have tournaments. These are named sponsors for an individual or a team of individuals.
These organizations are responsible for team management, what event they attend and more. They also control what individuals are part of the team, and are in charge of promoting these individuals. Some of the biggest Esports organizations are Fnatic, Team Liquid and more.
PR Agencies
PR (Public relations) agencies are in charge of the communications between multiple esports stakeholders. These PR agencies are marketing teams for the TOs or Game Publishers and are in charge of publicizing the esports.
They also usually manage the media coverage. They invite relevant media and manage how they interact with players in the tournament.
Talent and Talent Management Agencies
Talent refers to the players, casters, hosts, analysts, observers etc that usually are employed by aforementioned organizations. TOs usually employs talent pertaining to a tournament such as hosts, casters, analysts, observers etc. Esports organizations employ players, coaches, general managers etc.
The talent management agencies manage such talents. They overlook contracts, compensation and promote the talent to ensure they get more exposure. The talent management agency usually also includes a law firm so that the talents are correctly represented in case of a conflict.
Media
Media and publishing houses connect esports to the outside world. They relay relevant information to the public and usually help with promoting esports events to the general public. They maintain and record results of such tournaments, track teams and are an information source for the public.
Strafe is one such Media outlet. With the Strafe website and the mobile app, you can stay up-to-date with the latest news from the esports world. You can also track scores, follow teams and participate in a fantasy league against other users.
Every esports tournament features a game published by one of the several game publishers, organized by a TO, attended by teams composed of players and coaches representing multiple esports organizations. The event is hosted and presented by the talent and promoted by the PR agency and the media.
How do esports teams make money?
The major source of capital for esports organizations/teams are investors and sponsors. The investors usually provide capital for the esports organization to run and expect a return on investment, as the organization turns profitable.
The relation between investors and esports organizations is similar to any other business, investors keep pouring in money until the organizations can produce profits. If they find the organization can’t make money, they back out.
The biggest chunk of capital outside of investment comes from sponsorships. Tech companies, energy drinks etc. usually invest money in events, organization, even players to some scale.
Some of the biggest sponsors in the Esports space currently are Red Bull, Intel, Microsoft etc. These sponsors aren't in for profits but instead market their products using the tournaments, esports team jerseys etc.
Previously mentioned TSM-FTX deal is a sponsorship deal, where FTX were advertising themselves using the TSM brand via the naming rights.
The Esports teams also make a good amount of money from monthly merchandise drop or partnering with big brands for merchandise. While the chunk is bigger than esports winnings, it is also significantly smaller compared to sponsor money.
The tournament winnings only make a small part of an esports organizations’ capital. Compared to the money required to run an organization, which includes multiple expenses including player salaries, accommodation etc., the money made by the organizations purely through merch drops and tournament winnings are negligible.
A big reason for the esports winter is an exponential rise for esports and the subsequent sudden fall. You can read more about the Esports winter here.
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Featured Image Credits: Riot Games
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