Esports has become a rapidly growing global industry, with a fan base of about half a billion people and with revenues expected to surpass USD 1 billion this year for the first time, the business is seeing growth of over 25% since last year. Additionally, various other research reports have forecasted that esports will generate revenues of USD 3-5 billion a year within 5 years.
The main reason behind the emergence of esports, defined as organized and competitive video gaming, is a change in consumption habits on the part of younger generations, who are looking for interactive, engaging and internet-based content that is easily accessible and available for free. As video games can provide right that, gaming has become one of the world’s favourite pastimes. The most popular game, Riot Games’ League of Legends, a multiplayer battle game which was launched exactly 10 years ago, now has 8 million concurrent players on a daily basis worldwide.
In this article, we take a look at the industry, the impact of the changing entertainment landscape on football and the various strategies that clubs, leagues and players are using to capitalize on esports.
As the chart below shows, if we compare the average age of sports viewership, esports has the youngest fan base, while the leading sports properties are struggling with an ageing viewership.
Beyond the demographic preferences, esports’ growth is also driven by the fact that gaming talents can progress into top esports players much faster, compared to player development in traditional sports. As amateur and professional sports differ, so do gaming and esports. However, while in traditional sports to become a professional athlete is a very tough journey, requiring a vast investment of time, energy and equipment, the gap between gaming and esports is less wide: amateur players can develop the same tools as the best players, having only to make significantly smaller investments.
The fast-paced development of technology is also hastening the growth of gaming and esports – both in creating engaging and personalized content and providing easy accessibility through high-speed internet connections and streaming platforms. In addition, the free-to-play model and the vast social media community around esports have also fuelled the growth of the industry.
Such accelerated growth offers vast opportunities for stakeholders in both the entertainment and sport industries to develop engaged fan bases whose passion can be monetized. Accordingly, the esports ecosystem is starting to take shape, with clubs, leagues, traditional broadcasters, investors, talent agencies and betting sites jumping on board. Professional esports teams are competing in national and international leagues and competitions, talents are transferred, major events are broadcast live worldwide – esports has its own superstars and tournaments that sell out stadiums and award prizes worth millions of dollars. The biggest prize pool distributed in the first half of 2019 was Fortnite's USD 14.7 million. Cloud9, the most valuable professional esports company (according to Forbes’ latest estimate from 2018) is worth USD 310 million, while in total, there were nine global esports organisations valued at more than USD 100 million. By comparison, the value of Cloud9 falls within a range of the value of such top football clubs as Ajax, Lazio or Monaco according to KPMG Football Benchmark’s latest football club valuation report.
To put the size of the whole industry in context, the projected USD 1 billion overall income of the global esports business for this year is basically the same as the operating revenues of FC Barcelona alone in the 2018/2019 season - the Catalans have recently reported their record revenues of EUR 839 million for the past season.
Also, if esports develops into a USD 5 billion business in five years, that will still be only in the range of the current combined revenues of the top 15 teams in the English Premier League.
The structure of the major revenue streams in esports also reflects the fact that the industry is still in its adolescence. Learning from football experience, with a clear business model, broadcasting rights is likely the area where esports can increase its revenues the most in the future – this revenue stream is expected to grow by over 40% in 2019.
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While the overall narrative of esports is positive, there are still a lot of basic questions to be answered by the industry, including the core business model, monetization and its lack of central governance. The market is already showing signs of pressure, too. Forging transparent standards, sustainable operations and a cash-flow positive business model are key challenges at the moment. A tell-tale sign will be whether the largest and most highly-valued organizations will be able to deliver on their ROI expectations before and the big money that comes with it dries up. A further challenge is the fact that while esports offers great opportunities, it also steals viewers from traditional sports. A recent survey among young Americans (aged 21-35) revealed that 75% of respondents said esports takes away time from following traditional sports.
Why is traditional football entering the world of esports and how can it benefit from the opportunities provided?
As many traditional sports, football is also facing the challenge of attracting new, and especially younger fans, as its audience is ageing. Enhancing its customer experience via innovative elements, including technology, smart stadia developments or using social media efficiently, is key to growing the fan base. In addition, delving into esports is increasingly seen as a winning future track for attracting tech-savvy younger generations. Interestingly, while top football teams are winning over fans in China, India, Indonesia and the US, countries that account for around 45% of global population, young Asian audiences are also considered as the most educated in technology and also the most involved in esports.
Football-focused video games and esports provide an obvious and low-risk route for football stakeholders to reach these young audiences. Consequently, the FIFA series, one of the most popular video games, has been an easy way to enter esports. (According to its publisher, EA, over 260 million copies of the various versions of the game have been sold since its first launch in 1993. In addition, fans have downloaded and installed the free “FIFA Mobile” almost 200 million times.)
Accordingly, football clubs, leagues and individual players have become involved. Several top clubs (from Schalke 04 to PSG) also have established their own esports divisions – some sign talented FIFA players, others build their own team or buy existing successful teams. Almost all major football leagues now have their parallel esports league equivalents, who have created their own FIFA competitions. The ePremier League, for example, includes all 20 teams from the Premier League, with two UK-based esports players in each team. In addition, the ePremier League is one of several esports equivalents of domestic football leagues around the world, along with the likes of eMLS, eBundesliga, eLaLiga, that compete against each other in the FIFA 19 Global Series. Brazilian star Ronaldinho entered esports in 2018, when he created the eLigaSul, a league to host competitions across 26 countries in the game Pro Evolution Soccer. He is now building his second project in collaboration with controller manufacturer Scuf Gaming, a team called “R10 team”, which is to compete in FIFA and include only Brazilian esports talents. Only recently, AC Milan’s 24-year old defender, Alessio Romagnoli, in partnership with esports management firm Pro2Be, has launched an esports brand “AR13”, set to compete in FIFA.
However, some football clubs do not limit their involvement in esports to football video games. Their strategy goes beyond football. Partly because football-related video games are not the biggest ones in esports – the most popular FIFA Game is not even in the top 10, with League of Legends, Fortnite, CS:GO, Dota2 and Overwatch leading the pack.
Via this strategy, clubs are positioning themselves more as an overall esports brand, involving teams that compete in various games – similarly to the Barcelona brand, for example, which includes top teams in various traditional sports, such as basketball, handball or futsal. The wider the esports spectra a club can cover with successful teams, the more chance they may have to attract those valuable young audiences and turn them into loyal customers.
Here again, we can see different go-to market strategies. In building their esports division, Barcelona bought a full, successful team competing in the 10th most popular game, Rocket League. Bundesliga club Schalke 04, an early participant in esports, is a regular competitor in the European League of Legends Championship Series – a professional franchised league for the top game. Others established co-branded partnerships: AS Roma have built a strategic partnership with Fnatic, a London-based professional esports organization – through this collaboration, players represent Roma in FIFA tournaments, while Fnatic manage the team, providing training and events as well. Paris Saint-Germain joined forces with Chinese team LGD for a co-branded squad to play Dota 2, the 4th most popular game. Just a month ago, Manchester City partnered with FaZe Clan, one of the biggest players in esports to create engaging social content, limited edition co-branded retail products and host exclusive esports events globally. Being a lesser-known brand internationally, Danish club FC Copenhagen chose a different path – teaming up with the biggest media company in Scandinavia, Nordisk Film, they established a completely new brand, “North Esports”, which aims to become a leading multi-gaming organization in Europe with multiple teams and players.
The latter examples are also in line with the overall trend of top sport entities moving towards an entertainment company model, even re-positioning their brands and transforming their organization accordingly, to attract audiences from all over the world.
The most ambitious ones are exploring ways to engage young generations by providing a wide-range of lifestyle experience associated with their brand.
Manchester City’s recent statement on their partnership with FaZe Clan revealed such a vision of a football club becoming a versatile global brand, stating that “…we recognize that fans want to celebrate their love for football across many aspects of their lives, including fashion, music, and gaming, to create a culture that goes beyond what happens on the pitch”.
