The “digital” playing field – football clubs and esports in a Covid-19 world


Over four years ago, international football clubs began to embrace the world of esports, headlined by the establishment of FC Schalke 04’s esports division. Last year, we gave an overview of football’s reaction to what became a booming esports market. Now, in the midst of the Covid-19 pandemic, as it has affected many other facets of the game, this world health crisis is significantly impacting the relationship between football and esports.

With sports and other entertainment events suspended during lockdowns, people have been spending significantly more time inside, plugged in to the online environment to satisfy their need for sports, entertainment and human connection. Capitalizing upon such unprecedented times, more clubs have begun to tap into esports due to its increasing popularity, and a lack of substitutes for live matches. However, most of these organisations are still only scratching the surface of this opportunity, while the real jackpot may lie beyond football simulation games.

Without live sports events taking place, clubs have been forced to increase their digital activities to maintain engagement levels and reach fans in some way. The industry has seen wide-ranging content generation ideas from clubs and players, still, it remains obvious that none of these efforts can replicate a live match, or the feelings of competition and triumph felt by spectators. Esports has been the next best thing available and has certainly grabbed the attention of global football fans, especially younger generations. Thus we've seen the emergence of various initiatives from clubs, such as the 128-team “Ultimate Quaran-Team” FIFA tournament—organized by English fourth division club Leyton Orient FC—achieving success, and even raising money for charity.

As the attention turned to digital, football clubs have also changed their communications strategy, placing emphasis on new forms of engagement while trying to produce innovative online content, mainly through social media platforms. As an element of these efforts, football simulation games are a logical way of replicating some of the attributes of live football, including competition, fun and excitement. Not only clubs, but also players have realized that esports can present an opportunity to build their personal brands whilst away from the field of play. Gaming and esports offer a natural way for them to showcase their talents from home and facilitate interaction with fans by streaming gameplay and tournaments with counterparts, professional esports players or even with fans.

However, esports presents a much bigger opportunity than just digital content in the form of football simulation games – it is a long-term growth opportunity. First of all, it provides a natural way to engage with a new, younger audience. Furthermore, the esports landscape boasts a global audience, which enables wide-ranging opportunities to boost club efforts to communicate their brands internationally. A good example of this are Wolverhampton Wanderers, who are using their esports initiatives to grow their international fanbase and build the club's brand within new segments. Among other activities, Wolves have created an esports tournament portal, tapped into the market of non-simulation games by organizing a Fortnite tournament and sponsored a team in the virtual “24 hours of Le Mans” event. The key to their strategy is a focus on specific markets and segments, with China at the top of the list.

Even before the pandemic had struck, football was facing an increased level of competition for attention, competing with streaming services, video games, OTT providers and other stakeholders in the entertainment industry. This extremely competitive field has mandated that clubs' operations adapt to a more entertainment-focused business model, which is vastly different from how football clubs operate traditionally. For top tier football clubs, esports is a relatable and somewhat similar industry, making it a logical first step in such a transformation.” Andrea Sartori, KPMG's Global Head of Sports commented.

Finally, esports is not simply a marketing and brand building tool which only impacts the cost side of financial statements; it can turn into a long-term revenue opportunity down the line. Based on the latest projections by research firm Newzoo, industry revenues could reach USD 1.6 billion by 2023. Additionally, esports teams could be the next in line for huge capital gains through market value increases, similar to those seen by football clubs in the last two decades. While current valuations are considered to be inflated, an investment in esports can act as a type of hedge fund or safety blanket for clubs, against any potential future decline of football revenues compared to other forms of entertainment.

Nonetheless, short-term financial expectations shouldn’t be the driving force behind any decision to embrace esports, as financial returns are unlikely at the moment. Not even the best esports teams have been able to consistently generate profits and operate a self-sustaining model even before COVID-19 had hit. Since then, most revenue sources have only decreased due to the lack of live events (which has eliminated ticket or merchandising sales and resulted in lower-value sponsorship deals without live and large-scale activation). As an example of financial struggles, we can take a look at Astralis, one of the most successful and well-known teams in esports. Their 2019 financial statement reports a loss of almost EUR 5 million, even with total revenues nearing EUR 6.5 million. This can mostly be attributed to an extremely high wage bill, as the organization’s staff costs-to-revenue ratio exceeded 100%. This ratio is between 50% and 70% at most football clubs.

On the other hand, financial performance is one of the areas where potential synergies can be reached between sports and esports, as revenue and cost structures are similar in the two industries: the main income sources are commercial/sponsorship revenues, broadcasting income and fees received from attendees at live events (in the form of ticketing revenue, merchandising, F&B). What's more, esports can rely on further revenue sources, such as digital & streaming income and publisher fees. Currently, sponsorship revenues are the dominant income source for esports teams, but the evolution of sports gives an indication about potential growth areas, topped by broadcasting revenues. In terms of absolute value difference, the gap is huge, as is apparent in the chart below – the combined revenue of English Premier League clubs is significantly higher than total revenues in the entirety of the global esports industry.

The level of material gains and non-financial benefits achievable are mostly dependent on how an organisation endeavours to enter esports. Such a decision is based on a combination of factors, but mainly comes down to the levels of investment and risk-taking. The majority of football clubs have so far been cautious in their approach, focusing on minimizing potential risks and touching only upon football simulation games. This is where most of the Big Six clubs of the Premier League stand – they have recognized the need for taking the initial steps, but have not committed major resources into esports thus far. Liverpool and Arsenal have signed players to represent them at specific tournaments, such as the ePremier League. Player selection methods in this case vary, from organizing a local tournament for new talents to contracting an agency or specialized company to look for more experienced veteran players. Manchester United have gone a step further and signed an entire team of players to represent them at selected tournaments, while Ajax has set up a dedicated division focusing only on football simulation games.

More gain can only be expected if a club is either willing to discover non-simulation games, or start cooperating with a dedicated, well-known esports team (such as AS Roma with Fnatic or Manchester City with Faze Clan). The types of risks include brand association with games that do not represent the values of a club, such as violence; fans' dissatisfaction with presence in certain segments; or a lack of control and understanding of players as brand ambassadors. These risks can indeed be damaging and can result in a loss of reputational value, but in some cases, these are only perceived risks that are part of society and pop culture, delaying the inevitable step of reaching out and embracing the interests of new generations. Risk mitigation techniques involve a careful selection of games (e.g.: FC Barcelona tapping into Rocket League, which has similar elements to football), or setting up a new brand in a riskier game (FC Copenhagen’s entry into Counter Strike:GO).

Finally, the majority of the esports audience can only be reached by focusing on the most popular game titles, such as League of Legends or Call of Duty. However, other than the various potential risks, reaching this level requires significant resources or ample time investment, as buying a franchise slot or an established team costs more than EUR 10 million in most cases and building up one's own esports division from scratch and seeing results can take years. Still, Schalke’s example shows that it is doable and can be a great investment: currently, they are the only football club who are represented in a major esports franchise league.

If we take a look at the broader world of sports, this approach might be the way to go, at least if the major professional sports leagues of the US provide any indication. Several sports franchise owners, such as Jerry Jones and Robert Kraft, have made significant investments in the past couple of years to set up their own team or buy a majority stake in an existing one, and are currently competing in the upper-echelon of leagues and tournaments.

As Shawn Quill, National Sports Industry Leader at KPMG in the US observes: “The world of sports is changing and not only because of Covid-19. As sports clubs and other stakeholders are in the process of returning to live sports, they have to be aware of the challenges presented by the fast-moving entertainment and tech industries. Esports is one way to prepare for the future and key figures of the sports world have already recognized this opportunity to stay ahead of the curve.”

It remains to be seen if some of the most familiar team names will headline prestigious esports tournaments in future, but football clubs will soon have to start intensifying their efforts in this realm if they want a piece of the pie for themselves. Industry standards are already taking shape, while the new generation of fans sport the logos of brands that didn’t even exist 10-15 years ago. In any case, esports are here to stay, competing for eyeballs among a new wave of entertainment options.