Esports: The Future of Entertainment

The future of the esports industry looks even more exciting considering we are marching towards the maturity phase. As outlined in our previous article, this piece will provide an insight into a few influential factors that will determine the rate of esports industry’s in the coming years.

New Esports’, New Formats

Esports is an umbrella term for a number of games that can be played competitively. The esports industry has grown around several titles over the years, with new titles and formats constantly increasing interest from a broader audience. In general, esports fans are focused on a single game and when new franchises eventually develop as esports, new viewers are added to the industry’s overall audience. Currently, the most popular esports titles are first-person shooters (FPS), multiplayer online battle arenas (MOBA), strategy, and fighter games. To continue expanding the industry’s reach, drawing people from outside these genres is crucial.

Credit: BBC

Take Epic’s Fortnite, for example. A new title, in a relatively new format (battle royale) has been able to captivate gamers worldwide to the point it boasts a 250m-player base. Likewise, Overwatch has proven that variations of classic competitive genres can attract a lot of new interest. Both of these games’ success as esports have essentially boosted the market; in audience, and therefore in revenue.

Sports genres are another accelerator of growth as they are easy to understand and often have huge player bases due to interests in traditional sports. EA Sports’ FIFA and Madden franchises, and Konami with eFootball PES, are investing heavily in the development of esports scenes around their titles; this year, the ePL returns for it’s second season, and the FIFA eWorld Cup for it’s sixteenth and the eEuros will be played next year. It remains to be seen if these games will begin to incorporate the same mechanics that have made other genres popular esports, though.

We can expect to see more games emerge with “esportsification” in mind. Games that offer similar value to gamers result in competition, and thus the potential migration of gamers from one game to another, particularly if they are not satisfied with the game. There is no special ingredient to ensuring a successful esport title, but a game that is fun, requires skill and has a large user base will contribute to its success.

Support from game developers themselves is also fundamental for nurturing a healthy competitive ecosystem as games must adapt and cater to the ever-changing expectations of their customers. In December 2018, Blizzard announced their intention to cancel tournaments for their MOBA title, Heroes of the Storm (HoTS), which subsequently killed its professional scene.

Franchised Leagues

So, new esports titles, and new formats means that game developers must keep “esportsification” in mind. One way tournament operators and game developers have done this is through a franchising league model; a system that traditional American sports has benefitted from.

Franchising removes the seasonal promotion and relegation of teams participating in a league, so esports organisations purchase permanent spots on some of esports’ largest leagues; in most cases, these are tied to a specific geographic location.

First implemented in 2017, the franchising system has since been employed by the likes of Riot Games and Blizzard Entertainment that operate the North American League of Legends Championship Series (NA LCS) and Overwatch League (OWL), respectively. More recently, Blizzard, too, announced plans for the integration of a franchised model for their Call of Duty World League (CWL), where a spot will cost teams $20m.

The Benefits
Removing relegation has several benefits for the league, participating teams, and interested broadcasters. In terms of broadcasting, fan and team rivalries can flourish, helping to build powerful narratives and fan allegiances. For this, teams can then focus on nurturing talent without the risk of losing league places, but more importantly, it offers certainty that large fan bases will not be lost if a team is relegated.

In terms of investment, the franchising structure is also a recognisable format for content buyers, sponsors, advertisers, and their agencies. Attracting media rights buyers and brands with big budgets will continue to drive growth of the total esports industry. We have already witnessed the NA LCS and OWL garner large content and sponsorship deals, so we expect other leagues to follow suit in an attempt to replicate their success. If franchising proves to be successful in regions that are not traditionally familiar with the system, it will be a solid base for industry growth.

The Downsides
Despite this inevitable trend towards further franchising, these systems are ‘closed’ in comparison to meritocratic systems. In franchised leagues, teams cannot earn spots in top leagues through online play and LAN tournaments, or through traditional qualification methods. Although a meritocratic system makes it harder to secure long term, high value sponsorships, it prevents instances of truly great moments for generic fans — like Leicester City winning the Premier League, for example.

The true losers of the franchised model will be the amateur teams and players. For Call of Duty specifically, the CWL is the only real competitive league so this new model completely closes the door on valuable exposure, resulting in the value from potential sponsors diminishing which consequently impact the organisations bottom line. This explains why we may see future Call of Duty stars with low viewership and low-pay careers, unless they are scouted and selected by a franchised team.

All things considered…
Whether the franchised model will be beneficial for the esport titles is debatable. What is for certain, though, is that the demand for competitions is on the rise.

Increased Localisation of Leagues & Tournaments

Tournament operators can fulfil this increasing demand by offering LAN competition events for competitors of varying skill levels that are based in specific geographical regions. Increasing localised competition can benefit esports greatly from this. It offers match content at any moment of the day to grow overall viewership hours, whilst also bolstering the relatively low number of professional organisations that are active within the industry. Localisation also allows competitors and fans attend events without having to cover travel costs.

Most esports events are orientated towards globalised competitions without an accessible route for local teams to make it to the top-tier. A bottom-up structure can be seen in Football; domestic leagues (in Europe) are linked to a continental competition (in the Champions and Europa Leagues), then a Super Cup, and later, a Club World Cup.

Most connections between fans and competitors are formed through local ties. In traditional sports, most fans support their local and/or national teams and star players. Due to the digital and global nature of esports, such local ties are not as prevalent. Establishing a structure in which people can root for their local team is an important driver of increasing fan engagement as well as team revenues from merchandise and tickets, local sponsors, and advertisers.

This structure empowers local leagues, increases participation and is an important step in accessing local marketing budgets. If country-oriented leagues can become popular with viewers with local teams, the chances of capturing the interest of local brands and content buyers, whilst tapping into a largely unused source of revenue in the esports industry is highly likely.

Team Profitability

Teams — either those with a long history, or those that feature the most skilled players in an esport — are key drivers of fan engagement. They are at the centre of the industry, comparable to traditional sports teams and their fans. Fans are also more likely to buy merchandise, attend events, and watch tournaments regularly. Fan engagement can be very profitable as they give teams the opportunity to generate revenue from merchandise sales, and later sponsorship deals.

To a degree, this is understandable considering the rate at which esports is progressing. With notable brands and sports teams entering esports, the industry itself promises to be huge. In 2017, the NBA 2K launched and has since enjoyed two successful seasons, and this year, the ePL launched and now returns for it’s second; sporting bodies are entering based on the long-term prospects.

However, profitability can be a huge difficulty…
Last year, Forbes released a study on the 12 biggest esports organisations, concluding that these teams on average, trade at over 14 times their actual annual revenues — that’s double the NBA’s average valuation! The demand of salaries and gaming houses have resulted in organisations spending huge amounts at a disproportionate rate to their revenue.

Maintaining the perspective of the landscape from our last article, the current climate does not guarantee a short-to-mid-term return on investment. This raises the question: are esports organisations spending more than their revenue in an unsustainable manner?

Contrary to popular opinion, prize pools are often for the players and provide limited revenue for organisations, and sponsorship is not growing at the rate previously expected. Organisations must therefore look to alternatives, and it would seem that a promising alternative is fan engagement.

It is not a case of whether esports will reach the heights it is capable of, but what journey it will take to get there. Game developers essentially operate for profit, which is why we are seeing an increase in the number of games that offer in-game micro-transactions. For these developers, esports is not a core revenue stream; but, having a successful ecosystem around their IP provides a positive marketing strategy for their titles to survive as esports.

This leads us on to competitive provisions. Both franchised and meritocratic systems, on varying geographical levels, and for varying skill levels will undoubtedly enhance the industry. On the one hand, the industry can ensure longevity, on the other, it can provide a clear path of access to the top for gamers that may poses the skill, but not necessarily the capital. And then there is team profitability.

These two factors go hand-in-hand; developing fan bases on regional levels through regional competition is even more important than a single, but very large, global event. This is corroborated by Twitch. A total of 560bn minutes were spent watching streamers last year, so there is a clear demand in terms of viewership. Esports is certainly a profitable avenue to reach the previously unreachable generation, especially those from grassroots with “zero to hero” narratives.

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