In our previous article, we focused on two factors that would decelerate the current esports impetus. Acknowledging the current swing of power in favour of game publishers, coupled with the immature yet promising esports industry, it would appear we stand in the face of the potential for a market correction.
The Impact of Disproportionate Power and Immaturity in the Esports Industry
Esports and gaming are not the same thing; esports relates to the professional competitive gaming scene, either online…
For those that are unaware, a market correction is simply the market correcting itself by 5–20%; this is not to be confused with a bear market. Various esports organisations could be headed for a market correction due to overvaluation. The concerns regarding overvaluation relate to the disparity between valuation and average revenue of many organisations.
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; double the NBA’s six and a half fold average valuation!
To a degree, this is understandable taking into consideration the rate that esports and more generally technology, is progressing. Moreover, with notable sports teams and brands becoming early adopters, the industry itself promises to be huge. Most recently, 2019 witnessed the launch of the ePL, which gave FIFA players the opportunity to represent their Premier League clubs in a FUT esports competition; this is also the case for the NBA 2K League, which launched in 2017. There are certainly enough prominent sporting organisations taking the leap into esports; we cannot refute that.
In spite of this, we must remember that they are doing so based on the long term prospects. Presently, we are witnessing organisations spending huge amounts at a disproportionate rate to their revenue. Player and team demands, such as salaries and gaming houses, are increasing quicker than revenue earned. Maintaining the perspective of the landscape from our last article, the current climate does not guarantee a short to mid term return on investment (ROI), which raises the question: are esports organisations spending more than their revenue in an unsustainable manner?
To answer this simply: yes. Whilst there have been a few esports organisations that have been able to reap the financial rewards of a business in esports due to the fact their rosters are backed by smart business minds; chance more than certainty. Therefore, as an outside investor, how do you value uncertainty? For esports organisations, their revenue is predominantly generated from:
These revenue sources however, do not provide sustainable revenue for many esports organisations. Contrary to popular opinion, prize pools are often for the players and provide limited revenue for the organisation. Winning tournaments and earning prize pools does support the revenue generated from the three key sources outlined above.
Despite some notable brands in esports, sponsorship is not growing at the rate than had been expected, so organisations must look to alternatives. A promising alternatively is through fan engagement. This is essential and Twitch corroborated this through concluding that a total of 560 billion minutes were spent watching streamers last year. Naturally, this demonstrates the demand for engagement and a shift in content consumption. Esports is certainly an avenue to reach the previously unreachable generation, but instances of uncertainty surrounding game dynamics and longevity, we may see a decline in new organisations joining the industry; in particular those from grassroots with “zero to hero” narratives.
Profitability is fundamental to both esports organisations, and the industry’s growth as a whole. Although more organisations are beginning to receive funding from VC’s, which in part supports the increasing player salaries, as previously stated, most teams still operate at a loss. This will hopefully change over time as the esports industry matures through commercialisation. In addition to this, we intend to be an integral cornerstone to the grassroots competitive gaming landscape. Gaming is a passion of ours, and as such we hope to use our reach to highlight and provide viable solutions that will ensure the sustainability of the competitive scene.
With evidence of the market beginning to correct itself, the current state of this heavily fragmented landscape may result in wider implications. On the surface, considering the fact that these communities are not regulated by the same governing authorities, we may see some communities more affected than others. This further eradicates any support measures that can be used to heal the industry as a whole, as opposed to an “every person for themselves” mentality. But upon deeper inspection, it may in theory prove to be even more divisive to the esports industry.
A correction will not necessarily be felt by communities at similar times; nor will the consequences be equal in weighting. A correction under the context of these prevailing problems will undoubtedly be far more severe for casual and professional esports players, than it will be to their conflicting counterparts.
The Intergalactic Solution
It is important to maintain perspective. Although some experts are leaning towards the likelihood of organisations having to return to the markets at slightly, to considerably lower valuations, this will not lead to “the bubble bursting” as others speculate. In the coming months, there will certainly be redundancies within the gaming industry at large, particularly revolving around games that are fading away, as publishers struggle to maintain gamer retention and deliver replay value.
But hope is not lost! The IGGalaxy’s infrastructure that converges the two extremely exciting industries of blockchain and gaming will undoubtedly formalise certainty within this nascent industry. More importantly, the IGGalaxy will do so keeping the gamer, the undisputed largest ‘investor’ of the competitive gaming scene, central to its growth: by rewarding ALL users for value added and time invested.
The former is something we have, and will continue to uphold, but the latter we will cover in the subsequent article. As you may have seen, we recently released a video of the team establishment feature on our platform. We are still in the early Beta phase of development, and reaching this significant milestone will see the beginnings of a solid foundation to our social competitive ecosystem as we approach the public launch.
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