Why are Brands Willing to Invest Millions in Esports?
If someone asked you to describe what sports looked like, you’d probably have a picture of a football field or a tennis court in your mind, not ten young people sitting in a convention center at their computers playing League of Legends or Counter-Strike. However, the kind of sport known as “esports” is rapidly gaining traction, with millions of dollars awaiting the winners and hundreds of brands investing in sponsorships and advertising. The question is — what attracts brands to esports and how can the interactions between players, viewers, and investors be optimized in this complex ecosystem?
The Esports Market is Booming and Blockchain Can Join In
Esports, or competitive video gaming, usually takes the form of organized multiplayer game competitions with professionals playing in them. The latest research from Newzoo, the market leader in gaming and esports, shows that the audience of these kinds of competitions reached 335 million in 2017 (20% year-on-year growth) — including 143 million esports enthusiasts who watch these competitions regularly and 192 million casual viewers, who turn it on less than once a month. In 2018, this number is expected to rise to 395 million viewers in total.
The esports ecosystem is quite complicated with many different players in the chain, including teams, tournament organizers, platforms who stream the competitions, as well as game developers, fans, publishers, and brands. The latter uses esports as a communication channel to reach a new, young audience and promote their product. Globally, most esports fans are between 16 and 24 years old.
Within such a complex ecosystem and with a large number of financial flows between participants, a solution is required to make sure all transactions are accurate and valid and that all the parties involved are able to send and receive payments with no fraudulent actions from any one side. This is where blockchain enters the game — smart contracts allow users to set their requirements and obligations in the data with no adjustments possible. The solution guarantees that players receive their salaries and winnings on time (which is a common problem in the industry). However, it’s not only players who need their rights protected — brands, as the main drivers of esports market growth, do too.
In fact, brands are the main contributors to esports revenues. In 2017, they invested $468 million into esports — 71% of the total annual revenues and 34% growth year-on-year. The latest numbers show that this trend is set to continue — this year, brand investments are expected to rise to $694 million (77% of total revenue in 2018). The rapidly increasing growth rate for brand investments shows that their interest and involvement in the esports market is growing fast, and the two reasons for this are huge demand and a loyal target audience.
Facts and Figures — Why Do Investors Pay More Attention to Esports?
Huge Demand
Esports fans spend 100 minutes, on average, per spectating session on platforms like Twitch and YouTube Gaming — which led to 260 million hours of esports watched on these platforms in Q1 2018 alone. Newzoo games tracker shows that in October of this year, 46 million hours were spent by users watching League of Legends competitions on Twitch. Counter-Strike and Dota 2 were also among the top five most popular games over the last few months. The same titles were unsurprisingly leading on YouTube Gaming as well — although with fewer hours watched (26 million for League of Legends, the most watched game in October, for example). Twitch remains the leader in the space with over 1 million concurrent viewers on its platform.
The conclusion that can be made here is pretty simple — esports is about involvement and fans are willing to spend their time on it regularly, which obviously makes it attractive to investors.
The important thing to remember is that platforms like Twitch are still centralized entities — intermediaries connecting publishers, players, and fans, which implies a high competition between streamers with newcomers being unable to monetize quickly. In addition, data privacy has become an issue, which led to some discussions on social networks about tips for streamers to keep their data safe.
The decentralized nature of the blockchain and the use of smart contracts allows esports enthusiasts to interact in a secure and transparent way. The absence of an intermediary assumes that the cost of interactions could be reduced to zero, and the proper design of the system could give new streamers the opportunity to earn money right from the very beginning.
Loyal and High-Income Fans
Esports fans are willing to pay for their hobby in a variety of different ways — subscribing to streaming platforms (from $4.99 to $24.99 per month on Twitch depending on the tier), buying tickets and merchandise (over $90 million expected to be spent on these in 2018), and donating money to players (one of the most popular streamers, Ninja, says he can earn more than half a million dollars per month only through subscribers and donations, without counting the undisclosed brand deals!
LendEDU, a marketplace for financial products, recently conducted a survey of 1,000 self-identified esport fans to make a portrait of a typical fan and their spending habits. They found out that half of them were more willing to spend their money on esports events than they were on concerts or traditional sporting tickets. The respondents spent, on average, $465 to their favorite players a year.
Donations and tips are quite common in the esports industry, which shows the willingness of fans to invest in streamers and, what’s even more important to investors, their financial ability to do so. Unfortunately, many viewers mess with streamers just for fun — sending them fake donations in chat boxes or worse, requesting chargebacks after they donate, although PayPal has taken steps to stop this practice. This results in processing fees for streamers or even frozen accounts in the case that players don’t have enough money to refund donations.
Brands as the Main Sponsors of Esports
As esports is no longer a niche market, but a legitimate industry with a large and loyal audience, brands are starting to actively invest in the space. The huge variety of players, teams, and tournaments offers them many opportunities to find their place in the ecosystem.
Duncan McMonagle, SVP & GM, Esports, Minute Media — “Esports attracts a broadly (but not exclusively) young demographic, which is becoming increasingly difficult to reach — especially through traditional sports, which continue to experience ageing demographics. Further, esports is still very nascent as an industry, and brand spend significantly trails engagement, which means there is huge first-mover advantage to be potentially gained in essential verticals for those who commit early.”
Brands engage in esports in various ways:
- Sponsorship
Sponsoring teams, events, and product placements, as well as using players and game-specific elements in a brand’s marketing strategy. Over 600 esports sponsorship agreements have been signed since 2016, and though the majority of them have been made by gaming, technology, and consumer electronic brands (endemic ones), non-endemic engagement is also increasing — Coca Cola, Red Bull, Mercedes-Benz, Audi, McDonald’s, HTC, and others have proven that. - Advertising
Ads are shown during live streaming on online platforms like Twitch, ads during video-on-demand consumption, or advertising on TV around esports content. Though less popular than sponsorships, advertising is still expected to be a significant part of esports in 2018.
- Franchising
Many investors are looking for long-term benefits through franchising — the Trefis team, formed of MIT engineers and Wall Street analysts, says, “Franchising has picked up in esports with the recent launch of The Overwatch League, which had a $20 million price for each slot. This also led to Twitch paying $90 million in 2018 for exclusive distribution of the league, the biggest in eSports history.” Other game publishers are planning to introduce franchising this year, which will allow for the establishment of a more stable ecosystem and attract more investors.
Blockchain Can Stand Up Against Fraud, Insecurity, and Unawareness for Brands
Insecurity is common in esports, unfortunately — and not only when it comes to players who expect their prizes and salaries to be paid on time, but also for brands. Sponsors are facing the risk that their teams will collapse, resulting in negative media coverage and lost money for investors, and a signed agreement is not a guarantee of success.
Brands entering the esports space are usually unfamiliar with all the details and nuances that come with it — they have to rely on expensive manual labor to do the necessary due diligence and find the teams who meet their requirements. Kingston (a Fortune 100 company) employs over 50 people to search for and deal with esports sponsorships and advertising opportunities. Obviously, the cost of this research would be overwhelming for smaller investors.
These problems, however, can be addressed with an infrastructure and payment gateway for esports and gaming to satisfy the needs of all market participants, including brands. By leveraging blockchain technology, the market can benefit from:
- A fast and secure payment system similar to PayPal on the blockchain, which ensures the payout of all prize pools, salaries, transfers, sponsorships, and advertising deals. A sponsor signing a deal with a team could set specific KPIs in a smart contract and track players’ and teams’ performances, brand usage, and popularity. The money will only be released once the certain requirements described in a smart contract are met.
- A marketplace to unite teams, brands, and tournament organizers — a business gateway for all esports. The solution will let sponsors with different needs find teams with diverse backgrounds by geolocation, the number of subscribers, and other precise requirements.
- Tools for targeting marketing efforts similar to Google AdWords or Facebook Ads, to allow small and medium-sized businesses to get access to more teams and tournaments and promote themselves more effectively.
We can already see projects like DreamTeam, Play2Live, FirstBlood and Unikrn developing such platforms and working on revolutionizing the esports industry.
Play2Live is a platform for streamers, gamers, and esports fans, which aims to create an interactive ecosystem where every participant can be part of a P2P interaction and earn money.
FirstBlood, on the other hand, is focused on decentralization of tournaments set up and winnings distribution. The project lets esports players challenge the field playing regular Dota 2 and PUBG tournaments with real cash payouts.
Unikrn operates an international esports entertainment and betting platform and allows users to participate and buy products such as jackpot tickets with a rewards and incentive token — UnikoinGold.
DreamTeam, though, is developing a whole range of products on the blockchain that would address all the needs of esports market participants: encompasses prize-money payouts, players’ salaries, and transfers, sponsorship and advertising deals or media rights sales. All “money related” operations are processed with the use of Ethereum smart contracts. Blockchain and smart contracts are used to guarantee payments and avoid scams, which are, unfortunately, fairly common in esports. Apart from offering recruitment and management tools for players and teams, DreamTeam is working on developing coaching and analytics tools to help track performance, and manage the team, media tools to measure media reach, sponsorship and advertising tools to target marketing efforts, and a marketplace for brands and players to find each other.
The Future of Esports is Bright and Blockchain Will Shine
Esports is still growing and is expected to earn over $1.6 billion in revenue by 2021 with the majority of it being from brand investments. In 2017, Riot Games and Activision Blizzard successfully implemented a permanent franchising system, which will likely lead to increased interest from investors who are used to this kind of format (major sports leagues in the US rely on franchising, too). Brands, both endemic and non-endemic, are already entering the space with various kinds of deals — as well as media and telecom companies (in 2017, Verizon partnered with NFL to stream in-market and national games on mobile phones).
Esports fans are young and highly engaged, so it’s no surprise that a projected 580 million viewers will watch esports three years from now. The advantage of esports for blockchain implementation is that its audience is tech-savvy and is likely to adapt to new technologies much faster. The blockchain is likely to find its way in esports, the question is, in what form. Apart from projects working on a whole new ecosystem (such as DreamTeam), there are those trying to leverage the benefits of the blockchain for particular tasks, such as decentralizing tournaments and prize distributions, trading in-game goods, and increasing the efficiency of the network through unused bandwidth sharing. Though it’s hard to predict whether these kinds of projects will thrive in the future, the companies focused on covering all aspects of esports life are the most likely to shine the brightest.
About DreamTeam:
DreamTeam — Infrastructure platform and payment gateway for esports and gaming.
DreamTeam is the ultimate teambuilding and skill-growing platform that solves problems for hundreds of millions of gamers who want to find teammates, improve skills, manage teams, and earn money. And with the unlocking of blockchain and smart contract technologies, DreamTeam gives esports enthusiasts an opportunity to earn money by building a one-of-a-kind payment gateway for players, teams, tournaments, and sponsors.
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For more information on DreamTeam Token, please visit https://token.dreamteam.gg
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