The e-sports business has been facing many and varied challenges in the past year:
- Key sponsors are leaving the business. This is the most important revenue stream for the industry, representing 60% of esports organizations’ total revenue, according to NewZoo. In addition to the failure of crypto company FTX, a big esports sponsor, companies such as BMW and DraftKings are ending their sponsorship activity in the industry in 2023. The Overwatch League lost all of its sponsors ahead of the 2022 season, although this was due more to fallout from a sexism and harassment scandal at publisher Activision Blizzard than industry-wide woes. It should be noted that not all sponsors are bailing on esports; longtime sponsor Porsche recently signed a deal with FaZe Clan, while Santander entered the business as a primary sponsor of major League of Legends competitions in Latin America and Europe.
- Other revenue streams are decreasing. Viewership of esports competitions has been dropping after a spike during the COVID-19 lockdown, meaning deals for broadcasting and streaming are less lucrative and advertising revenues are declining. One of the top tournament circuits, the League of Legends Championship Series, is at a five-year low in viewership, per Esports Charts. Most teams have always operated in the red, but had hoped to be profitable by now; these industry-wide challenges have slowed their progress toward that goal.
- Teams and gaming companies are cutting back. Two top organizations are among those that have reduced the number tournaments they play and/or teams they field. Misfits Gaming Group decided not to enter a team into the League of Legends European Championship in July, selling its slot, while Evil Geniuses shuttered its Defense of the Ancients 2 team in North America. Meanwhile, Riot Games closed down its Wild Rift leagues in 2023, outside of Asia. A dispute with Chinese licensee NetEase shut down Activision Blizzard’s Overwatch 2, World of Warcraft, Diablo, and Hearthstone franchises in that key market at the beginning of this year, ending a 14-year run, at least temporarily.
- Layoffs are on the rise. The challenges outlined here have led some of the key teams and organizations to reduce their employee ranks of late. 100 Thieves was reported to have let go about 30 of its 200 employees last month, including some key executives, after laying off 100 last year, mostly in its content department. Separately, OpTic Gaming also endured layoffs in January, again including some key members of the organization’s leadership, while Team SoloMid also reduced its staff in 2022.
- Investors, including both stockholders and venture capital firms, are increasingly leery. The stock price of FaZe Clan, which is dealing with a number of major financial problems, has plummeted so far that the company is in danger of being delisted from the Nasdaq Exchange. Venture capital backing the industry, which has been on the rise since 2018, according to researchers including Deloitte and Pitchbook, saw declines in 2022 as investors got tired of waiting for the organizations in their portfolios to achieve profitability.
- Player salaries are declining and quality-of-life issues continue. Teams have been willing to pay significantly to entice the best players, and the top performers can make in the millions of dollars per year. But the issues listed here are leading to worries about players’ declining earnings power, especially as venture capital and sponsorship dollars shrink. And the industry’s longstanding reputation for sexism and harassment does not seem to be improving much, leading some high-profile players and content creators to take a break or quit the business.
Licensing and collaboration deals in the esports industry—which account for a relatively small part of the revenue picture for esports compared to traditional sports operations—are bound to be impacted by these challenges. But, while the pace of deals is slowing somewhat, esports companies continue to announce agreements for branded merchandise, with both specialist and mainstream partners. Some examples from the past year, all focused on apparel, have included Team Vitality pairing with Hummel, XSET signing a deal with Mastermind Japan, Fnatic and online fashion retailer ASOS collaborating, and BLAST partnering with Nike, among others.
See some of our past coverage of esports here.
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