The cynic’s guide to esports in 2023
This editorial series examines industry trends across the media, media buying and marketing sectors as 2023 closes and the new year begins. More from the series →
The esports industry is at a crossroads going into 2024.
For many companies in competitive gaming, the past year has been difficult, to say the least. Facing lower-than-anticipated returns on investment, some brands have reduced their spending on esports in favor of stepping up their presences in the broader casual gaming space, throttling the advertiser relationships that have long formed the bedrock of esports teams’ revenue strategies.
In 2023, esports leagues and teams that were once stalwarts of the industry stumbled or collapsed entirely. The Overwatch League is officially over; esports organizations like CLG and FaZe Clan have shut down or been absorbed by other companies; and the League of Legends Championship Series has reduced its number of participating teams from 10 to 8, among other tumultuous changes.
Here’s a recap of some of the esports industry’s biggest challenges over the past 12 months — and how stakeholders in the industry are adapting to tackle them.
A long winter
In 2023, “esports winter” was the buzzword du jour. A play on “crypto winter,” the phrase became a catch-all for a general reduction of cash flow into esports, as well as all the unsavory things that potentially come with that, such as layoffs and mergers.
What esports winter is really describing is an industry-wide inability to meet the expectations that were set a few years ago, when competitive gaming companies told investors that esports represented a revenue opportunity on the level of traditional sports. Since then, it’s become clear that many of the pillars of traditional sports companies’ revenue strategies are either unattainable or not yet developed in esports, including broadcast rights deals and live event ticket sales.
“I think that money is harder to come by. The free-flowing financial world within esports is over,” said Ben Spoont, CEO of the gaming and esports company Misfits. “And it’s now forcing companies to really look in the mirror and course correct their business — otherwise, they’ll go extinct.”
A time for M&A
Given the challenges facing the industry, some esports teams have become depressed assets, making them attractive candidates for acquisition. Despite the public struggles of esports companies, they can be useful acquisition targets for other gaming and esports companies looking to increase their inventory or expand into new titles.
Over the past year, smaller to mid-sized esports organizations such as Version1 have openly sought acquisition partners in a bid to stay afloat. (Version1 successfully merged with G2 Esports on December 5.) G2 Esports CEO Alban Dechelotte expects to see more such M&A deals in esports in the new year — but cautioned that there are few esports orgs left with the scale and war chest necessary to acquire other companies in the space.
“There will be a consolidation, and at the end, there will be 5 to 10 major organizations that will dominate esports globally — probably 5 to 10 teams for reach region or each game everywhere,” Dechelotte said. “But everything in between, the middle class, will probably struggle and disappear.”
That’s not to mention Microsoft’s acquisition of Activision Blizzard, which closed in October following months of regulatory review. Closure of the Overwatch League notwithstanding, Activision Blizzard remains one of the largest operators of esports leagues and titles in the world, and the esports industry is sure to feel the reverberations as Microsoft works its way through the company.
Lifting all boats
With fewer brands and marketers pumping advertising dollars into competitive gaming, all stakeholders in the esports industry have been forced to work more closely together to create a rising tide — including esports orgs, esports leagues and the game developers themselves.
One way esports companies are cross-collaborating is by creating ways for esports teams to benefit from the revenues reaped by the game developers that run the largest esports leagues. Riot Games’ “Valorant” league, for example, requires participating teams to create promotional content and otherwise contribute to the league, but rewards them for their participation with a revenue share.
Riot Games has been open about its goal to develop more revenue share opportunities in all of its esports — part of the company’s bid to make esports into something resembling traditional sports in both scope and potential monetization. Indeed, stakeholders in Riot’s North American “League of Legends” league welcomed the reduction in participating teams, viewing it as an opportunity to increase their cut of the revenue share, according to reporting by industry insider Jacob Wolf.
“Regardless of the circumstance, Riot is trying to help teams navigate the current market. So we’re actively instituting SFR [Sporting Financial Regulations], essentially incentivizing healthy total player salary spend by teams and, in some cases, consolidating leagues or reducing the number of teams competing in our leagues,” said Riot president of esports John Needham. “We want teams in our leagues that believe in the future of esports and want to compete at the highest level and will be strong financially and able to be good homes for our players.”
Good among the bad
Esports is in the midst of a winter, but not an ice age. While companies in the space have suffered in general, there are others that have played their cards correctly to better take advantage of the turmoil. NRG’s April acquisition of CLG, for example, allowed the company to secure its first North American “League of Legends” championship ever, allowing it to score new partnerships with brands such as Ford and Kia.
“This year was pretty good,” said NRG CEO Andy Miller. “I thought it would be a disaster, and it wasn’t.”
Still, 2023 has made it clear that many esports organizations are facing an identity crisis. Some teams have doubled down on the competitive gaming focus that brought them to their current sky-high valuations; in November, for example, 100 Thieves spun off its game development and energy drink arms, with the goal of refocusing on esports. Other teams, like Misfits, have moved further away from competition, instead becoming more like agencies designed to shepherd brands and marketers into the gaming world. Going into 2024, more esports organizations will need to decide which side of the coin they are on.
“To this day, I still firmly believe in esports — but the messaging I put out then still holds true today, which is that the timeline in which the return on investment is actually possible is no longer what we once thought it was,” Spoont said. “We had thought that, by now, we would be hitting the promised land, and the truth is we’re probably another 5 to 10 years away from that.”
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