The fact that most esports organizations are losing money seems like a poorly kept secret of the esports industry. But the truth in, investors are well aware.
Esports Organizations Keep Losing Money
The esports industry is massive, with projections claiming it’s worth roughly $138 billion. And that’s a projection for 2018. It’s 2020 now and all trends are still in an upward spiral, meaning the esports industry must be worth a lot more.
Everything keeps growing in the esports industry, including viewership, revenue streams, investment money, prize pools, and the revenue itself. Esports organizations are seemingly well-off. They are investing more money in their staff than ever before, hoping for well-needed silverware to promote their organization and build a proper brand.
The staff numbers are growing, too. What started out as a bunch of players and a coach evolved into a complex team featuring psychologists, nutritionists, fitness trainers, managers and so on. Not to mention the fact they’re constantly on the run with esports events being hosted all around the globe.
Combine the constant salary expenses with ticket prices, hotel rentals, equipment, nutritionists, personal trainers, and you’ll realize there’s massive money in esports. Massive expenses, to be more precise.
All this takes money, but apparently esports organizations are earning plenty of it to keep their finances in check… Or, are they?
How Do Esports Organizations Make Money?
Let’s make one thing clear – the esports industry is overinflated. Experts are convinced even the biggest esports organizations are overvalued and are expecting a market correction to be on the horizon. So, no matter how much money they earn, it will always be too low considering their overall value.
But, how do esports organizations make money in the first place?
Well, contrary to popular belief (which suggests prize pools are the biggest portion of teams’ revenues), esports organizations make the most money via sponsorship deals and advertisement. It’s projected that roughly 70 to 80% of esports organizations’ revenues is coming from sponsorships/advertisements, which just goes to show you the importance of esports investors.
The best way to get even more money through sponsorship deals is to build a massive esports community. Massive communities, exposure, and titles are what draws in more VCs, and esports organizations are still at a phase in which they need the capital.
The remaining 20% to 30% of revenue comes from the sales of merch, media rights and tickets. While these aren’t exactly sky-high numbers, they can still cover some of the growing expenses of leading a top-tier esports organization.
Why Are Esports Organizations Losing Money?
Negative cash flow seems to be the most notable reason why esports organizations seem to be in danger. Their expenses are pretty high, and it seems as though even the biggest esports organizations have problems with balancing out their revenues and expenses. The latter still reigns superior, which will become a serious problem once the investors are out of the picture.
The never-ending increase in players’ salaries is a valid reason, too. Not just that, but the general expansion of the workforce in the field. As mentioned above, it was only players and coaches at first. Now, we’re talking about sophisticated teams of esports experts, which are needed for success in this highly competitive niche.
But the biggest reason why esports organizations are still losing money is long-term insecurity. Esports titles are prone to dynamic changes, some of which can greatly alter the success of a given title, and orgs can never know when their endeavor is going to be cut off. That, combined with the fear of viewership stagnation/decrease, makes up for poor, inconsistent numbers.
Even though it’s growing, esports viewership is still not as high as it should be for esports organizations to make a profit through sponsorship deals, media rights, and advertisements. The projections are positive, and the numbers will keep on rising, just in timer for them to catch up and balance out the expenses.
The fact that esports organizations are losing money is nothing new. It’s been that way for a while already, and we shouldn’t go around raising red flags all of a sudden. Investors that have their money in esports are well-aware that investing in esports is investing far into the future. We’re not talking about quick ROIs here. We’re talking roughly a decade or so… and luckily, the way esports keeps developing, it might come even sooner!