Industry Report
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Esports INDUSTRY REPORT Pillsbury Winthrop Shaw Pittman LLP | Esports Industry Report pillsburylaw.com | 1 Welcome to Pillsbury’s Esports Industry Report. We began developing this report before COVID-19. Then, esports was a burgeoning sector with exponential year-over-year growth. The commercial landscape was ripe with opportunities for all stakeholders in the esports ecosystem—from developers and publishers to tournament organizers, from corporate brands and media companies to players. Sponsorships and advertising drove esports revenues, with media rights predicted to eventually eclipse those streams and become the fastest growing esports revenue source. Now, even in the midst of a global pandemic, esports is still projected to grow. Shelter-in-place orders have bolstered user engagement. Esports enthusiasts around the world are consuming more content with their extra free time, and new fans are coming on board as traditional sports events have been cancelled. This is not to say that COVID-19 has not impacted esports. Cancellation of live esports events has had the most pronounced effect on the industry, as they contribute significantly to the allure of the esports experience. Despite these challenges, the growth outlook for esports is positive, and monetization opportunities abound across multiple revenue streams. This report covers the outlook for commercial opportunities and potential revenue streams from various stakeholders’ perspectives within the esports ecosystem. As the industry matures in terms of sustainable business models, global audiences, sophisticated advertisers and savvy media companies, it will continue to offer an open playing field full of opportunity. Enjoy. Justin D. Hovey, Leader, Technology Industry, Esports Callie A. Bjurstrom, Leader, Intellectual Property, Esports Disclaimer Text? © 2020 Pillsbury Winthrop Shaw Pittman LLP. All Rights Reserved. pillsburylaw.com Contents Executive Summary 4 The Esports Ecosystem 6 The Esports Revenue Landscape 10 Sponsorships 12 Executive Summary Sponsorship deals underpin the $1 billion+ members are under the age of 35—one of the esports sector as traditional sports most important and profitable demographics for organizations take notice. brand awareness. Traditionally, this audience was not easily reached through conventional The growing size and global nature of the advertising campaigns, but in esports, esports audience has allowed sponsorship sponsorships have become a significant way and media rights deals to serve as the main for brands to directly engage with a segment drivers of the sector’s revenue. The more the that may previously have been an unlikely audience has grown, the bigger the deals have target. Moreover, when COVID-19 shut down become. Before COVID-19, we anticipated this traditional sports leagues, fans worldwide were trend would continue along with viewership left without alternatives and discovered esports expansion, but as with many deals across as an alternative viewing option. a variety of industries, some sponsorship agreements were paused. Established traditional sports organizations are increasingly acknowledging the sector’s The esports sector is worth an estimated $1.1 popularity and strength with marquee events billion in 2020 and is predicted to grow up like the eNASCAR Coca-Cola iRacing Series to 26.7 percent year over year.1 Most of this (which drew the largest-ever TV audience for revenue is being generated by traditional an esports event, according to NBC Sports), sponsorship deals. U.S. Soccer’s participation in the inaugural FIFA Nearly half a billion people worldwide consume eNations Cup, the NBA’s 2K Esports League esports content, and most of those audience and the newly launched Ferrari Esports Series. Pillsbury Winthrop Shaw Pittman LLP | Esports Industry Report pillsburylaw.com | 4 While stadiums and arenas sit empty, esports Publishers enjoy a strong position in the esports has filled the entertainment void for many, and sector because they own the foundational traditional sports brands are recognizing the intellectual property driving the industry: growth opportunity. the games. However, teams and tournament organizers are in a position to offer potential Available data indicate the esports audience partner brands significant commercial will continue to grow year over year, and that opportunities. While some tournaments are growth is expected to heighten brand interest under the control of publishers, tournament in sponsorship opportunities. As in traditional organizers such as ESL and Flashpoint attract sports markets, media and brand investment sponsorship revenue due to the access they follow audiences, so esports sponsorship provide to a large, engaged and growing revenues are expected to grow in lockstep with audience that is highly desirable to brands and the sector’s global audience. advertisers. Media rights are the next major growth area These tournament organizers stand out as for esports revenue. unique because they specialize in esports and As the esports sector matures, media rights are are well-versed in marketing and monetizing predicted to be the next area of growth. Pre- their products within this unique category. pandemic, major media companies had signed Brands that partner with tournament organizers significant esports deals in multiple territories. can benefit not only from increased recognition, In 2020, to remain competitive in responding to but also from physical and digital product heightened demand, entertainment companies placement during events and exposure to a new across all categories have been challenged to segment of consumers. create new content, and they’re also dusting The development of the media rights market off popular reruns to leverage resources and also presents revenue opportunities for esports attract new subscribers. The esports sector is teams and leagues as they become more visible exceptionally well-positioned to capitalize on through various media channels that are not this trend as greater media exposure facilitates available to traditional sports organizations, like continued growth. the massively popular Twitch. Publishers control the sector, but teams and tournaments offer valuable commercial opportunities. Pillsbury Winthrop Shaw Pittman LLP | Esports Industry Report pillsburylaw.com | 5 The Esports Ecosystem What Is Esports? merchandise sales, Viewers consumed an Within the broad gaming market, esports/ local event sources average of competitive gaming is the fastest-growing and company shares 2.4 billion segment, with a predicted annual growth rate of competition prize hours of Twitch of 18.3 percent through 2023.2 Pre-COVID, pools. Player-earned content globally in esports events typically comprised professional portions of prize pools 2019. gamers or teams competing in person for prize are excluded. With titles or money in live-streamed tournaments revenue growing by nearly 40 percent in two that are also viewed by a live audience. Like all years, there are significant opportunities for key live entertainment categories, esports has likely stakeholders—publishers, tournaments and forever been changed by the pandemic and will tournament organizers, teams, media partners be required to innovate, leveraging its unique and platforms, and the gamers themselves. digital position, to replace the ROI formerly The Commercial Landscape generated by live tournaments. The sector has become fertile ground for brand Esports’ revenue is estimated to reach investment in reaching this modern, engaged approximately $1.1 billion in 2020 and $1.8 billion audience that tends to eschew traditional by the end of 2022.3 advertising. In 2019, viewers consumed an Esports revenue is Revenue typically average of 2.4 billion hours of content on Twitch, expected to grow to includes sponsorship esports’ most popular streaming platform. Game approximately $1.8 proceeds, shares publishers, players and brands are contributing billion in 2022. of league revenue, to taking esports to the next level, and growth Pillsbury Winthrop Shaw Pittman LLP | Esports Industry Report pillsburylaw.com | 6 opportunities like media rights arrangements would motivate a publisher to abandon its legal abound in this digital landscape. monopoly on a particular title. Publishers Tournaments & Tournament Organizers Publishers are the most powerful group in the Though many tournaments, like Riot Games’ esports ecosystem, as they ultimately control Fortnite World Cup and Valve’s annual Dota 2 the intellectual property that underpins most tournament, The International, are established esports endeavors—the games themselves. by game publishers themselves, other organizers Tournament organizers and teams often must also can develop tournaments under license from obtain licenses from publishers to develop and game publishers. One of the largest such entities compete in lucrative tournaments based around is Cologne, Germany-based Modern Times Group, the publishers’ game titles. As a practical owner of tournament organizers DreamHack matter, that means even if a publisher does not and the Electronic Sports League (ESL). With operate its own tournament, it can generate 2019 combined revenues of $172 million, these licensing revenue from these fees. are two of the leading esports organizers in the world.4 ESL hosts events for Dota 2 and CS:GO While some stakeholders are keen for esports and has attracted sponsors major sponsors like to develop governance structures similar to Intel and DHL. In addition to Riot Games,