By Irwin Kishner and Adam Unger
The year 2019 has been a memorable one for the ever evolving global esports market. For the first time global esports exceeded the billion-dollar revenue mark, with revenues expected to exceed $1.1 billion dollars. You would be hard pressed to tell the difference between the crowd at a championship esports match and one at a FIFA World Cup Soccer match or even the Cameron Crazies at a Duke vs. University of North Carolina college basketball game. Esports is evolving at such a rapid pace that people working the in industry do not really know what the industry may look like or what their jobs may look like 5 or 10 years down the road. One aspect of the esports industry that is rapidly evolving is sponsorships, which has been the highest -grossing esports revenue stream in 2019 (expected to generate worldwide revenues of $456 million dollars).
For a long time, the sponsorship market in esports was akin to the wild wild west. Originally, game publishers were not set up to produce esports events for broadcast, so they would have to go out and work with third parties to help produce the actual events where the esports games would be played. Fast forward to today, where companies like Activision Blizzard not only make the game, but also create the league in which the game is played, produce the live game events and broadcast those live events on applications such as Twitch. These developments, coupled with the growing popularity of the sport, has made the esports landscape that much more attractive for sponsors to build long term symbiotic relationships with companies such as Activision Blizzard. For instance, Activision Blizzard’s Overwatch League, now in its second season, has built up a significant sponsorship business forming partnerships with marquee brands such as Coca Cola, T-Mobile, Toyota and State Farm.
One of the aspects of sponsorship in esports that makes it unique is the streaming and broadcast structure. In a sport like professional football, broadcast companies such as NBC, CBS, FOX and ESPN own the media rights, and therefore are in control of selling sponsorship space, during their broadcast of NFL games. As a result, when Toyota advertises during an NFL football game, it is the content distributor, such as CBS, and not the NFL that is selling that ad space and receiving the revenue. However, in esports the content is mostly streamed online through a content distributor without a rights deal in place. Therefore, most content distributors do not own or manage sponsorship assets. Rather, the game creators (such as Activision Blizzard) own these rights and are in control of selling sponsorship space during the broadcast of a competition. And while esports content distributors can sell traditional sponsorship space around the event, the effectiveness of these ads can be limited because of heavy ad blocker and premium subscriptions privileges that allow users to block ads. The esports industry is operating in this manner because most of the companies that broadcast esports events are not set up to produce esports matches in the way that CBS can produce an NFL game. However, in the coming years it is possible that esports content distributors will become capable of producing esports matches and will be willing to pay up in order to control media rights during the broadcast.
Additionally, the speed at which the esports industry evolves effects the structuring of sponsorship contracts between game creators and sponsors. Whenever a sponsor becomes involved with an esports game or league, it is difficult for them to be certain as to how long that game or league will stay relevant. Will a new, more popular game come out? Will new technology be developed that makes the game obsolete? These are all challenges that must be negotiated between the game creator and sponsor. Some sponsors are reacting to this by asking for terms in their contracts that allow the sponsor to have preferential treatment and get involved in any new game or new technology that the game producer has coming down the pike in the next few years.
As one can see, predicting how esports will evolve in the coming years is difficult. In terms of sponsorship, it is likely that more non-endemic brands (brands that produce products that are not directly related to esports – think of a company that produces soap as opposed to one that produces computer screens) will want to become involved in sponsoring esports events and leagues. Additionally, brands that sponsor an esports league may want to get access to individual players as well, especially as more players develop a popular following.
It is hard to imagine this now, but there may come a time when people care more about the results of their virtual reality Super Bowl than the actual Super Bowl itself. Only time will tell how close our world moves towards READY PLAYER ONE[1].
[1] Ready Player One is a Steven Spielberg science fiction action adventure about an expansive virtual reality universe.
