In our posts earlier in the year about esports (and here and here), we argued that esports have done a tremendous job of attracting viewers, but now the challenge is to attract sponsors willing to pay for that audience.  Our belief is that eventually esports will attract those advertisers, and it needs them to generate revenue to support the growing scene.

We wanted to update our thesis here. This post was catalyzed by a few sources. First, we read an interview with the head of publishing for our favorite mobile esports title, Vainglory. Scroll down a bit and he mentions an interesting statistic – that the most viewed esports event (the League of Legends Worlds Championships) generates a third of the audience of the Superbowl but only 1/20th of the economics. We can back up some of his stats, and believe he is right in his thesis. Then ESPN aired an episode of its esports podcast that touched on a similar theme, about the changing sponsor ecosystem for esports. (If you care about esports, you really need to be following ESPN’s team.) Most recently, we had a conversation with someone familiar with the vibrant China esports scene who had similar questions. And all the while, there is a growing list of anecdotal evidence that major US advertisers are dipping ever more toes into esports.

As far as we can tell, the industry is in a bit of a developing stasis field. US advertisers are aware of esports, but are still unsure about how and how much to commit. They seem to all be sponsoring individual events, a championship series here, a team there, but no broad embrace. Their hesitation is understandable. Esports is still a new and in many ways immature industry. While the growth of franchising (especially by Riot Games NA LCS and Blizzard’s Overwatch League) has brought a new wave of capital and management into the industry, those efforts have barely begun. Moreover, the violent nature of gaming, not to mention the violent nature of gaming chat, as well as a endless array of games and shifting consumer interests present meaningful obstacles to successful sponsorship strategies.

By contrast, in Asia, the industry is much more mature. Brands in Japan, Korea and most importantly China, are investing heavily in esports marketing. That being said, many of these advertisers are new to all forms of marketing, not just esports marketing but brand building more generally.

The reality is that there are two major markets for esports – China and the US. The other markets are either relatively small (i.e. Korea) or highly fragmented (i.e. Europe). In China, the brands seem to be willing to advertise on esports, but still have a lot to learn about advertising in general. By contrast, in the US, the world’s best marketers are struggling to learn esports. Of course, we are generalizing across hundreds of teams and companies, but the supply/demand mismatch remains a reality.

There are many ways that this could play out, ranging from the optimistic ‘everything will just work out’ to the pessimistic ‘esports will just implode’. Our view is that neither of those are likely, instead we see two more likely paths forward.

First, as the industry grows, the market will move companies to a more reasonable balance. US advertisers will find their sweet spots, perhaps by adopting Asian marketing tactics, or discovering their own. In this scenario, things do not exactly ‘just work out’, but through fits and starts we start to see a lot more advertising pouring into esports.

However, there is another potential scenario. esports may just develop on a much less advertising-intensive path. There will still be ample ad dollars applied here, but it may end up taking a very long time for League’s Worlds to match the Super Bowl for ad revenue.  For this to hold true, it is important to remember that the whole broadcast video market is undergoing tremendous change. Super Bowl ad revenues have been going up for forty years almost interrupted. That may change. It is possible that esports develops along wholly ‘modern’ or digital dimensions. The industry may end up casting a far wider net for revenue, a scenario with a long tail of gamers, streamers and digital ads. Broadcast TV revenues are clearly staring down a whole new model, esports may beat them to that model.

We do not see this a bad or pessimistic scenario, just one which requires a different approach and set of expectations in the near term.

Either way, we are increasingly positive on the trend for ad revenues coming to esports. It is just a matter of time before we start to see some major sponsorship deals announced, and for brands to begin taking a more holistic strategy to esports advertising.