Photo by: Anthony Brolin

From the business perspective, premiere esport tournaments started off as a marketing platform. Whether it’s by the publishers looking to sell more copies of their game, or third party tournament organizers (TOs) trying to monetize their audience through advertising deals. The publishers have found themselves with the best conversion rates, since the product advertised and advertising is one and the same. Companies like Riot Games could afford to dump hundreds of millions of dollars into their league, knowing it is by design the most effective way to market their game. But what about the other parties involved? How profitable is it to run an esports organization?

In order to make a profit running a team, you rely on advertisers and investors. Most teams raise money in order to afford to pay off artificially inflated player salaries, operation costs, or slot buyouts. As of writing this article there are no endemic esports organizations, that take part in a franchised league of a major esports title (LCS, LEC, CDL, OWL), without outsider investment. In order to stay in the game teams are pressured to burn through money quicker than they can manage. Hoping they can stay at the top of the game until the industry shifts in their favor. If you want to field the tier 1 talent, you need to be able to afford it. Taking on investment is this industry is imperative. Raising money is the only way to go, if you want to be able to sustain costs involving acquiring top pros. But by the same token, the only organizations that are currently making profit are the ones who are getting rid of their top players. Penta Esports held on to the best roster in Rainbow Six: Siege until the game started to become relevant, and more money began to flow into the system. In the end they ended up selling all five of their players to G2 for 2 million dollars. In CS:GO, Aleksib of ENCE reportedly turned down a million dollar deal from Complexity in order to be transferred to OG for an unknown price. Players like Niko, Felps, Coldzera, NBK, Shox all carried 6 figure price tags and were bought out by other organizations. Teams that scout talent in order to trade it off are the ones who profit off of the ridiculous amount of cash being poured into the industry from the outside. They profit off of the inflated buyout numbers by being on the receiving end of the transaction. These teams operate in a way talent agencies would.

Because of how inflated the numbers are in this game, in order to make a profit you need a high revenue stream. As of right now teams make money solely through advertising deals and merchandise sales. Teams like Liquid, Astralis, G2, or OG can boast high numbers in both of these areas. Luxury of being the best in your field. But even these insanely successful organizations need investment money in order to survive. Even though they get to have the best deals in the industry it still doesn’t offset the even higher cost of operations and player salaries. By now almost all of the tier 1 teams have their own merchandise line. But there’s only one organization whose main objective it is to make their main income source. 100Thieves started off as a clothing brand that quickly turned to the world of esports as a way to market their products. The organization makes internet content involving their esport teams and signed creators as a slow-building marketing effort. Their business plan relies on physical product sales, which in turn allows them to make less and more impactful advertising deals. 100Thieves is still a little way down the road when it comes to being able to self-sustain through physical product sales, but it’s slowly getting there.

Business plans that aren’t reliant on advertisers are still few and far between in esports. For now, owners are still incentivised to take advantage of the money pouring into the system. Whether it’s by abusing the high buyouts, or raising the money yourself. It’s a bidding war spiraling out of control. The player salaries are getting higher and higher, and the revenue streams aren’t being taken care of. The industry has reached a stasis point. And as long as the money keeps flowing from the outside, there is no incentive to innovate. There’s no need for proper systems of managing common issues. If we can keep throwing money at our problems, we don’t need business plans that work. We have always found ways to raise money and nothing can ever change that.

At some point this train will run out of steam though. The investments will halt, and the advertising dollars will plummet. The team owners must then make smart decisions in order to persevere. We’re going to have discussions about what’s essential, instead of what’s predicated on false hopes. What should the optimal player salary be? Do we predicate it on future projections or actual value? What is the value a player brings to the company? On what basis do we hire our talent and staff? Are there any expendable positions or divisions within the company? What’s our revenue model? Is it reliable and diversified?

The industry is plagued by many issues that are still left unresolved. Investing in an esports organization is a risk proportionate to how many of those fires are still burning. Finding answers to all of these problems are going to be time consuming and/or costly. There is going to arise a demand for solutions. Selling bandages will suddenly become a whole lot more profitable. Evaluating the staff, hiring decisions, talent scouting, sale and marketing models. All of these areas will be in need of methods that are suited to the esports ecosystem. People and companies who can provide these, and in turn increase the profit of esports organizations in the long term, will be the ones in demand.