Fuel for esports’ revenue engine

Esports organizations are expanding the boundaries of sponsorable assets, ranging from content to facilities. But a host of restrictions are limiting activation for partners in new categories.

By Trent Murray and Tobias Seck
100 Thieves COO John Robinson and 100 Thieves CEO Matt "Nadeshot" Haag100 Thieves

Sponsorship remains the overwhelming majority of esports industry revenue in 2021. While some analysts have envisioned a world where esports adopts a media rights-focused model like traditional franchised sports, the reality is that exclusive broadcast deals have been largely phased out and linear television deals are still few and far between. According to Newzoo’s 2021 Global Esports and Live-Streaming Market Report, sponsorships will account for $641 million of the industry’s $1.08 billion in revenue. The next largest category will be media rights at less than $200 million.

 

With so much of the esports industry’s success relying on sponsorships, organizations are evolving their partnership strategies while monitoring current trends, staying mindful of the challenges esports teams face in securing high-value partners.

The state of esports sponsorships

Looking across the esports industry, there is one core tenet of nearly every sponsorship deal: content. Nearly every relevant esports organization has signed multiple content creators and Twitch streamers in addition to its competitive teams in order to produce video and livestreamed content that can be leveraged for sponsorship activations. For example, 100 Thieves has integrated its partner Cash App into a number of its YouTube videos, including making the brand its official sponsor for the podcast hosted by its CEO Matt “Nadeshot” Haag.

While content creation has been the norm in esports sponsorships for some time, organizations have recently developed additional assets to activate against. One such asset that has grown in popularity amid the COVID-19 pandemic is organization-run esports tournaments. The loss of in-person events affected Call of Duty League teams particularly harshly as they had positioned many of their brand deals around their home venue host weekends. Without these in-person assets, the Wilf family-backed Minnesota Rokkr began hosting online tournaments for Call of Duty Warzone, signing a deal with Crocs as a sponsor for these events. Similarly, Team Liquid provided new value to its long-term partner Jersey Mike’s by making the brand the presenting partner of its official North American qualifier tournament for Teamfight Tactics.

“There’s an enormous number of sponsorable assets, they generate a ton of impressions, there’s multiple hits over the course of those events. Especially for brands that are new to esports, they’re relatively easy to do a test case with,” said Version1 and Minnesota Rokkr COO Brett Diamond. “In a lot of ways, it’s almost a hybrid of an event sponsorship and an influencer sponsorship.”

Team Liquid was also at the forefront of another sponsorship trend, facility naming rights. Last year, the organization opened a 10,000-square-foot European headquarters in Utrecht, Amsterdam, and used the opportunity to expand the naming-rights deal it had with Alienware for its Los Angeles facility to include the new location.

When 100 Thieves established its new headquarters in Los Angeles in January 2020, the organization also expanded its deal with Cash App by naming the 15,000-square-foot facility the Cash App Compound. The headquarters houses all of 100 Thieves’ day-to-day operations including apparel design, esports training, streaming pods, editing bays, a retail space, and more.

The aim of the Cash App Compound differs somewhat from other facilities deals in esports. Where most are positioned as training facilities aiming to equip their players with the resources to perform at their peak, 100 Thieves aimed to build the “cultural center of gaming.” The facility provides training resources to its teams, but it also serves as a central hub for all of the organization’s various content efforts and activations.

“We had intentionally scoped this as this virtuous loop,” said 100 Thieves CRO Matty Lee. “We have the compound entitlement, and now we need to program the compound. … Cash App’s other investments all funnel through the shell and the engine that we’ve built that is the Cash App Compound.”

Texas-based Complexity Gaming has found success in leveraging its facility, not only selling naming rights for the building to GameStop, but also making office chair partner Herman Miller the title partner of a segment of the facility, the Herman Miller Innovation Lab. The organization’s recent deal with Miller Lite also brought along the Miller Lite Player Lounge last October.

The competition side of esports has also seen an uptick in sponsor integration. Riot Games’ first in-person Valorant tournament — the VCT Stage 2 Masters in Reykjavík, Iceland, from May 24-30 — saw nearly every broadcast segment presented by a brand partner. Regional tournaments are also seeing renewed sponsor interest such as BMW’s recent sponsorship of Brazilian Fortnite event Flakes Power Cup. Perhaps the most significant advancement in regional competition partnerships was the sale of the naming rights of Australia’s League of Legends Circuit Oceania to meal delivery app DoorDash.

Esports companies are finding new ways to integrate sponsors into their facilities, events and content. More non-endemic brands are engaging with the esports space than ever before. The industry has moved beyond logo placement and rotating logo carousels to create deeper connections between organizations and their partners with a focus on providing additional value to their audience. — T.M.

Riot Games’ rules kept cryptocurrentcy exchange FTX branding off of TSM jerseys during League of Legends’ LCS Summer Split in July. Colin Young-Wolff / Riot Games via ESPAT

The challenges of new categories

For both esports competition organizers and organizations, sponsorships make up the majority of revenue as Newzoo forecasts sponsorships to contribute more than 60% of total esports revenue in 2021. The importance of sponsorship revenue is underlined by its high-margin nature.

However, esports organizations and league/tournament organizers face obstacles in activating sponsorships due to the global yet fragmented nature of esports. Most major esports tournaments are designed to cater to a global audience; consequently, their organizers aim to create a live experience and broadcast suitable for all major cultures, demographics and political beliefs. Most game developers and publishers make a point of not associating their games with political, religious or general societal issues. Therefore, the majority of competition organizers and game developers have created sponsorship regulations and issued prohibited sponsor and advertiser lists. Additionally, local laws and regulations, and guidelines issued by broadcasting stations, limit which sponsors can be activated.

Longtime Team Liquid sponsor Jersey Mike’s saw new value by presenting the organization’s Teamfight Tactics Liquid Galaxy qualifier tournament in 2020.Twitter @TeamLiquid

A glance into the rulebooks of two of the major franchised esports leagues in the United States, the League of Legends Championship Series (LCS) and the Call of Duty League (CDL), reveal that primarily brands attached to products and services that could be deemed morally questionable and non-youth appropriate are banned from appearing as team sponsors. Additionally, first-party league and tournament organizers — an organizer that is also the developer/publisher of the game played — prohibited their competitors from sponsoring any participants.

The prohibited sponsor and advertiser list of the LCS includes:

» Riot Games’ competitors

» Gambling, sportsbooks and casinos

» Prescription drugs and non-over-the-counter medication

» Fantasy esports operators

» Firearms, pornography, and tobacco and alcohol products

» Cryptocurrencies

» Political campaigns, and charities endorsing religious or political positions

The 15,000-square-foot Cash App Compound is home to 100 Thieves in Los Angeles, including operations for esports training, apparel design, and streaming content.100 Thieves

As a result, the $210 million, 10-year naming rights deal between cryptocurrency exchange FTX and esports organization TSM (see story, Page 20), while approved by Riot Games, cannot be activated in North American League of Legends or Valorant competitions. Accordingly, in its competitions the sponsor won’t be represented on TSM’s jersey, nor will the new TSM FTX name be used.

A similar list is provided by Activision Blizzard for its Call of Duty esports series, which prohibits teams being sponsored by brands that are Activision competitors; game distribution service account selling, sharing or trading websites; drugs (legal and illegal); tobacco and vaping products; pornography, sexual or adult-oriented products or services; gambling; firearms/weapons; and political candidates. Activision Blizzard also outlined “reserved” categories of sponsors that must be approved by the company such as video game platforms; energy drinks, soft drinks and water; payment services; military; casinos; beer, wine, cider and other malt beverages; and computer monitors and CPUs.

Although those rules are child safety conscious, it should be noted that more than 70% of the U.S. audience of esports enthusiasts is 21 years or older, while more than a third is older than 36, according to Newzoo’s latest yearly syndicated Games & Esports survey. To directly address the interests of those demographics, several third-party esports competition organizers — especially ones organizing competitions around mature-rated games such as Counter-Strike — are more lenient with their rules regarding adult-themed sponsors such as casinos, gambling and betting services, and alcohol brands.

Just like in traditional sports, tobacco advertising, promotion or sponsorship is generally prohibited in esports under the World Health Organization Framework Convention on Tobacco Control.

Activision Blizzard and Riot Games did not respond to multiple requests for comments on possible future changes to its rules related to new and emerging sponsorship categories. — T.S.

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