Editor’s note: This story is revised from the print edition.
Last year, Nielsen’s brand clients were clamoring for more information about esports. We’re intrigued, they said, but all the data is coming from the video game industry, it’s different in every meeting and we can’t tell hype from reality.
“It was just under-developed,” said Nicole Pike, managing director of Nielsen Esports, a new business line launched last August. “The industry happened so quickly, and grew and grew, and there was no time for standards to be created.”
In response, Nielsen invested in esports and convened a task force of senior thinkers from esports properties and brands to tackle the problem. Nine months later, though, the corporations that have made up the non-endemic sponsorship backbone of the American sports industry for generations remain hesitant to fully commit to esports.
It’s not that deals aren’t getting done. Scores of brands are kicking the tires, and not a week goes by without someone else striking a deal of one variety or another with a team or league. But by and large, the action has been concentrated in the categories with the most obvious interest in young men, and both sellers and buyers say it’s more difficult to get deals to the finish line than they’d like.
Even the most interested brands are held up by concerns over the reliability of streaming audience data and how to measure returns, how to activate in a space that still mostly lives online, fair pricing and confusion over all the options. To boot, it’s also a heavy buyer’s market.
Esports enthusiasts insist that many of these factors are simply a reflection of youth, and say it will take years to fully mature. “I think esports is in a good spot right now,” said Chris Mann, senior director at Endeavor who represents T-Mobile in esports. “It is where it should be. It’s growing still, and the infrastructure still needs to mature and evolve.”
But there is some sense of urgency. Investors have poured into esports, driving up valuations for team organizations beyond $150 million in some cases, doubling or tripling in value in a few years. But those teams are generally not yet profitable, and corporate sponsorships make up 50 to 80 percent of the top line since there’s not much of ticketing, concessions, merchandise or media revenue to go around yet.
“We’re still waiting to see the revenue catch up with the hype,” said Matt Hill, senior vice president of global sports and entertainment consulting at GMR Marketing.
Some of this can be explained by simple caution. Esports and gaming fans are notoriously sensitive to clunky advertising and deeply protective of their community, which they take credit for building organically before the corporations arrived. Brands are well aware they only get one chance to make a first impression, and consulting agencies spend a huge amount of their time simply educating clients with no deal in sight.
But the slog of sponsorship sales stands in stark contrast to the rapid escalation of investment dollars into the space and media reports about the tantalizing esports fan base.
“We as an industry have hyped up esports a lot,” said Brian Gordon, CEO of Engine Shop, which has quickly built an esports and gaming consulting shop through acquisitions. “I think we probably have been spending so much attention on it for a year, year and a half, that it feels bigger than it actually is from an overall consumer perspective.”
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Esports has a problem with audience measurement, at least partially self-inflicted by hype machines quick to abuse misleading streaming metrics. Credulous media outlets have reported that Riot Games’ League of Legends World Championship had more viewers than the Stanley Cup Final or the NBA Finals, based on comparisons between the nearly useless “total unique visitors” metric and average-minute audiences for the traditional sports compiled by Nielsen.
“One of the big things that’s a bit of a challenge right now is we do not have a uniform data set right now,” said Rishi Chadha, head of gaming content partnerships at Twitter, which recently launched a service to sell sponsorships under a revenue-sharing agreement with teams. “Right now everyone’s using different pieces of data that’s complementary to the story they’re trying to tell.”
Nielsen’s advisory board’s mission is to create something close to a TV rating for esports broadcasts by compiling data from major streamers such as Twitch, Facebook and YouTube and other metrics specific to brand clients.
Activision Blizzard, the operator of the Overwatch League, is transitioning to an average-minute audience number with help from Nielsen, Chief Revenue Officer Brandon Snow said, part of its ongoing attempt to craft its entire offering as something familiar to sports marketing.
Even if one can agree on how many people are watching, the geography is another challenge. One of esports’ greatest strengths as a growth property — its global appeal — is also a challenge for marketers with a U.S.-only budget. Once the large numbers start getting sliced up by market and game, they get much smaller.
“From esports’ perspective, we have a product that’s global, and that’s fantastic,” said Nathan Lindberg, director of esports sponsorship sales for Twitch, the Amazon-owned streaming platform that enters into revenue-sharing sales partnerships with Rocket League and other esports publishers. “But we don’t always have brands that are global, or brands that can work globally.”
Esports properties also generally suffer from a lack of a fully developed set of sponsorship assets for brands that want to use sponsorships to drive sales, not just awareness.
Outside of occasional tentpole events, esports games are held in “arenas” that are more production studios than live sport venues. The studios for the Overwatch League, North American League of Legends Championship Series, NBA 2K League and ELeague all seat fewer than 500 people. That means there’s limited opportunity for in-person activation or any kind of deeper engagement beyond media.
“If you’re competing in a digital stadium, where are your pouring rights? Where are the opportunities to drive revenue and drive business? They’re not there. And that’s a real problem,” Lindberg said.
Brands that need to increase awareness and affinity among young men may find the digital media buy perfectly appropriate. But the sort of long-term, deeply intertwined relationships from the traditional sports world — think Visa and the Olympics — are difficult to pull off in esports.
“When you look at sponsorships of traditional sports, obviously media is a large component of that, but there’s all of the other promotional, experiential and business-driven activation platforms,” Hill said. “Those don’t exist to the same degree yet in esports. I think until we get there, these investments will be continued to be viewed more, or compared more, to a media buy than to a 360-degree sponsorship investment.”
We’re trying to be ahead of the curve and be a first mover, but we’re not paying for what it’s going to be five, 10, 20 years from now. We’re paying for what it is now. I think sometimes that’s getting lost.
FanAI, a Santa Monica, Calif., startup backed by Courtside Ventures and Bitkraft Esports Ventures (a co-investor in The Esports Observer along with SportsBusiness Journal) aims to fix this problem by using data analytics to make the most of the limited assets.
For instance, FanAI helped Dr Pepper Snapple Group determine that the Dr Pepper brand had the most overlapping social followers with Team SoloMid, a traditional powerhouse in League of Legends. The DreamHack event series is now in active talks with a pet food sponsor because FanAI’s stores of demographic, financial and purchasing data that determined esports fans over-index as pet owners.
“Everything is digital” in esports, FanAI CEO Johannes Waldstein said. “You go to a football stadium, you know one in four people, you maybe know a quarter of the fans. A lot of the older ones are still paying cash. In esports you get the data and people are used to that trade-off.”
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Many buy-side consultants say the deals are overpriced, and properties have had to learn hard lessons. Buy-side consultants and brand marketers say the flood of outside capital into esports, at valuations based on the promise of returns at least five years away, also has driven up prices of sponsorships. But unlike the asset buyers, sponsorship buyers want a return now, not in a decade.
“Those guys are betting long term on what the organization is going to be worth, and that’s a long-term play,” Mann said. “The partnership play is what’s happening right now, it’s here in the present. We’re looking at it long term. We’re trying to be ahead of the curve and be a first mover, but we’re not paying for what it’s going to be five, 10, 20 years from now. We’re paying for what it is now. I think sometimes that’s getting lost.”
The esports audience is unusually engaged, watching far more esports or gaming content on a daily basis than sports fans watch live sports. But it’s still small by major sports standards. Dutch research shop Newzoo says there’s 165 million esports enthusiasts worldwide, but only 23 million in the U.S., which is then further divided among several major games and dozens of events.
According to one buy-side consultant who previously worked with a property, the high-end price of a sponsorship with a tier-one, diversified esports team has grown from $300,000 four years ago to seven figures today, despite actual viewership growing much more modestly during that time. Of course, the sources noted, there’s no shame in a moonshot, but given the hesitation already present in the market, many negotiations never get off the ground.
Most tier-one team organizations get between $200,000 and $750,000 for an annual deal covering all of its properties. The most expensive league-level deals, with Overwatch League, are priced in the mid-seven figures.
It’s also a buyer’s market, given the proliferation of options for would-be esports sponsors and the intense demand to grow revenue imposed by the big-money acquisitions of the top teams.
Issa Sawabini, partner at the youth-focused brand consultancy Fuse, said prices need to come down.
“For more brands to get on board, there needs to be more entry-level pricing and options for brands that can kind of get in, and walk before they run, and grow into these relationships,” Sawabini said. “The starting point has got to come down, and lots of properties have realized that.”
Of course, there are plenty of non-endemic brands already involved. The properties that have been the most successful have been creative in building 360-degree marketing engagement opportunities without waiting for true “home games,” aggregating assets into portfolios that give buyers options and scale, and crafting their business to resemble those from traditional sports.
Overwatch League, run by Activision Blizzard, has signed three league-level non-endemic deals with Toyota, Mondelez’s Sour Patch Kids and T-Mobile. Activision Blizzard’s Snow said Overwatch League is maximizing its appeal by going to market with the full range of rights to the games.
Overwatch hopes to put games in local venues in each franchise city by 2020, which will unlock those additional in-person activations. In the meantime, its teams are creating local watch parties and other in-person opportunities. But through its tight control over all of the game’s intellectual property, it can sell league, team and player activations (see story, Page 13). “The ability to leverage our marks is unique,” Snow said.
Publisher-run leagues’ unusually broad control over their intellectual property may help them sell, but it can be a hindrance to the team organizations, which have fewer revenue lines available to them than publishers and must build revenue to meet new investors’ expectations.
ELeague, the property jointly owned by IMG and Turner Sports, has sold a variety of non-endemic sponsorships during its first two years and currently counts Geico, Boost Mobile and Kellogg’s Cheez-It as partners. Turner Sports’ Seth Ladetsky, who sells ELeague, says Turner’s reputation from its NBA and MLB work helps a lot, as does the linear media inventory it sells. “It’s one piece, but it’s a good piece,” he said. “It matters.”
We very rarely hear no. What we’re most likely to hear is not yet.
ESL, the global third-party tournament operator, can sell rights to online-only tournaments, one-off deals to major events and all-encompassing rights that give companies a chance to hit mass-consumption and elite events, said Mark Cohen, senior vice president of global brand partnerships.
An outlier to the gradually improving picture with the major properties is Riot Games, publisher of League of Legends. It’s only sold a single league-level deal, to State Farm, in its North American League of Legends Championship Series. The LCS enjoys the largest and most durable audience of any esports property in the world.
Insiders familiar with Riot say the company’s sales team is understaffed. But more importantly, it simply lacks the need to generate sponsorship revenue because League of Legends generates more than $1.6 billion annually in in-game purchases and has the luxury of being choosy with brands. Riot Games declined to comment.
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Despite the recognition of hard work ahead, the industry is confident that the big sponsors will eventually come.
“They’re all paying attention to esports now,” said Ryan Musselman, senior vice president of Infinite Esports, the holding company funded by Texas Rangers co-owner Neil Leibman that includes OpTic Gaming, the Overwatch League’s Houston Outlaws and other assets. “Whereas a couple years back, you had to knock down the door and it really didn’t go anywhere. Now you’re having meetings that end with some sort of next step.”
A significant part of unlocking esports sponsorship is simply aligning the business practices of sponsors and the video game industry. Brands that were already involved in casual gaming treat it as a lifestyle business, closer to live music than sports. But three of Fuse’s clients are in the process of shifting esports from lifestyle to their sports marketing division, Sawabini said.
“The term esports has brought a competitive nature and traditional sports framework to a lifestyle,” he said. “I think more and more you’re going to see this handled by sports marketers on the brand side, and I think that will help brands get in and better understand where the right level of spend and the right balance of activation of sponsorship are.”
Those closest to the Overwatch League say that’s been Activision Blizzard’s real genius. The endemic gaming community cast doubts on the notion that you could create an esport from scratch, but the company has structured the league and its front office as something very similar to what you’ll find in traditional sports. That alone gives a brand peace of mind leaving the boardroom.
“We very rarely hear no,” Snow said. “What we’re most likely to hear is not yet.”
Several agents on both sides of the sponsorship deals say a tipping point is not far off. Sponsors in competitive categories such as beverages, snacks and quick-serve restaurants are forced to move more quickly, and early movers in telecom (T-Mobile), automobiles (Mercedes overseas and Toyota) and insurance (State Farm and Geico) will bring along their competitors in time. Financial services and travel are two seemingly promising categories that to date have been mostly quiet in the U.S.
In short, esports is learning that it’s a sports business, not a Silicon Valley software business whose investors can realistically expect revenue to double every few months. Every penny of income still comes from person-to-person sales at a time when marketing budgets are under intense pressure.
“Gaming and esports publishers need to develop meaningful partnership/sponsorship programs that media agencies and big brands can easily understand and measure,” said Matt Wolf, former director of esports at Coca-Cola. “When these things finally happen, the money will flow. No one disputes the value of the audience, it’s more about how best to reach them and how to measure the results.”
For more coverage of the business of esports, visit our partners, esportsobserver.com.