Funding v partnerships – what’s right for your e-sports business
Get access to hard-to-target audiences, establish yourself in a booming industry and gain the potential to reap monetary rewards. The upsides of competitive computer gaming, often referred to as eSports, make it sound like a bit like an advert for Klondike, anno 1896.
In a lot of ways, the similarities are fitting. Funding or partnering with eSports organisations and individuals could well be a veritable gold mine, leading companies to look at the space with increasing interest.
When setting up an eSports initiative, one of the biggest questions facing companies is how to best engage with eSports and its fans. Should you fund a player, a team or league or would it be better to enter into partnerships with existing organisations, or leagues?
The correct approach will be tightly correlated with your business’ structure, your overall strategy, and how those aspects fit an eSports-related investment.
eSports fans are not who you think they are
Funding and partnerships each have their own, specific advantages and challenges, but also share similarities. The latter may extend to the strategic goals you are pursuing through investing in eSports. Most companies will likely be looking to engage with eSports fans, showcase services and products, test new solutions (from marketing to hardware) and create positive synergies with existing business operations.
Deciding what approach is best for your company starts with understanding the eSports market and how it is developing.
The eSports industry saw revenues close in on $900 million in 2018. That number could reach up to $2.4 billion by 2020, according to gaming research firm Newzoo. By 2022, the number of eSports enthusiasts watching live games through streaming services and traditional media outlets is expected to pass 275 million, putting its fanbase on par with many of the most popular traditional sports, including the likes of the NFL.
Those eSports enthusiasts are not who you may think they are. Research shows that US eSports fans on average earn well beyond the national average and that they are happy to spend money on their passion for competitive gaming, as well as related products.
Furthermore, eSports audiences are predominantly young and tend toward being resistant to mainstream marketing endeavours such as generic advertising or product placement. They are, however, generally very positive when it comes to brands that associate with eSports – as long as the association seems genuine.
What are the business models?
There are many ways for companies to engage with eSports as an industry – and many subsets of said industry and related customer segments can be directly and efficiently targeted. Whatever your approach, the starting point will be defining KPIs and goals for your investment. Due to eSports’ unique nature, this process is full of novel challenges. A central aspect is how to measure the efficiency of your efforts. For funding, there is some direct revenue, such as prize money. However, for both funding and partnerships, most of your goals will likely be tied to indirect revenue generation.
Another central aspect is your strategic goals and how partnerships and funding can help you reach them.
As a partner in the eSports space, you are likely focused on brand value and finding ways to interact with eSports fans. Set targets will often be fuzzier than is the case if you are looking to fund a specific player, team or league. Funding, on the other hand, will often involve the need to develop more hands-on proficiency and in-depth understanding. The resulting interaction can lead to much stronger connections with fans and the eSports space. It can also lead to direct revenue but may also be a slow burner where ROI takes longer to achieve.
Whatever your approach, there are challenges and potential roadblocks that must be navigated to ensure the best possible outcomes.
Third-party experts with diverse skills in areas such as business development and audits coupled with an understanding of eSports are an excellent starting point for defining your goals and finding ways of measuring whether you achieve them. Such partners will also be excellently suited to consult on which fork in the road you should choose when deciding between partnerships and funding.
Sponsorships – advantages and possibilities
Sponsorships in eSports generally take one of two main routes:
- Sponsoring individual teams, or players, events, or using game-specific elements in your marketing strategy.
- Advertising at events, on online eSports platforms like Twitch or YouTube Gaming, during eSports broadcasts or in games.
The space has been heating up in recent years. Since 2016, more than 600 eSports sponsorship agreements have been signed. Most have been between eSports entities and IT/computer companies, but the likes of Coca Cola, Red Bull, Mercedes-Benz, Audi and McDonald’s have also signed agreements. In other words, sponsorships are increasingly competitive, thereby raising prices.
For companies looking to engage eSports through sponsorships, one of the main difficulties is finding ways of maintaining brand authenticity in the eyes of eSports fans. Generally speaking, eSports fans are wary of brand marketing, especially from non-endemic brands, and resistant to generic messaging. Striking a balance between your general marketing and brand communication strategy and the tone and voice of eSports is essential to achieve success. One approach that has proven quite successful is creating brand experiences, such as AR and VR content, and presenting it at live eSports events.
Sponsorships are generally the quickest way to enter the space, but also the hardest to gauge from an engagement perspective.
Funding – going all-in on eSports
Compared to sponsorships, funding will almost inevitably be connected to bigger up-front investments. As a result, your ROI time will be longer, and most companies who look to this option will be planning a commitment that runs over a minimum of several years.
Depending on the eSports you decide to focus on, the initial costs may include negotiating and paying for a spot in an existing franchise league. That particular avenue is being pursued by an increasing number of companies, while more game publishers are planning to introduce franchising during 2019 and 2020, to create a more stable ecosystem and attract more investors. Franchises can lead to several advantages, including greater regional and international exposure.
Finding a team or similar organisation in eSports may mean that you will gain access to one of the biggest, and fastest-growing, revenue streams for eSports: media rights. The prime example is Twitch’s recent $90 million deal to be the exclusive broadcaster for the League of Legends league.
Negotiating the specifics of a media deal and being aware of the potential exposure through broadcasts that your venture can expect are crucial to be able to correctly calculate what you may stand to gain from your investments.
Going from A to B
Once you have decided on whether funding or sponsorships are right for your organisation, a new set of questions appear on the horizon:
- How involved will you want to be in a funded venture?
- How will you set the level of interaction and inclusion between an eSports unit and other parts of your organisation?
- Will you set aside dedicated staff and resources in-house to handle all – or at least most – aspects of your involvement with eSports or seek outside assistance?
- How can you align your existing company culture and structure with eSports?
- What are some of the core messages and values you want to present to the new audience?
Such questions, and many more, need answers to generate the best possible platform for achieving success.
A final note: when considering choosing between funding and partnerships, it is worth noting that they are not mutually exclusive. Advertising at events is almost automatically perceived as more authentic if you are also funding one of the teams taking part.
For many companies, it is advisable to start small and grow your presence in eSports organically from there. For example, through sponsorships, which can build up your connections in – and understanding of – the eSports market. From there, your company will be able to move on to a more long-term investment in the space, for example, through funding an eSports team.