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Structure of the Esports Industry

Updated: Oct 4, 2020

Here we take a look at the main stakeholders that form the structure of the esports industry and how they work together.


Developers


Developers are the creative force that drives the videogame industry and, therefore, the esports industry. While the different aspects of their role are hugely complex and will certainly be explored extensively in other Ethoughts articles, the developers’ position in this industry structure is pretty quick and easy to explain – They create videogames.

Development outfits can come in many shapes and sizes. Larger game development companies can employ a range of specialised artistic, programming, and testing talent with the goal of working with an established publisher to create the latest AAA game. At the other end of the spectrum there has also been an influx of independent, or ‘indie’, developers who self-fund their ‘indie game’ projects. Should a developer think they’ll need some financial support, resources, or connections to complete and market their game they may pitch their concept to a publisher.


Publishers


Publishers facilitate game development. Perhaps their most important role is funding developers through the development process, recouping their investment from game sales following release. This leads to a give and take relationship between developers and publishers.


Publishers usually have large resources and connections which they can allow developers to access during production. For example, they could manage development subcontracts like testing or the commissioning of music where the developer does not have these facilities in-house. Publishers may also have experience with certain types of games which developers can benefit from in terms of creative direction. They can also provide commercial expertise which is important for developers who usually focus on their projects in terms of artistic expression and can forget at times that, unless they make a profit, they won’t be able to fund their next game. The danger here, however, arises where a publisher’s desire to maximise their return puts pressure on the developer’s vision. In the current market this can result in developers introducing DLC options and microtransaction mechanics where they may not have wanted to originally.


Once the game is complete publishers can facilitate marketing and distribution, a task where publisher and developer interests obviously align. It is arguable though that the necessity for a publisher here is diminishing. With a growing influencer and instant communication society marketing is becoming less about the money and more about making the right connections and being a little innovative. The same trend can be seen with distribution as online platforms are making the manufacture of physical games largely redundant. What publishers can still offer with these two post-production tasks is bargaining power and so they will still probably be more effective than an independent developer.


In the esports industry most of the popular games are developed by companies which have been created or acquired by publishers and so the terms often end up being used interchangeably. As we will explore further below, by controlling the development, intellectual property rights, distribution, and marketing of these games… publishers have ALL the power.


Tournament organisers


We spent quite a long time talking about publishers but this role should be rather self-explanatory. Tournament organisers… organise tournaments. Shocker.

What is worth noting here is that with many games this role is performed exclusively by the publisher but with others the publisher may licence rights to a third-party organiser. Where publishers have a specific vision for the games esports scene it might make sense to keep organisation in-house. However, publishers may be happy to outsource this task to a specialist company, take their licencing fee, and enjoy some free publicity. This second option may be particularly preferable in the current state of the esports ecosystem as the esports arms of most publishers currently make a loss, although game and in-game content sales inevitably see the benefit. As esports grows as a stand-alone industry it is likely that more publishers will decide to bring control of tournaments and leagues in-house.


Teams


Historically, esport teams were merely groups of players who came to a commercial decision to band together in order to compete in what small tournaments were available, sharing the prize money. While this is still the case for smaller teams and tournaments the industry has seen a huge escalation in the size and power of teams.


The bigger teams/ organisations are now franchises in their own right and hold game rosters for multiple games. These organisations have become more akin to employers, with professional players being their employees. We can see this demonstrated in the benefits that many teams provide their players such as, for example, training, housing, healthcare, and equipment. Teams also negotiate sponsorship deals, both in their own right and on behalf of their players. This can imply an agency relationship which might lead to teams being subject to certain talent agency legislation, as we are seeing explored in the ongoing TFue v FaZe Clan litigation in the US.


Teams have a number of different revenue streams including merchandise sales, content fees, sponsorship deals, prize money, and revenue splits from branded in-game item sales. However, teams also have large obligations to their players by way of salaries and benefits. Many teams struggle to keep up with these obligations and late or missed payments to players are a common problem in the industry. At the time of writing some of the biggest team organisations are valued at around $500 million, however, with such an asset-light business model the majority of this money is tied up in the good-will of the brand and the contracts they already have in place. Strong competitive performances, integrity, and timely payments to players are all things that can drastically impact valuation.


Players


Players are the competitive talent behind the success of esports. Originally players were dependent on tournament winnings to make any money in the industry and opportunities were few and far between. Now they have far more chances for far larger prize pools and some teams and sponsors will pay out even if they don’t quite make it to the top spots.

The popularity of streaming platforms has also allowed skilled and/or entertaining players to utilise another revenue stream by sharing user-created content. Fans are able to donate/subscribe to their favourite players, leading to an influencer community model and allowing some players to earn increasingly surprising amounts of money.


Fans


The videogame industry has always had an abundance of players and what the rise of esports has shown is that gamers want more than to just play the games. Fans want to watch and learn from the best, to engage with a larger community and to show off their skill, achievements and loyalty.


Fans ultimately fund the esports industry through purchasing games and in-game content from publishers, buying team merch, donating to streamers, attending events, and making up the viewership numbers that drive sponsorship, advertising, and media rights revenue.


Media platforms


Streaming platforms like Twitch, Mixer and YouTube Gaming have tremendously accelerated the growth of esports. Not only have they made gaming content and broadcasts more accessible, but they have provided another way for professional players to monetise their craft, and in a far more sustainable way than relying solely on prize winnings.


Although Twitch has been the undisputed market leader for some time now we are currently seeing other platforms threaten this dominance. Competition in the streaming market is growing as rival platforms jostle for exclusive game/ streamer media rights. Although this is potentially bad news for Twitch it is certainly good news for players and content creators who will have more opportunities and bargaining power as a result.


Associations and regulatory frameworks


There have been attempts to build overarching esports associations to provide regulatory oversight but these have come with little success. There are two main issues here.

Firstly, publishers have all the power. Esports are not like traditional sports which are common property and can be enjoyed and organised by anyone. Esports are owned by the publishers and everyone involved needs their permission to host a tournament, stream content, or even play the game. It is unlikely that an association will be able to garner enough power to challenge game publishers anytime soon.


Secondly, and following on from the publishers’ interests, every entity in the esports structure is a private entity. If you scroll up through the commercial parties we have considered so far you’ll notice that each of them has interests. This conflict became evident with the establishment of the World Esports Association (WESA) which was founded in cooperation with the tournament provider ESL. Although the goal was supposedly to professionalise the industry, simplify revenue shares for teams, enforce player pay, and organise broadcasting schedules WESA and ESL were accused of bullying competing tournament providers.


Talent and Advertising Agencies


As the industry grows there are more opportunities for players and teams as well as for investors and sponsors. Talent and advertising agencies are becoming more and more important to help both endemic and non-endemic parties enter the space effectively.


Betting platforms


Just like with traditional sports, fans like to bet sometimes. The potential danger here is with match fixing. Match fixing is incredibly difficult to expose with most games, especially with the remoteness and anonymity inherent in smaller leagues and tournaments. It can also have disastrous consequences for the reputation of a game, as was demonstrated in 2010 with the downfall of StarCraft. With little in the way of a regulatory framework the market and the publishers have to find ways to regulate match fixing and illegal betting themselves for the time-being.


Adam McGlynn.


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