Emerging revenue streams for esports
Due to its relatively recent emergence, the esports sector is not as developed as other entertainment sectors in terms of revenue streams.
Today, the sector uses a variety of business models to generate revenue streams, with sponsorship and advertising being by far the most important. Brands pay large sums of money to be associated with popular teams, events and players in order to gain exposure to a young and passionate audience. Merchandise sales, including apparel and gameplay accessories, are another source of revenue, although consumer spending in this area remains relatively low compared to other sectors. Ticket sales for live events also contribute to revenue during the final rounds of a competition or league.
Moreover, amateur competitions offer a platform for aspiring players to compete, often with low entry barriers, including low or non-existent entry fees and smaller prize pools, fostering community engagement and talent development. Streaming platforms, where fans watch live broadcasts of their favorite games and players, generate revenue through advertising, subscription fees and in-stream purchases, increasing fan interaction and engagement. Similarly, merchandise sales, including team jerseys, branded accessories, and collectibles, provide another significant revenue stream while enhancing fan loyalty and involvement.
These diverse revenue streams demonstrate the multifaceted nature of the esports business model, which combines monetization strategies from the entertainment and sports sectors with innovative digital approaches, but with a heavy reliance on advertising. The diversity of revenue streams in the sector, some of which are based on the exploitation of IP rights, is also apparent among its various stakeholders.
Developers and publishers
Video game developers and publishers are fundamental in the esports ecosystem, each with interconnected roles. Publishers typically own the IP of the games, making them indispensable to any event. They have developed diverse revenue models to capitalize on the growing popularity of competitive gameplay, such as selling franchise slots for competitions. For example, team owners have reportedly paid up to $25 million per slot to publishers and event organizers like Riot Games or Activision Blizzard. When publishers do not organize events, their primary income comes from revenue sharing with third-party tournament organizers, who host and broadcast competitions on platforms like Twitch and YouTube.
Although developers are essential in the video game industry, their role in esports is often less prominent because publishers own the game rights. Publishers usually hold the distribution rights and may license additional IP rights. However, developers can benefit from in-game purchases related to esports teams, allowing them to participate in the financial success of the game. They might also ensure their participation contractually in sequels and further developments of the original title.
Authorizations and licenses in the esports sector involve exploiting IP rights, mainly copyrights and trademarks. The collaboration between developers and publishers ensures the growth and sustainability of the esports sector, highlighting the importance of strategic management of IP rights. This partnership allows for effective control over the use of game content and branding, which is crucial for the commercial success of competitive video games.
Tournament organizers
Esports tournament organizers have also explored a variety of revenue streams to effectively monetize their investment. Third-party tournament organizers typically charge very low or no entry fees to teams, viewing the relationship with such teams as a win-win partnership. As a result, their primary source of revenue is through sponsorships and brand partnerships. These agreements often include the display of sponsor logos on event materials, broadcast channels, and even within the game itself. Sponsors may also provide financial support in exchange for exclusive marketing opportunities, such as naming rights for competitions or specific segments of the competition.
In addition, organizers can generate revenue from ticket sales for live events, where fans pay to attend and experience the competition in person, primarily during the final stages of a competition. Another source of revenue for esports tournament organizers, as discussed above, is the sale of broadcast rights, which they typically share with the publisher, to stream their events on platforms and broadcast through linear television networks. This includes revenue from advertisements shown during the broadcasts, as well as potential subscription fees from viewers who want premium access to the content. However, in current industry trends, the broadcasting of video gameplay and competitions is generally offered free of charge and has diminished in significance as a primary source of income.
Finally, organizers can also monetize their events by selling merchandise, such as competition-branded apparel and accessories.
Once again, most of these authorizations and licenses involve the exploitation of IP rights, such as copyrights and trademarks for franchise slots, trademarks for the sale of merchandising, and, most importantly for tournament organizers, copyrights when they acquire a license from the publisher of a particular title to run the event and display the competition's gameplay, either on site or via Internet video platforms.
Team organizations
Esports team organizations have also attempted multiple revenue streams to effectively monetize their investment. For these stakeholders in the esports sector, the primary source of revenue is through sponsorships and partnerships with various brands. These deals often involve naming rights, which includes the right for the sponsor to be in the team´s name, as well as logos appearing on team jerseys, social media channels, and sometimes during live streams of competitions. In addition, teams can generate revenue through prize winnings from major competitions.
As publishers and tournament organizers, another important source of revenue for esports teams is the sale of merchandise. Teams often sell branded apparel, accessories, in-game cosmetics and other products to their fan base, both online and at live events. Some teams also sell merchandise and manage deals with team players. In these circumstances, contractual arrangements between teams and players allow teams to negotiate deals with the image, publicity and IP rights of team members against a salary, a fee, or a percentage of the sum of the sponsorship, merchandising, partnership or other type of contract. In addition, teams monetize their content through streaming and video platforms such as Twitch and YouTube by creating engaging out-of-competition content such as live streams, tutorials and behind-the-scenes videos.
Team contracts are less intensive in terms of IP licensing, except with sponsors. The most important agreements for a team to ensure income and financial stability over the years are trademark license agreements, whereby both the sponsor and the team authorize the use of their respective trademarks in the context of the esports initiative, in exchange for consideration. This agreement typically provides for ancillary use of the trademarks, primarily through merchandising that bears both the sponsor's and the team's brands. Although teams generate a lot of content, such as out-of-competition gameplay, it is typically exploited directly by the teams on video-sharing platforms due to its low commercial relevance in today's content licensing market.
Players
Esports players include different levels of professionals. Elite players are primarily paid by the team organization for which they compete, also in exchange for licensing their publicity or image rights. Only when a professional player has achieved a high level of notoriety can he or she negotiate with the team for the possibility of personal sponsorship and participation in the contracts negotiated by the team. Furthermore, successful players can earn remarkable amounts of money by competing in and winning major esports events, which often have substantial prize pools.
Another important source of income for esports players is content creation on platforms such as Twitch and YouTube. By live-streaming their gameplay, offering tutorials, and creating engaging videos, players can attract a large audience and generate revenue through advertising, subscriptions and donations from fans. Some players also monetize their personal brands by selling merchandise, such as branded apparel and accessories, to their followers. Sometimes this is also done in partnership with the team.
IP also plays an important role in the lives of professional players, especially when they license their image or publicity rights to a team or sponsor, authorizing their limited exploitation in exchange for a fee. Some players are intensive content creators, not only using third-party works (e.g. gameplay), but also creating their own material, mostly audiovisual recordings, and later exploiting them on their own channels on Twitch, YouTube or TikTok.
This mix of revenue streams is driving the growth and sustainability of the sector, despite its relative youth compared to other entertainment sectors, some of which involve the exploitation of IP rights, while others do not. It is likely that as the esports sector grows and reaches a certain level of maturity, revenues from the exploitation of IP rights will increase, mainly from advertising, merchandising and broadcasting rights. To this end, it is advisable that stakeholders in this sector develop multifaceted strategies for the optimal exploitation of their intangible assets, paying particular attention to the licensing agreements they sign, where the IP section is of particular importance.