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How Fandom Drives Self-Sustaining Growth For Esports Teams

Esports is growing in popularity worldwide—but how do esports teams that participate in leagues make money? Well, sponsorships are a big part of it. Gaming is a huge part of youth culture, so there is no lack of sponsorships from companies targeting this demographic. In fact, as of 2022, sponsorships account for 64% of revenue in the global esports market. However, even with corporate sponsorships, major esports teams are running their finances into the red year after year.
The average cost of running an esports team in South Korea, the birthplace of esports, is between $2.6 and $3.4 million, according to KDN Research's "Current State of the Esports Market." However, the operational profit is often less than $750,000. As player salaries account for more than 80% of a club's budget and continue to rise yearly, teams are under growing pressure as their profitability deteriorates.
Despite its popularity, most stakeholders in the esports industry agree that the market lacks a clear monetization model. The dependence on corporate sponsorships has resulted in teams serving as company PR vehicles, with their income influenced by the circumstances and decisions of their parent businesses. Because few esports organizations are self-sustaining, esports teams' long-term survival prospects are in jeopardy.
In the long term, it will be critical for esports teams to view themselves as companies in need of revenue. Only then will they be able to break free from their reliance on sponsorships and grow without external funding. Considering the market’s wide appeal and unique characteristics, it's time to get creative and explore new business strategies.

Sources of revenue in the esports industry
Diversification of revenue sources is essential for the financial stability and eventual success of an esports team. With that in mind, what are the biggest sources of revenue in the esports industry today?

According to Newzoo, a global esports market research firm, the top sources of revenue are as follows: ▲ Sponsorships ▲ Media Rights ▲ Game Publisher Fees ▲ Merchandise and Tickets ▲ Digital products ▲ and Streaming.

While corporate sponsorships are the most common source of funding for esports teams, they can also generate media revenue via advertising, subscription fees, and publication rights. Production costs, on the other hand, account for the majority of their expenses. The price of offline tickets is low, and attendance is insufficient to have any significant impact. Teams can receive prizes for consistently performing well in tournaments, but that is only part of the story—many teams are also ending up with financial losses. But the global esports industry is expanding, which is good news for those who suffer from lack of profitability. Opportunities are out there for those ready to grab them.

The growing esports market
The global popularity of esports is promising for the industry’s growth prospects, as more companies recognize the potential of leveraging esports in their marketing. Professional gaming as an occupation has also grown in popularity particularly among the younger generation—a significant number of Alpha Generation* members list it among their top ten career aspirations. Notably, data compiled by Newzoo indicates a steady increase in both market size and audience size.
* Alpha Generation: A term referring to the generation born between the early 2010s and the mid-2020s.

The esports industry has witnessed a surge in investment from major brands, media companies, and venture capitalists, leading to the emergence of fresh leagues, tournaments, and events. As a result, the industry has experienced significant growth. By 2022, the global esports market had reached a valuation of $1.384 million, and it is projected to rise to $1.866 million by 2025, with a compound annual growth rate (CAGR) of 13.4%. 

More and more people worldwide are tuning in to watch esports competitions, thanks to the increasing popularity of these events and the money being poured into them.

From a projected 435.7 million in 2020, to 489.5 million in 2021, and then to 532 million in 2022, the global esports audience has grown steadily each year. Projections indicate that the audience will continue to grow, reaching an estimated 648 million by 2025, with a compound annual growth rate (CAGR) of 8.1%. This growth encompasses both Occasional Viewers and Esports Enthusiasts, who are super fans of the sport. In 2021, young people (between the ages of 10 and 35) made up the majority of these two categories, accounting for approximately 70% of the total share.

Esports are going mainstream
The growth potential of the industry has catapulted esports out of the niches and into the mainstream; it is now recognized as a sport at the Asian Games. It was also selected as a demonstration sport at the 2018 Jakarta-Palembang Asian Games, and an official sport at the 2022 Hangzhou Asian Games*. It is still under consideration for the 2024 Olympic in Paris, France— indicating that esports may flourish worldwide, especially when linked to major events and world championships.
* The 2022 Hangzhou Asian Games were postponed due to the COVID-19 situation in China and will be held in September 2023.
There are many reasons to be optimistic about the future of esports, given the incredible market growth, surging global audience size, prominence at global sporting events, and the interest shown by younger viewers. But how can esports leagues worldwide increase their revenue?
Let’s take a look at the characteristics of the esports industry, as well as how esports teams can develop monetization strategies.

Characteristics of the esports industry
1. Information technology has shaped the esports market as it is today.
Esports emerged at the convergence of gaming and network infrastructure, with the development of IT technologies fueling its expansion. Since games are such prominent examples of digital content, the growth of esports is inextricably linked to that of the IT sector as a whole.

2. Esports caters to the digital native* MZ generation.
The incorporation of real-world sports rules and regulations into video games has given rise to esports, which have become a major part of Generation Z's popular culture. Because of this, players and fans can engage in a wide range of in-game activities together, bridging the gap between them.
* Digital Native: The generation that has grown up surrounded by digital devices since birth; refers to those born between 1980 and 2000.

3. Esports is a global industry.
In esports, games are played online or dedicated esports venues. This makes it possible for games to reach players and fans all over the world and drive online engagement.

4. Esports have a natural mix of sports and entertainment.
Esports, like conventional sports, have competitions and regulations with clear winners and losers. But esports also incorporates entertainment value from other cultural arts such as theater, movies, webtoons, and books—including music, narrative, and worldview—making it enjoyable for fans to consume.

5. Esports has a culture of watching as well as a culture of playing.
The rise of esports can be attributed to the popularity of live streaming, where individuals actively watch professional gamers competing on various media platforms. Even if they don't actively participate in playing the games themselves, these viewers have become passionate fans, forming dedicated fandoms. This trend has further intensified during the COVID-19 pandemic, with the improvement of online gaming infrastructure.
In summary, the esports market is characterized by several key factors contributing to its growth and success. These include the advancement of IT technology, its appeal to the MZ generation, the globalization of the industry, the integration of sports and entertainment elements, and the prevalence of online viewing culture. With these distinct traits, esports can become self-sustaining as long as online fans actively foster communities, and as communities and teams continue to grow together.

The fandom business can accelerate the profitability of esports teams
To ensure sustainability, esports organizations must go beyond relying solely on corporate sponsorships and explore additional avenues for direct monetization. Given that esports organizations and professional athletes already have passionate fandoms, leveraging the fandom business can help them achieve a more balanced revenue structure. This necessitates an active transition from sponsorships reliance to establishing a self-sustaining business model.
One of the initial steps for esports teams to take is uniting their scattered global fandom under one roof—an owned space online. With the sport's immense popularity among the tech-savvy younger generation, they have a remarkable opportunity to forge a community that connects teams and fans on a deeper level. If building from scratch isn't possible, they can use a SaaS platform builder to create a dedicated fandom community quickly and easily. Once the global fandom is gathered together, they can leverage technology to elevate the fan experience. This includes offering streaming tickets, facilitating communication beyond the game, and presenting exclusive merchandise or digital products tailored to their fans.
Fandom community memberships are a prime example of how esports teams can monetize relationships with fans. By offering valuable benefits, memberships build loyalty and enable stable business operations. Data from memberships allow for personalized benefits and fan segmentation. Memberships also foster a sense of belonging and identity with the esports organization, while also providing more opportunities for fan engagement to establish stronger relationships and generate predictable recurring revenue. In South Korea, several esports teams have adopted the fandom platform builder b.stage to create online communities for their superfans—a clear sign of the industry's acknowledgement of the need for monetization.
Once they have established a fandom business, they can move on to the IP business, which is how they can brand and monetize their IP to increase competitiveness. They can trademark and brand a player or create a character for their squad. They can develop products, manage pop-up businesses, and earn revenue outside of the game—it’s all possible. Esports teams can also generate their own content based on their IPs to engage with their worldwide followers in a number of ways.
By leveraging intellectual property, they may encourage fans to unite and take action online, therefore strengthening their team's brand. A dedicated membership community that offers loyal fans specific perks and rewards can help them successfully tap into this global audience. This not only deepens their relationship with the esports team, but also provides a consistent source of revenue for the organization. In other words, by leveraging IP-driven strategies, they can mobilize and monetize their fan base to take their esports venture to new heights.
In addition, the commercial competitiveness of esports organizations will improve by cutting unnecessary expenditures and focusing on player development in order to win competitions and attract more fans.

Businesses need to be able to diversify their revenue with stable sources of income—and esports teams are no exception. For an esports team to become sustainable, it must remain independent of sponsors and market conditions. Esports organizations need to evolve into profitable entities, continually exploring innovative structures to monetize their fandom, such as subscription models and IP businesses. By adapting and embracing these strategies, esports can secure their financial sustainability while nurturing a thriving community of fans.
The good news is that as the esports market grows, so too will the number of corporate sponsorships designed to attract younger viewers. With more sponsorships, esports organizations can get the momentum they need to diversify their earnings, stop acting as passive marketers for their sponsors, and start making money on their own. The ultimate winners will not only be the market as a whole—but also the delighted fans across the world.
:반짝임: Esports teams T1 (Korea), KT Rolster (Korea), NS RedForce (Korea), Sentinels (USA), and DRX(Korea) are building their own fan platforms on b.stage, inviting global fandom to come together. Each team operates memberships and develops IP merchandise on b.stage, bringing them closer to fans all over the world.
2022 Newzoo Global Esports Live Streaming Market Report
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