The Esports industry has seen tremendous worldwide growth over the past few years, both in terms of viewership and revenue. The ongoing global lockdown brought about by the outbreak of Coronavirus has inadvertently elevated the importance of Esports to a whole new level, especially because physical sports are yet to be able to return to prominence.

Several popular sporting industries like the Formula 1 and NASCAR have also adopted Esports as a way of keeping fans and employees occupied while the world takes its time to return to a state of normalcy. This, however, does not mean that Esports became a big deal only now.

In case you did not know, Esports have been around for quite a while. It is already a giant industry which is growing further in size and estimated to be worth $1.8 billion by 2022. Over 600 million people have already emerged as a consistent audience, while professional Esports athletes have been growing more than 40% annually every year since 1998, according to a report in Forbes.

The LA Times says that over 8million people log in (via PC, XBOX, PlayStation and so on) every day to take part in various Esports events across various genres. Despite this, some of us still feel that the world of Electronic gaming nothing much apart from an underground culture. The positive news here is that it is gradually changing, and that the outbreak of Coronavirus and the lockdown that followed have so far played a major role in improving the general public’s opinion on the industry.

With the public health crisis continuing to mark its damage on the world, people have been advised to stay far apart from each other as much as possible. As a result, we have started to see even athletes and celebrities hunkered in their living rooms with controllers in hand, engaging in video games like NBA 2K20 or FIFA 20.  Those are video games mostly played recreationally, although they essentially become Esports when the stakes are raised and professional players and money get involved.

The universe of Esports currently comprises of teams partaking in tournaments for video games like Dota 2, Counter-Strike: Global Offensive, Fortnite, Player Unknown’s Battlegrounds (PUBG), League of Legends, Overwatch, Hearthstone and so on. The most popular Esports game right now is Dota 2, with the overall prize money reaching well into the nine-figure mark.

A recent study published by verdict.co.uk reveals that by organizing multiplayer competitions, Esports is estimated to become a $1billion industry by the end of 2020. The study further explains that nearly 60% of that revenue (almost $600million) will come from sponsorship, as brands from a wide range of sectors seek to target the esports audience.

The increasing viewership is what mainly contributes to growth of revenue in the industry – and it is not just because those viewers are generating revenue. Brands, seeing the potential of reaching a large and engaged audience, are investing in Esports marketing both directly and indirectly, and that has contributed immensely to the revenue growth in the industry.

That being said, sponsorship and investing are very tricky processes in Esports. This is largely because the target audience for this field mostly belongs to the Gen-Z category (ages 20 or younger). This begs the question “how effective is sponsorship investment in Esports?” Thankfully, Nathan Lindberg, the Regional Vice President at Twitch comes to our aid here.

“Sponsorship investment in gaming and Esports is growing quickly. It is no longer a passive marketplace, but in fact, a race to capture as much real estate for your brand as possible,” says Lindberg. He controls operations of Twitch – the world’s largest gaming-centred live-streaming platform – all across North America, Europe and Australia.

As per a Newzoo analysis, several brands have already made significant investments into Esports marketing after realising the potential of tapping into the market pertaining to the industry. The analysis states that since 2015, there has been an average revenue increase of more than 30% annually, and that a major part of the contributions has come from brands who have made investments.

In 2016, the total Esports revenue was $493million, out of which $350 million came from brand investments. This increased by 33% year over year in 2017, where the total revenue was $655million, and brand investments contributed to $468million of this. In 2018, the average year-on-year increase in total revenue was at an impressive 38.2%. The Esports industry made a total of $906million in revenue. Out of this, $694million came from brand investments – both direct and indirect. That’s a 48% increase in brand investment from the previous year. Newzoo also predicts that by 2021, Esports will generate more than $1.6billion in total revenue, with $1.3billion coming from brand investments.

Figure 1: Source – Newzoo

Out of all sponsorships, Consumer Electronics takes a major control over proceedings. According to a research conducted by IEG, Consumer Electronics brands are 13.4 times more likely to invest in Esports than the average of all sponsors. IT Software and Hardware follow suit while Apparel and Accessories closely follow them at third place.

Figure 2: Source – IEG

While there are different parameters by which Esports sponsors are classified, the most commonly used classification divides them into two brackets – Endemic sponsors and Non-endemic sponsors.

Endemic sponsors are sponsors that are highly associated with Esports due to the use of, or integration of their products and services into Esports activities. This includes gaming tech, like display monitors, gaming consoles, accessory suppliers and so on. Microsoft, which makes the XBOX, and Sony, which makes the PlayStation, are two of the most popular endemic sponsors for Esports. Others include Nintendo, Alienware, RoG (Republic of Gamers), Razer, Corsair, Intel and so on.

Non-endemic sponsors are sponsors that offer products and services that are not directly related to the production or execution of Esports activities. This includes food and beverages like McDonalds, Mountain Dew, Monster Energy and Red Bull, transportation and logistics partners like FedEx, Mercedes-Benz and Geico, Clothing and apparel partners like Adidas, and so on.

As you might tend to believe that Endemic sponsors would occupy a lion’s share of the Esports market obviously due to their involvement in the industry, the fact that the non-endemic team has almost caught up with them in recent times might come off as a surprise to you. In fact, 47% of all Esports-related activities in 2019 were funded by non-endemic sponsors, according to the above-mentioned research by IEG.

Figure 3: Source – IEG

Endemic brands provide technical support to the industry. Alienware and Asus are supporting teams with devices on which players can train. Others, like Intel, are aiding organizers with event infrastructure. Telcos, too, are banking on the sector to promote their early 5G offerings. Vodafone is providing 5G for tournaments and NTT Docomo is working on faster, lag-free streaming services.

Sponsorship from non-endemic brands help esports teams open up new revenue channels. For example, Cloud9 offers team-branded apparel in partnership with Puma. The involvement of globally recognized brands like Coca-Cola (the official non-alcoholic beverage of Overwatch League) has brought the sector closer to the mainstream and helped to attract more brands.

The importance of non-endemic sponsors

Most brands do not disclose the number or size of their investments in Esports. Hence, assessment of brand impact and return on investment remains a challenge.

But for now, it is clear that the increasing involvement of non-endemic brands is indicative of the industry’s growing maturity. With the esports audience predicted to grow to 646 million people by 2023, the industry will offer brands the opportunities to reach new markets and demographics that might otherwise not be available to them.

To give a clearer picture, we have the words of Overwatch League broadcaster Christopher ‘MonteCristo’ Mykles, who has been a part of the industry for several years now. At the Esports Bar held at Miami in 2019, Mykles spoke on multiple topics, including the ways by which successful non-endemics have made their way into popular Esports leagues.

Mykles used the Korean OnGameNet StarLeague – which broadcast StarCraft on TV throughout the 2000s – as an example to prove his points. Because it was one of the earliest Esports leagues to appear on TV with a major production value behind it, it also was one of the first places non-endemic brands began to gain a foothold. For example, the 2010 Korean Air StarLeague finals included players making entrances out of planes, maintenance cranes, and the entire event taking place in an aircraft hangar.

“Anyone who knows the history of esports remembers this moment,” Mykles said. “This is one of the most iconic sponsorships we’ve had in this space, and one that in terms of scale or spectacle really hasn’t been eclipsed since. But it’s something I think non-endemic brands should keep in mind, because I’m still here and still talking to you about this ten years later, and all the fans remember this moment as well.”

What Korean Air did as a non-endemic sponsor in 2010 is, he continued, is an effective use of one type of sponsorship opportunity: naming rights. Although tournament naming rights aren’t done quite as often anymore, esports continues to learn from traditional sports by using segment naming rights, such as for half-time shows.

Another naming rights example Mykles suggested that comes up frequently is that of awards, such as those given to a “player of the match.” In some cases, that can be a recurring segment every tournament or match, or it can look more like the Overwatch League‘s MVP award, which is sponsored by T-Mobile and has made use of branded hashtags to get players to vote for their favourite player using the brand’s name.

Some companies, for one reason or another, struggle to get into the broadcast space itself and have to do something else, like “shoulder content.” Mykles’ example here is Bud Light, which deals with restrictions on advertising to audiences under 21. To counter this, Bud Light made its own branded match commentary show on its own Twitch channel that uses Overwatch League broadcasters and takes place in the Overwatch League studio.

“Not enough brands take advantage of the fact that they can custom-create their own content as part of a broader partnership with a league,” Mykles said. “At that point, you have more control over the tone of that content and how it aligns with your brand.”

Finally, Mykles talked about in-game promotions, such as a recent partnership between League of Legends and Louis Vuitton where the fashion line is creating in-game assets as well as a case for the Summer Cup trophy and a line of physical garments.

“I think this is going to be fascinating,” Mykles said. “We do not yet know what these skins or what the actual fashion line is going to look like, as it was just recently announced. It hits a lot of in-game stuff, but it will most likely hit the esports world as well, mostly because most skins in League of Legends with few exceptions are playable [in tournaments]. I assume we will see professional players in Louis Vuitton skins in the game.”

Up to this point, Mykles had spoken only of sponsorship deals that already exist in the esports space as examples of ways non-endemic brands can find their way in. But he doesn’t think that just following existing models is enough to keep these brands around and their partnerships successful.

“I think brands are used to coming to esports and thinking, ‘Let’s just go with what we know. Let’s go with a model that’s going to have the same opportunities.’ That’s very safe, but might be less compelling and less interesting and also, we have technology on our side in esports that allows us to do some more interesting things,” he explained.

Following Mykles’ comments, a few other case studies can also be presented to prove the rise of non-endemic sponsorships. “Food and drink” continues to be one of the categories that have shown the maximum growth among non-endemic esports sponsorships, with The Esports Observer reporting on 30 such deals in Q3 2019.

For instance, Anheuser-Busch InBev continued its push into Esports by making Bud Light the official beer of the NBA 2K League, which joins the Overwatch League in its sponsorship portfolio. EA Sports, another big-shot in the industry, has focused on food and drink partners for its Madden NFL 20 Championship Series, naming Pizza Hut, Snickers and Starbucks as official sponsors.

In the case of the automobile industry, Honda, which partnered with Team Liquid in March, was named the exclusive automotive partner of the League of Legends Championship Series (LCS) in August 2019. Toyota, meanwhile, became the BLAST Pro Series’ first car partner by sponsoring September’s Moscow stop, and Mercedes-Benz sponsored the addition of a Dota 2 tournament to the UK ESL Premiership.

Fashion and apparel brands also made some headline esports deals in Q3, led by Adidas’ partnership with Fortnite streamer Tyler “Ninja” Blevins. The partners will collaborate on apparel and digital content, although no products have been revealed yet.

In other team and player deals, Nike signed a multi-year deal with Brazilian team FURIA Esports, Puma inked a two-year agreement with Australian team ORDER, and Bauer Hockey made its first deal with a gaming influencer by signing NHL 20 content creator Andrew “Nasher” Telfer.

The above examples prove how the rise of non-endemic sponsors bodes well for the Esports industry. It goes without saying that brands which seek to endorse various Esports elements such as teams, players and tournaments will have a major say in the industry’s future.