While much of the sports industry struggled to adapt to the challenges of 2020, esports saw exponential growth. As an industry, esports was well-suited to the lockdowns that rippled through the world this year. Playing a game for hours a day kept people inside, while creating an inherently social activity at a time when people were craving connections. And since the sport began as a socially distant activity, before migrating to in-person arenas, it wasn’t as difficult for it to go “back” compared to other live sports that had a harder time making changes.
Esports analytics company Newzoo estimated that the audience for this live multiplayer gaming industry reached 495 million in 2020, a 12% year-over-year growth, and is on track to reach 646 million in 2023. Likewise, revenue growth followed suit, with an estimate of $950 billion in total revenue in 2020, which is expected to rise to $1.5 billion by 2023.
Of course, not all aspects of the industry grew at the same rate this year. While digital and streaming grew more than 50% each in 2020, merchandise, tickets, and publisher fees dropped precipitously. That mirrors more traditional live sports, as any event that relied even partially on a live audience took a substantial hit in 2020, prompting a shift to digital growth and a pressing need to renegotiate venue deals.
This kind of growth attracted new, and continued, partnerships with more traditional sports advertisers, such as consumer products, cars, food, and luxury apparel, which sought out advertising and partnership in this world. In fact, Balenciaga recently held an event where it debuted a new line during a game release as a way to engage the audience.
More Complicated Deals
But with that kind of growth comes a more complicated set of deals. As esports isn’t governed by a single entity, there are often a lot of players in any one deal. Esports is structured as a collection of games, with each publisher and third-party league setting its own expectations. Every game can be its own league and have its own rules. Unlike baseball, for example, where anyone can buy a ball and bat and play, each game has different rules for who can even enter. Some games allow a player to become a professional player just by winning, others are more organized where players buy in to a team and own a bit of a franchise. So we’re seeing deals being drafted with more flexibility in mind, often including language to alter the deal based on the number of followers a player has.
There is also more flexibility being included in player contracts related to game changes. While in traditional sports, rule changes happen slowly and with much conversation in the leagues, game developers can change entire games overnight. For teams that have invested in talent to beat certain levels, just to have those levels morph or disappear, it can cause a significant impact to their business. The more sophisticated teams don’t want that to happen if they are investing in specific players, so they want to build in some protections at the contract level. And, unique to this sport, is the average age of the players, which can include minors signing these contracts, which brings up other levels of oversight.
In addition, games have a finite shelf life. As more money is required to invest in these teams, team owners also want to have more rights if the game owner produces a new version of the game. So we are seeing new contract terms, like first right of refusal, to prevent an existing team from being cut out of a new game.
Since esports is a loose collection of individual entities, that lacks an overarching regulatory body, it’s kind of a Wild West in terms of navigating legal issues. As the pandemic pushed the industry back on streaming services, it brought up more concerns about who owns the intellectual property of the games. Issues include limits to what can be streamed, what ads can be played, and what graphics can be shared by the players themselves. While there has always been deals for IP licensing, there is now a demand for longer licenses from both leagues and publishers that are willing to put up bigger money up front to lock in rights for longer.
There are also copyright concerns, which extend to who owns a player’s recorded game and at which point that play becomes part of the game. This is similar to traditional sports and questions around who owns the game highlights.
While esports faces much of the same challenges as some of the major leagues, the relationships between the publishers and leagues are a complex web of interdependencies that can make reacting to changes difficult. With the kind of growth that is expected over the next few years, we are likely to see more protections built into contracts at all levels.