Seeing a lot of panic this week about esports teams going through "realignments" where staff, players, and even full teams are being let go. As someone who has seen every side of this industry, I've been warning friends and colleagues that this was coming for a while. A thread:
The first thing you need to know is that the majority of esports teams are not profitable. They are funded by investors who hope to make a return *eventually* when esports grows and draws in big money from fans and advertisers like they do in IRL sports.
I've talked to many teams, big and small, and it seems they all have different ideas about where esports is headed and how their team can move to profitability. They all agree growth is happening, but the details & path to profit are still pretty fuzzy depending on who you ask.
The primary way teams bring money in right now is via ad money: logos on jerseys, sponsored videos, etc. But advertisers are growing more and more data driven, which means they are sensitive to impressions, attribution, and to what we call "CPI" in the game industry.
Impressions means the number of times an ad is seen by some viewer. Some advertisers just care about total number of impressions, but others care more about "unique impressions" which means the number of actual consumers they reach, not how many times those consumers saw the ad.
Attribution means being able to directly track or at least correlate a relationship between SEEING an ad, and DOING a beneficial action, like buying a branded headset or signing up on a website. There are entire businesses built around better attribution tracking on the web.
CPI is "Cost Per Install" in games. How much money do I have to spend on this ad to get a user to install my game? This has different names depending on the industry, but I'm using the one I know best for reference here. CPI is a really, really, REALLY important number.
So to bring this back to esports and teams: Impressions continue to grow across the industry, but NOT evenly. There is far more growth in OWL this year than in fighting games. This means advertisers are going to want to spend in growth areas, & teams have to follow suit.
Attribution can be very difficult to track in this space, so data-sensitive advertisers are struggling to justify spending on esports teams/events if they can't measure success. This problem gets harder to solve the bigger the company, as they can have MANY activations at once.
As for CPI, I can tell you as someone who has done direct spends in this space recently... most of them aren't worth it. Buying ads on Facebook/Twitter is multiple times more efficient than giving money to events/teams/influencers from a raw cost-per-activation position.
No one who understands the business side of media should be surprised that we're seeing a market correction on esports teams. Publishers have absorbed MOST of the value that esports has created so far, and advertisers are not making up the difference for VC-funded teams... yet.
I do think there are some exceptions here, depending on the brand and its overall goals. If you are a lifestyle brand that cares more about overall perception with a specific demographic, you can prob get away with spending on esports that doesn't generate good attribution or CPI
From a team's perspective, they are prob currently better off picking up popular streamers than continuing with pro gamers in games that aren't showing growth. Streamers produce consistent impressions by streaming multiple days a week and can use affiliate links for attribution.
