Many in the esports industry went into 2020 with high expectations for continued growth in the space based on recent developments in 2019, which drew to a close with news such as Deutsche Telekom acquiring a 25% stake in esports organization SK Gaming and ATU Partners acquiring Korean esports team DRX. However, a dangerous virus would sweep around the globe and change everything.
Throughout the year, The Esports Observer reported on hundreds of stories related to COVID-19 policies. Looking back at the year in review, a couple of common trends emerged in how esports companies adjusted their business models to handle the economic consequences caused by the pandemic.
Financial Adjustments
With the introduction of COVID-19 policies in most countries around the world, a set of revenue streams connected to in-person esports events and esports venues broke off. Since many companies in the esports industry rely on these revenue streams, several of those were forced to take measures to cut operational costs counteracting the loss of revenues that were caused by COVID-19 policies.
One of the most prominent examples of such financial adjustments was ESL and DreamHack parent, the publicly-traded Modern Times Group. The group reacted by cutting down on operational costs that ultimately resulted in the plan to merge the companies behind the ESL and DreamHack brands.
Similar adjustments were made by a number of esports organizations. Some of the examples are the Overwatch League franchise Toronto Defiant’s and esports organization Mad Lions’ parent OverActive Media, which released some of its staff. The publicly-traded Danish esports organization Astralis agreed with its workforce to reduce salaries by up to 30%. And the Canadian esports organization Team Reciprocity, which decided to release all staff.
Going Online
While the esports industry is often perceived as a natively online ecosystem, especially the professional competitive esports scene has shifted to offline formats over the last few years. Consequently, esports organizations, tournament and league organizers, media, and sponsors had to adapt in a very short period of time when COVID-19 policies heavily restricted such events.
The lead example for that was ESL’s Intel Extreme Masters World Championship tournament in Katowice, which was altered significantly as a result of the Polish government ordering ESL to not let an audience in the stadium just the night before the event was scheduled to kick off in February. In the following weeks, many governments followed suit and introduced policies, which resulted in the cancelation of most in-person esports events throughout the year.
Instead, the professional competitive esports had to transition into an online infrastructure, which was not only a challenge for all companies and teams involved but also demanded an adjustment in monetization, especially in terms of sponsorship activations.
Virtual Sports
Whereas esports was mostly able to transition into an online infrastructure and continue most of the relevant leagues and tournaments, albeit often in regionalized formats, most sports events, by virtue of the physical competition nature of it, had no such opportunities. Consequently, sports organizers, teams, and athletes searched for alternative opportunities to engage their audiences and retain some revenues.
Many saw an opportunity in esports and gaming and sports entities quickly began exploring the space. The sudden increase in demand for esports products provided several esports endemic companies and startups with an opportunity to sell esports players, tournament structures, live-streaming expertise, and more to traditional sports teams.
One of the early adaptors was the NBA team Phoenix Suns, which only two days after the NBA announced the suspension of its season on March 11, decided to continue its regular season schedule by simulating the games in Take-Two Interactive’s NBA 2K game and streamed those games on Twitch.
The most natural integration of esports happened in the motorsports industry. Several motorsports series such as the Formula 1, NASCAR, IndyCar, W Series, and Le Mans series established racing simulation series in lieu of their regular schedule. Those competitions, which featured many of the series’ real-world drivers, drew in large audiences across online live streaming platforms and linear TV broadcasts.
Alternative Financing
The esports industry came into the year 2020 with a steep growth trajectory. Consequently, many esports companies pushed for internal growth, which was mostly financed by venture capital. As the COVID-19 pandemic had a severe impact on the global economy, risk capital got harder to come by for smaller companies. Therefore esports companies in need of additional funds explored alternative financing methods such as crowdfunding and going public.
Since spring, particularly going public either via reverse takeovers overs or initial public offerings has become a popular strategy to raise capital. Some of the recent examples of esports companies going public include British esports organization Guild Esports, which hired former soccer player David Beckham in an almost $20M USD deal to be the face of the organization. The game engine developer Unity Software, which raised $1.3B in its IPO. And the computer hardware and peripherals manufacturer Corsair Gaming, which listed on the Nasdaq Global Select Market. Additionally, several companies are currently planning an IPO, including KRAFTON Game Union, the parent company of PUBG developer PUBG Corporation.
In the latter stages of the year, a couple of esports companies turned to crowd equity funding to raise capital for short and mid-term projects. Above all, Fnatic’s crowd equity campaign made headlines and recently closed its campaign with over $2.7M raised.
