The esports model is broken.
Some of the largest esports games and tournaments over the past few years have been scaled back. Activision Blizzard has laid off staff from its esport department as the Overwatch League faces an uncertain future.
The International 2023, DOTA 2’s big esports world championship, meanwhile, saw its lowest prize pool since 2015 at $18.9 million. That’s still a hefty sum, of course, but for context, in 2021 the prize pool stood at a record $40 million. It’s another sign of declining investment in the esports scene which, as a former Counter-Strike: Global Offensive competitive player and org founder, I’m truly sad to see. But web3 can help fix things.
The esports winter is here
As gaming and esports journalist Alex Lee wrote recently, “the writing is all over the wall: the esports winter has arrived”. It’s a sentiment that’s reflected by others in the industry, with stagnating games industry revenues, consumers having to be thriftier with their time and income, and VCs, brands and publishers tightening their belts in a poor macroeconomic climate.
That means sponsorships are falling. BMW cut its esports spending for 2023, having previously partnered with teams such as Fnatic, Cloud9 and OG. Meanwhile, the FTX crash had the side-effect of the esports industry losing a major sponsor, having previously signed a 10-year naming rights deal with TSM in 2021 worth $210 million. FTX had also been a title sponsor for the League of Legends Championship Series that same year, amongst other partnerships.
From hype phase to build phase
Less reliance on big money sponsorships and partnerships will be a key part of esports’ future, as companies in the space look to diversify their revenue streams for long-term sustainability.
During a panel at the GamesBeat Summit Next in late 2022, aptly titled “Navigating the esports winter”, Gen.G’s Arnold Hur said “the hype era is over” and that people were now “trying to build real businesses at the right size instead of trying to build them as big as possible”. The same publication cautioned earlier this year that “the middle class of esports is on the precipice of a mass extinction event”.
Underneath the surface of the professional, elite level of esports, competitive gaming itself actually remains robust. It’s an effective feature in games for engaging and retaining players across a range of genres and formats, whether that’s timed leaderboard competitions in match-three mobile games, to the seasonal ranked leagues in PC and console shooters like Apex Legends or flying-vehicle-football title Rocket League.
While they may not be as visible as in top level esports, even grassroots competitive gaming has its issues, often suffering from a lack of broader platform feature support, and no way for mass audiences to effectively compete at scale.
This doesn’t exactly hold games back from integrating competitive elements successfully, but better tools and technology supporting these features could lead to even better engagement and potentially even greater revenue.
The esports winter may have been exacerbated by the sharp decline of crypto brand partnerships pumping revenue into the space, but web3 technologies actually offer many potential solutions to thaw it out. This is true across elite esports, the mid-level grind of trying to get noticed, and grassroots competitive play against similar ability players.
Leaving aside the thorny issue of sustainable elite esports for a moment, some of the most impactful gripes with competitive gaming include having to sign up for dozens of tournament platforms and Discords; variable quality of organisation and moderation; finding teammates; cheating; and getting rewarded when you win.
With web3 technology, payouts could be distributed automatically with smart contracts, rather than having to pool your money in a form of escrow and wait for it to be manually released. Looking for teammates could be made smoother with blockchain’s inherent transparency, with gamer profiles that show their record and performance across multiple titles and tournaments, and if they’ve been sanctioned for cheating or toxic behaviour. With these on-chain profiles, gamers could automatically qualify for relevant events or be blocked from entering leagues that are beneath their skill level.
And, while ‘NFTs’ may be tokena non grata in the games industry, the use cases of the technology are more relevant than ever – many of the examples above rely on it. But at their most simple, ‘digital collectibles’ are also an engaging form of reward. This could be a profile badge awarded for winning an event, cosmetics, entry tokens to a future tournament… The list of possibilities is extensive. Even physical rewards such as PC hardware could be represented in the form of an NFT, with gamers then able to re-sell both their digital and physical rewards on marketplaces.
From bottom to top
But what about the elite level of esports? Well, web3 certainly doesn’t eliminate the need for sponsorships and brand partnerships, if this was even desirable, but it does give them more authentic and varied ways to get involved.
The options range from creating rare, branded digital collectibles for tournament prizes (which generate additional revenue every time they’re traded), to creating branded tournaments and events, all the way to creating their own esports teams. This all requires less manual work and lower expenditure than is typical in brand partnerships with developers and games, helping make competitive gaming at this level scalable. There are clear benefits for orgs, too, such as the transparency of blockchain enabling incredibly granular scouting, down to being able to see how players perform alongside certain teammates, or in the most high-pressure games.
We’re in an esports winter, and the challenges are too extensive for web3 alone to solve. But intelligent use of blockchain technology can help make top level esports more sustainable, and competitive gaming across the board more accessible, fair and fun.
The green shoots of spring could be closer than you think.
Nicolas Gilot is a highly engaged leader who oversees all core operations at Ultra, leveraging his extensive experience in the gaming industry to drive the company’s success.
Ultra is a complete PC video gaming ecosystem built around a next generation PC games store, Ultra Games, which is bridging the gap between web2 and web3 gaming. Ultra provides access to countless services for all game developers and players in one intuitive ecosystem, under a single login. With an extensive catalogue of web2 and web3 titles and pioneering features such as an in-built wallet and marketplace, ecosystem token ($UOS), reselling of games, and competitive gaming platform, Ultra aims to provide endless value to players and developers alike.