eSport as a profitable business

Hey folks

First of all I would like to apologise if there is already a thread with a topic like this one but I actually didn't manage to find it.... so yeah sorry for that in advance.

Anyways, let's get to the topic itself. I always wondered if eSports is a profitable business. Of course there are tourneys like MLG or TV stations like GOM ( sorry if this is wrong >.< ) but I what I actually want to know is:

Is it profitable for a team like Liquid or Evil Geniuses to invest money in players, their accommodation, trips etc. ? Or is their main goal not to lose any money at the end of the day? ( I mean of course everything costs a lot of money and they are sponsored so are they making profit or is their goal to avoid financial loss? )

Whilst I am well aware that mostly the "important" ppl like Nazgul for example won't talk about it, I am quite curious.

Also are qualified employees doing the finances for liquid or EG or SK or something similar to them?

Again sorry for my bad english and of course I would like to apologise if there's already a thread with a common content

Ph4ZeD United Kingdom. June 21 2012 06:25. Posts 621

Its my (limited) understanding that it is not currently profitable for most organisations/teams. IPL for example are owned by News Corp so have huge financial backing - it's my assumption that it could not operate independently.

TBone- June 21 2012 06:27. Posts 1749

If it wasn't profitable than they wouldn't be doing it.

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Ph4ZeD United Kingdom. June 21 2012 06:29. Posts 621

On June 21 2012 06:27 TBone- wrote:
If it wasn't profitable than they wouldn't be doing it.

That's quite a naive perspective. Most newspapers in developed countries are not profitable yet are still in print.

lullaby June 21 2012 06:30. Posts 27

On June 21 2012 06:27 TBone- wrote:
If it wasn't profitable than they wouldn't be doing it.

not so sure about that :x Could be that they are making practically 0 money with it. So I don't know. Also it could be that Liquid isn't making any money at all but provides customers for their sponsors ( what sponsoring is actually all about ). So I can't agree with you 100% there

SimDawg United States. June 21 2012 06:41. Posts 1293

Teams always operate in the red. EG and Liquid are kept afloat by sponsors who do so as advertisement and branding. They do make money with things like selling merchandise, some teams take portions of prize money, etc.

But afaik no teams are self-sustainable, they all rely on sponsorships.

zezamer Finland. June 21 2012 06:43. Posts 1805

Well I've known teams like Fnatic and EG from other games too and they have been in esports forever, I doubt they would have done it so long if they lost money.

grs Germany. June 21 2012 06:43. Posts 1422

On June 21 2012 06:41 SimDawg wrote:
Teams always operate in the red. EG and Liquid are kept afloat by sponsors who do so as advertisement and branding. They do make money with things like selling merchandise, some teams take portions of prize money, etc.

But afaik no teams are self-sustainable, they all rely on sponsorships.

Relying on sponsors is self-sustainable; every sports team relies on sponsors, it is the way of their business.

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SimDawg United States. June 21 2012 06:47. Posts 1293

On June 21 2012 06:43 grs wrote:

Relying on sponsors is self-sustainable; every sports team relies on sponsors, it is the way of their business.

Technically of course you're right, that sponsorship does mean a viable business, but I'm not sure that was what the OP was asking. For a team to be self-sustaining it would not include sponsors, so your terminology is incorrect.

Secondly while all sports teams have sponsors, certainly it does not make up the huge percentage of income that it does in esports. Ticket sales, merch, and revenue sharing make up much more.

Last edit: 2012-06-21 06:50:05

zhurai United States. June 21 2012 06:48. Posts 5558

On June 21 2012 06:41 SimDawg wrote:
Teams always operate in the red. EG and Liquid are kept afloat by sponsors who do so as advertisement and branding. They do make money with things like selling merchandise, some teams take portions of prize money, etc.

But afaik no teams are self-sustainable, they all rely on sponsorships.

pretty much this

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lullaby June 21 2012 06:53. Posts 27

On June 21 2012 06:41 SimDawg wrote:
Teams always operate in the red. EG and Liquid are kept afloat by sponsors who do so as advertisement and branding. They do make money with things like selling merchandise, some teams take portions of prize money, etc.

But afaik no teams are self-sustainable, they all rely on sponsorships.

Then my question is: Why don't they utilise the hype around their brand? I would sell lots of stuff since when I have a look at the shop, everything is nearly always out of stock. I don't know.... this seems too easy somehow. I mean you get a sponsorship but I as a responsible topdog at liquid would try to improve my financial situation. Don't you guys agree?

MichaelDonovan United States. June 21 2012 07:00. Posts 1048

On June 21 2012 06:47 SimDawg wrote:

Technically of course you're right, that sponsorship does mean a viable business, but I'm not sure that was what the OP was asking. For a team to be self-sustaining it would not include sponsors, so your terminology is incorrect.

Secondly while all sports teams have sponsors, certainly it does not make up the huge percentage of income that it does in esports. Ticket sales, merch, and revenue sharing make up much more.

Having sponsors doesnt mean you arent self sustainable. You are selling advertising and brand name spreading to companies, basically. That itself is a business.

dAPhREAk Nauru. June 21 2012 07:00. Posts 8698

only people who run teams/leagues can answer these questions, and they are likely not going to respond to this thread. i would love to know too if someone had real knowledge.

*

Lavitage2 June 21 2012 07:01. Posts 46

The question is, how much are the sponsors getting out of it? They provide the money that keeps everything running - how many new customers do they get from the added exposure? Enough to make them keep being sponsors?

I look at League of Legends and Dota 2 where the developer of the game pays for all the e-sports related expenses and... bleh. When the developers of 2 of the most popular multiplayer games out there need to resort to that, it makes me think the whole sponsorship model isn't working all that well.

SimDawg United States. June 21 2012 07:03. Posts 1293

On June 21 2012 06:53 lullaby wrote:

Then my question is: Why don't they utilise the hype around their brand? I would sell lots of stuff since when I have a look at the shop, everything is nearly always out of stock. I don't know.... this seems too easy somehow. I mean you get a sponsorship but I as a responsible topdog at liquid would try to improve my financial situation. Don't you guys agree?

Liquid sells things in the thousands, but doesn't sell things steadily enough to keep a constant supply.

There are certain "on demand" manufacturers that will make things like 1 t-shirt at at time. These are very expensive and most of the margins are made by the manufacturer. But in the volumes that I will assume these guys work at, it does make financial sense to order a production run of say, 1000 or 2000 (judging from announcements I've seen on TL), partner with someone like Razer or SS, keep overhead low, keep inventory storage costs down, and pocket a reasonable profit for the team.

Inventory storage costs form a large part of running a business, and keeping things right on the edge of demand, but out of stock, is smart.

Last edit: 2012-06-21 07:04:49

lullaby June 21 2012 07:09. Posts 27

On June 21 2012 07:03 SimDawg wrote:

Liquid sells things in the thousands, but doesn't sell things steadily enough to keep a constant supply.

There are certain "on demand" manufacturers that will make things like 1 t-shirt at at time. These are very expensive and most of the margins are made by the manufacturer. But in the volumes that I will assume these guys work at, it does make financial sense to order a production run of say, 1000 or 2000 (judging from announcements I've seen on TL), partner with someone like Razer or SS, keep overhead low, keep inventory storage costs down, and pocket a reasonable profit for the team.

Inventory storage costs form a large part of running a business, and keeping things right on the edge of demand, but out of stock, is smart.

Thanks for clarifying that ^^ I am studying economics and I am well aware of that but I am missing the higher-cost goods like I don't know a jacket or jersey. They could charge a high price and make a lot of money. What I am/was really missing, was when TLO had that epic beard of his, they could have easily made a poll if users wanted a shirt with a cool slogan about his beard. ( like release the gracken for EG ). This would guarantee that they had a huge turnover since this would have been customer-oriented instead of "pushing" shirts and being product-oriented.... don't know if I'm talking too much into this but I am really really curious :<

Pr0wler Bulgaria. June 21 2012 07:09. Posts 397

On June 21 2012 07:01 Lavitage2 wrote:
The question is, how much are the sponsors getting out of it? They provide the money that keeps everything running - how many new customers do they get from the added exposure? Enough to make them keep being sponsors?

I look at League of Legends and Dota 2 where the developer of the game pays for all the e-sports related expenses and... bleh. When the developers of 2 of the most popular multiplayer games out there need to resort to that, it makes me think the whole sponsorship model isn't working all that well.

Well, if they are still doing it, then they are getting enough to keep them sponsoring. This is common human logic. If the thing you do is profitable, then you do it again... If it's not - you don't. I doubt that Razer will sponsor TL and a bunch of other teams just to support eSports... It's dumb and illogical. They will just not do it.
"The whole sponsorship model" works with many, many teams in many, many sports so I can't agree that its not working well...

mikkmagro Malta. June 21 2012 07:12. Posts 855

afaik, I read somewhere in an interview with Sam Mathews (Fnatic's CEO), that this year was the first time that Fnatic actually made a profit, keeping in mind that they've been in operation since 2003/2004, and probably have the most eSport fans (as a whole, not just SC2), in the world.

I don't know much about league organisers, but as regards teams, profitability largely depends on how active the managers are. Teams such as EG, Dignitas and Fnatic look like they have amazing sponsor relations, and they have been in operation for ages, they organise events for their sponsors, they operate booths at events, they send their players for promotional events and sell merchandise. On the other hand, German teams like SK, mouz, Alternate and ESC seem to operate differently, as they seem to focus more on domestic support, but I doubt that the teams would be operating in the red after all these years in operation. After all, eSport teams are flexible, and if they see that their spending power will be limited, they can reduce their expenditure fairly easily, as long as their cautious.

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GenoPewPew United States. June 21 2012 07:13. Posts 315

It takes a long time for a lot of businesses to be profitable. I run a start up in eSports and I'm going to tell you now that it's really hard to turn a profit but because I love it, I continue to be in business

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SimDawg United States. June 21 2012 07:13. Posts 1293

On June 21 2012 07:09 lullaby wrote: