Esports has been enjoying a massive boom, with investment in related startups increasing by over 1,100% between 2013 and 2018 and the global gambling market expected to be at about $15 billion by 2020.
So who is putting all this money into esports, and what are they getting out of it?
This article will introduce you to the general structure of esports investment and financing, the biggest players in the game, and some expectations about what the future will hold for the industry.
A Brief History of Esports Investment
The rise of esports parallels the rise of broadband access and internet gaming. Online competitive gaming culture is what created the market conditions to make esports viable (and profitable). So you didn’t really see serious interest from esports sponsors and investors until the early 2000s.
The first companies to dive into esports were the ones making the hardware the games were played on – think Intel, Microsoft, and ATI. Early esports investment consisted almost solely of traditional advertising; computer hardware companies were simply paying to sponsor big events and run ads during them.
Things would stay that way in the west for some years, but in South Korea, the groundwork for the modern sponsorship and investment models was already being laid in the early 2000s thanks to the StarCraft boom there. The country’s big telecom companies not only actively sponsored teams and individual players, but they also paid to create tournament and league frameworks and used their media outlets to promote events and turn players into sports celebrities.
Esports sponsorship and investment would stay mostly locked to computer hardware and gaming industry companies (and relatively small amounts) into the 2010s, however. That was when the market really broke open due to reliable compressed video streaming technology beaming matches to computers and devices all over the world.
The world’s biggest companies and individual investors piled in thick and fast as events like the League of Legends World Championships and The International put up very impressive viewer numbers in their inaugural years.
Some highlights that show the scope of this investment include Amazon’s purchase of gaming-focused streaming platform Twitch for about $1 billion USD in 2014, the $100 million investment in professional esports team Virtus.pro by Alisher Usmanov in 2016, the formation of esports organization NRG by a team of high-profile celebrity investors in 2017, and the NBA and Take-Two Interactive’s partnership to create the NBA 2K League in 2018.
Who Is Investing in Esports?
You can divide esports investors into a few different general groupings.
First, you have the major corporate investors who are primarily interested in advertising as esports sponsors. Hardware and gaming businesses like Intel and Microsoft have been involved since the beginning, but big names in quite a few other markets have jumped in. The primary esports demographic has traditionally been seen as men no older than their 30s, so you see quite a few brands that cater to that market putting millions of dollars in – soda and energy drink companies, men’s grooming products, cellular phone networks, snack brands, and so on.
Red Bull is one of the foremost models of companies of this nature investing in esports; they got in early in 2008 and currently host over a dozen annual events around the world, sponsor a variety of teams and individual athletes, and have a dedicated full-time esports content production team.
Venture capital firms and angel investors are also taking a strong interest in esports. These include big names such as Y Combinator, Accel Partners, Sequoia Capital, and The Kraft Group.
These investors are primarily putting money into startups that offer all sorts of services attached to esports. Some examples would be betting (Unikrn), tournament organization (smash.gg), fan chat (Discord), streaming (Twitch), and analytics platforms (Mobalytics).
When Ashton Kutcher and Mark Cuban teamed up to put millions into the startup esports betting platform Unikrn in 2015, it seemed to open the floodgates to celebrity investment in esports. Suddenly everyone from J-Lo to Marshawn Lynch developed an interest in MOBAs and macros.
Celebrities have typically been going in as partners in a venture capital or angel investment type of deal. Some of the highest-profile examples have been the formation of NRG Esports in 2017 and the growth of aXiomatic.
Traditional Sports Clubs
Teams in the established professional sports leagues don’t see esports as an either-or competitor to their product. To the contrary, they seem to be fascinated by the potential of folding esports squads into their existing framework.
Take FC Schalke, for example. Excited by the possibilities presented by esports, the popular German football club went all-in with a professional League of Legends squad (FC Schalke 04) that competes at the highest levels of the game. Quite a few of the teams from the “big three” professional sports leagues in the United States have also sponsored or created esports organizations, with particular interest coming from the NBA.
The Noteworthy Players
The following is not meant to be a comprehensive list of every esports investor out there, but it gives you an overview of some of the biggest (and most interesting) players to help demonstrate the current scope of esports sponsors and investment.
Adidas became the official outfitter of Team Vitality in 2017, which made them the first traditional sports apparel company to become an esports sponsor. They would later strike deals to become the outfitter for other teams, such as Denmark’s North.
Russia’s richest individual made international news in 2015 when he invested $100 million (through his company USM Holdings) into esports team Virtus.pro, who field high-level teams in Dota 2 and CS:GO.
Coming out of a Disney incubator in 2015, aXiomatic made an immediate splash by becoming the majority owner of Team Liquid.
Coke has made some very large investments in esports marketing. They created the eCOPA Coca-Cola FIFA tournament in 2018, they are the primary sponsor of the League of Legends World Championship, and they sponsor hundreds of LoL Worlds viewing parties around the world among other efforts.
The Mouse Ears Empire already has a stranglehold on traditional sports media through subsidiary ESPN, and all indications are that they’re going to try to position themselves similarly in the esports world.
In terms of direct investment, Disney outright bought the rights to broadcast Overwatch League in mid-2018. They also incubated aXiomatic (more on them later) and have a substantial investment in Vision Esports (owners of several esports companies) through subsidiary Shamrock Holdings.
Of course, Disney also makes use of ESPN for esports coverage and promotion. They’ve created a regularly updated ESPN subsite devoted to esports (which has become arguably the best source of news coverage available) and exclusively broadcast the Overwatch playoffs on the channel.
Evolution Media is the “creative world”-focused investment arm of gargantuan private equity company TPG. They were the leading investor in the 2017 $38 million funding round for Vision Esports.
The unofficial band of ESPN commercials is also a part-owner of ReKTGlobal and Team Rogue organizations. Interestingly, they became involved in 2018 after another Las Vegas-connected musician (Steve Aoki) decided to sell off his interest in the squads. The band has a clear interest in being esports sponsors, having written the song “Warriors” specifically for the 2014 League of Legends World Championships.
Intel was one of the first “big name” companies to jump into esports in a very public way. Their primary investment is the Intel Extreme Masters, a major multi-game annual tournament that has been held since 2007. They are also an official hardware and peripheral provider for a number of competitions, including Overwatch League.
The flamboyant owner of the Dallas Cowboys also owns the majority share of compLexity Gaming, an organization that fields teams in many of the major esports such as Dota 2 and CS:GO.
Jonas Jerebko, an NBA forward who’s played for the Boston Celtics and Utah Jazz, among other teams, made a personal investment in esports in 2016 by buying the Renegades CS:GO and Call of Duty teams.
We mentioned earlier that Cuban’s participation in the founding of betting platform Unikrn was something of a watershed moment for celebrity investment in esports, and given the Supreme Court ruling allowing states to legalize sports betting, it now looks like a very wise play for the savvy shark. By way of his ownership of the Dallas Mavericks, he also has a presence in the NBA 2K League with his Mavs Gaming squad.
Energy drinks and soda are two of the main product categories that see big returns from this market, so it’s no surprise to see Mt. Dew all over the scene as esports sponsors. They are a major sponsor of a number of high-profile teams, including Immortals, Team Dignitas, Team SK Gaming, and Splyce.
They are also funding the Game Fuel League, a Rocket League tournament, and the Mountain Dew League, an annual CS:GO competition that gives amateur teams a chance to make it to the national stage.
Odell Beckham Jr.
Odell Beckham Jr. stopped beating up kicking nets long enough to put some of his personal money behind Vision Esports in 2017.
There has been very strong interest in esports across the NBA, but the Philadelphia 76ers were the first through the door and have remained one of the most active esports sponsors. The team owns the Apex and Dignitas squads, along with 76ers Gaming Club of the NBA 2K League. They were also the first NBA team to sign up an official esports equipment supplier (HyperX) and are backers of esports marketing platform PowerSpike.
Razer is the official provider of Team Vitality’s gaming peripherals and is a sponsor for over a dozen other major esports squads, including Immortals and SK Telecom T1. They were also one of the first companies to sponsor mobile esports organizations, providing headsets and gaming smartphones to Tribe Gaming.
As we mentioned previously, Red Bull jumped into esports early and has become a model for companies looking to integrate themselves into it. In addition to sponsoring the OG squad and many different events across a variety of games, Red Bull has a dedicated esports content production team that releases articles, social media posts, and videos almost daily.
Former NBA player Rick Fox made a relatively small $1 million investment in 2015 to form his Echo Fox organization. It paid off almost immediately. Echo Fox now fields teams in nearly all of the major esports.
China is the world’s biggest market for esports, and it’s where you’ll find the largest individual investments taking place. In 2018, technology investment firm Tencent Holdings put a cumulative $1 billion USD into esports, most of that going to the gaming-focused streaming services Douyu TV and Huya TV.
The Golden State Warriors
As an organization, the NBA’s dynasty franchise of the 2010s has put some of their newfound fortune to use in forming GSW Sports LLC. The organization backs two esports teams: the Golden Guardians of the North American League of Legends circuit and the Warriors Gaming Squad of the virtual NBA 2K League.
Individual Warriors players have also put those supermax contracts to use as esports sponsors. Steph Curry and Andre Iguodala are individual investors in Swift (parent company of Team SoloMid), and Kevin Durant has invested in Vision Esports.
The New York Yankees
Baseball’s flagship franchise is a major financial backer of Vision Esports along with Disney, Evolution Media, Kevin Durant, and Odell Beckham Jr., among others.
Valor Equity Partners
Valor Equity Partners is the lead investor in Cloud9, putting them on pace to be the first billion-dollar esports organization. Valor invests in a broad range of tech companies, including Elon Musk’s SpaceX.
Volvic (a mineral water brand) is interesting in that they were one of the first major companies outside of the typical “gaming, junk food, and energy drink” triumvirate to become esports sponsors. They back Team Vitality.
How Do Esports Teams Get Sponsorship Deals?
The short answer to this one is “win a lot and impress esports sponsors.” Esports teams need to rack up a lot of wins in the smaller tournaments to catch the attention of investors, but it’s perhaps even more important for them to generate a very strong social media buzz and following if they want to attract the really big sponsors.
The high-level esports teams that began at the grassroots level have followed a similar pattern to build their success, however. They tend to be formed with players in one locality, and they spend their early days focusing on winning local tournaments as well as any online events that they can find time for around those – even if the prize pool is small or even nonexistent.
Once they have a local following, they start trying to find smaller-scale local companies interested in being esports sponsors to take things to the next level. With some money and reputation behind them, they can afford to start branching out to national and then international competitions.
Teams that have some “street cred” built can start thinking about sponsorship structure. Basically, the team has a limited number of elements that esports sponsors would be interested in putting their name on. Some teams – for example, OG Red Bull – simply have a “title sponsor” who funds just about everything they need in return for having their name on everything.
With other teams, especially those just starting to make their name, the structure is a little more segmented. Esports sponsors will usually want to come in for smaller amounts of money to be the official provider of certain team elements – for example, uniforms, peripherals, or insurance. Access to the team for advertising purposes (like promotional shoots) is also a sponsorship component.
Most of the current “big name” teams are the result of a chain of buyouts and mergers of smaller teams that started with similarly humble origins. For example, the current Cloud9 began in 2010 as Quantic Gaming, just a group of friends who liked to play online Battlefield games together. In eight years, that initial group went from a shoestring operation to knocking on the door of being the first billion-dollar esports organization.
Esports Investment Impact on Bettors
The bigger esports gets, the bigger esports betting gets. That has its pros and cons for bettors. The big pro is simple access and options, particularly for United States bettors now that individual states are free to legalize sports betting (and many have shown indications that they will).
The con is that with more money comes more focus and sharper bookies. Right now, one of the big appeals of esports betting is that a lot of bookies don’t entirely know what they’re doing, and value bets are often easier to find than they are in traditional sports.
The more investment and refinement there is in the industry (particularly in terms of high-level analytics tools), the sharper bookies are likely to be.