How Do Esports Teams Make Money?

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As someone who has worked for Lazarus Esports, Canada’s top esports team, acted as a business consultant for Ardents Esports and having done a lot of research in the industry, a question I’m posed frequently is how are esports teams thriving without really selling products.

How do esports teams make money? They make money through the following revenue sources:

  1. Multi-Year Partnerships
  2. Strategic Sponsorships
  3. Tournament Prize Winnings
  4. Merchandise Sales
  5. Publisher Benefits and Revenue
  6. PPC and PPA Agreements
  7. Advertisements
  8. Virtual Engagement Platforms

Esports teams make money from multi-year partnerships, strategic sponsorships, tournament prize winnings, merchandise sales, publisher benefits, PPC/PPA agreements, advertisements and virtual engagement platforms. The largest revenue sources for esports teams are sponsorships and partnerships, creating 59% of the total revenue for esports (Newzoo, 2020).

Let’s further dissect each of the revenue sources, explain how they work and how much money each provides for teams. We will also go into the different ways each of these works and what they are impacted by.

Table of Contents show

Multi-Year Partnerships

Multi-year partnerships by far make up the majority of an esports team’s revenue, making up upwards of 60% to 80% of a team’s revenue in a year. These partnerships aren’t limited to being multiple years, they could also be a non-renewal 1-year deal, 6-month deal or 3-month deal.

Multiple years are most common as if the esports team and company are investing in a major partnership together, you want it to be long enough for the esports team not waste their effort cultivating that partnership and the company not waste their money trying to associate their brand to esports on an undoable timeframe.

Not to mention that the esports team always wants to sign for as long as possible as an auto-renewal contract, as it is their main revenue source, while the respective partnering company wants shorter deals that can be renewed based on further negotiations.

Let’s run through the different types of benefits partnerships typically provide to partnering companies.

Initiative Inclusion

The biggest one I learned of during my time with Lazarus was including the partners in the decision process of how their brand is imployed into the future initiatives, communicating the esports team’s business strategy and really ensuring everything is best created to benefit both teams.

So when teams are looking to do promotional videos, cool interactive events for their fans, meet-and-greets or any initiative whatsoever, they bring up that opportunity to their partner to see how the team can satisfy their partner and provide the most possible metrics.

This could be giveaways, an advertisement, easter-eggs, speaking opportunities, integration of the company’s services into the initiative, etc.

These typically take place as monthly calls with certain representatives from both sides to discuss ideas, provide updates and share metrics. This really helps both sides communicate and ensure everyone is happy with the progression of the partnership.

Furthermore, it means whenever a new project is coming up on the side of the esports team, they can feel the company’s interest in being involved in it.

Depending on the terms of the contract, they may or may not have to pay a bit more to be included in that specific initiative more directly, but they are almost always included in some way, shape or form.

The esport team’s objective is to provide as much ROI to the partner as possible to ensure renewal upon the expiration of the contract. This means gathering the highest metrics for the company’s top KPIs by having them included as much as possible.

Naming Rights

Naming rights for the partners have been coming in from many unique sources very recently.

Traditionally, these naming rights agreements were more so sponsorships that were very specific to an esport event hosted by the esports team or a very specific initiative.

Nowadays, we are seeing more and more naming rights provided to a partner and having it literally change the name of the esports team.

Take for example TSM. TSM’s current name at the time of this writing is TSM FTX. Including the clan tag names of all their players in-game and on all their branding and social media.

This was actually a partnership between the crypto company FTX signing a $210 million deal for that name through a multi-year (10 years specifically) partnership.

This was obviously a very strategic move based on part of FTX, and they want to associate directly with the company’s success in esports and overall pentrate the esports industry.

For this to happen, the team has to pay big bucks and be in the industry for a long time, that’s why they opted into a partnership over a sponsorship and naming rights are where a massive value comes in.

Unfortunately, TSM is most known for their performance in the LCS and Riot Games doesn’t allow crypto exchange marketing in their league. There was a loophole in the contract that stated that if the publisher said no to the agreement, the deal isn’t lessened.

Excerpt from an Esports Observer article.

So partners need to be careful of that, and this is exactly why the longer the deal signed, the worst off the company is and the better off the team is. I’m sure if the year was a 1-year auto-renewal, FTX would definitely shoot for a much lower price considering that was TSM’s USP.

P.S. I saw this on TSM’s feed and I started dying from laughter. I had to include this, lol!

Incorporation of Branding into Players’ and Team’s on Streams, Socials and Merchandise

Partnerships are fully inclusive, which means the standard allotments typically provided in sponsorships are also provided in partnerships as these partnered companies are always valued more than normal sponsors.

This isn’t to say if a sponsor comes and is the top tier sponsor of an event that the partner will still overshadow the key sponsor, that would be the only exception to the rule above.

Regardless, partners will receive the standard slew of logo placements on player’s streams, social media and any team social media and merchandise.

Take for example the image above. This is streamer Scrapie, official content creator of Lazarus Esports. This is him just regularly streaming for his career, but even during this time the Lazarus partner, XP Sports, is being advertised on the screen. Let’s take a close-up look if you can’t see it already.

As you can see, at the bottom right they have their logo placement. This is consistent on all streamer’s streams at all times.

Scrapie also has the XP logo on his Twitch About page and his influencer social media accounts, such as his Twitter banner and the like.

They also get their logo on all the player’s jerseys and the like. This allows the partner to reap benefits from both the content creators and the competitive side of the esports team.

Jumping back to the TSM x FTX partnership, since partnerships are fully inclusive, that would include (as we mentioned) incorporation on streams, socials and merchandise.

Therefore even though FTX’s name or logo isn’t being showcased or involved in the LCS or LCS broadcast, they still get exposure from the LCS players and team themselves via stream and social media engagement.

Excerpt from the same Esports Observer article.

TSM will obviously want to juice out extra value through these social posts and stream engagements to help at least make up for the lost exposure FTX was expecting.

Strategic Sponsorships

Strategic sponsorships, we will just call them sponsorships because that’s all they essentially are, are collaborations between an esports team and the respective sponsor who is entering this sponsorship agreement for a very specific result or outcome.

The strategic element comes in whereas we discussed, partnerships are just an attempt of getting everything out of a long-term expensive deal with an esports team, meanwhile sponsorships are focused on a specific initiative and set of KPIs (Key Performance Indicators).

Credit: Newzoo 2021 Report

Below, we will talk a bit about the different methods by which a company may enter into a strategic sponsorship with an esports team.

Streamer Based (rev-split with players)

This is the most common type of sponsorship that sponsors want, they don’t want to sponsor an entire team but very specific types of personalities.

This is either because the price for being a partner is beyond the amount they’d like to spend (because the metrics and ROI the partnering company would get is beyond their objective) or because the partner wants to come in from a very specific angle (for example, Doritos wanting to associate themselves to hardcore FPS games like Call of Duty).

Take for example The Doritos Bowl in 2018 including stars like Ninja, Shroud, Courage and Dr. Lupo, massive streamers that are most known for their skills in FPS games. They all will be competing in, you guessed it, Call of Duty (Black Ops 4 Blackout, that battle royale format Activision made relevantly recently at the time).

Excerpt from Hot New Hip Hop.

Obviously, this wasn’t hosted by an esports team, but this is just an easy and good example to communicate the point, considering I already touched on Doritos as an easy target. Just think of something like this but with the organizer and coordinator being an esports team.

That is how it works. We did work on a few of these during the time that I was with Lazarus, but I won’t be sharing them here 🙂

Tournament-Focused Sponsorships

So instead of the Doritos Bowl being hosted by Doritos, imagine if Doritos was instead the key sponsor. That is essentially what this would look like.

Tournament-focused sponsors are only sponsoring the specific tournament. This sponsorship does not exceed any benefits or furthering of the relationship outside of the event. Typically these sponsorships help pay for the event and ideally plus some for revenue.

When esports teams are hosting big tournaments, they typically aren’t doing it as a normal tournament-organizing business would. They either are doing it to engage with their community as something fun with streamers or (more often) they are doing a big celebrity-based tournament. These are mostly for the specific reason of acquiring new sponsorships, satisfying the request of a prospective sponsor who had a conversation for a celebrity tournament or bumping up their viewership and exposure metrics for their current or future partners.

Take the Doritos example and pretend they were an esports team. Boom!

But fine, I’ll give you another example because I’m nice. When Lazarus hosted the VIRL Esports Golf Showdown (a PGA 2k21 golf tournament), they recruited many sponsors for the event and the top sponsor was Bear Mountain.

Bear Mountain isn’t a partner with Lazarus esports, but they are a sponsor only for this specific initiative. They weren’t the only sponsors, as you can see in the advertisement graphic below.

All these involved sponsors either provided in-kind items, services or hard cash to be involved in this endeavour.

What’s in it for them? Well… exposure, a bit of philanthropy (as it was a collaboration with VIRL which is a government-run library) and any other benefits they may get from their specific KPIs.

For example, Bear Mountain had their real-life golf course recreated for the event and 4 celebrities duelled it out on the course for a closest-to-the-pin event.

This ideally brought more desire for the local golf players watching the stream to desire to play on that same golf course and embedding the Bear Mountain title with a level of prestige and general esports.

Activation-Focused Sponsorships

This is basically something that can fall under any of the others we mentioned above.

Basically, what I mean here by an activation-focused sponsorship is where a sponsor is sponsoring an esports team specifically for an activation.

If you aren’t aware of what an activation is (and I should have defined it earlier since I’ve already used the word a few times), an activation is the implementation of an agreed act within a sponsorship agreement.

Unique or special activations could be something like giving out a free pizza slice from Pizza Pizza if a certain team gets a certain amount of points. The crowd ends up yelling “Pizza! Pizza! Pizza! Pizza!” which obviously sounds like “Pizza Pizza! Pizza Pizza!”. What a great activation idea.

Well, it actually happened and it was a major success. This was probably an activation-focused sponsorship, although neither the team (Raptors, the Toronto Basketball team) or the sponsor projected the big ROI Pizza Pizza got from it.

Tournament Prize Winnings

Tournament winnings are money won from the prizing in tournaments. You probably noticed big tournaments like The International or the LCS with multi-millions in prizing.

Obviously, that money has to go somewhere. Well, if you for whatever reason didn’t know, it goes to the winning teams.

Pretty simple in essence, but let’s speak about how exactly that money divids itself up with the team.

Rev-Split with Players

If the team is to win any money, it would be a rev-split (revenue-split) between the team and players, in favor of the players.

For example, the team may get 20% of the prize money while the players get 80% of the prizing.

This isn’t always the case, it’s sometimes more common to see the team not taking any money from the players, depending on the game and barrier of entry into the game (franchising, reserved seats based on the team instead of the player’s performance in qualifying, etc).

If anything, the contracts almost always include clauses where if the team is paying for travel expenses and entry fees (as they commonly do), the team gets 20-50% of the prize pool or until they break even on what they spent for the players to participate.

College teams actually don’t ever take any of the prizing money. I learned that when I was speaking with my old college’s esports team manager, it’s a practice that isn’t even liked by the colleges.

In fact, when I worked for the Ontario Post-Secondary Esports league (OPSE), I remember someone talking about how the colleges and universities didn’t even want their students competing for money, the same way college sports don’t.

Merchandise Sales

Merchandise sales aren’t entirely focused on generating revenue, it’s more so for fan engagement and having the people wearing the merchandise promoting the esports team.

That said, merchandise (more commonly referred to as merch) does still make a decent amount of money for esports teams and the industry as a whole. As you can see in the Newzoo graph below, merchandise sales actually make a decent amount of the esports’ total revenue.

Let’s talk quickly about the different types of merch and how they fair against each other as sources of revenue.

Player Jerseys

Player jerseys are typically sold to the general public. And no, not a player’s actual used jersey, but rather brand new ones made in bulk.

For example, when I went to Lambton College, I purchased my own jersey from our esports team (image below) and when I worked for Lazarus I got a custom one for being on the team, paid by the team.

I’m at the button left wearing the jersey during an esports tournament my club and I hosted at college.

I wasn’t an esports player on either occasion, but in both, I got a jersey.

As a revenue source, jerseys are typically the most popular. Sweaters make a bit more per sale, but sweaters also cost more in general.

Again, really the focus here isn’t primarily revenue.

Sweaters and Shirts

Sweaters sold by esports teams are expensive, but they aren’t of terrible quality.

As per revenue per sale, they are up there, but they don’t get as much sale per item.

For example, above are the rogue esports sweaters sold by Meta Threads. 70 DOLLARS?!?! (I’m sure that’s USD too, I’m Canadian so throw about 30% more on that) Like, cool but no thanks 🙂

Shirts are in a different boat entirely, typically cost less than a jersey and sweater, but make less money.

Shirts are the most sold merchandise item by an esports team and streamer.

Accessories and Miscellaneous

Lastly, we can touch on accessories and other types of merchandise.

These ones are less for marketing purposes and actually do bring a good bit of revenue. Also are great for fan engagement.

Examples include plushies, wrist bands, hats, sunglasses, custom keyboards (yes, we will get into that more in a sec), mousepads and even custom PC builds.

These are Team Liquid’s accessories. My favorite by far is that plushie at the top left. These are also from Meta Threads, but they are far from the only esports supplier for teams and aren’t even the most popular to my knowledge. I just like Liquid and Rogue, and both sell via Meta.

Back when I used to work as a business consultant for Ardent Esports, we were actually contacted by a custom keyboard supplier who wanted to do a collaboration with us.

The team owner pulled me into the discussions, we didn’t move forward with it as the team was too small to let us hit the quota they were providing, but it was cool to see the process of planning out a custom keyboard launch.

As the industry grows, more custom team-oriented equipment and accessories will come out and they will progressively make esports teams more and more money.

Publisher Benefits and Revenue

This is a great source of revenue when done right. Publishers like Riot Games is notorious and the real industry leaders when it came to providing benefits and even player salariees to esports teams to further justify being a part and investing in their professional esports scene.

We will dive into what these benefits are and what the esports teams have to gain from them.

General Benefits

There are some general financial benefits tournament organizers provide esports teams. The obvious one is exposure for participating in their tournaments through viewership which results in bigger sponsorship and partnership dollars.

In more exclusive leagues that are looking at top esports teams to help bolster a new league in a general area, the publisher may end up providing benefits such as merchandise, additional exposure and insider opportunities to strike additional deals with league partners and contacts.

Player Benefits

Players may benefit from the league as well. The same as we mentioned before, players get exposure through the league which helps them individually make more money from their sponsors and get more prospective viewers of their own streams and brands.

Players also have the opportunity to win a tournament prize, but we already touched on that so I won’t go down that rabbit hole too much here.

Revenue via Microtransaction

Besides the general and player benefits that were mostly just small fluff content, the revenue from microtransactions is an actual decent revenue source afforded to from the publishers to the teams.

The way this would work is that the publisher would have a purchasable item or ability within a game that players can purchase for real money. If a player pays for it, all or most of the proceeds go directly into the team’s pockets.

This further incentivizes teams to want to back certain games, publishers and leagues as they have more to gain from them. This also helps offset the cost of players, allowing players to get a larger salary that makes more business sense for the esports team, as if their players do well in that tier 1 tournament, more players are likely to buy the team-branded in-game item or ability.

A great example of that is Riot Games League of Legends and the LCS. For all teams participating in the LCS from time to time (typically in worlds, possibly exclusively for worlds), players can purchase team-branded icons.

The examples above are icons used for 2017 League of Legends Worlds Championships.

All proceeds will go directly to the teams. Boom, another source of revenue to help out the teams. This further incentivizes teams to want to perform well in the league as the payoff is now greater (and in the LCS’s case, performing well already has a massive payoff).

Here are 2020’s. Wanted to show these too to show how cool these look in contrast to the 2017’s ones.

Player Salary Payments

This isn’t a common practice, but certain esports leagues will actually aid in or control the payments of players in their corresponding leagues.

This obviously helps the team but likely would hinder the ability of the player to be able to negotiate his rates if the rates are heavily controlled by the publisher.

An example of a league that pays the players is the LCS. As you can tell, Riot Games does a lot to be the leader of the world of esports.

They actually play a role in the payment of player salaries, I’d believe it’s the entirety but I’m not entirely sure.

The crazy thing is allegedly the average player for a pro player in the LCS is $410,000 by the executive director of the LCS.

PPC and PPA Agreements

PPC (Pay-Per-Click) and PPA (Pay-Per-Action) agreements are the most popular type of payment made to grassroots and low-tier esports teams by companies and advertisers.

Essentially, it’s a low-risk investment for the company involved and a low-reward endeavor for the team.

These are mostly only taken alone by teams that either are run by an administration that don’t have the best business sense or teams that have no leverage in negotiations and conversations due to their weak metrics, branding and positioning.

Twitch Placements

This would be the most common. If you scroll down on some streamers and see their custom link for their sponsor and maybe a discount code.

That discount code actually allows them to track how many people are buying due to that specific content creator, so they may be properly paid for their PPA rate.

The same goes with a custom link. Such as if I was a streamer and I had a deal with let’s say LS Esports, my friend who runs an esports tournament organizing company. If I said you should check out and signup for his tournament using my link lsesports.com/esporthow, chances are we have a PPC deal and every time someone uses that link, his website collects that data and at the end he gives me a cheque based on that.

These types of deals that are allotted to the players via the team’s relationships or by mandate of the team via a partnership will result in a rev-split between the esports team and player.

YouTube Placement

Now that I explained the principles in the Twitch section, the same concepts apply to YouTube. In fact, I see this even more common on YouTube since YouTube content creators fall into a slew of other genres of topics where more PPA and PPC are common and traditional.

Web Placement

This is the least common for esports teams, but I’m sure they do it because why wouldn’t they.

That said, for those very few that do actually do this, they likely aren’t making much money, if any at all, from their PPA and PPC links on said website.

Advertisements

Advertisements are different than sponsorships and generate a separate source of revenue for esports teams.

The difference is a sponsorship is a collaboration between the team and the company, showing the company is also supporting esports and they usually receive activations that are experimental and unique.

Advertisements are those traditional video ads you see on TV and even before you watch a streamer on Twitch (which is one of the revenue sources we will get to momentarily).

A sponsorship and partnership can also provide advertisement time as a part of their agreement and that would constitute as a sponsorship or partnership revenue respective to the other elements in the agreement.

But a general advertiser has no affiliation to the streamer, player or team when they just place a general ad, meanwhile sponsors do.

Twitch Revenue

This is the primary source of this revenue when it comes to esports. Esports teams don’t make much off of this as tournament organizers may and especially unlike streamers do. That said, it’s not a substantial source of revenue for any of these parties involved.

That said, whenever the team is doing something on their channel, any Twitch ad revenue they do make will go directly to the team.

If the team wanted to make money off of any other medium and wanted advertisements as a source of revenue, they’d need Google Ad Manager or another ad management platform to get their advertisers to bid on the endeavor.

They could obviously recruit their own advertisers if they wanted, but it just makes financial and business sense to go through an ad management platform unless you were running a massive event.

A great example of this is Liquipedia, which is a wiki hub made by Team Liquid. They have advertisements on that site that actually generate their esports team money.

Virtual Engagement Platforms

In esports, when it comes to making money off of viewers, we can’t even compare to sports. As you can see from the image below by Newzoo 2016 report, even in 2016 esports made half per viewer than would be optimal.

There is virtual engagement revenue that comes in, where players and teams can make a bit of money off of the viewers strictly by them paying for optional engagements.

Twitch and YouTube Engagement Revenue

I don’t think I have to explain this one to my readers. But it’s my job, sigh, so I will.

Although platforms like Twitch and YouTube provide free viewing opportunities, for whatever reason, Gen Z’ers have a problem with that and insist on paying.

As a result, viewers can optionally for whatever reason pay a subscription to financially support the streamer or team. The viewers can also send paid-for messages that pop up especially big and the team and/or players tend to give special attention to those paid-for messages (since someone spent money on it).

As a result, whenever this happens on an esports teams’ social accounts, they basically get to keep that revenue.

It’s far from a decent source of revenue, but hey, it exists.

Virtual Player Engagement

I haven’t heard too much about this and I’m not too familiar with this. What I do know is that in January 2021, Team Liquid signed a 10-year partnership with Alienware to launch Liquid+ which is similar to the Cloud9 Stratus released in November 2020.

These platforms allow teams to monetize their fans by providing incentives when viewers and fans buy the membership like access to giveaways, privileges and fun ways to interact with the streamers and players.

This is meant to become a substantial source of revenue for these companies, but these are really new and only time will tell if these moves by the esports teams would pay off or not (see what I did there).

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