The fundamentals of the esports industry are esports tournaments, and with revenue exceeding $1 billion, it has many people pondering on how do these esports tournaments make money? Esports tournaments make money from the following items:
- Sponsorships
- Media rights
- Ticket fees
- Partnerships and clientele
- Advertisements
- Merchandise
- Vendor sales
- Trademark royalties
Tournament organizers, all the way from grassroots tournaments in someone’s basements all the way to professional tier 1 tournaments, make all their revenue from these sources.
If you are looking to start your own tournament series, tournament hosting service or just interested in learning more about the esports industry, this article will walk you through each of these categories, what they are and how to obtain revenue from them.
Esports Tournaments Financial Ecosystem
Before we dive into the specifics of each category, let’s first understand how the esports industry and tournaments work from a financial standpoint.
Hosting Tournaments for Money – Tournament Financial Misconceptions
Firstly, let’s clear up any misperceptions or confusion around the finances of tournaments. Many people believe that all tournaments are run to generate profits, and that’s simply untrue.
Many tournaments are cash flow negative, meaning they generate less revenue from their services than they are spending and need money from investors and other services to fund them. To learn more about why that is, click here to read a full article following why tournament organizers like Riot Games would do this.
To sum it up really quickly, due to a tournament also functioning as a method to engage with a community and attract a certain audience, a tournament can be used as a marketing endeavour, community-engagement endeavour or help bring an active audience to a particular location.
For that reason, it’s important to know that not all tournaments make money, in fact a lot of tournaments lose money. Again, if you want to learn about this more in-depth with real-life examples, click here.
With this all being said, many tournaments actually do look to make money. So be aware that many of those tournaments with $20+ million in prizing likely aren’t.
Main Sources of Revenue for Tournaments
Now that we got that out of the way, let’s look at actual profitable tournaments and how they are generating revenue.
The main source of revenue for these tournaments are typically through sponsorships. According to Newzoo’s 2020 report, sponsorships make up 59% of all revenue in the esports industry.
And this percentage has been growing year-over-year, following the trend that we’ve seen over the past decade. Sponsorships is arguably the main reason esports was even able to establish itself as an industry.
According to another report by Newzoo, the esports industry completely fails to make optimal revenue per esports enthausist. For example, in 2019 esports should be generating around $11 per attendee, while we are actually projected to only make $6, just a little more than half what’s optimal. That’s more than $1 billion in a difference.
That said, what we are strong at is pulling money from sponsors as esports has a very focused demographic of young, prominately male indiviuals who are interested in technology and gaming.
What this does is open the doors to sponsors that cater to gamers, such as energy drinks, hardware companies, junk food, pizza, etc.
Below, we will go more in depth to each source of revenue, but be advised that each other section is just uncompariable to the amount of money made in sponsorships. We are talking tens of millions of dollars just from sponsors wanting to get their brand known.
To skip to that part of the article, scroll a bit further below the next part.
The Costs of Hosting an Esports Tournament
Now for the costs of the actual tournament. This would depend on how much the tournament is going to be facilitated, such as will it be online or live? Do you own the venue or does someone else? Does the venue come with PCs, wired internet and all production equipment?
Regardless, I will break down what I can below to help you better understand what overhead is eating away from those millions of sponsorship dollars.
What are the costs of hosting an esports tournament?
- Prize pool
- Venue
- Hardware equipment
- Game publisher fees
- Food and beverages
- Internet
- Contracted worked (graphic designers, animators, production, back-end services, etc)
These costs for an esports tournament listed above are fairly high level and these costs can range drastically different depending on the circumstance.
For example, the venue cost for a tournament in the Staples Center will cost significantly more than your local community center. The cost of food widely depends on what food you buy and for how many people.
Take for example the image above, that pizza cost us about $50 – $100, but our event later in the year was estimated to have about $500 worth of food due to the event being significantly larger.
Not to mention if your prize pool is $500, it’ll cost you $500 or if your prize pool was $25000, it would cost (you guessed it) $25000.
How to Make More Money for Esports Tournaments
Now that you understand the basics of the esports tournament ecosystem, including the main driving source of revenue and high-level items for tournament costs, let’s dive into how each supplemental revenue source works and how you as a tournament organizer can incorporate it into your own events.
Sponsorships
Sponsorship, as we mentioned, is easily the largest revenue source for any tournament. The way sponsorship works are if your endeavour, be it a location, a team, an event or a company, brings a targeted number of eyeballs that companies want, they would pay money to leverage you to get those eyeballs.
This is done through what we call an “activation” which in simple terms means to activate on or provide a certain sponsorship service to reach the objective of the sponsor. Certain sponsors are looking for different things, such as awareness, impressions, increased sales or community engagement.
As far on how to obtain a sponsorship, that is a very large topic, so if you are interested, click here to go to our step-by-step complete guide on how to obtain sponsorships for your esports tournament.
But to quickly sum it up here, you need to identify a good match, contact them, learn what they are looking for, compose a package, make the pitch and close them.
Media Rights
Media rights are revenue that generates when television services or other online streaming platforms pay a tournament organizer to gain rights to broadcast the tournament on their platform. Sometimes, more often than not, this agreement is an exclusivity deal.
This source of revenue is growing the fastest in the esports industry, with it bringing up to 42% more money in 2019 than the previous year. That being said, this is usually more limited to larger tournaments that can provide enough return-on-investment (ROI) to the funder for obtaining the broadcasting rights.
Typically to obtain this source of revenue, a streaming or broadcasting company would reach out to you instead of vis-versa. However, I will quickly run through how you could go about obtaining an agreement if that is something you really desire.
Be advised by providing exclusivity, you will likely lose a massive portion of your viewers, making you either need to pitch lower projected metrics to sponsors (resulting in less revenue there) or disappointing sponsors and potentially losing all other business with them (or even possibly violating the contract depending on the terms).
In order to obtain this source of revenue, you need to first determine if your organization provides enough traction and has good enough metrics that would make sense for a streaming/broadcasting service to pay you to host this on their platform.
If you determined that this is feasible, you will need to contact a broadcasting service that makes sense for you and is already involved in esports to some degree.
But for the type of people who would read this article, I’m highly doubtful that you are at the level to do this, so I wouldn’t waste my time here unless you are truly hosting a massive event.
Ticket Fees
Ticket fees provide revenue every time a tournament organizer sells a ticket. This includes tickets for the players to participate but also tickets for viewers who just want to watch or loiter.
This cost highly depends on the size of your event, the size of your venue and the equipment you have present. Typically, more grassroots events can get away with $5 – $25 per player/event depending on the specific event.
If your tournament isn’t generating this kind of revenue already, you want to look at your tournament’s demand and supply. If there is a larger demand than supply, it’s always a good idea to slap an entry fee on there. By doing so, those who signup are more likely to show up versus a free event as they have more ‘skin in the game’ sort of speak. Not to mention a new revenue source for the tournament.
Another element worth looking at is charging people coming to spectate. It really depends on if those spectators are looking to spectate to possibly be players in the future, or if they are spectating for the sake of spectating.
If the barrier-of-entry is too large for spectators, you could be looking for short term gains (of making money off spectators) but lose out on long term gains (having committed players from those spectators if they don’t end up spectating in the first place because of the cost).
It’s really something, as a grassroots event, you need to weigh your options for, but I’d recommend at the very least giving a ‘first time free’ deal to anyone spectating for the first time and revisiting spectators can pay a fee.
Partnerships and Clientele
Have you ever wanted to just make some form of direct income from hosting these tournaments? Well you can, if you can acquire a partnership or a client who wants to pay you to host a tournament for them.
Many businesses and organizations are looking at gaming and esports as a great place to expand their brand into, but they don’t know where to start. With that said, hosting a tournament is always a smart way to get started and even build PR, and these companies acknowledge that.
I’ve done this multiple times in the past to get paid for my direct services as a tournament organizer. But now let’s quickly run through how you can find these kinds of partnerships or clients.
First, you need to determine your strategy for outreach. You either need to widespread market yourself as providing that kind of services or you need to actively hunt for clients by dealing with them one-on-one.
More likely than not, for most of you I’d recommend the latter, going on the hunt and working one-on-one with prospective companies to convince them why they should go into esports and why you would be the best person to help them make it happen.
Be advised, working with clients is a much more involved processes versus working with sponsors as they will own all assets of the event itself. Be careful with the terms of your contract, especially when you bring your own assets and copyrights into the project, as you could be unintentionally giving them full rights over your own assets and losing your rights to ever use them again.
Advertisements
Advertisements, similar to sponsorships, are companies leveraging the eyeballs your tournament attracts to help their own brand. The main difference between sponsorship and advertisements is the active involvement with their brand during the event.
Advertisements will typically be less profitable than sponsorships, but the trade-off is that company isn’t an active ‘sponsor’ of the event and they gain no additional benefits beyond the advertisement on the tournament stream.
To obtain this kind of revenue source, you need to first have a stream that is large enough to validate advertisers to come on. You will also need to make advertiser slots within your stream to play their video.
Then, you will need to reach out to the prospects and pitch why they should advertise on your stream, which could also lead to a sponsorship agreement and the advertisement could simply a perk in that sponsorship.
Merchandise
Merchandise is making your own custom material and items to be sold back to your community. These work out as community members usually are willing to support brands and represent them if they are actively apart of it and enjoy it.
Merchandise is surely a significantly smaller section of revenue for tournament organizers, but by selling this, you not only gain a revenue source, but they are also doing free marketing for your brand and organization; they are a walking billboard.
To obtain this source of revenue, you need to find a third party to build your merchandise. From them, you will either need to purchase a large shipment to actively sell at your event (higher risk but higher sell-out) or host an online shop on your website. Usually, the third party will have an API you can attach to your website, or they could redirect them to their site’s shop custom made for you.
You can also make your own shop for your website if you desired, but why reinvest the wheel.
Vendor Sales
Vendor sales are simply revenue you make as a royalty and/or base amount from other vendors selling merchandise either actively on or from marketing provided by your tournament.
There is a multitude of ways to go about obtaining this revenue source, and this is a really good way to start milking more money out of your attendees through products that can also provide them more value directly.
You can charge a vendor a certain amount of money to sell at your event and that’s it. You can also just have a royalty per sale they make at your event. You can also incorporate both.
They may also just provide a type of sponsorship activation where you advertise them without them physically being at the event, and for all sales made (or for incentives hit), you make a certain amount of revenue (in addition to the initial payment for your advertising).
The specifics are completely up to your discussions with the vendor and yourself. Keep in mind your type of organization and what value you truly have in the marketplace.
Trademark Royalties
Trademark royalties are payments made to your organization and brand when other companies want to use your logo or other trademarked/copyrighted assets for their own endeavours.
Trademark royalties will be a harder revenue source to have, but if you can obtain it, it’s free money. Just be aware of how they are using it and how that may look on your brand.
Through most sponsorships, you are usually giving this right away for free, which is a standard within sponsorships, but if they aren’t sponsoring the event you need to understand why they even want your logo in the first place.
This is something you see more from content creators or even possibly tier-1 tournaments, but don’t expect this to be a major revenue source, if at all a source, for your tournaments.
