The Esports Disconnect

Esports and streaming are two new and innovative forms of entertainment.  Hundreds of esports organizations are being formed in the hope of capitalizing on this new wave.  As these organizations continue to shape the esports landscape, they all turn to the traditional sports for inspiration and have adopted the traditional sports business model.  Unfortunately, unlike most traditional sports, the world of esports and streaming is about the empowerment of the individual athlete as opposed to the team. Streamers and athletes have all the tools they need to generate their own, individual revenue. And they can do so without relying on an esports organization. This is the esports disconnect.

Streamers and Their Business

As described, streamers are online gaming personalities who establish themselves in a game space, start their own channel and live stream on a service like Twitch. Some, like Ninja, start out as esport athletes then migrate to streaming. Others work hard to carve out a reputation as a startup streamer.

Streamer’s Sources of Revenue

**Keep in mind these sources of revenue and the specifics of how each operates will be completely dependent on the streaming platform chosen by the individual streamer.  This is a brief overview of the revenue streams available to an individual streamer 

  1. Subscriptions

Subscriptions are great for two reasons. They generate a consistent, recurring source of income in exchange for subscriber-exclusive benefits. They also generate engagement by creating a way for fans and followers to get involved and invest in the community.    

  1. Tips and Donations

Tips are given by a follower who enjoys what a streamer is doing and wants them to know it. They are actually one of the best sources of income for a streamer. Tips are not donations so they are taxable which is important to note.

Donations (or ‘Charitable Gifts’), on the other hand, cannot be received by a streamer who isn’t a charity. While this isn’t a ‘direct’ source of income it can be used powerfully to call your community to action by giving to a worthy cause. 

  1. Sponsorships and Brand Deals

Borrowing from the traditional sports model…use our stuff, promote our stuff, earn money.

  1. Advertising

Simply, ad revenue is based on how many people show up, and payments are based on number of views.  Basically, a streamer needs to have a significant volume of views to generate a significant amount of advertising revenue. 

 

Not all streamers are athletes – but all esports athletes can be streamers

 

The current lawsuit between Tfue and FaZe Clan is a perfect example of this concept.  Tfue is a young and talented Fortnite gamer who signed with FaZe Clan prior to developing his now massive fanbase.  At the time, FaZe Clan had a platform for Tfue that accelerated the growth of his following – the numbers speak for themselves.  The contract, of course, provided FaZe Clan the ability to take major portions of the revenue Tfue generated through his Twitch stream and overall online presence, and also dictate the sponsors Tfue could engage with.

Though Tfue is a unique individual in the world of streaming, esports and entertainment – in the sense that he’s a massive superstar – his situation is one that esports organizations and athletes should be studying very intently.  Streaming may not be a major focus point for an athlete as they begin their competitive career, but it’s inevitable that as they compete and interact with their fans in various ways their profile will grow, as will their following.  The result is the ability for athletes to add sources of streaming revenue to the competitive salary their esports organization pays them.

The Esports Organization Business Model

In contrast to how cutting edge, groundbreaking and boundary-pushing as esports are, the typical esport organization business model is a blast from the past.  

Currently, the esport organization business model follows a traditional sports business model (for the most part). Again, most esports organizations look at the following four sources of revenue as the basis for their business model

  Sponsorships

  Advertising

  Media Rights

  Merchandise

Esports organizations will often have clauses within their athlete contracts that state the categories of sponsors that are ‘off-limits’ for the signed athlete.  It means the athlete can no longer have an individual sponsor with a different company in that sponsorship category. To make matters even more interesting, the ‘off-limit’ sponsorship category clauses often allow the organization to add new off-limit categories at any time – limiting the athletes potential sources of revenue even further.  Similar clauses are in place for on-stream advertisements as well.

Now, it’s possible that everyone can still win in this situation – teams may also have revenue sharing clauses that provide additional money to be paid to the athlete should major sponsorships be obtained by the organization. But, the athlete may miss out on opportunities to be individually sponsored by brands or companies that compete with the brands and companies that sponsor the entire esports organization.

The Disconnect – Bad News for the Esports Organization

Platforms for the Individual

Platforms like Twitch, YouTube Gaming, and Caffeine take the focus off of the esports organization or team and place it on the individual streamer or athlete. Other companies, like Unikrn, are creating new platforms that extend the individual’s ability to make money without the need for an esports organization.

Adding Layers of Entertainment – The Unirkn Platform

I briefly touched on this idea in a blog a few weeks ago.  A new platform, like the one Unikrn introduced, can be looked at in a variety of ways – none of which benefit the esports organization or strengthen the organization-athlete relationship. 

 At the very least, Unikrn’s platform is another way streamers and athletes can draw attention to their streams and the communities built around them. It provides another layer of entertainment and fan engagement even if there is no direct compensation.

 At the very most, Unikrn’s platform could generate an entirely new source of revenue for the individual – for example the streamer could get a “cut” of the overall percentage Unikrn takes as the gambling ‘house’.  Obviously, for this to work, significant guidelines would need to be implemented in to avoid match-fixing and exploitation etc, but it’s an interesting thought nonetheless that could lead to many different compensation arrangements being created.

 Regardless, Unikrn’s platform is another tool for an individual athlete or streamer to utilize. It’s another layer of content that can be offered outside of the esports organization itself.  It’s a sign of a maturing esports ecosystem, and it signifies new opportunities for esports athletes and streamers to choose their own path, make their own money, and be more independent. 

The caveat in all of this is that the extent of the disconnect depends on many factors. The esport organization itself, the athlete, the video game and the developer can all dictate what the contractual relationship looks like between an esports organization and the athlete. It is possible that an athlete CAN maintain independence from their team and retain their streaming revenue while still being a part of the organization. Perhaps this will become the norm moving forward now that the Tfue has shed some light on the mindset of one of biggest esports organizations, but it seems this is rare in the current esports ecosystem.  The majority of teams are just financially unable to allow for this.  

 

What does it all mean?

Ever since Tfue brought his action against FaZe Clan, there has been a lot of discussion regarding what is a “fair” esports contract – and solid arguments have been presented on both sides.  Regardless of where you stand on the issue, however, it’s pretty clear that the ‘traditional sports business model’ is not going to work for esports organizations. There are far too many tools for the individual, and they all undercut the major revenue streams that a traditional sports organization (and an esports organization) relies on in their business model.  The ‘Tfue Situation’ highlights this unfortunate reality for esports organizations. Esports and streaming are new and unique, and empower the individual over the organization. Esports organizations trying to recreate the traditional sports business model are trying to fit a square block into a circular hole.

 

Thanks for reading my blog. The above content is not legal advice but observation about the vast esports field. If you have any questions or comments or would like to schedule me to speak at your event, head over to my website www.ecesports.gg