The “esports winter” is still ongoing. 

Decrypt’s GG spoke with more than a dozen esports industry leaders, players, and executives to pull back the curtain on the state of competitive video games—and the ongoing struggle for the industry’s future.

“Everyone in esports is in a war right now,” M80 co-founder and CEO Marco Mereau told Decrypt of the current esports landscape. “And that war is survival.”

Before the COVID-19 pandemic brought live events to a prolonged halt in 2020, the esports industry saw hype and high attendance at physical events, where players would typically battle on computers before a stadium of cheering attendees watching gameplay on massive projection screens.

While the pandemic temporarily stopped live events, esports continued to grow as homebound people around the world looked for entertainment. From FaZe Clan’s $725 million SPAC deal to TSM’s $210 million FTX sponsorship, it looked like the esports industry was flush with cash. 

However, such leagues and events have since faced massive challenges. Multiple esports leaders told Decrypt that the now-defunct Overwatch League is a prime example of what not to do in esports—and its dissolution could cost Activision Blizzard’s new parent company Microsoft up to $120 million in losses.

FaZe Clan was sold last month for just $16 million following CEO Lee Trink’s exit and its crashing stock amidst ongoing controversies, and TSM no longer has FTX money flowing in thanks to the exchange’s highly-publicized collapse in November 2022.

“A lot of times when you’re starting out, you say, ‘Look at all the eyeballs, look at all the stuff, look at what we’re doing,’” Misfits Gaming Group SVP of Partnerships Justin Stefanovic told Decrypt of esports valuations. “Assuming those things actually hit the markers where they’re supposed to, sure, you can be valued at XYZ.”

“But obviously, a lot of those things didn’t happen,” Stefanovic explained. “So valuations are not where they were projected five years ago. And so then we’re starting to see that reassessment: How are we generating different forms of revenue? We can’t just rely on fans coming in and watching our stuff. We actually have to make money.”

Pandemic bubbles and revenue woes

Before the pandemic brought esports live attendance to a temporary halt, some were already sounding the alarms that the industry as a whole was existing in an overhyped bubble. 

Now, esports talent executives like Vayner Sports VP of Gaming Darren Glover see the esports spike in 2020 to 2021 as a result of “overinflated” pandemic-era predictions.

“It wasn’t the real world of metrics,” Glover told Decrypt in an interview of esports’ rise during the pandemic. “The last four years of this hyperinflation of growth [occurred] in an industry that was not prepared for it.”

For years, many esports orgs were overly reliant on advertisers to float their increasingly bloated budgets, and that it was only a matter of time before revenue became a necessity—not just a nice-to-have.

“We were one of the most successful esports organizations out there, one of the biggest names, but our revenue was close to zero,” former Evil Geniuses CEO Peter Dager told Decrypt in an interview. 

Dager, known in the esports scene as Peter Pandam or “ppd,” is a former professional Dota 2 esports player who became the CEO of Evil Geniuses (EG)—one of the most well-known esports orgs competing in CS:GO and League of Legends. Dager left the role voluntarily in 2017 after about one year leading the org.

Dager now describes himself as an “esports survivor” in his Twitter bio and is a part of Nouns Esports, an org funded by crypto and the NFT-powered decentralized organization known as NounsDAO.

The 26-year-old League of Legends pro Andy “Smoothie” Ta believes he is getting too old to be an esports player. For nearly a decade, Ta has played for orgs like Cloud9, TSM, CLG (now defunct and part of NRG), Echo Fox, and Team Liquid. Over the years, Ta watched esports grow from a fledgling industry without much infrastructure or funding to something much bigger, describing “janky setups” and only a few fans at early events.

While speaking with Decrypt at TwitchCon, Ta said that he estimates the vast majority of League of Legends teams “are not profitable from esports at all.” 

“In terms of pure business—esports currently—there isn’t really like a winning model,” Ta said. “You go either breakeven or make a little bit, but I think esports is still kind of young.”

Venture capital struggles

Dager told Decrypt that esports attracted more “capitalistic actors” over time—and that led to financial turns for the worse. 

“I think they saw a huge opportunity to raise money from VCs, based off of the hype and craze and all the attention that esports was getting,” Dager said of esports orgs. “Some of [the VCs] were fools, right, and basically invested their money into a bunch of businesses that had no revenues.”

Glover similarly pointed to VC involvement in esports as a key variable.

“All the venture capital, money-hungry capitalists in the business world had ‘the big eyes,’ and they’re like, ‘Oh my god, we have to get into that.’ And they did, and they spent too much money in the industry,” Glover told Decrypt. “You get the FOMO realm of investing, with no clear business model.”

“I don’t want to call it a Ponzi, but there was no revenue,” Dager said. “It was just all hype, and everybody was just trying to build as much hype as possible so they could raise money.”

This pressure to create as much excitement as possible to attract investor dollars led to a lot of freebies for fans, Dager argued, which only worsened the revenue problem.

“We have like 10 years of [a] culture of fans who are just used to not spending a single dollar on esports,” Dager said. “You can only buy so many shirts. That’s where I kind of lean into all the crypto and NFT stuff.”

Esports fans have been historically “under-monetized,” echoed a Deloitte report, which found in 2022 that barely 10% of 25,000 survey participants spent money on esports.

Widespread layoffs

Earlier this month, Evil Geniuses laid off over 20 employees out of its total of roughly 130, Sports Business Journal first reported. Included in that count is its VP of operations, its senior director of gaming and performance, and its head of socials and digital marketing, to name a few. 

Evil Geniuses was reportedly already operating with a “bare-bones skeleton crew” of staff, three former employees told Dot Esports.

In October, Evil Geniuses reportedly told a Twitch streamer known as Herculyse that her Rocket League tournaments had lost its sponsors and was therefore unable to continue to work with her. Later, EG attempted to host the tournaments without her, drawing broad backlash before the org deleted the tweet. Herculyse did not respond to Decrypt’s request for comment.

But EG is far from the only esports org facing economic challenges. FaZe Clan, 100 Thieves, Esports Engine, TSM, and CLG have also laid off staff this year. 100 Thieves laid off more staff this month, its second round of layoffs reported this year, with 100T President and COO John Robinson citing a desire to “do less, better.” As a result, the company spun off its energy drink and video game development divisions.

“100 Thieves is committed to making esports sustainable,” Robinson wrote. “These changes will help 100 Thieves become a healthier company.”

Last month, reports swirled among guests at the Esports Gaming and Business Summit (EBS)—which had a panel titled “The Path Forward After the Esports Winter”—that one of the biggest esports orgs is paying its employees late (said org had some staff presence at the event). 

But not every esports org is run the same. While many are facing financial challenges, others are running lean from the start with the hopes of ensuring long-term financial sustainability.

M80’s Mereu told Decrypt that he runs his org similar to how he’d run a laundromat or a family restaurant. M80 currently has just eight employees for a reason, Mereu said, and he sees scaling the org to 100 people, for instance, as an unsustainable move. 

Orgs that hire a ton of staff just to lay them off later are suffering from “inexperience of scaling a business,” Mereu argued.

“A lot of orgs are very dependent on their existing sponsor relationships,” Mereu said. “When the market goes bad and companies tighten up their marketing budgets, that’s not a death sentence for us.”

Dager shared that by his estimation, 80-90% of Evil Geniuses’ revenue came from advertiser sponsorships while he was a part of the company, which was from roughly 2014 until 2017.

In contrast, M80 only relies on sponsorships for about 25-30% of its revenue, according to its CEO, and is increasingly exploring digital goods via NFTs or other blockchain integrations to keep the company innovating on the revenue front. In May, M80 raised $3 million to power its Web3 plans.

This month, M80 announced a partnership with the blockchain gaming startup Forge. As a part of the deal, M80’s pro players will use Forge’s platform and sport its logo on their jerseys, according to a statement.

Ageism and collegiate challenges

While some esports player salaries have ballooned to six-figure sums, both Mereu and Ta see player salaries decreasing across the board. For players, however, there’s a pressure to start and succeed while under the age of 22 because of the stigma that comes with age. 

“Trust me, in esports, once you reach like the age of like 21, 22, every year after that it’s just like, ‘You’re kinda washed,’” Ta told Decrypt, referring to the gamer phrase of being “washed up” or a longtime player who used to excel, but can no longer perform at their previous skill level. 

“After 22, it’s pretty hard unless you are consistently playing really well,” Ta added.

The Washington Post has also documented the perceived ageism in esports, noting that 23 is a common age for players to “retire.” The Post also reported that there isn’t much medical evidence that players’ reflexes actually drop off in their early to mid twenties, countering the assumption that players are better when younger.

This perceived stagnation or decline after a certain age in esports, however, directly complicates the existence of the “collegiate” esports space, where 18-to-24-year-old college students join university programs while pursuing degrees. 

Some, like Chris Postell, who works in business development at esports business accelerator Esports Foundry, told Decrypt at EBS that while the broader esports industry might be in turmoil, “there is no esports winter in collegiate.”

But one former Complexity executive told Decrypt that collegiate esports doesn’t have much promise, because by the time collegiate players graduate, they’re already too old to begin esports careers.

The quality of collegiate esports programs can also vary wildly. During a panel at EBS, Adam Antor, Assistant Professor of Professional Esports Production at Ferris State University, said that every university he’s worked with has established esports programs for different reasons.

For some, it’s little more than a “tuition driver,” Antor shared. 

Antor said that while he coached players at Aquinas College, the esports program generated $2 million in additional tuition revenue for the small school.

“They didn’t care if we were winning, they didn’t care what games we were playing, they didn’t care if we were practicing, to be frank,” Antor shared.

Can publishers help?

Decrypt interviewed multiple executives in esports who expressed a desire for a better and clearer role for the game publisher in esports. Many called for wealthy game publishers to take on more responsibility for the health of the esports leagues built around their titles. Namely, they want to see game studios proactively offer up new streams of revenue for orgs.

Glover called the current esports business model “undefined.”

“I think a lot of that has to do with the lack of publishers providing good infrastructure for businesses to build on top of their games,” Glover told Decrypt. “Call of Duty League is a good example where it’s like, ‘Spend a tremendous amount of money to get a slot in our league. And then we bottleneck basically your revenue potential because of all these exclusivity clauses that we provide.’”

“There are some game publishers that really believe in esports,” Mereu told Decrypt, “and then you have publishers that sometimes, at the very high-up [levels], they hate esports. And all they want to do is sell SKUs to games and DLC and make money.”

While Mereu did not want to “shame” any specific publishers or games, he said that M80 has walked away from titles like EA’s Apex Legends and Microsoft’s Halo because he wasn’t sure those leagues were set up for long-term success.

“There are some games that teams made significant investments in to be a part of those leagues, based on expectations and promises. And then when those games end up not being the games that people really want to play, then it’s hard,” Mereu said. “You’re attached, you’ve already invested $20 million plus into this game—like, you can’t just pull yourself out.”

At time of writing, M80 has teams competing in Rainbow Six Siege, Valorant, Counter-Strike: Global Offensive, Rocket League, and Street Fighter. Mereu specifically said that Riot Games and Ubisoft are two publishers he sees doing well by esports.

During a panel at EBS, Riot Games’ Michael Sherman—Head of Esports for Teamfight Tactics (TFT), Legends of Runeterra, and Project L—said that “grit and vision” are essential to shape the future of esports. 

“There’s not a success story in esports that I would [say] is like, ‘Well, you just do that over again,’” Sherman said. 

Sherman explained that publishers need to have a clear vision and change their models when they aren’t working well for players and fans, citing Riot’s decision to move TFT away from a regional-based esports model. He emphasized a flexible approach and for publishers to “take learnings” when needed.

“There’s been a lot of thesis and testing along the way to validate we’re still heading in the right direction,” Sherman said of Riot’s approach to esports. “We’re here to create games that last for decades. We’re not here to make games that won’t be successful in three years.”

James Shilkret, Associate Director of Esports in North America at Ubisoft, offered insights into the Rainbow Six Siege publisher’s approach to esports during a Ubisoft spotlight talk at EBS.

“Grassroots is key,” Shilkret said.

Ubisoft is also working with esports firm Blast to help develop its esports scene. Blast hosts large-scale esports events in arenas around the world, from packed CS:GO tournaments in Paris, France to Rainbow Six: Siege competitions in Atlanta, Georgia.

“For both Ubisoft and for Blast, there’s just skin in the game of what happens, right? It’s not just this relationship with a vendor and we’re the client and we just approve things,” Shilkret said. 

“I feel it’s slightly different than your normal relationships, just because I feel like everybody is in the same boat, everybody’s just trying to find a goal. It’s not just ‘We have the answers,’ or ‘Blast has the answers.’ It’s both working together to get the right answer,” he said.

Edited by Andrew Hayward

• SEO Powered Content & PR Distribution. Get Amplified Today.
• PlatoData.Network Vertical Generative Ai. Empower Yourself. Access Here.
• PlatoAiStream. Web3 Intelligence. Knowledge Amplified. Access Here.
• PlatoESG. Carbon, CleanTech, Energy, Environment, Solar, Waste Management. Access Here.
• PlatoHealth. Biotech and Clinical Trials Intelligence. Access Here.
• Source: https://decrypt.co/205565/inside-esports-industry-war-survival-investigation