AVI BHUIYAN AUGUST 2023

<aside> <img src="/icons/chevrons-vertical_gray.svg" alt="/icons/chevrons-vertical_gray.svg" width="40px" /> This is Part II of “The Incentives of Esports.” Part I outlined the incentives of major stakeholders in the industry and laid out why the esports industry differs in fundamental ways from both gaming and traditional sports, framing up the myriad of structural challenges that have led the industry to recent struggles.

*Candidly, Part II is 5,000+ word insider baseball-y take on the future of the esports industry with a pretty lengthy detour into Tiktok monetization and Formula 1.

If that still sounds like fun, though, you’re absolutely my type of person.*

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/// INTRO ///

“Predicting failure is easy. It's not worth 280 characters to make such a prediction and certainly not worth writing a whole opinion piece. If you want to do something difficult, then figure out what it takes for something to succeed. That's what the builders must do.” — Steven Sinofsky

Wow. Based on Part I it sounds like esports is doomed?

All esports are not doomed!

That said, it’s pretty clear that this recent era of esports modeling itself after traditional sports is hurtling towards an unhappy ending. The product similarities are obvious, but traditional sports were never the right mental model for the business side of esports.

Still, I believe there are plausible paths for a small number of esports to become $1B+ ecosystems, though it will require a ton of unglamorous iteration and experimentation to get there, particularly as esports have fallen out of fashion in the current hype cycle.

For all its macro challenges, the fundamentals of esports remain the same:

• In an era where audiences for live programming are increasingly fragmented and attention is at a premium, a small number of esports continue to reliably draw large numbers of fans to broadcasts and venues. Cutting through hype and abstraction, at a baseline level that’s valuable to brands, broadcast platforms, and venue operators among others.
• Esports offer a unique social surface area for publishers to build affinity for their game IP outside of the confines of games. Winning a ranked ladder match is a completely different type of engagement from spending a Sunday with friends on Discord cheering on your favorite player or team in a championship match.
• Video game IP is ascending culturally, and while it’s important to be honest that hardcore competitive content isn’t automatically correlated with the growth of the video games industry generally, the readily addressable market for esports is still growing.

Is that enough?

If you believe that esports products have already more or less reached their final form then it’s understandable to say no, that’s not enough, and write them off as a stack of loss-leading marketing programs in a trench coat trying to cosplay as a high-growth industry.

“It is I, the highly professional and swiftly growing esports industry!” (via Netflix)

“It is I, the highly professional and swiftly growing esports industry!” (via Netflix)

It’s important to be realistic that the overwhelming majority of esports ecosystems will likely continue to top out as grassroots communities (e.g. Super Smash Bros Melee) or moderately-subsidized publisher marketing programs (e.g. Halo) that allow a handful of people to make a full-time living and delight a small but passionate fanbase while having no realistic shot at creating billion-dollar entertainment products or venture scale outcomes.

That’s perfectly fine, and actually akin to traditional sports: no amount of private investment is likely to make curling or ultimate frisbee consistently fill stadiums in the medium term, but that doesn’t tell us much about the prospects of basketball or football.

Esports has numerous examples of ecosystems that can persist at a grassroots level through pretty much anything, as well as glitzy, highly-subsidized ecosystems that can scale if publishers are willing to sustain eye-watering losses.

The real question is: can it cultivate ecosystems which can actually scale sustainably?