Why Esports Will Keep Leveling Down In 2024

Forbes

At the world championships of Valorant in August, a sellout crowd of 11,500 packed into The Forum in Los Angeles—and more than one million esports fans tuned in live—to see Evil Geniuses complete their improbable run to become the first North American team to win the title, and the $1 million prize that comes with it.  But competitive success in esports has done little to ensure economic stability in 2023. Evil Geniuses CEO Nicole LaPointe Jameson stepped down less than a week after the team won the title, and in the following weeks the Valorant roster was asked to take pay cuts, reportedly as high as 50%. The organization has since sold its spot in Riot Games’ League of Legends Championship Series and reportedly plans to sell or merge Evil Geniuses’ remaining esports assets by the end of the year and exit the space entirely. As Jameson told Digiday on her way out, “I think the world knows just functioning and monetizing as an esports team today doesn’t work.”  Read the full story on Forbes: https://www.forbes.com/sites/mattcraig/2023/12/28/why-esports-must-keep-leveling-down-in-2024/?sh=635cb8cf2bff  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 To survive the esports winter, once valuable franchises had three choices this year.

00:05 Get smaller, get together, or get out.

00:08 In May 2022, at what might now be considered the peak,

00:12 Forbes estimated at least 10 esports organizations

00:15 had reached valuations above $200 million,

00:18 with TSM topping the list at $540 million.

00:22 Today, teams are likely worth a fraction of that.

00:25 The downturn started with several uncontrollable factors,

00:28 including fears of a recession drying up sponsorship and VC funding,

00:32 or, in the case of TSM, the cancellation of a 10-year,

00:36 $210 million naming rights agreement with FTX

00:39 after the crypto exchange's founder, Sam "Bakeman" Freed,

00:42 was arrested for fraud.

00:44 The most public black eye for the esports industry

00:47 has been the implosion of FaZe Clan,

00:49 which went public through a SPAC in July 2022

00:52 and saw its market capitalization top $1 billion last summer.

00:57 The stock soon plummeted when public filings showed

00:59 that FaZe was blowing through money at an alarming rate.

01:03 And in October, the company was acquired by GameSquare,

01:06 the Jerry Jones-backed gaming company,

01:08 in an all-stock transaction at a valuation of $17 million.

01:12 Elsewhere, Sentinels, a Los Angeles-based esports organization

01:16 with teams in Halo, Apex Legends, and Valorant,

01:19 had to turn to a crowdfunding campaign in July

01:22 after reporting 2022 revenues of $2.43 million

01:27 against $10.13 million in expenses.

01:30 Filing documents stated the company had enough cash on hand

01:33 to operate for only two to three months

01:35 if it could not raise additional funds.

01:37 The campaign's target goal was to sell $1.23 million in equity

01:41 at a $30 million valuation

01:43 by offering enhanced fan experiences

01:45 such as an exclusive varsity jacket

01:47 or meet-and-greets with the players.

01:50 Despite the intense financial hardships of most teams,

01:53 fan interest in esports continues to rise.

01:55 Organizations count their successes

01:57 by follower and view counts,

01:59 selling investors and sponsors

02:00 on the promise of reaching a desirable young audience.

02:03 The difficulty, of course, has been to find ways

02:05 to monetize these highly engaged fan bases.

02:08 Unlike traditional esports teams,

02:10 esports organizations don't benefit

02:12 from ticket and concession sales from dozens of home games

02:16 or the multi-billion dollar media rights deals

02:18 that have sent team valuations skyrocketing in recent years.

02:22 In Europe and Asia,

02:23 esports franchises are far closer to viability,

02:26 but that is largely because a lack of access

02:28 to investor dollars forced them to grow slower

02:30 over the past few years.

02:32 In the United States, new entrants flush with VC cash

02:35 made splashy player acquisitions,

02:37 driving up salaries across the board.

02:39 Depending on the game, players retain 80 to 95%

02:43 of tournament prize pools

02:44 and also get to keep whatever personal content revenue

02:47 they earn by live streaming or creating videos.

02:50 Now, in order to bring costs into line,

02:52 esports player salaries have been reduced

02:54 an estimated 30 to 40% on average,

02:57 according to industry insiders.

02:59 As 2024 approaches, esports team owners believe

03:02 the next year will bring further consolidation

03:04 as teams reach the end of their VC bank rolls

03:07 and test investor patience

03:08 to continue funding money-losing operations.

03:11 In 2024, esports team owners believe the year

03:14 will bring further consolidation

03:16 as teams reach the end of their VC bank rolls

03:18 and test investor patience

03:20 to continue funding money-losing operations.

03:22 But most remain optimistic that the dollars

03:24 will eventually follow fan interest

03:26 and the industry will correct its growing pains.

03:29 (upbeat music)

03:32 (upbeat music)

03:34 [BLANK_AUDIO]

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