For years, pundits and commenters debated whether esports qualified as “sports” at all; today, esports are leading sports entertainment into the digital age. Over the past decade, the monetization of esports has been heavily modeled after traditional sports leagues like the NBA, NFL, and NHL. Within the last few years, however, it has become increasingly apparent that the rise of esports diverges from the trajectory of traditional sports in key ways: its audience is younger, flightier, more online, less localized. Whereas traditional sports fans skew as much as 30 years older, on average, esports has been defined by the viewing habits of millennials and Gen Z.

But beyond obvious differences in demographics, the models of viewer engagement are changing: Esports teams are looking less like traditional sports leagues and more like entertainment companies. Across all sports, the once-coveted linear broadcast rights model is flailing. We’re experiencing the equivalent of the abrupt shift from movie-going to streaming on demand as more and more fans watch games digitally. Nowhere is this more apparent than in the esports audience, the majority of whom consume broadcasts almost entirely online.  

But although it’s likely that many esports leagues will surpass traditional sports viewership numbers in just a couple of years—some, like the LCS and LEC (the League of Legends leagues in North America and Europe), already have—there’s an elephant in the room that esports insiders have long recognized: Though esports viewership is skyrocketing, its financial growth isn’t keeping pace. Most esports broadcasts are still free and poorly monetized; to date, no esports league has earned a nine-figure annual deal. By comparison, the NHL earns an annual haul of $625 million on broadcast rights alone—the smallest of the big four broadcast deals—despite having roughly the same total number of average viewers as the LCS, a single esports league in a single region.

Though it’s likely that many esports leagues will surpass traditional sports viewership numbers in a couple of years—some, like the LCS and LEC, already have—there’s an elephant in the room that esports insiders have long recognized: Though esports viewership is skyrocketing, its financial growth isn’t keeping pace.

If esports are indeed pioneering the future of sports engagement, then esports teams must continue to evolve from pure sports leagues modeled after the past into sustainable entertainment companies with diverse monetization sources. With the right strategies—leaning into lifestyle “drop” culture, channeling fandom as a funnel into other products, and franchising with a global focus—esports titles are poised to top sports revenue lists in coming years.

When the “business of winning” isn’t enough

For esports teams, winning titles isn’t a business strategy, it’s just a bonus. To build real business success in today’s hyper-competitive leagues, esports teams are recognizing the need to diverge from the traditional sports model.

I saw this firsthand when I cofounded my own professional esports team, Splyce, in 2015. Growing up in the ’80s and ’90s, I was a self-avowed nerd, big-time gamer, and devoted sports fan. I idolized the San Antonio Spurs’ general manager R.C. Buford and head coach Greg Popovich, underdogs who won multiple championships without the benefit of a famous brand, glitzy city, or superstar linchpin to draw in other players. As CEO of Splyce, I looked to my childhood idols for a blueprint to success. 

In many ways, Splyce and the Spurs shared a similar profile. Whereas Splyce was a brand-new startup with few star names on our roster—we could barely offer players the minimum salary—Goliaths like Cloud9, Fnatic and OpTic could rely on legacy brands and the ability to shell out significantly more money to attract star power. Each time a young prospect chose to leave Splyce for a bigger brand or larger payday, we found ourselves in the same spot as Billy Beane’s famous Oakland A’s: We weren’t going to outspend the Yankees (in this case, Cloud9/OpTic/etc.) and we didn’t have the Yankees’ brand power to lean on. To be competitive, we had to get savvy and put together teams of rookies and overlooked veterans.

Though we eventually won championships in games like Halo, Call of Duty, World of Warcraft, Marvel vs. Capcom, SMITE, and Starcraft 2, it slowly became apparent that our competitive success—modeled after a traditional sports franchise—wasn’t creating a sustainable business model. 

Historically, a traditional sports league could build a strong business simply through the nature of tribalism. If a fan likes basketball and lives in Miami, then there’s a high probability they will become a Heat fan. If a Miami car dealership wants to access basketball fans in the Miami market, there’s one place to go—Heat games. The regional monopoly over single sports made the question of business model differentiation irrelevant to traditional sports leagues. That’s why teams like the Dallas Cowboys, the New York Yankees, and Real Madrid were anomalies among their peers with their ability to achieve reach beyond typical regional boundaries. Fans of those teams aren’t limited to their local region, and, by extension, the teams’ revenue generation has a global aspect to it that most other teams lack. Walk into any sporting goods store in America and you’ll find Cowboys and Yankees gear, whether you’re in Dallas or the Bronx or not. Ten years from now, the sports teams that haven’t figured out how to extend their borders digitally will fade into irrelevance. It is now a necessity to outgrow one’s region, rather than treating it as merely a nice addition to one’s bottom line.

In addition, the current model of broadcast-rights sales as the number one revenue driver is unsustainable for sports (or esports, for that matter). Television viewership continues to decline; video subscriptions are falling at a rate of 7 percent every year. The growth of ad revenue for online content is now outpacing linear TV, though online content providers still face a rising number of users who have ads blocked (currently 27 percent). Younger viewers are more often consuming sports online; less than 35 percent report watching on a traditional TV network. 

That means the power of traditional broadcast rights is changing entirely. How valuable is it to own the rights to the Olympics if television as we know it doesn’t exist in fifteen years? (Recent viewership suggests not that valuable!) Will younger viewers be willing to pay for a subscription to a service solely to access those rights? The subscriber losses that traditional cable and ESPN have seen in recent years (5 percent year-over-year for the last three years and 6 percent year-over-year for the last five years, respectively) indicate that subscription is not a bet sports leagues are likely to win. This shift is a major threat to the business—the NFL, for example, makes more than half of its annual revenue from broadcast rights. And though it’s true that the NFL recently negotiated a record-setting new rights deal with multiple television networks, I would argue that we’ve reached the peak for traditional sports rights deals. 

The tipping point? Young fans today are increasingly consuming their entertainment digitally. 

The need for a new model 

When I play Fortnite, Call of Duty, or World of Warcraft, I can team up with friends I’ve made in different cities across the country. I join guilds and clans that share certain attributes and become part of my online identity. Within gaming and esports, my tribe has expanded far beyond the physical boundaries of my city. 

This model of engagement has been at the core of how gamers connect with brands for years, but has been slow to transition to the esports world. For years, esports leaders, pundits, and journalists have argued over which esports model was better. Some, like the publisher Activision-Blizzard and many team owners, have argued that esports franchises should be tied to cities, following in the footsteps of traditional sports leagues. Other teams and publishers, Riot Games among them, have countered that the industry should embrace the global nature of esports, with teams expanding their reach far beyond a local region. And companies like FaZe Clan and 100 Thieves have presented themselves more as content creators than traditional competitive teams, which diversifies their business model. Some teams have even started making their own products—Fnatic went so far as to buy a peripheral company and manufacture its own line of gaming hardware to sell directly to fans. 

Which model is best? The strongest path forward embraces a diversity of approaches, rather than the one-size-fits-all model of traditional sports.

From sports league to entertainment network

Today, some esports leagues already have viewership that is at least as valuable as the NHL (or MLS, MLB, or MMA) broadcast. The LCS and LEC, the global Call of Duty League, and most CounterStrike tournaments draw millions of viewers with highly coveted demographics (young, educated, affluent, tech-savvy). In addition, sports audiences are fully saturated, while these already sizable esports products are still in the middle of their growth curve. 

The biggest traditional sports leagues still rely heavily on playing many games throughout the year that can fill a TV schedule, put bodies in seats at a stadium, and sell a large amount of food and beverages multiple times a week. But unlike the Boomers or Gen-Xers, who reliably buy season tickets to see the same team play 10 to 50 times a year, Gen Z places a premium on unique experiences. The younger generation is seeking out a departure from the repetitiveness of season play, that elusive “I was there when…” 

The most successful models of esports viewership today reflect that realization. Esports leagues that maintain a traditional sports model—season play, leading to playoffs—see much lower viewership and engagement, on average, than those that employ a tournament model. For example, CounterStrike tournaments draw average minute audiences (AMA)—the average number of individuals watching, per minute, over a specified period of time—in the millions, whereas a season matchup between the same teams might net only tens of thousands. Some leagues, like the Call of Duty League and the Overwatch League, have adopted a hybrid model that retains the structure of league play, but mixes in tournaments throughout the year to create high points and variety. 

Even this model isn’t going to work with Gen Z fans and younger, who expect a bespoke experience for every event they attend. This generation is much more likely than Gen X or Boomers to watch experiences digitally and skip the stadium entirely. Over time, I expect this preference to lead to significant declines in sports stadiums’ season ticket-holder base—traditional sports leagues’ longtime bread and butter. 

But the most fascinating and exciting part of the current evolution of sports media consumption is the conversion from pure sports and competition companies into diverse entertainment companies. Some traditional leagues have been more proactive in this transformation than others—most notably the NBA and WWE. However, the leaders of this revolution are arguably the budding esports organizations that are pursuing several new models of what a sports team can and should look like at this phase.

Lifestyle first

Unofficially called “hoodie orgs” by fans, the lifestyle model can drive as much as 25 percent of a team’s total revenue through merchandise sales. This isn’t traditional sports merchandising, the way a sports team might license its rights to Nike or Reebok for a 5 percent margin on a $19 T-shirt. Instead, these independent brands are creating high-end, low-quantity “drops” that sell out in seconds, a la sneaker culture. 

By harnessing the latest digital trends on TikTok, YouTube, and Instagram and creating hype around merchandise releases, esports lifestyle brands foster a high level of cachet with insiders. In the same way that the Supreme or Off White labels bring a premium to their products, lifestyle-focused esports teams like FaZe Clan and 100 Thieves are building a sense of stature and exclusivity, drawing collaborations with high-end labels like Gucci in the process. These lifestyle organizations also tend to diversify outside of pure competitive esports, signing contracts with popular YouTube and Twitch creators who create content and draw large audiences of their own.

Franchise focus

GenG and OverActive Media (full disclosure: I’m an ex-employee and shareholder) have revamped the old model of buying sports franchises, running a venue in a major city, and growing sports monetization. 

Though this approach may sound suspiciously similar to that of traditional sports teams, these franchises differ in that they compete in video games, rather than on grassy fields, and supplement a city-based approach with continental or global leagues. Despite their digital and mobile-first fan bases, these organizations still see opportunity to bring fans into physical venues for bespoke live experiences, as well. They aren’t solely focused on building an audience for city-based teams in a home market area, but rather on using the city as a hub and targeting larger fan bases through marketing activations. Whereas an NFL team might arrange a physical event to attract fans locally, these organizations are more likely to host virtual tournaments, social gatherings, and digital meet and greets that cover a wide geographic region (such as an entire country). Because they have significant online audiences, these franchises can attract fan bases across the globe. 

Competition as a funnel

Team SoloMid (TSM) is arguably the most popular North American League of Legends team, with approximately 9.5 million followers across Instagram, Facebook, Twitter, and YouTube. The team could monetize in any number of ways, from the lifestyle approach to city-based franchising. However, they’ve found success using their platform to drive users to gaming apps. 

The mobile app Blitz and web apps such as ProBuilds.net and FortniteMaster.com all are owned and operated by TSM’s parent company, Swift Media Entertainment. TSM’s competitive fanbase acts as a top-of-funnel to drive traction across their various products. Due to a diverse set of revenue streams via sponsorships, merchandise, and content creation on platforms like Twitch, the company is profitable—with zero reliance on a league media deal.

Truly bespoke

Finally, esports organizations like Fade2Karma (F2K) and Tempo Storm have adopted hyper-specific strategies that capitalize on the particular makeup of their organizations. 

F2K has a large aggregate of fans for both digital and physical card games, like Magic: The Gathering, Pokemon, and Hearthstone, across a number of Twitch and YouTube channels. Viewership totals over one billion impressions per month, which makes up approximately 1.5 percent of Twitch’s total viewership. Individually, these channels aren’t particularly valuable, but collectively they are incredibly powerful. Partner advertising is an obvious monetization avenue, of course, but F2K has taken this a step further with its box-breaking business. Box breaking, in which creators open boxes of trading card packs that fans or viewers have purchased, has been growing rapidly on streaming and video platforms. The viewer gets the excitement of having their pack opened in front of an audience and still gets to keep the cards they buy. With an existing, engaged audience of card enthusiasts, box breaking has become a growing source of new revenue for the company. By managing the logistics of the physical cards, as well as payments and processing, F2K is pioneering its own centralized marketplace for a new genre of ecommerce.

Similarly, Tempo Storm founder Andrey “Reynad” Yanyuk is a famous card game player in his own right. Over the past seven years, his team has built a solid foundation of card game viewership through its various esports teams and content creators on Twitch. Taking advantage of a captive audience that already loves card games, the company has been developing its own digital trading card game. Rather than continuing to build a company around games that the publishers fully monetize and control, Tempo Storm is harnessing its existing fan engagement to become truly vertically integrated around the games they own and play. 

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It would be easy to look at the multibillion-dollar broadcast rights deals being negotiated in traditional sports today and decide to chase the dollar signs. (I’d be lying if I said that wasn’t something I thought would happen during my six years building Splyce.) However, the diverging viewership habits of younger generations, rabid cord cutting, and evolving demands of what fans expect from live entertainment all illustrate the necessity of modernizing the way we monetize sports. 

Over the coming decade, a sweeping business shift is coming for all sports, traditional and gaming. I believe esports will successfully make that transition first, unlocking troves of new, digital-first fan bases in the process.

  • Marty Strenczewilk was the cofounder and CEO of the esports team Splyce. Currently, he leads esports and creator initiatives for OneTeam Partners, a joint venture between the NFLPA, MLBPA, and RedBird Capital Partners.

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