Esports organizations have largely underwhelmed from a P&L standpoint to date. They’re held back by the lack of broadcast rights around the games themselves, explained Adam Rymer, the CEO of Envy Gaming, a Dallas-based media and entertainment company that focuses on the gaming sector. But Rymer believes there is an opportunity to grow the top line while waiting for traditional media rights and ticket sales revenues to catch up to expectations by cultivating a large, loyal community of fans and capturing their first-party data.
“Gaming and esports are a cultural force akin to music or movies where if you can build communities around a shared passion and activate with your fans in meaningful ways, whether through content, digitally or even at live events, real revenue potential exists,” Rymer said.
JWS’ Take: Envy Gaming—which owns Envy Gaming and Optic Gaming (two esports franchises) and operates teams across eight different game titles—looks at esports differently than those still operating with a traditional sports infrastructure and mindset. In Rymer’s view, many of those organizations figured they would come in, “sell some of [their] own brand sponsors, build an audience and try to minimize costs,” as they waited for the lucrative broadcast rights dollars dished out by the league.
But the anticipated media rights revenue has not materialized (Activision Blizzard has a $160 million pact with YouTube, but that money is split between 32 teams and the leagues themselves). Rymer believes that is because esports “has become more about the universe [or culture than] the individual games…. The games themselves do not have the same level of value as [everything that goes on around them].”
The lack of a centralized governing body has also prevented esports organizations from maximizing the value of their media rights. There is no one “making deals on behalf of the team owners,” Rymer said. While some games have a “league office,” there is no one looking to leverage assets across all of them.
Envy Gaming has taken a different approach to reducing its reliance on broadcast rights revenue than other teams, in part because Rymer spent the bulk of his career building digital businesses and constructing digital properties for traditional entertainment companies that were looking to adapt to changes in consumer technology and behavior.
According to Rymer, the kind of audience esports events can generate clearly qualifies competitive gaming as a media business. But he argues if the presence of those fans is not inherently tied to the performance of the league, it is more a reflection of “where this generation is interested in spending their time and effort [than their interest in the game].”
If that is the case, it is likely to be a long time—perhaps a decade or two—before esports games generate meaningful broadcasting rights revenues. “As our audience gets older and has kids of their own, [the games] will start to become much more natural [to understand] and an endemic part of the culture,” Rymer said.
As a result, esports organizations have started to alter their business models. “You’re seeing a bifurcation right now,” Rymer said. While some teams have migrated towards a cost-mitigation strategy, others are working to diversify their businesses so that they are no longer solely reliant on esports related revenues. For example, Team Liquid is “really getting into acquiring [or building] other media and production companies” and FaZe Clan acts in many ways as “a management company for all their creators,” Rymer noted.
Envy Gaming believes the more an organization diversifies, the harder it becomes “to put all the pieces together,” Rymer said. So, instead of adding complementary businesses, it has dedicated resources to building the community around its brand and gamers. The goal is to develop the games’ rivalries and to get “people interested in who [we] are and what [we] are doing,” he said.
In theory, the engaged fans’ interest would then span across games—akin to a college sports fan who cheers for one school. This type of fan tends to have a certain level of interest when their team is playing, regardless of the sport, because of the relationship they enjoy with their favorite school.
Envy has embraced gaming culture and aligned with personalities and influencers to help develop their following. Rymer explained that influencers play well to the esports crowd because they see the games more as entertainment than sport. “It’s not necessarily about the standings [or] what happened in the game last night. It’s about the beefs between the teams, the personalities that are involved, the players, the big organizations and how they relate to each other,” Rymer said.
While some will argue the entertainment approach is unlikely to build fandom in the individual games, Rymer sees getting fans in the door through influencers as the first part of a broader evolution. He used Jessica Alba’s The Honest Company as an example. “[First, the headline was] Jessica Alba is launching The Honest Company. [Then] everybody starts getting The Honest Company stuff. And now people don’t even remember that she was a part of the company.” Fans initially drawn in by an influencer could end up developing a love for and participating in the games.
One could argue that it does not really matter if the fans ever develop a love for the individual games, as long as they continue to tune in. Rymer points to the NFL and the number of folks that engage with the league on a weekly basis solely for fantasy and/or gambling purposes. Pro football has “evolved into a meta level of entertainment,” he said.
But the NFL generates massive media rights revenue, unlike Envy. The esports organization largely monetizes its audience through brand and sponsorship pacts (it recently announced a partnership with Oakley, the sunglass brand’s first esports team tie-up). “We deliver on them through the eyeballs we reach creating [and distributing] original programming,” Rymer said.
Envy also generates merchandise sales, hosts events (it operates the esports venue in Arlington, Texas) and has plans to launch programs this summer that both generate revenue and help the organization capture and go deeper with first-party fan data. Rymer explained that esports teams interact with their fans “100% [of the time] on Twitch, YouTube and Twitter, [so they] have the ability to know [exactly] who [the fans] are” and to get those individuals to “connect all of their digital accounts” to the esports organization.
Willingly giving up access to data may sound foreign to older sports fans. But according to Rymer, younger fans may be willing to do so. “It is just a natural state of affairs [for them] because they are online so much.”
Once the organization has a one-to-one relationship with a fan in place, it can start to monetize that fan in new ways. “Not just indirectly with advertisers,” Rymer said.
The Envy executive says the greatest upside will come from being able to segment fans and migrate individuals to other platforms as the metaverse evolves. “When [we] show up at the door of Microsoft and say [we] have 300,000 or 400,000 members with connected wallets, what can we do together to bring my people over to your platform? Things get really interesting.”