Esports Underhyped Part 3: Selling $0.01 Products for $10
In this series of articles, I explain why even some of the biggest optimists are still underestimating esports. My last article will tie it all together and explain why esports isn’t a single industry, but a behemoth collection of verticals that all fit in seamlessly together, and why esports organizations will become some of the largest enterprises the history of entertainment.
When CDs came out (yes, those flat circle disks with reflective surface, before DVDs), my dad said, “Wow, anyone can be rich now.” His dream was to build a piece of software that he could then distribute on CDs. You build it once, and then you copy to millions of copies at almost no cost! That’s how Bill Gates got so rich. It cost him cents to copy Windows to a CD, and he could sell it for $100+. Amazing.
Well, this opportunity is back, and Fortnite is one of the most-known examples right now of a company that’s capitalizing on it. It costs just about nothing to make a digital copy of a skin, i.e. the colors and clothing of your in-game character, and you can sell it to millions of people for $5–10 each! If you think Apple has high profit margins, boy does Epic have them beat.
People don’t just buy normal skins and textures — they also buy team-branded ones. For example, I can login to Overwatch and buy a skin for my favorite character in London Spitfire team colors. Part of that revenue goes to, you guessed it, London Spitfire esports organization. And that’s where the great opportunity is.
If that’s the case, why aren’t all esports teams today rolling in money the same way Epic is?
We’re just in the very early stages of the overall infrastructure being built. Overwatch League is only one year old. League of Legends, the largest esport out there, still doesn’t implement a full team skins sale system. Counter-Strike is the oldest modern esport; however, it had only been selling team skins for part of the time. There is much work to do still, from legal to technology.
Once it’s done, however, you’ll see top esports brands rack in serious cash. Counter-Strike is a great proof of concept here: even though their system is not perfect, it’s the best we have, and the results are amazing: it’s estimated to be a multi-billion market now, with weapon skins selling for as much as $12,000.00 (successfully). Yes, the skin market in one game is larger than all of esports combined. And yes, people are paying (I’m serious, they really are) upwards of 10K+ to make their in-game weapon look different. Call it insanity, if you want, but only if you also call out that gold-plated Mercedes Benz that oil magnates pay millions for.
Implementing proper digital assets sale and trading technology platforms will take a bit more time. There are also some legal issues involved. But it’s the esports teams that focus on their branding today that will repeat the benefits of those systems tomorrow.
So why do people buy digital assets? Fortnite is a free game; they made a billion purely on cosmetic items between Oct 2017 and now. Why? Because…
Digital is Real
This is the most important point of all, as it affects not just esports, but the direction of entertainment and human-to-human interaction in general: digital IS real, because what’s real to people is where they spend their time.
When we were young, baseball was real because we spent time with our dads playing it or watching it. And baseball cards were real. Cheerleading was real. Radio was real. TV was real. Now, people stare into their phones because social media is real to them. Games are real. Digital assets (skins) are real. Streaming is real.
People pay a lot of money for digital assets like skins because, to them and their friends, it’s as real as anything — they stare at it for hours a day! If you look at it, you interact with it, and you care what people think about it, how is it not real? Physicality of something does not define its reality.
You don’t have to truly relate to it or agree with it; but if you want to see where the future is, you must understand it. The future is more and more digital, and digital is where esports thrives.
From Sponsorships to Revenue Sharing to Digital Assets
Right now, the largest revenue source for esports organizations are sponsorships. Soon, the largest source will be revenue sharing from broadcast rights, at least in leagues such as Overwatch League and LCS. My bold prediction is that in the near future that will change again, and the largest share of revenue will come from digital assets.
Sponsorships will grow to be more dollars than today. Revenue sharing will grow also. It’s just that digital assets portion will absolutely balloon! Why? Sponsorships and broadcast rights are B2B, and digital assets are B2C. And with the right infrastructure, B2C is always the largest business — that is true across all industries.
Millions can buy jerseys. But billions can buy digital assets — they’re cheaper, more accessible, and the distribution is global and instant.
That’s what I’m really excited about. But to capitalize on this digital assets revolution, which the game publishers have already begun to capitalize on, esports organizations must position themselves properly. We’ve already begun doing that at Gankstars, by being part of H1Z1 Pro League, and we need to continue on that path by establishing ourselves in other leagues, such as the immensely-successful Overwatch League. And even that is just the beginning… We’re still to talk about AR or VR.
Are you getting excited about esports yet? Well, hold on because we’re not done. “Esports organization” is a mislabel — those companies will become massive businesses that span several industries; even with this series, I barely feel I’m doing the whole picture justice. Check out Part 4 for more!