The Economics of Professional Esport: An Overview
Résumé
Aim and Research Question
Esports is a high growth industry with more and more players, competitions and games, and, therefore, more revenues and financial stakes. Parallel to this economic expansion, there is also a growing interest from academics especially in sport management. Nevertheless, several research questions remain, especially on economics models of the structures. This research highlights the different economics models of French esports organisations to investigate their goals (looking for win and/or profit). It seems to be an important subject since it’s affecting the regulation of the sector by the leagues or the tournaments organizers.
Theoretical Background and Literature Review
Esports popularity is relatively recent but esports is already a study field which have been mainly scrutinized for sociological (i.e. attitude of the fans, Seo, 2014) or marketing (i.e. specifics endemic sponsor, Scholz TM, 2019) purposes for instance. Much has to be done about the economics models of professional esports structures. This research tries to fill part of this gap thanks to an analogy with the traditional economics aspects of professional sport.
The economic theory of professional sports leagues is mainly based on the assumption that club owners’ objectives are oriented towards either maximizing profits or utility, more specifically sporting success or wins (Terrien, Scelles, Morrow, Maltese & Durand, 2016). According to the features of the league (open or closed), clubs would be profit (North-American clubs) or utility maximizers (European clubs, Szymanski & Késenne, 2004). Utility maximizers may also look for wins under a soft constraint budget, fueling an arm race between competitors (Andreff, 2009). Are these behaviors relevant in the esports industry?
Looking at the economic models (sources of income and expense) for esports organizations could help to answer this question. Different economic models have been determined for the traditional sports clubs over the years. Andreff and Staudohar (2000) described two types of economics models, the SSSL model, represented by sports with a little fanbase, such as handball or volley-ball, and the MMMMG model, characterized by a higher fanbase, such as professional football.
Considering that the league may affect the club owners’ objectives toward wins or profit, more has to be known about the features of the esports leagues. Their roles are critical to maximize the quality of the show (i.e. a joint product, Neale, 1964) and several regulation mechanisms could be implemented to do so (salary cap, draft, revenue sharing, etc.). Are these mechanisms used in the esports context and do they have an impact on the objectives of the esports teams?
Research Design, Methodology and Data Analysis
This paper lies on a qualitative methodology based on ten semi-directive interviews with influent stakeholders of the esports industry. Two agent players, two marketing director of a structure, one co-managing director of a big competition organizer, one co-founder of an agency who manage an esports organization were interviewed, two CEO of French esports structures and one person who is working for a professional league of esport. All the interviews are transcribed and double coded. The research period extends from October 2019 to June 2020.
The interviews deal with revenues and expenses of the structures, logics and investment strategies of the clubs, in order to know if they are maximizing profit or victories, and if they are under a budget constraint, and roles of the leagues.
Results/Findings and Discussion
The preliminary results allow to identify two different models for French esports organizations, which do not prevail in the traditional sport. There is first an international model with structures earning an amount from sponsoring. They aim to develop other sources of revenues (i.e. merchandising). Finally, these structures have, most of the time, a team which is evolving in a closed league, allowing a revenue from this one. Nevertheless, their main sources of incomes comes from raise equity.
The other model coming from National French structures (structures which are mainly evolving in national esports competitions in France) seems to present some differences. Their main source comes from sponsorship and from subsidy coming from their parent company which helps to balance their budget.
It seems like teams are utility maximizers in both models. They all are evolving under an arm race context. International structures are using raise equity to finance this arm race and the huge wages. National French structure are trying to maximize their victories in order to maximize the profit of the parent society too. In both cases, teams may be under a strict constraint budget, but their models are loss-making.
Conclusion, Contribution and Implication
This research contributes to a better understanding of the esports structures economics models, and their strategies. The research raises questions about the optimal regulation systems in esports leagues, and how these ones are trying to maximize the joint product in the esports ecosystem.
Esports is a high growth industry with more and more players, competitions and games, and, therefore, more revenues and financial stakes. Parallel to this economic expansion, there is also a growing interest from academics especially in sport management. Nevertheless, several research questions remain, especially on economics models of the structures. This research highlights the different economics models of French esports organisations to investigate their goals (looking for win and/or profit). It seems to be an important subject since it’s affecting the regulation of the sector by the leagues or the tournaments organizers.
Theoretical Background and Literature Review
Esports popularity is relatively recent but esports is already a study field which have been mainly scrutinized for sociological (i.e. attitude of the fans, Seo, 2014) or marketing (i.e. specifics endemic sponsor, Scholz TM, 2019) purposes for instance. Much has to be done about the economics models of professional esports structures. This research tries to fill part of this gap thanks to an analogy with the traditional economics aspects of professional sport.
The economic theory of professional sports leagues is mainly based on the assumption that club owners’ objectives are oriented towards either maximizing profits or utility, more specifically sporting success or wins (Terrien, Scelles, Morrow, Maltese & Durand, 2016). According to the features of the league (open or closed), clubs would be profit (North-American clubs) or utility maximizers (European clubs, Szymanski & Késenne, 2004). Utility maximizers may also look for wins under a soft constraint budget, fueling an arm race between competitors (Andreff, 2009). Are these behaviors relevant in the esports industry?
Looking at the economic models (sources of income and expense) for esports organizations could help to answer this question. Different economic models have been determined for the traditional sports clubs over the years. Andreff and Staudohar (2000) described two types of economics models, the SSSL model, represented by sports with a little fanbase, such as handball or volley-ball, and the MMMMG model, characterized by a higher fanbase, such as professional football.
Considering that the league may affect the club owners’ objectives toward wins or profit, more has to be known about the features of the esports leagues. Their roles are critical to maximize the quality of the show (i.e. a joint product, Neale, 1964) and several regulation mechanisms could be implemented to do so (salary cap, draft, revenue sharing, etc.). Are these mechanisms used in the esports context and do they have an impact on the objectives of the esports teams?
Research Design, Methodology and Data Analysis
This paper lies on a qualitative methodology based on ten semi-directive interviews with influent stakeholders of the esports industry. Two agent players, two marketing director of a structure, one co-managing director of a big competition organizer, one co-founder of an agency who manage an esports organization were interviewed, two CEO of French esports structures and one person who is working for a professional league of esport. All the interviews are transcribed and double coded. The research period extends from October 2019 to June 2020.
The interviews deal with revenues and expenses of the structures, logics and investment strategies of the clubs, in order to know if they are maximizing profit or victories, and if they are under a budget constraint, and roles of the leagues.
Results/Findings and Discussion
The preliminary results allow to identify two different models for French esports organizations, which do not prevail in the traditional sport. There is first an international model with structures earning an amount from sponsoring. They aim to develop other sources of revenues (i.e. merchandising). Finally, these structures have, most of the time, a team which is evolving in a closed league, allowing a revenue from this one. Nevertheless, their main sources of incomes comes from raise equity.
The other model coming from National French structures (structures which are mainly evolving in national esports competitions in France) seems to present some differences. Their main source comes from sponsorship and from subsidy coming from their parent company which helps to balance their budget.
It seems like teams are utility maximizers in both models. They all are evolving under an arm race context. International structures are using raise equity to finance this arm race and the huge wages. National French structure are trying to maximize their victories in order to maximize the profit of the parent society too. In both cases, teams may be under a strict constraint budget, but their models are loss-making.
Conclusion, Contribution and Implication
This research contributes to a better understanding of the esports structures economics models, and their strategies. The research raises questions about the optimal regulation systems in esports leagues, and how these ones are trying to maximize the joint product in the esports ecosystem.