A few years back, not many believed that playing video games as a sport could help them earn billions. Yet, that’s what actually happened, the esports industry is booming!

So, the question is, how do esports teams make money? It is through sponsorships, prize money, merchandise and content creation.

The esports industry has grown tremendously in the past decade and it’s expected to flourish continuously in the coming years. In fact, it’s providing a golden opportunity for the investors. This is the reason they’re establishing new teams and organising different tournaments. No wonder they’re earning billions of dollars!

To understand the secret behind the financial success of these esports teams, let’s dig into the infamous video game League of Legends (LoL) and analyze it. If you’re a hardcore gamer then you might be already familiar with this game.

Recently, the biggest tournament of LoL, League of Legends World Championship, has gained a whopping 10.65 million watch time in just eight days. This was the result of the game’s popularity and the league structure that anticipated esports teams to take part and compete.

Here are the most common ways by which esports teams make money.

Through Sponsorships

A big chunk of revenue of the esports team comes from sponsorships. By big chunk, we mean really huge, about 90% of the total revenue is generated through advertisements and sponsorships.

These sponsorships can be easily seen on the jerseys and sports equipment of the players which is very similar to those of professional sports. For instance, you may have seen Red Bull and HTC logo on the jersey of Cloud 9 (League of Legends esports organization).

These sponsorships basically advertise a company and make it visible nationally as well as internationally and in return esports teams are paid in huge sums. However, the jersey sponsorships are not very effective as compared to the traditional sports because the players are not surrounded by the cameras.

You may ask, what’s the significance of jersey sponsorship in esports then? The answer is the strong online presence of the esports teams.

While it’s true that the camera is not centred on the esports players during a tournament, their social media handles are quite active. In fact, this is how they make their teams and the sponsored companies visible.

We are living in a digital age, esports teams help the marketing companies to target a specific audience which is a bit hard to reach by basic marketing strategies. And because social media has the largest pool of audiences, it benefits both the sponsors and the esports teams.

Through Prize Money

Prize money is another great source of revenue for esports teams. And for those who don’t know, prize money in esports is increasing exponentially. A few years back, the prize money was limited to a few thousand dollars but now it has touched many million dollars.

For instance, League of Legends Championship has distributed about $4.9 million to the esports teams. A thing to note here is that this amount doesn’t go directly to the players, instead it is soaked up by the esports teams as a part of their revenue. Afterwards, the players get their share from the prize money as salaries.

Through Merchandise Sales

Similar to the traditional sports teams, esports teams also generate a part of their revenue through merchandise. So, the team jersey, t-shirts, games and other related items such as keypads and mouse pads are some good examples of merchandise. These goods are sold to a highly targeted audience.

Different teams follow different approaches and ways to increase their sales. If you’ve heard of 100 Thieves (LoL, Valorant, Fortnite BR, CS: GO) “hypebeast” style (high price and limited quantity), it was a massive hit for the team as they successfully sold down the apparels in just 20 minutes of launch.

This isn’t very surprising because the fans are ready to pay any amount for showcasing their love for their favourite team. Not just that, 100 Thieves used the same high price limited quantity approach for making merchandise into a Veblen good.

For those who don’t know, a Veblen good is a luxury good that increases demand whenever the price gets higher.

But there is a drawback for esports teams; esports stadiums are not as big as the traditional sports stadium which means less fans can attend the tournaments by wearing the merchandise.

So, you can say that merchandise for esports teams is not as lucrative as it is for traditional sports teams. You can expect it to stay the same in future due to the behavioral difference between the fans.

Even if the esports industry matures in future, the revenue generation through merchandise will remain at the lower steps. But no matter what, merchandise still holds a great value for the visibility and reputation of the team which is the ultimate goal of an esports team.

Through Content Creation

While content creation generates a small amount of revenue for the esports teams as compared to the other, it still remains a good earning source. Esports teams earn through content creation on platforms like YouTube, Facebook and Twitch.

A majority of popular esports teams have their YouTube channels in which their videos are getting massive views. By running ads on the videos, teams earn a substantial amount of money.

Some individual teams even collaborate with the esports companies to level up their revenue generation. Although content creation is not that lucrative as a source of income, it is the best way to reach a potential audience and gain new fans and followers.

There you have it, the most common ways how esports teams make money. While there are many sources of revenue, esports teams earn a huge chunk of money through the prize amount and sponsorship.

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