Esport winter is coming.  Diversify to survive

Esport winter is coming. Diversify to survive

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The esports winter is coming. Like many ad-supported businesses, esports organizations are preparing for the worst. Our GamesBeat Summit Next 2022 Navigating the Esports Winter panel all but confirms that prognosis. FaZe Clan’s Erik Anderson, Vindex’s Ryan Fitzpatrick, and Gen.G’s Arnold Hur joined GamesBeat’s Jordan Fragen to discuss how esports companies insulate themselves from the cold.

Left to right: FaZe Clan’s Erik Anderson, Vindex’s Ryan Fitzpatrick, General G’s Arnold Hur, and GamesBeat’s Jordan Fragen

Winter forecast

With Covid pandemic concerns ending, live stream views are dropping from their pandemic-era highs. At the same time, advertising budgets are being cut in anticipation of a recession. This means less money for ad-supported businesses like esports organizations. Esports companies typically rely on sponsorships as their primary source of revenue, making them less resilient to these cuts.

Of course, it’s not just brands that are cutting back.

“We’ve seen publishers cut spending,” Vindex’s Fitzpatrick confirms. “Anyone taking VC money was asked to be a little more specific about how they use their funds. The focus is on smart growth rather than growth at all costs.

Esports companies have already started making cuts in response.

“We’ve definitely noticed trends in the esports titles we’re involved in. The first thing that happens is player salaries go down,” Hur said. “The era of hype is over and people are trying to build real businesses the right size instead of trying to build them as big as they can be.”

This will hit organizations that focus entirely on esports the hardest. The winter of esports is here, and the cold snap will be deadly for many.

You can’t rely on just one thing

Organizations like FaZe Clan and Gen.G are forging a path through the snow.

FaZe is in nearly a dozen different games, but that’s only part of their business. If that was it, FaZe might be tightening their belts too. But FaZe has grown into a lifestyle brand beyond just gaming. It has grown from a couple of friends doing Call of Duty stuff to a company with multiple revenue streams.

It has been associated with energy drinks for years; first Gfuel, now Ghost. FaZe has clothing deals. He works with massive football organizations. It works with huge fast food companies and has its own delivery brand in partnership with DoorDash. FaZe is also experimenting with premium creator-focused live content on Twitch. FaZe’s flexibility is its greatest strength.

“I think if I have to shut down some teams at some point, we will,” Anderson of FaZe said. “On our side, we have the flexibility. We are not stuck in certain franchise structures. We never had the same thesis as many other organizations. On the esports side, we can pivot very, very quickly.

While FaZe leaned heavily into merchandising and direct-to-consumer sales, Gen.G took another approach. They invested in education and scholarship programs.

“We actually started probably the biggest playing school in the world in Asia,” explained Hur. “It’s like sending kids to soccer camp. Over ten thousand parents have sent their children to our gaming school to learn how to play in a team environment.

Not only does the program generate revenue, but it also helps talent scout Gen.G, both players and potential recruits.

These are just two examples, other teams are also looking to launch products that resonate with the audiences they have built. This includes energy drinks, peripherals, coaching apps, the industry’s most used wiki and creating their own game,

These two teams do more than pure professional play. It’s diverse. This is the key to surviving the winter of esports. Anyone without a diverse business plan rolls the dice.

Survival strategy

Surviving the winter of esports is a deceptively simple, if difficult, game plan. Be more than sports.

In the shorter term, it’s also necessary to be smarter about the capital you spend. The team is already making significant cuts to slow its burn rates. This means making tough decisions about where you can cut fat.

However, we see some hope on the horizon. While many companies won’t survive the esports winter, those that can hang on will have room to grow afterward.

“If you’re able to survive it, you’ll have a lot less competition and a better business model to start with,” Hur said.

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