How To Evaluate an Esports Organization

An esports organization is a company or group that manages a professional esports team or teams. Organizations compete in various tournaments and leagues such as the North American League of Legends Championship Series (NA LCS) and The International to win prize money for their players and/or to be acquired by another company. It is critical for an esports organization to understand the landscape of the industry and how they can improve their standing. This article will explore eight factors that an esports organization must consider when evaluating their business, as well as what metrics are most important when looking at potential investments or acquisitions.

1) Size of Audience

The audience size is generally the first metric that media buyers will look at when considering an esports organization. A large audience size certainly increases the value of owning an esports team, but without any further analysis it is impossible to have a firm grasp on what this number means. The total number of Twitch viewers or Twitter followers might seem like they are one-to-one representations of a fan base, but these numbers need to be considered in conjunction with the number of unique monthly users of a website or social media platform. While both Twitter and Twitch have many active users, Twitch has almost ten times as many which dramatically changes the value of a Twitter follower from a business perspective. In this same vein, there can be drastic differences in the value of an audience between games. A League of Legends fan is worth much more than a casual Hearthstone player. To better determine the value of an audience, it should be segmented by geography, device, and whether or not they are recurring viewers.

2) Proven History

The marketability or "popularity" of many esports is still relatively small when compared to the more traditional sports. This can affect how much revenue an esports organization can generate in sponsorship deals, merchandising agreements, and media rights. There are many variables that influence this metric including viewership numbers, social media presence, size of sponsor base, engagement metrics on channels like Twitch chat or Twitter replies, etc. This metric will change over time as the esports industry continues to grow.

3) Esports Economics

The growth of both player salaries and team operating budgets is increasing every year in the esports space. For example, League of Legends teams were estimated to have made $9 million in revenue with a $4 million profit during the 2016 season (before any team or player salaries, game revenue sharing/royalties, and travel support). A huge part of this revenue is coming from sponsors who are entering the esports space in record numbers. This has led to significant price inflation for existing teams that want to acquire new talent or expand their rosters. Simply put, if an organization does not have a Big Four or Big Five partner, they will have a very difficult time financially competing in the space. Additionally, while some organizations are able to generate additional revenue through merchandising programs and hosting their own tournaments/leagues, many rely almost solely on sponsorship dollars for income.

4) Social Media Presence

Social media has become an integral part of the esports ecosystem. Traffic statistics for websites are important, but social media presence can have a much more immediate impact on an organization's exposure to sponsors or fans. Social media is also an effective way for organizations to engage with their fan base in real time. Teams should be constantly monitoring channel performance metrics including follower count, likes/comments/shares, and overall activity. These metrics will allow organizations to quickly deal with negative situations or to take advantage of emerging opportunities.

5) Geographic Reach

The global nature of esports is a huge advantage when it comes to the fan base, but this can also pose issues when there are local licensing restrictions. Esports teams have to be cognizant of the various governmental policies that affect their ability to operate in different regions. For example, there are significant differences between what is required to obtain a license to operate as an esports team in China versus Europe.

6) Partner Relationships

Sponsorship dollars are not only critical for operating budgets, but they can also provide teams with strategic advantages. This includes access to equipment and merchandise, practice facilities, and even player training support. Sponsors who are willing to provide these types of resources could be seen as having a higher valuation than those that do not offer any tangible benefits outside of increased exposure on social media channels.

7) Brand Familiarity

Esports teams have some of the most devoted fan bases in all of sports. However, many casual fans are still hesitant to purchase merchandise or watch broadcasts because they are not entirely sure how to engage with the team on social media or where to find information about upcoming events/broadcasts. This metric will only increase as esports organizations continue building their brands and as more casual fans become interested in the industry.

8) Viewership

This metric represents how many people are watching broadcasts of esports events or individual esports players streaming on Twitch. The viewership numbers that are out there are mind-boggling, and this is one reason why advertisers have flocked to the space over the past several years. Some esports teams generate significant streaming revenue, but this is not always the case. It is important to remember that viewership numbers are only one metric by which an organization's value can be measured. Esports organizations will need to continue building their brands over time with live event attendance and merchandise sales in order to maximize the value of this sub-brand.

In summary, the esports industry is still in its infancy, and there is a long road ahead before we see any stabilization of financial metrics. The way for investors to make smart decisions will be to focus on teams that have strong management teams/leadership, established sponsorships/partnerships, clear revenue paths outside of prize money earnings, regional fan bases that are engaged on social media, and have shown that they are capable of building their brands through growing viewership.

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