The endemic and non-endemic brands that are starting to sponsor esports

Sport Business International

http://www.sportbusiness.com/sportbusiness-international/esports-endemic-and-non-endemic-brands-are-starting-sponsor-esports

The sophistication of esports sponsorship opportunities is growing. While still trailing more established sports and entertainment properties in terms of how brands leverage sponsorship and how new assets and activation platforms are developed, esports sponsorships are generating increasing revenue, and providing brands with broader reach, greater visibility and more physical and digital touch points for engaging the esports fan.

The esports audience

Esports is best approached as an entertainment property viewed mainly online and by an audience well in excess of 100m worldwide. The core esports audience is 148m, with another 144m occasional viewers, according to researcher Newzoo. SuperData Research pegs the core number at 214m, set to go above 300m by 2019.

“With all these eyeballs watching other people play video games there is a clear opportunity for brands to get in front of them,” says David Goldberg, CEO at Flood Gaming, an esports talent and marketing agency.

He considers ‘esports’ an unhelpful term and suggests that brands think of the activity as ‘marketing gaming culture’ or ‘targeting the gaming demographic through esports’.

He explains: “The esports audience is young, affluent and tech-savvy – a group which traditional media is having difficulty reaching. Esports offers the opportunity to brands of reconnecting with that audience.”

This view is consistent with other esports marketing specialists. Dan Ciccone is managing director at agency rEvXP. “First and foremost, esports offers the ability to consistently reach an audience that is becoming incredibly difficult to reach – tweens and male 18 to 34-year-olds,” he says.

“Esports is not a trend or a fad. It has been evolving for the past 20 years and is at a point where technology, entertainment and social interaction has intersected for this demographic in a very meaningful way.”

That said, marketers should be aware of the limited amount of demographic and psychographic data available on esports fans. 

“While we do know that gamers skew heavily in the millennial demographic, it is important for a brand to develop a more substantive target consumer profile and understand how to speak to this consumer in a way that is authentic to the esports audience (and consistent with the brand’s message),” says Matt Hill, SVP, Global Sports and Entertainment Consulting, at consultancy GMR.

Important differences with conventional sports

Brands need clear objectives for their associations with esports. Is the goal to drive consumer awareness and trial through impressions? Does the brand covet direct fan engagement through on-site activation at events and unique promotions and sweepstakes? Is the brand seeking authentic integration of its product or service into the gaming experience? 

“Before an esports strategy can be established, these objectives and key performance metrics must be defined,” Hill advises.

For example, just like sports, the term ‘esports’ tends to lump lots of different games together. “It is important to identify which games bring the audience that aligns with your brand narrative,” advises Ciccone.

“Call of Duty and DOTA, for instance, share similar demographics, but different lifestyle needs and attitudes.”

Ciccone says his company works with clients to help identify which lifestyle is more aligned with their brand in determining where to participate in esports.

The esports structure is also different to other sports. Unlike traditional sports leagues like the NFL or NBA which can provide a one-stop-shop for a brand to acquire various assets to drive a campaign, esports is currently far more fragmented.

“There is no governing body that can offer an all-inclusive approach to sponsorship,” observes Hill. “Instead, brands must navigate the various industry stakeholders, from publishers and events to media platforms and teams/athletes in order to construct the asset mix that will help them accomplish their sponsorship objectives.”

What type of brands are investing?

Sponsorships drive the lion’s share of esports revenue. Of Superdata Research's global 2016 esports market value of $892.8m, some $661m (74 per cent) derived from sponsorship and ads. 

Brands investing in esports are frequently categorised as ‘endemic’ and ‘non-endemic’.

Endemics are directly related to esports, and include gaming equipment and services companies such as Intel, Comcast Xfinity, Logitech, Turtle Beach, AMD and BenQ. Their deals tend to incorporate a value-in-kind or barter component.

Perhaps the most successful endemic is Intel. It has established the Intel Extreme Masters, produced by tournament and event organiser ESL and now in its tenth year. The Masters includes competitions in League of Legends and CS:GO and has attracted other endemic sponsors, including HyperX, GIGABYTE and BenQ. Amazon also sponsored the 2016 tournament, offering viewers a discount on hardware supplied by Intel, HyperX, GIGABYTE and BenQ. A percentage of those sales went towards increasing the prize pool for the tournaments.

The 2016 Extreme Masters final day became the most watched event ever for ESL, reaching 34m fans on all online platforms. Intel contributed hardware worth $37,500, out of a total prize pot of $537,000 [?]. The three-day event attracted 113,000 fans to the Spodek arena and IEM Expo in Katowice, Poland. Intel claimed 64m minutes of the event were viewed on YouTube and over 30m unique users engaged on social media, with 101,000 uses of the #IEM hashtag.

Despite this, however, Goldberg believes the esports market for endemics is at best stable and may even be shrinking. “Endemics have saturated the space. Every big team is sponsored by one or more hardware maker. I don’t see a tremendous opportunity for growth among endemics.”

Analysts and agencies see a bigger opportunity for non-endemic brands to mould esports sponsorship and change the economics within the sector.

Non-endemic brands such as Coca-Cola, Red Bull and Pizza Hut have begun associating themselves with esports through sponsorships that integrate their products into the fabric of gaming culture and the lifestyle of the audience.

Most sponsors invest in a team, or teams – teams often play more than one esport and participate in several different tournaments a year. HTC for example sponsors the teams: Team SoloMid, Cloud9, Team Liquid and J Team.

Other brands have gone further. Red Bull sponsors ‘boot camps’ for extreme sports teams and athletes – a category in which it has extended to include esports teams and athletes. Teams such as Dota OG and players like N0tail have been invited to the boot camp in Santa Monica to train ahead of major tournaments, with their training programme shared online.

Pepsi joined with ESL and gaming group E-Sports Entertainment Association to create the Mountain Dew League (Mountain Dew is a Pepsi band). This is offering amateur gaming teams the opportunity to qualify directly into the next season of ESL’s CS:GO Pro League.

Another Pepsi-owned energy drinks brand, AMP Energy, recently linked with online gaming platform Twitch to launch a new flavour and limited-edition co-branded can.

The launch earlier this year of the Eleague by Turner Broadcasting and WME | IMG is credited with igniting further interest in esports among non-endemics.

“While the overall success of Eleague is debatable there’s no question it has introduced a lot of non-endemics to the space,” reports Goldberg. “Eleague is a success in terms of introducing more marketing managers to esports who otherwise wouldn't have understood the sector. Events like Eleague help people get comfortable with the idea that esports can be viewed like other media.”

Eleague sponsors include Arby’s, Buffalo Wild Wings and Credit Karma. “If you are a casual food chain and you see Buffalo Wild Wings spending money in esports, it is more likely to justify your decision to also invest.”

How much are sponsors paying?

Sponsorship investment varies depending on reach (number of viewers) and the assets included in the deals. 

According to GMR, team sponsorship and athlete endorsements can range between high-five-figure and mid-six-figure dollar investments per year. Media sponsorships – for example buying ad units within a game broadcast – are also dependent on the reach and frequency (how often is the brand visible), and range in the low- to mid-six-figure dollar investments per year. Sponsorship of major esports events, inclusive of on-site activation at the venue, requires comparable low- to mid-six-figure dollar investments per year.

“A holistic platform that incorporates assets from each of these stakeholders and provides a brand with a meaningful position in esports generally starts in the low-seven-figures (dollars) per year,” says Hill.

rEvXP supports this assessment. It says amounts have shifted from two years ago, when five-figure investments were common and six figures represented a major win, to six-figure investments becoming standard and $1m+ sponsorships more commonplace.

The figures are being pushed up by the arrival of non-endemic brands.

“Until now, most endemic sponsors have been leaning heavily on the barter side,” reports Ciccone. “I’ll give you ‘X’ product and expect ‘X’ in return – logo placement, social promotion, product placement, etc. As non-endemics move into the space, they have a different model and needs and many endemics will either be forced to pay more for the same exposure, or they will need to find a different way to participate as a new economy will force them to change their approach.”

However, the amounts are still considered largely experimental by brands and their agencies. “This is all money trying to prove the case,” says Goldberg. “If a brand gets a great return on their investment from dabbling in esports, the agency will go back and ask for ten times the money to go take engagement a stage further.”

Deloitte sees no cannibalisation of budgets from conventional sports.

“Esports sponsorship is seen as way to reach millennials online and seems likely to come out of a brand’s digital budget,” says Duncan Stewart, Director of Technology, Media and Telecommunications Research for Deloitte Canada. “Based on what I have seen so far, it is not having an impact on overall advertising spend for conventional sport.”

He adds: “Given the normal size of a brand doing a traditional sports sponsorship (millions of dollars, sometimes even billions in multi-year deals) even if they were shifting dollars, the relative dollar value of esports sponsorships is so very low that it wouldn't have a significant effect even if it were coming out of the same budget.”

What inventory can brands sponsor?

Different esports stakeholders offer different assets. 

Events like ESL One (see sidebar), Intel Extreme Masters and The International provide the best-attended and most widely-viewed competitions for sponsors to align with.

Event operators provide experiential touch points for a brand to engage fans on-site through hospitality, activation, promotions, sampling/couponing, signage, and other activation elements.

Publishers like Riot, Activision Blizzard, Valve and EA offer significant sponsorship opportunities including integration into the games themselves, and, at the competitions they control, the same suite of assets that event organisers can offer (see above).

Media platforms like Twitch sell standard media assets – banner ads, pre-roll, takeovers – along with media buys that integrate a brand into a competition broadcast or studio show.

Turner and WME | IMG’s Eleague offers broadcast media integration and digital/social extensions on TBS television channels and/or the Sky-owned Ginx.TV online platform. 

Teams, athletes and streamers offer their intellectual property and likenesses. A typical deal could see a top player being paid by Red Bull to tweet how much they love the energy drink or to endorse pre-roll Red Bull ads on their videos.

Teams, athletes and streamers also offer access to their social media and fan communities, allowing the creation of unique fan experiences for promotions and sweepstakes.

Are brands getting good value for money?

Esports sponsorship is a relatively effective and efficient way to reach a highly-coveted demographic that is fairly unduplicated in traditional sports.

“Are brands getting value in terms of placement of their logo with a team? No,” says Goldberg. “Exposure on a jersey works differently to traditional sports because most of the action being streamed/viewed is on screen and not on the player. If a sponsor is just paying for jersey exposure then the campaign is probably not going to succeed. The brand needs to put more thought into working with a team or players.”

Ciccone agrees: “Throwing a logo up isn’t going to work – what are you bringing that is adding value to the space?”

There is plenty of scope for better integration, the experts say. For example, an airline or hotel brand could capitalise on the increasing amount of travel involved in competing in or attending events. They might create a team or event sponsorship that provides discounted airfare or lodging, fan competitions for a VIP experience at a major competition, or unique content filmed on airplanes or in a gaming lounge at a hotel.

“Our frustration is that many gaming companies and leagues are approaching esports in a very traditional manner,” says Ciccone. “There is too much focus is on CPM, which has been an issue overall in digital marketing for a while now. However, they are in a position to break from those traditions and create new currencies with real and measurable ROI for sponsors.”

For example, US insurance company Geico entered the esports market last year with sponsorship of Team SoloMid and the Hearthstone tournament One Nation of Gamers. It also now sponsors another team, Panda Global. The brand went further and worked with Hearthstone publisher Blizzard Entertainment to introduce a new rule into the game. This rule gave players an advantage if they could create card decks with a factor of 15 since this mirrored Geico’s external campaign linked to customers saving 15 per cent on car insurance.

Conventional sports rights-holders might be able to copy some of what esports rights-holders are offering brands, in particular around cementing deep connections between athletes and their fans. In esports these connections have been deepened by online viewing, which creates an intimate two-way connection between fan and stars.

“Esports are at the forefront of providing brands with the opportunity to have a two-way dialogue with fans through association with well-known esports athletes, streamers and other gamer personalities,” says Hill.

Challenges

The bulk of revenues flowing into esports comes from advertisers and sponsors, and this is a problem according to SuperData Research CEO Joost van Dreunen. “On a superficial level, many people from the traditional media side still hold on to archaic ideas about what gamers are, making it difficult for media execs and marketers who are not from the Stone Age to gather internal support to take budgets beyond just experimental money,” he says.

“But on a deeper level, competitive gaming will need to adhere to media industry standards to convince non-endemic brands at scale. To grow, it has to overcome one of its biggest struggles in digital media today: the lack of credibility and reliability of accurately assessing the ‘true’ esports audience.

“We’ve found, for instance, that there is a lot of fraud among live streamers, with some of them actively buying fake viewers to raise their ranking. Until this issue is fully resolved, growth of sponsorship money will remain limited.”