For China's e-sports industry, 2023 can be said to be a year of stability and change. Mainstream e-sports projects still attract e-sports fans, the e-sports industry as a whole has resumed offline activities after the epidemic has ended, and e-sports teams backed by major manufacturers are still willing to invest in building teams. On the basis of stability, new changes are also taking place, and e-sports has become an official event for the first time in the Hangzhou Asian Games, which can be said to be a milestone event for the entire industry, and it can also be called the most heavyweight event in the domestic e-sports industry this year. In addition, the establishment of Valorant's CN division has injected fresh blood into the domestic competition.
But if you look beyond China, the picture is very different. Similar to the Asian Games, the IOC is also looking at the development of esports, and in September this year, they announced the creation of an esports committee, which will host the Olympics of esports in the future. This is a huge breakthrough for the social status of esports has always been. However, the twists and turns in the process of e-sports entering the Olympics this year alone are like a roller coaster. In addition to the International Olympic Committee, the AESF Asian Electronic Sports Federation has also announced that it will host the Esports Asia Cup next year. The dominance of e-sports events is shifting from major game developers to developers and third-party large sports associations entering the stage of cooperation and competition.
In addition to the topic of e-sports entering the Olympics that people are most concerned about, large companies located in the upstream of the e-sports industry chain are also facing their own difficulties. Even the most successful Riot games have faced a collective strike by esports players, Valve, which owns Dota 2 and Counter-Strike, is trying to rediscover its business model, and Blizzard has affected the development of its esports in China. In response to the original completely "money-oriented" model, the major giants have made their own thinking and adjustments, and in the next few years, they will move towards a new model.
In North America, the withdrawal of big players has made it difficult for some established clubs to sustain themselves, with CLG and EG clubs shutting down all their esports businesses. With nearly $1 billion to go public, the once-glamorous Faze Clan share price has become worthless. From heaven to hell, it took them less than a year. The entire North American esports industry has been in a state of chicken feathers after the financial bubble, which makes it even more important for practitioners to think about how the esports industry can survive healthily and in the long run.
But on the other hand, there are also people who have inherited the North American game of throwing a lot of money, and the Saudis who are attacking everywhere in the entire sports field have brought unprecedented heights of gold dollars, and the Saudis not only invested 1.8 billion yuan in Hero Sports VSPO, but also said the idea of holding the E-sports World Cup in the second half of the year.
1. E-sports in the Olympics and national competitions
The IOC's focus on esports is not the first day, and despite being quite conservative about the integration of esports and the Olympic spirit, the huge influence of gaming and esports among young people is too much for them to ignore. With the Olympic spirit at its core, the IOC conducted a small-scale trial of the Esports Week during the Tokyo Olympics under a strict access regime, with the participation in sports games or virtual sports that require simulators for human movement.
By June this year, the Olympic Esports Week in Singapore had grown to a total of 10 events. In addition, after a series of twists and turns, Fortnite, a popular esports event with great influence around the world, joined the Olympic Esports Week as a shooting event, and competed according to the rules set by the International Shooting Sports Federation (ISSF). To this end, Fortnite, which originally focused on battle royale, has remastered an Olympic-specific version of the map, allowing competitors to shoot according to a set event on the map, and accuracy and speed are used as the criteria for judging. This radical mechanical innovation allowed Fortnite to pass the IOC's exacting standards and become the first major sport to enter the Olympic Esports Week. In fact, the same method has been set before in the "Peace Elite" Asian Games event.
Of course, the dominance of sports associations also means that game developers will give up their original dominance in the Olympic esports event, and the IOC has stated that the Olympic Esports Week event will not have any connection with the game developer Epic Games. At the same time, the tweaks to the core gameplay meant that Fortnite lost some of its uniqueness, and it would become a provider for the Olympic event. In terms of the competition between the IOC and developers over the project, the IOC can be regarded as a comeback. But in the bigger picture, Fortnite's inclusion isn't enough to shake other leading developers, not to mention the most mainstream projects such as League of Legends, even popular sports games like FIFA and NBA2K, which have yet to join the ranks of Olympic Esports Week.
In the wake of Olympic Esports Week, even more header news came from the International Olympic Committee, which first set up a dedicated esports committee under its umbrella, and in October, President Bach announced the decision to host the "Esports Olympics" at the plenary session of the Olympic Committee.
Behind these two major decisions, what is even more striking is the change in the IOC's attitude towards esports. At the time of the establishment of the Esports Committee, the frequent use of "e-sports" and similar words in the declaration was basically "e-sports", which shows that until this time, the Olympic Committee still adhered to its own principles and prioritized the development of virtual sports, and put traditional e-sports, which is more distant from sports, or even ignored it, which made some traditional e-sports practitioners feel dissatisfied.
However, at the Olympic Committee plenary session in India, Bach's speech took a 180-degree turn, not only using the word Esports frequently, but more importantly, the definition of esports in the speech included traditional esports rather than excluding it. This is undoubtedly good news for the industry. In the middle of the two attitude changes, Chairman Bach went to the Asian Games e-sports stadium to experience the atmosphere of the scene, as an example of the integration of sports competitions and e-sports, the Asian Games are likely to bring him considerable inspiration.
The latest statement of the International Olympic Committee has made the direction of e-sports more clear, but for traditional sports associations and game manufacturers that dominate e-sports, the concession in the speech does not mean who has regained the upper hand, and in the next development, the competition between the two sides in cooperation is likely to become a new focus.
2. Blizzard has changed dynasties
In the year of its 25th birthday, Blizzard's previous era also came to an end. After a year of twists and turns, Microsoft's lawyers dismissed the regulator in court over the takeover, and Microsoft's acquisition of Activision Blizzard finally crossed the biggest hurdle in the United States, and soon after, they reached a settlement with the U.K. regulators, another major obstacle. The acquisition has already been approved in 37 countries and territories.
For the past 1/4 century, Activision Blizzard has been the leading developer of esports games, and the attributes of MOBA, from World of Warcraft to StarCraft, have given them the foundation to become esports titles. In the 2010s, StarCraft 2 extended the longevity of the world-popular esports sport, and Overwatch, launched in 2016, became a new hit, with more than 40 million players online at its peak. However, this became Blizzard's last glory. The bursting of the Overwatch league bubble and the loss of players, years of lack of new titles to attract the market, coupled with the solidification of management and the sexual assault scandal that erupted within the company, Blizzard's gold and jade on the outside are in stark contrast to the internal ruin. The annual revenue of $7.7 billion in the financial report cannot hide the problem of the building collapsing.
Of course, Blizzard, which has been a top game developer for many years, has extraordinary value, and in the context of global tech giants trying to develop future technology through games, Microsoft, which has been developing in the game industry for many years, has set its sights on the stormy Blizzard, and finally quoted an unprecedented purchase price of $68.7 billion. This begs one wonders how much it would have cost to acquire such a company if Blizzard had been in its prime.
The impact of the giant's acquisition of the giant is far more than just an industry shock, and it has also been judged by the regulatory authorities to be an industry monopoly, which has also triggered a year-long tug-of-war between the two sides in court. Before the final verdict settled, the entanglement between Blizzard and Chinese mainland agent NetEase before the expiration of the contract also made the breakup of the two parties extremely unhappy, and the result is not a good thing for the Chinese e-sports industry, although Blizzard has been declining, but after the end of the cooperation with NetEase, there are still StarCraft, Overwatch, Hearthstone and other heavyweight e-sports projects cannot carry out e-sports activities in China because of version number and licensing issues. In the once-thriving Overwatch League, four Chinese teams are facing the fate of disbanding, reselling seats or relocating.
Blizzard ushered in such an end after many years in China, and I am afraid that people who have been witnessing this journey did not expect. Although the new Shenzhen NetEase company has been registered and the two sides are about to reunite, it may not be so easy to repair the huge rift caused by the employees who have been laid off and the players who have lost them.
It remains to be seen whether Blizzard's turmoil will come to an end after the completion of the Microsoft acquisition, but the departure of Caldecott, the head of the company's 25-year history, has become a sure thing. Blizzard's last era has come to an end, and what kind of development this once global benchmark for esports companies will usher in in the Microsoft era still needs to be tested by time.
3. Exploration of business models by giants
One of the reasons behind Blizzard's big troubles is the failure of the esports field. At its peak, 2018, the seat of the Overwatch alliance was also quoted at a sky-high price of $60 million. In addition to the $90 million copyright agreement signed with ESPN, a number of investors in the sports industry have also come to the company, making OWL another hot esports commercial event after League of Legends. The introduction of a home-and-away system and cross-border competitions have further increased the influence of the competition.
However, the big upfront investment did not lead to a more brilliant development for OWL. The first problem to arise was the game itself, and the problem of operation direction made a large number of players no longer able to get pleasure from the game, and these former loyal fans of OWL, the core consumer group of Overwatch, gradually lost due to the poor experience. And when the base of the pyramid is constantly emptied, it is only a matter of time before the spire collapses.
The arrival of the epidemic has made OWL's situation even worse, and the expensive offline venues not only cannot make money through ticket and audience consumption as before, but also need to bear high costs. At the same time, the merchandise and copyright income was not as good as it was at the beginning, and after the Blizzard scandal broke out, multinational brands that originally provided a large amount of sponsorship for the league also chose to terminate their contracts with OWL, and the income of the league and the team suddenly became a source of water. In 2023, OWL made the decision to allow teams to quit or join the new league, and gave $6 million in compensation to the teams who quit.
OWL from heaven to hell has also become a typical case of the development process of the esports industry, the expectation of selling at a high price cannot match the actual income, and the bubble blown out cannot support its own stability, so it collapses.
In addition to the failed OWL, in this year of many changes, other esports giants have also made new explorations and adjustments to their esports leagues.
In a completely different situation than Blizzard, Riot Games was arguably the world's most successful esports company in the last decade, and the launch of League of Legends games and the establishment of an esports system have made them a benchmark in the industry. In the same league system of seat sales, League of Legends professional tournaments have survived with a player base of hundreds of millions, top commercial appeal, and relatively low operating costs.
However, even with this success, this system is not without problems, compared to China and South Korea, Europe and the United States are still far behind the former in terms of League of Legends competitive strength, not to mention other regions. In the long run, League of Legends has been less attractive to players and businesses in these regions. In addition, the one-ticket league system makes financial strength almost the only criterion for obtaining a seat, and the lack of vitality of the league also makes the seat clubs lack a sense of demand and urgency in operation, which is by no means conducive to the healthy development of the league.
With these considerations in mind, Riot Games has introduced a new program, Valorant, as well as a more flexible evaluation and contract mechanism for the program's professional events, so that clubs with better overall capabilities can become part of the top competitions. That's one answer to Riot's thoughts on the future of esports business.
On the other hand, Vavle, the developer of Dota 2 and Counter-Strike, has announced that it will completely ban the existence of alliances in Counter-Strike events by 2025. V Club, which usually acts as a "hands-off shopkeeper", did not build regular e-sports events like the previous two, but authorized large third-party event companies such as ESL and BLAST. Driven by commercial interests, Counter-Strike's third-party tournaments have also adopted a league system in regular leagues, and in 2023 the CS:GO program has reached its peak of glory. However, it was surprising that V announced this decision to go against the trend on the occasion of the change of "Counter-Strike", and it also aroused interest in the next steps they would take. Will this maverick decision make Counter-Strike a better life than other projects?
4. Going public: The pitfalls of esports companies
During the period of general global economic growth before the epidemic, the amount of financing that e-sports companies that took advantage of the east wind was also increasing, especially the nascent Web3-related companies, which also set their sights on this industry that had a lot in common with them. Esports companies, which are expanding and look promising, are also starting to think in the direction of listed companies. In the European and American markets, where the listing environment is relatively relaxed and the methods are more diversified, more than 20 e-sports-related listed companies have been born. Among them, Faze Clan, a well-known esports brand that went public in 2022, was valued at $987 million at the time of listing, setting a record in the esports industry.
The most attractive thing about esports companies is the tempting prospects, and in those years when a single PowerPoint could be successfully funded, the high valuation of esports companies is not surprising. However, the overly empty financial report has exposed the dilemma of esports companies. In the wake of the economic downturn, the problem has become even more apparent. The structure of esports clubs' over-reliance on sponsorship revenue has not been fundamentally changed, and revenue from content payments is also a false proposition.
While traditional sports rights are sold for hundreds of millions of dollars, content giants like Faze pay only $0.3 per person. If you want to open up new channels to create more revenue, in the absence of models and technological innovation, it often means higher costs, and profitability is still far away. While soft products like content can't generate more revenue, people find that esports companies have almost no valuable physical assets, and they don't even have much to pledge in the event of debt or even bankruptcy.
The IPO seems to have lifted the fig leaf for these esports companies, and when the real situation behind the expectations was seen, their stock prices invariably opened high and low, and there was little sign of a rebound.
It's not like these companies aren't working hard to turn the tide. In the three years since its listing, Astralis, a well-known Danish esports club, has been moving from high losses to breaking even, controlling the size of its workforce, investing in esports services and content-related industries, increasing its asset size and opening up new revenue streams.
However, time was running out and the market's patience was not enough to support them until they turned profitable, and Astralis' stock price did not improve, and this year, the company also made the decision to delist. In the absence of more investment through listing, the reduced rules of delisting can make the company less stressful, and in the case of pragmatism, Astralis has made a more favorable decision.
But the outlook for companies like Faze is less clear, with costs rising from various expansions at a cost of $100 million to go public. However, Faze, who has become a "penny stock", can no longer get more investment from the market, and the company's shareholder, rapper Snoop Dogg, even "ran away with a bucket", announcing his exit in less than a year. CEO Lee Trink was eventually replaced by the board of directors due to the company's poor performance.
It is not yet known how the listed e-sports companies will be withdrawn, but after this time, neither the capital nor the supervisory committee should easily consider the listing of e-sports companies. Until a more stable, pragmatic and diversified growth curve is found, the listing of an esports company with a single business is a huge trap.
5. Saudi Arabia continues to make efforts
Some people burst bubbles or go into debt, but others start pouring money into the pool. Unlike the previous players who relied on marketing to finance themselves, there are probably few people in the world who ask the Saudis if they need financing, not to mention looking at the royal family members who hold important positions in the association, and the Saudi sovereign fund PIF, as the name suggests, they clearly tell the world that this is the deep pockets of an entire country.
For the development of the e-sports industry, Saudi Arabia has put it at the level of national policy. Not to mention the long-term "2030 plan", the Gamers8 esports festival held by the Saudis in the past two years has already shown their strength, and the large-scale venue built specifically for esports competitions has been upgraded to a total prize fund of 45 million US dollars this year, attracting a large number of industry professionals and e-sports fans. At the end of the year, Saudi Arabia invited FIFA President Gianni Infantino and superstar Cristiano Ronaldo to stand for their esports conference, and announced the decision to host the Esports World Cup next year.
Together with traditional sports, Saudi Arabia is extending its influence to the entire sports circle. The $1.5 billion package of ESL and FACEIT is an appetizer for the investment, and the 1.8 billion RMB stake in VSPO will further deepen their roots in the esports industry. With local investment, a new sports destination, the headquarters of the event brand, is springing up in the desert.
In 2023, the bubble that esports once built up through marketing has been shattered, and the breakthrough changes brought by giants such as associations and large enterprises have brought new opportunities. It's still a moving industry in flux, and it's still one of the most engaged by young people. But in the next stage, after the logic of this industry is understood by more people, the market will call for more realistic and standardized entities and corresponding rules.