Text / Hajime Soda
Recently, RNG e-sports clubs that "may go bankrupt immediately" have frequently appeared on hot searches, making the operation of e-sports clubs a hot topic of discussion, and many people are surprised by the difference in the anti-risk ability of e-sports clubs.
The root cause is that esports clubs have too few stable sources of income.
At present, the vast majority of clubs' income comes from two major parts: brand sponsorship, event bonuses, and other important traditional sports copyright income, match ticket revenue, etc., which account for a very low proportion of the esports industry - but these two are exactly the income that clubs can rely on steadily.
Brand sponsorship and event bonuses will slide sharply with factors such as competition results and economic situation, and the emergence of the esports winter in the past two years is a true portrayal of this instability.
Many teams that rely too heavily on sponsorships and bonuses have ended up with layoffs, bankruptcy, disbandment, and rottenness. A month ago, many sources broke the news that the LGD DOT2 division was in crisis, although the official announcement did not announce the news, but the move of the base from Shanghai to Changsha and the abandonment of participating in international competitions also showed that the LGD DOT2 division was indeed open source and reduce expenditure.
The commercialization problem of clubs is a problem that the esports industry has been thinking about. A common and successful practice of European and American clubs is to engage in trendy brands.
For example, 100T in North America has vigorously promoted its own clothing business, and the intensity has also made them ridiculed as "a group of gamers who sell clothes". But even so, 100T did not escape the fate of massive layoffs.
Faced with operational difficulties, different clubs choose different paths. RNG chose to use live streaming to stage "True Story", while Faze Clan, which is on the other side of the ocean, wants to continue to rely on the influence of its own brand and rely on "white labeling" to generate revenue and get out of the predicament.
Source: Weibo @文和年少
A month ago, Game Square's acquisition of Faze Clan was approved, and Faze officially became a subsidiary of GS. After merging into another company, Faze's management and operational thinking will change accordingly, which also means that Faze's previous peddling of drunken money fans will become more pragmatic money-making thinking.
One of the paths they chose was OEM. The so-called OEM means that the brand only provides the brand trademark for the finished product, and the rest of the links from design and development to production are controlled by the producer.
It is reported that Faze has earned $7 million (about 50.72 million yuan) in revenue from OEM in the past two years, corresponding to $75 million in merchandise sales revenue, and OEM cooperative brands include Nike (shoes and clothing), Totino's (food), Zuru (toys), and Ghost (drinks). Faze's senior commercial director, Adam Bauer, said FaZe receives an average of about 10% of the share from its branded products.
Source: Ghost official website
Essentially, Faze was able to choose an OEM partner for a manufacturer because of their brand influence in the esports and gaming industry. For Faze, this is a kind of "quantification" of her own brand traffic.
At present, there are more and more examples of brands having empty traffic but no revenue. Previously, Faze's valuation dropped from $1 billion to $16 million, because the promised hundreds of millions of traffic did not translate into consumption or cooperation, resulting in low revenue. This, combined with the increasing operating expenses in the esports industry in general, has led to Faze losing money all the time, ultimately causing the market to lose confidence altogether.
Brand OEM is the utilization and conversion of traffic. The amount of income from OEM cooperation depends on the number and scale of goods sold after OEM cooperation. The more merchants sell, the more Faze earns. Bauer says their three-year partnership with Zuru has met and exceeded set sales targets each time.
One of the main goals of the "OEM" side is to rely on the influence of the OEM brand to increase product awareness and occupy market share. Among the major brands Faze cooperated with mentioned above, except for Nike, they are all niche, and relying on Faze's popularity in the esports circle, they can quickly break into the esports circle and increase their market share by attracting the esports crowd, according to Bauer, in the course of the three-year cooperation with Faze, Zuru has greatly increased its market share.
Whether it is judging from Faze's revenue of nearly $7 million in two years or the speech of the head of the market, Faze's OEM business is a success. In an increasingly challenging market environment, esports clubs need to generate diversified revenues, and white-label may be a good business.
Because in terms of overall traffic, the e-sports industry has not declined, clubs and competitions can still create social events, and what is lacking is the problem of traffic conversion. OEM cooperation, such a sales-oriented cooperation, will reflect the club's influence in a more objective way.
Source: Faze social media
But at the same time, the disadvantages of the OEM model are also obvious. Relying too much on white label is likely to backfire on the brand and cause irreversible damage. The "Antarctic Man", known as the OEM universe, was hit by a huge backlash from the OEM model in 2020, and even began to change its business model, and is still in a painful transition stage.
Branding is a long-term project, and in the context of the club, it is the emotional connection and trust between the club and its fans. Once this connection is broken, it takes a long time to repair, especially in a young industry like esports, where fans "come and go".
Therefore, the business of OEM is not suitable for all e-sports clubs. Many events have already started to help clubs generate revenue at the league level, such as League of Legends, which has opened up more rights and shares of game derivatives within the league. But in a complex market environment, esports clubs need to find more ways to make money and improve their resilience. A club that relies only on sponsorships and bonuses is destined not to go far.
As we enter 2024, Faze, which has become a GS subsidiary, will continue to increase its "white-labeling" business, Faze CEO Justin Kennathan said: "With the right flow of talent, the right content, a clear strategy, and a clear strategy to really attract fans, there will be more and more white-label licensing opportunities, and we can really do it."