The Esports Winter is coming. Diversify to survive

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

Forecasting winter

With Covid pandemic concerns winding down, livestreaming views are falling from their pandemic era highs. At the same time, advertising budgets are being slashed in anticipation of a recession. This means less money coming in across the board for ad-supported businesses like esports organizations. Esports companies typically rely on sponsorships as their main source of income, making them less resilient to these cuts.

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

“We’ve been seeing publishers tightening back on their spends,” confirms Vindex’s Fitzpatrick. “Anybody who’s taking VC money has been asked to get a little bit more specific about how they’re utilizing their funds. The focus is on smart growth as opposed to growth at all costs.”

Esports companies have already started making cuts in response.

“We’ve definitely noticed trends happening across esports titles we participate in. The first thing that happens is player salaries come down,” said Hur. “The hype era is over and people are trying to build real businesses at the right size instead of trying to build them as big as possible.”

This will hit organizations that are entirely focused on esports harder. The esports winter is here, and the cold snap will be lethal for many.

You can’t rely on just one thing

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

FaZe is present in almost a dozen different games, but that’s only one part of their business. If that was it, FaZe might be tightening its belt too. But FaZe has expanded into a lifestyle brand beyond just gaming. It’s grown from a couple of friends doing trick shots in Call of Duty to a company with several revenue streams. 

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

“I think if I have to shutter some teams at some point, we will,” said FaZe’s Anderson. “On our side, we have the flexibility. We’re not stuck in certain franchise structures. We never had the same thesis that a lot of other orgs did. On the esports side of things we can pivot really, really quickly.”

While FaZe has leaned heavily into merchandising and direct to consumer sales, Gen.G has taken another approach. They have invested in educational and scholarship programs.

“We’ve actually launched probably the world’s largest gaming school in Asia,” Hur explained. “It’s similar to how you would send kids to soccer camp. Over ten thousand parents have sent their kids to our gaming school to learn to play in a team environment.”

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

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 making their own game,

Both of these teams are doing more than just pure professional play. It’s diverse. That is the key to surviving the esports winter. Anyone without a diversified business plan is rolling the dice.

Survival strategy

Surviving the esports winter is a deceptively simple game plan, if a harsh one. Be more than just esports.

In the shorter term, it’s also necessary to be smarter about the capital you do spend. Team are already making major cuts to slow down their burn rates. This means making hard decisions about where you can cut fat.

However, we do see some hope on the horizon. While many businesses will not survive the esports winter, those that can hang on will have room to grow in the aftermath.

“If you’re able to survive it then you’re going to have much less competition and a better business model to boot,” said Hur.