The Esports winter is coming. Diversify to survive

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

Winter forecast

As concerns about the Covid pandemic ease, livestream views of their peaks in the pandemic era are falling. At the same time, advertising budgets are being cut in anticipation of a recession. This means less money coming in across the board for ad-supported companies like esports organizations. Esports companies typically rely on sponsorship as their main source of income, making them less resilient to these cuts.

Of course, not only brands are cutting corners.

“We’re seeing publishers cut back on spending,” confirms Vindex’s Fitzpatrick. “Anyone taking VC money has been asked to be a little more specific about how they use their money. The focus is on smart growth rather than growth at all costs.”

Esports companies have already started cutting back.

“We’ve definitely noticed trends in the esports titles we’re participating in. The first thing that’s happening is player salaries are going down,” said Hur. “The hype era is over and people are trying to build real companies of the right size instead of building them as big as possible.”

This will hit organizations that are fully focused on esports harder. The esports winter is here and the cold will be deadly for many.

You can’t rely on one thing

Organizations like FaZe Clan and Gen.G are making their way through the snow.

FaZe is present in nearly a dozen different games, but that’s just part of their business. If it was, maybe FaZe would tighten its belt too. But FaZe has grown into a lifestyle brand that goes beyond gaming. It has grown from a few friends doing trick shots in Call of Duty to a business with several revenue streams.

It has been working with energy drinks for years; first Gfuel, now Spirit. FaZe has clothing deals. It cooperates with major football organizations. It partners with major fast food companies and has its 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 close down some teams at some point, we will,” said FaZe’s Anderson. “We have the flexibility on our side. We are not locked into certain franchise structures. We have never had the same dissertation as many other organizations. On the esports side, we can turn very, very fast.

While FaZe has relied heavily on merchandising and direct-to-consumer sales, Gen.G has taken a different approach. They have invested in education and scholarship programs.

“We probably launched the world’s largest gaming school in Asia,” Hur explained. ‘It is comparable to how you would send children to a football camp. More than ten thousand parents have sent their children to our game school to learn how to play as a team.”

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

These are just two examples, other teams are also looking for products that resonate with the audience they have built. This includes energy drinks, peripherals, coaching appsthe most used wiki in the industry, and make their own game,

Both teams do more than just pure professional play. It’s diverse. That’s the key to surviving the esports winter. Anyone without a diversified business plan rolls the dice.

Survival strategy

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

In the shorter term, it is also necessary to be smarter with the capital that you do spend. The team is already making major budget cuts to slow their burn rate. This means you have to make tough decisions about where to cut fat.

Still, we see some hope on the horizon. While many companies won’t survive the esports winter, those that can persevere in the aftermath will have room to grow.

“If you can survive, you have a lot less competition and a better business model,” Hur said.