David Fenlon: High value products will drive self-sustaining growth in the esports industry

The growing esports audiences have a significant amount of disposable income which the industry has barely tapped into due to a lack of upmarket products, writes David Fenlon in this guest piece.

Esports audiences have been markedly undersold to given their spending habits and disposable wealth available to them. Currently, there is simply very little to upsell or on-sell to this audience because the products do not exist.

To date, the industry has been wary of manufacturing demand as the vocal nature of the esports community has a habit of seeking out and criticising commercial activities considered exploitative. However, the community is not going to create the upmarket products it may wish to buy in the future. Nor is the community in the driving seat to steer the course of the industry anymore due to the size it has grown to. The expectation is on esports entities to provide these innovative products as the scene becomes more mainstream.

David Fenlon High value products
Credits: Esports Insider, Team Vitality

This is a fantastic opportunity for esports entities to partner with non-endemic brands to plug this gap. However, it needs to be planned out very carefully. Non-endemics (non-video gaming related brands) entering esports have had a mixed reception, to say the least, and there are high profile examples of abortive debuts into the industry that several brands would rather forget about. Ultimately there needs to be skin in the game for both the esports entity and the brand, moving away from the transactional buying of audiences to a far more collaborative offering. The esports industry needs products and these products need to be relevant. Else the opportunity to grab a share of wallet of this audience will pass the industry by.

The profile and buying habits of the esports audiences should be a dreamboat for brands

The socio-economic demographic of the esports audience is every consumer brand’s dream. It is a subset of the “affluent” millennial market segment that in the US alone has a growing spending power of over $2trn per annum. They are well educated and cash-rich, but asset poor with very few financial commitments. Despite this, they tend to be spendthrifts, evidenced by the fact that 46% of all millennials in the US carry credit card debts of over $10,000. This generation also likes to spend on big-ticket items. Millennials are twice as likely to purchase designer-name clothing than older generations. This spending power demands bigger and better products and the esports industry can be bolder in its offerings to the market.

For context, when compared to fans of traditional sports, esports fans are a potential goldmine. They have a 30% greater spending power than the average English Premier League fan, and greater spending power than the average combined income of an entire household of an NFL fan: 

Average Annual Salary Esports Graph
*analysis of gamescape, NFL and Sun figures

The money is on the table for the esports industry, it simply needs to provide something of value to sell. And with lockdown upon us there is very little else for this generation to buy. In the US alone lockdown may have freed up over $10,000 per audience member that otherwise would have been spent on transportation, food out of home, and other forms of entertainment. As discussed in the article “The window of opportunity is closing on esports for mega-growth,” a shift in spending patterns has already started to happen evidenced by the sudden jump in Disney + subscribers to 50m people in the last three months.

Ample evidence of audiences willing to part with cash for esports products

Enormous amounts of audience money circulate esports but very little of it remains in the industry. This is demonstrated by the lucrative business of skins trading, which has effectively become its own currency due to its value of $ billions. Esports entities see very little of the skins trade that their activities are effectively promoting. 

Other than buying skins there are very few alternatives to spend money on esports from a consumer perspective. Endemic brands have sold big-ticket items to this audience, but their scope is strictly limited: they are content to sell items such as laptops or headsets with a long buying lifecycle of two-to-three years. They do not cater to the demand for regularly updated lifestyle products in the market. So, there is a lot of idle consumer money that could be involved in the market but has no real outlet. The donations towards prize pools is testament to this.

The vast majority of the $30m+ prize pool for the 2019 International was donated by fans, a concept that is unheard of in any other top league professional sporting capacity. This phenomenon is truly remarkable and strongly indicates that audiences want to spend money on esports related products. Yet from a commercial perspective, this dependence on donation structures is less than ideal as there are far more effective ways of tapping into audience wallets.

Partnering with non-endemics to mobilising audience spending

The industry has done a great job of creating an audience but has limited experience in creating commercial products to monetise said audience. Consequently, the expertise and capacity to build the products to upsell may need to come from outside of the esports industry. At the very least esports entities need to produce something that they can reliably sell themselves rather than promoting skins or gambling opportunities on behalf of others.

This is potentially where meaningful (and lucrative) partnerships between non-endemic mainstream brands and esports entities can create future high margin products. Non-endemics have the product teams and manufacturing prowess to create these products whilst esports entities have the knowledge to guide brands on what is going to work in this market. Importantly, to be profitable these products need to accommodate the wants of the mass audience rather than pander to the vocal minority of purists. So, these need to be positioned as “lifestyle” products which embrace the esports culture, rather than hardcore, niche “esports” products.

Nike LPL Branded Uniform
Photo credit: LPL

There is evidence of these types of partnerships emerging. Nike and Kappa’s entrance into the merchandising market are early signs of more profound moves to follow. One of the more advanced examples of the potential of product partnerships is the creation of AM4 “VIT.01” sneaker from Adidas and Team Vitality. For a cool £140/€159.99/$173.12 you can own a pair of these sneakers, an indication of the expected price point that the market will tolerate. Brands will watch this experiment by Team Vitality and adidas carefully to see whether this is a blueprint for long-term success. This is evidence that esports entities need to pivot away from simply selling viewership to brands to building the next “must-have” product for these audiences.

Onwards and Upwards 

Having true strategic partnerships with non-endemic brands to create products could be a game-changer for esports. This is more than merely placing a brand on a jersey or a neat bit of product placement and should be treated separately from general sponsorship & advertising. Currently, the pipeline for high-value items in the market is sparse. To fill it requires the creation of whole categories of credible product lines to upsell and on-sell to this audience. To attract the right partners, esports entities will need to carefully research the opportunity for specific product types and provide a tailored proposition to select prospects.

This will encourage non-endemics looking to enter the market to take a broader view of what a partnership consists of and be willing to bring their own expertise to the table. The evidence is there that the audience is willing to buy something if it is good enough – all that needs to be done is to make it!

David Fenlon is a commercial consultant who has advised dozens of global brands on key strategic investment decisions across various sectors. He specialises in the esports world and has worked with governments, endemics and non-endemics on their esports strategies. His ‘Get in the Game’ report captures the main body of his research into the esports sector and is available on Esports Insider.