When the biggest tournaments in the world are broadcast on Twitch and YouTube, and licensing agreements in esports are substantially lower than their traditional sporting counterpart, it isn’t difficult to work out that the global esports economy is highly dependent on sponsorships.
Many competitive esports organisations and tournament operators would attest to this theory, and analytical firms such as Neilsen recognise the importance of sponsorships too. The world-renowned investment bank Goldman Sachs estimates that sponsorship will represent a significant 35 percent of the industry’s total revenue in 2022, the second-largest revenue opportunity after media rights.
Earlier this month, we spoke with Zachary Rozga, CEO and Founder at The Consumer Engagement Company, to find out more about his analysis of the esports industry’s dependency on sponsorships, as well as his solution to a problem that he believes is costing industry stakeholders hundreds of millions if not billions of dollars.
Now, with just a handful of months in the industry under his belt, Rozga is by no means an esports veteran. He recognises his outsider status though and believes that it enables him to see the aforementioned problem from a different perspective. What he lacks in esports knowledge, he makes up for with decades of experience in media and advertising.
“I think the word dependent is a really good choice of words. I say that because it really feels like a dependency, and when you’re dependent on something you’re in a weak position,” Rozga said. “I think because of this dependency on sponsorship and the sponsorship model, esports is missing out on massive brand dollars.”
“When I first started digging into esports, an esports data company from Dallas showed me a dashboard with all the spend from advertisers from 2015 to today, and the list was very long. However, 90 percent of the companies on the list had only purchased one activation and that indicates a problem, right? If you’re a restaurant – particularly if you’re a high street restaurant – you live and die by repeat business,” said Rozga. “If you had to go out and bring in new customers every single day, every single week then you’d never survive and that is what that graph showed me.
“On top of this, all the ‘one-and-dones’ I saw were the non-endemic brands, and all the repeat businesses were the endemic brands. Non-endemic brands have vastly larger budgets and greater reach, and when I saw that graph is when it hit me that this is an even bigger problem than I initially understood. I think the reality is that the esports landscape has a coveted audience and authentic engagement with them, but there are some hurdles that exist in the industry that I now know – just from being here for a few weeks – are preventing large buys from happening.”
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When we spoke, Rozga went on to compare 1880s baseball with modern-day esports, and he illustrated how baseball was once as maniacally busy as esports before the major leagues and organisation of competition. He understands how many events there are in esports, and he commented on the difficult position that puts brands in is problem number one.
“If I am the brand manager and I want to enter esports tournaments, I can send out a request for proposal but I’ll likely get an absurd number of responses and each proposal will be somewhat identical to an outsider,” he explained. “As the brand manager, you would say to yourself, ‘how do I pick a winner here?’ and you’d be forced to just pick one because it’s your first entry into the market, and you don’t have any easily accessible and reliable data to compare the choices. The problem is, however, when you pick one in a sponsorship model you’re basically all risk and limited reward, because if it doesn’t meet your needs that test is a failure and you don’t have another test to try another way. So you decide esports doesn’t work and don’t buy again.”
“In my opinion, the esports industry is yearning for advertising professionals to help them understand what they don’t know, and I think brands are looking for a trusted third party to help them navigate what are extremely murky waters,” Rozga suggested. “That leads us into problem number two, which is reporting (i.e. verification of delivery) and attribution. The way esports are counting their impressions and eyeballs is not in line with traditional media math. I think there has been this notion that you have to show brands huge audiences to attract them, and somewhere false metrics have seeped in and led to our aforementioned tests.”
“We can move this all day and quickly, so negotiation times could go down to days, not months. Everyone says that it takes a month to knock off a sponsorship deal whereas I can move $250,000 of advertising inventory in two hours.”
Although these issues feel daunting, he thinks he has a possible solution to the problem identified. By drawing on his historical knowledge on the evolution of upfronts in cinema in the US, the CEO of THECE believes a period of consolidation could help propel esports forward. Now, Rozga is by no means suggesting that a salvo of rules and regulations are the answer, nor is he hoping for a major player with lots of cash to buy up entire ecosystems. Instead, he believes that the pooling of audiences – and by extension events – could be a solution.
“I have no intention of pulling tournament operators away from sponsorships. The Olympics and the Premier League make a tremendous amount of money from sponsorships, but what we see as a possibility is the pooling of tournament operators into categories,” Rozga explained. “You would pool the audience together and serve the ad in such a way that it doesn’t take anything away from sponsorships which means that esports organizers can still partner with sponsors and media math driven ads are served up by us. This way the ads are actually an addition, not a replacement.”
“When we go this route, from a brand’s perspective, they are not buying into one single tournament, instead they are investing in all tournaments for their preferred title in Europe, for example. So it doesn’t matter if a single tournament went badly because the top team didn’t show up and viewership dropped because there are hundreds of other tournaments to make sure the impression load is filled and the media buy is satisfied. Essentially, brands want the audience, not just one but all under the umbrella and pooling serves as a mechanism to do that, rather than putting all eggs into one basket in one event.”
Rozga believes that his company – often abbreviated to THECE – is well-positioned to satisfy this gap in the market and solve the problem for a few simple, yet important, reasons. Rozga’s co-founder Ian Owen-Ward has more than 25 years of experience in media, and the head of THECE’s board was part of a group who invented two different media buying patterns that became industry standard. Along with his qualified team, unique technology and neutral, third-party position in the market, Rozga believes that THECE has a solution and can help fulfil those missing billions of dollars from the esports industry.
“We have our own tool that we can serve up as a second screen ad unit so that it fits within the game structure to essentially set up make-shift ad breaks,” Rozga said. “The run of show doesn’t stop, and we insert these ad breaks into the event for the advertiser by using the content of the game so we avoid a loss in engagement from the audience. A true win-win-win for the audience, the tournament organizer and the brand!”
“We have relationships with the brands, the media houses and the agencies, and if we start formulating this as a media purchase that they can make and put it on their desk. We can move this all day and quickly, so negotiation times could go down to days, not months. Everyone says that it takes a month to knock off a sponsorship deal whereas I can move $250,000 of advertising inventory in two hours.”