Payments and The Monetization of eSports

PAYMENTS AND THE MONETIZATION OF ESPORTS

How payments technology is reshaping revenue optimization in the esports industry

EXECUTIVE SUMMARY

1. Esports companies are diversifying their revenue streams to better monetize their audience. This is leading to increasingly complex operations.

2. Despite touching all aspects of the business, improving the payment process is an overlooked opportunity to grow revenue.

3. Teams and event organizers want help maximizing the value of their transactions in a way that will not require more thought or effort.

4. Due to its international audience and increasing complexity, the esports industry needs flexible payment providers that will help address its concerns.

INTRODUCTION

Over the last two decades, esports has grown into a $1+ billion industry*, in turn evolving into something far more expansive than gamers simply competing for glory. Players became professionals. Event organizers became media conglomerates. Teams became recognisable brands and recognisable brands founded teams.

With this growth, the complexity of esports companies’ operations increased significantly. Esports is diversifying and expanding while facing unprecedented challenges.

With COVID-19 (and the viewership growth it brought) fading and the global economy on an unstable footing, the readily available investments that previously fueled esports will not be as accessible going forward.

Instead of relying on investments, esports companies must find ways to monetize the audience directly. They will need effective tools to process these transactions. Payment processing will play a major role in the growth of esports.

As a global industry that relies on the borderless digital world, managing something as fundamental as payments is no simple task.

In connection with Nuvei and PayPal, Esports Insider conducted a survey of over 100 esports teams, event organizers, talent management and betting companies to better understand how their operations are growing, their outlook on the future of the industry and the role payments play in fueling this expansion.

INDUSTRY PRIORITIES

Esports companies are still scaling businesses trying to find their footing in a time of economic instability. 55% of respondents said they were not profitable in 2021.

The esports industry — like the rest of the world — is facing mounting economic pressure.

Nearly 1 in 3 esports companies say the economic climate is their top concern for the future. Further, about half of esports companies say meeting investors’ expectations for ROI is one of their top priorities. However, the industry’s most pressing concern is much more basic: esports is still figuring out how to monetize its audience.

65% of respondents say monetizing the audience is one of their three top concerns

65% of esports companies surveyed said monetization was one of their top three concerns about the future.

With these troubles looming, many esports companies do not have the time, energy or manpower to micromanage basic tasks.

PAYMENTS ARE FUNDAMENTAL TO ESPORTS OPERATIONS

Being able to accept and process payments is fundamental to any business, but esports companies face unique challenges.

The industry is highly complex. On average, the surveyed companies operate in six different games, so engage with just as many audience segments.

Furthermore, the global scale of the esports industry means companies must cater to different regulations in each international market. 56% of esports companies say at least 20% of their transactions are international.

This is a major burden for lean businesses to manage. 35% of esports companies said that operating efficiently and effectively while scaling is one of their top priorities.

Ultimately, this need for an easily customizable solution with maximum levels of customer support is a result of the industry’s growing complexity as it aims for profitability.

“Efficient and easy payment methods have helped to grow our ecommerce activities”

LUCA PAGANO CEO and Co-Founder of QLASH Esports

TRADITIONAL ESPORTS REVENUE STREAMS

TRADITIONAL INDIRECT AND DIRECT REVENUE STREAMS

Esports companies have traditionally relied on two main sources of income.

89% Earn revenue from sponsorships

They indirectly monetize their audience through sponsorships, while directly earning revenue from merchandise and ticket sales.

48% Earn revenue from merchandise + ticket sales

SPONSORSHIPS

Sponsorships are by far the most critical revenue stream in esports currently. Brands are willing to pay teams and event organizers to advertise their products and services to the esports audience. In turn, these sponsors serve as partners for esports companies, supporting organizations with equipment, marketing activations, and capital to fund their operations.

Developing these relationships is key to any esports company’s success. On average, they have 8.6 brand partnerships which last for about 1 year. But nearly all esports companies would prefer longer-term partnerships. Renewing partnerships takes resources, so leaner organizations in particular would benefit from longer commitments.

Overall, esports companies expect sponsors to continue backing their operations. 77% expect to earn more revenue from sponsorships in the next 12 months, while another 19% think they will earn about as much as they did in 2021.

92% of esports companies would prefer longer-term contracts with less frequent renewals

“There are a limited number of long term deals we can do. Once we’ve booked in about 4, that’s it. That isn’t enough to keep the business rolling. Burst campaigns allow us to attract different brands. Many don’t want to come in and spend $1.5 million a year on a sponsorship.

“They might want to spend $300,000 to $500,000 on an activation in a shorter time frame because that’s when their product is relevant or they are more risk averse.

“We understand that some brands need more flexibility and won’t spend all that money upfront. We can drive revenue because we can run campaigns more regularly.”

LAUREN BAINES Head of European Sales for Gamesquare

WHAT TYPES OF BRANDS ARE ACTIVE IN ESPORTS?

Esports — and its audiences — are more appealing to some brands than others. There is also a learning curve that means some brands are slower to engage with the esports audience.

The most active verticals in esports are still the first movers. These companies understand the audience and their expectations. Further, they have the internal processes set up to evaluate and champion investment in the industry.

But esports companies are aiming for partnerships with non-endemic industries. As the audience — and the industry itself — matures, the number of deals with non-endemic brands are more likely to grow. The deals that do exist with these verticals will serve as case studies and templates for years to come.

Gaming Hardware + Accessories Energy Drinks

TEAMS AND EVENT ORGANIZERS WANT DIFFERENT PARTNERS

Esports Teams vs Event Organizers

Percentage difference between company types

HAVE A DEAL

WANT A DEAL

NOT INTERESTED IN A DEAL

TEAMS EVENT ORGANIZERS

Auto (+16%)

Blockchain + Web3 (+12%)

Telecom + ISPs (+24%)

Betting (+14%)

Energy Drinks (10%)

Telecom + ISPs (+32%)

Blockchain + Web3 (+28%)

Betting (+19%)

Military + Government (+19%)

Automotive (+9%)

Military + Government (-19%)

Energy Drinks (-8%)

Blockchain + Web3 (-34%)

Healthcare + Personal Care + Wellness (-9%)

Esports companies are not homogeneous. They approach sponsorships differently. Esports teams and event organizers have different priorities for brand partners. There are plenty of esports companies that want deals with certain industries, but do not have a partner — yet.

Brands in these industries can make a major impact, but they should keep these preferences in mind when crafting their sponsorship strategy.

MERCHANDISE AND TICKETS

Esports fans want to support their favorite teams and attend live events. Merchandise and ticket sales — unlike sponsorships — directly monetize the audience.

Perhaps surprisingly, there are plenty of esports companies that do not sell these goods directly to fans. Only 48% of sampled companies sell merch or tickets to generate revenue — however this share jumps to 58% for teams.

While event organizers are more likely to sell tickets, the companies sampled indicated that they tend to work with B2B clients.

As these companies build fanbases, merchandise will be a strong option to support their monetization strategy.

Of the esports companies that sell merchandise, clothing, jerseys and accessories are the most commonly sold goods. Notably, there are significant differences between teams and event organizers.

Event Organizers are more likely to sell

+ 64% Tickets

+ 64% Jerseys Teams are more likely to sell

+ 45% Accessories + 31% Clothing

TYPES OF MERCHANDISE SOLD

Clothing(excludingJerseys)Jerseys/PlayerskitsAccessoriesGaminggearIn-gameitems

Types of merchandise sold by esports companies *apparel

TicketsHomewearOtherdigitalgoodsSupplements,foodand/ordrinks

93% of esports companies that sell merchandise or tickets sell at least one type of apparel*

IN-GAME ITEMS

In-game items, such as branded cosmetic skins, are a growing revenue stream for esports companies. 34% of sampled companies earn revenue from these ingame items.

Unlike merchandise or tickets, these items do not require fans to leave a game and search for a company’s store to buy items that support their favorite teams. Esports companies selling in-game merch benefit from having a low-friction option to monetize players.

“When publishers can provide an opportunity for teams and leagues to monetize ingame, it supports the esports ecosystem. “It forges a real partnership for everyone involved.

Top

5 games surveyed esports companies use to earn revenue from in-game items

• Counter-Strike: Global Offensive

• Rocket League

• FIFA

• Tom Clancy’s Rainbow Six Siege

• League of Legends

“Opportunities like this obviously require balancing development resources and time, but when teams can sell branded items in-game it’s a major benefit because we can reach players directly.”

GRANT PARANJAPE VP Esports Business for Washington Justice

GROWING COMPLEXITY

DIVERSIFYING REVENUE STREAMS

Sponsorships, merchandise and ticket sales are exceptionally important to the industry, but esports companies are experimenting with other ways to generate revenue. As a result, esports companies are no longer just esports companies.

As their revenue sources expand, the complexity of their operations increases. Having a reliable payment solution to support these efforts is essential.

Streaming

Merchandise & tickets

Publisher fees

Media rights

Educational/training programs or services

Cryptocurrency & blockchain technology

Venues

Betting

Apps & data

“Teams have struggled because they’ve relied on sponsorships for so long. “As a sponsor, it hurts because you want to support the ecosystem, but you also need to grow alongside the team to justify the spend.

“[Esports companies are] starting to recognize this move into other mediums.”

Spokesperson for esportsbet.io

TEAMS AND EVENT ORGANIZERS ARE DIVERSIFYING DIFFERENTLY

Teams and event organizers both recognize the need to diversify their revenue streams. Given the fundamental differences in their business models, these esports companies are exploring different options to expand their operations.

Teams are more likely to be selling directly to their passionate fan bases while event organizers indicated that they are leaning towards options that take advantage of their professional and operational expertise.

Teams

Event Organizers

Betting

PROFESSIONAL SERVICES

Chief among these less traditional revenue streams are professional services, such as agency work, event planning, talent management and white-label broadcasting services.

Esports companies are already performing much of this work within their own operations, so expanding the scope of these services can be a natural fit for a company looking to increase revenue.

In particular, 75% of event organizers are incorporating professional services into their monetization strategy.

“Gaming is a huge, fragmented market and many brands and agencies don’t know where to start. Gamesquare is creating a one-stop shop for global brands to develop a gaming strategy that works for their brand’s specific needs.

“We operate like a funnel where a client can come to us with a brief and we can leverage the esports teams and agencies under our umbrella develop a strategy that allows our clients to successfully reach gamers.”

Agencies Teams

LAUREN BAINES Head of European Sales for Gamesquare

BLOCKCHAIN BOOM...

There is significant overlap between blockchain enthusiasts and esports fans. Both industries primarily reach young, tech savvy consumers.

The majority of esports companies have either tested the waters or are considering integrating the technology into their monetization strategy. There are a variety of ways esports teams and event organizers could go about doing this. Sponsorships are the most popular option, but many companies are also using or considering accepting crypto for payments, selling NFT collectibles and minting fan tokens.

38% of esports companies are enthusiastic enough to say that they would prefer to be paid in crypto over fiat currency.

70%

of esports companies have used or are considering using blockchain technology in their revenue strategy

What blockchain integrations are esports companies using or considering?

...OR BLOCKCHAIN BUST?

While there is enthusiasm for blockchain technology, most esports companies are taking a wait-and-see approach. After all, the results from early movers have been somewhat mixed, especially now that the crypto market has weakened significantly. Volatility of value is the main reason why crypto-skeptical esports companies are sitting this one out.

Notably, there is a significant gap between teams and event organizers on the matter. 81% of teams are using or open to using blockchain technology, compared to only 50% of event organizers.

62% of esports companies are worried about the potential backlash from fans

LOOKING AHEAD: THE POWER OF PAYMENTS

RETURNING TO THE FUNDAMENTALS

Esports companies are generally optimistic about the future of the industry — with good reason. 67% of respondents said their revenue grew over the last year and 75% think fans are not particularly concerned about returning to (revenue generating) inperson events.

Companies are convinced that 2022 and beyond holds promise for the future.

On the other hand, companies are aware that revenue growth will be more difficult to achieve than growing the audience.

With rising pressures to become profitable, esports companies need to find a way to accelerate revenue growth as much as they can. Most esports companies have chosen to focus on diversifying their operations.

The esports companies that are serious about growing their bottom line cannot afford to overlook how they can improve the business fundamentals and processes at the heart of their operations.

Payments are foundational to any business, yet 36% of esports companies say they are using payment providers that are not satisfying their needs.

85% are optimistic about audience growth

62% are optimistic about revenue growth

PAYMENT METHODS

Esports is a nascent industry that relies on top-notch technology, but esports companies still use traditional methods to make and receive payments.

Nearly all esports companies accept and use some combination of invoices, direct bank transfers, digital wallets like PayPal and credit and debit cards for payments. However, teams are generally more experimental with payments compared to event organizers.

They accept on average 1.2 more payment methods and they payout with 0.5 more methods. This could be a result of teams processing fewer types and amounts of transactions.

Further, this gap is unlikely to close any time soon. 57% of teams indicate they are more interested in accepting additional payment methods, while only 38% of event organizers indicate the same.

4.9

Average number of payment methods accepted

3.3

Average number of payment methods used

PAYMENT PAIN POINTS

Due to the unique nature of the industry, esports companies face difficulties managing and making payments.

As a global industry, most esports companies must do business across borders. This means accepting and making payments to international vendors, consumers, employees, players and more. 56% of surveyed companies reported that at least 20% of their business transactions were international.

And yet, 61% of esports companies indicated that international payments were not easy to manage. For teams, this jumps to 66%.

As vendors, esports companies must balance security with convenience. Too few security measures means fraudulent transactions and chargebacks, but too many results in customer frustration and missed sales.

59% of esports companies said finding this balance was not easy for them. Spending time worrying about these basic tasks takes time away from managing and growing a business. Esports companies need payment providers that can make their lives easier.

WHAT DO ESPORTS COMPANIES WANT FROM PAYMENT PROVIDERS?

Generally, esports companies want a low friction payment provider. The more time they dedicate to payments, the less bandwidth they have to focus on their core business.

Esports companies want a payment provider that is easy to use, maximizes the value of each transaction and has reliable service.

With over one third of esports companies not satisfied with their current provider, many esports companies would consider switching to a new provider that could better fulfill their needs.

If an esports company is going to switch, it would want its new provider to improve its transaction value, make switching

Q: What factors would make you consider switching to a new payments provider?

easy and be more flexible to their specific needs.

Like consumers, esports companies want their provider to deliver as much value as possible.

HOW PAYMENTS HELP ACCELERATE GROWTH

The payments landscape has become more complex as the digital economy becomes more interconnected. Payments have the potential to maximize revenues and accelerate growth for digital businesses if they work with the right provider.

To optimize payments, digital businesses can no longer rely on the one-size-fits-all solutions that have facilitated the growth of ecommerce to this point.

Businesses must use agile, agnostic technology that is fully customizable to reach their full potential.

Some of the solutions esports companies should be looking for include:

• A la carte suite of payment solutions that integrate agnostically into any existing payments technology

• Smart payment routing to reduce costs and save customers (and businesses) money in transaction fees

• Access to relevant, local payment methods for customers in each market through a single provider

• Customizable risk engines that enable esports businesses to manage their risk appetite

• Customer-specific features rolled out seamlessly, instantly and globally, including regulatory and country specific customizations

• Declined transactions recovery that prompts customers to use alternative payment methods

• Performance strategies from industry experts

SIMPLIFYING PROCESSES

While payments can be an accelerator of growth, esports businesses also are aware that any solution needs to integrated easily as to not put more stress on their own resources. Esports companies value a payments partner that is easy to use (61%) and easy of setup (30%).

To find a payment partner that understands this need, esports companies should look for providers with features such as:

• Single API integration access to a full stack payments solution

• Single relationship across all elements of the payments solution including unified reporting

• Enhanced customer service

• 24/7/365 transaction monitoring to identify issues including suspected fraud before they impact sellers

NAVIGATING INTERNATIONAL TRANSACTIONS

The digital nature of esports as a product (both how it is created and consumed) means it is an international industry with tournaments, teams, players and fans scattered across the globe. Only 30% of esports businesses surveyed said that less than 10% of their transactions were international, while 27% of esports companies say over half of all transactions are international.

Clearly, cross-border transactions are a critical element of esports business operations. But with limited international esports bodies and global regulations currently overseeing the industry, esports businesses must work with payments partners with expertise in this area to gain access to their international banking connections.

Overall 3 out of 5 (61%) esports businesses say that managing international transactions is a challenge.

Some of the ways payments companies can support cross-border transactions include:

• Broad understanding and expertise of different regions and jurisdictions, especially in verticals with money-in/ money-out transactions like gambling

• Agnostic global gateways for payment acquirers

• Strong relationships with local banking institutions

• Smart transaction routing to boost card acceptance rates

• Enabling consumers to pay in their local currency and via their preferred local payment method

METHODOLOGY

• The purpose of this study was to understand the role payments play in esports operations and benchmarking the state of the esports industry

• Esports Insider surveyed 105 teams, talent management companies, tournament organizers and betting companies from around the world with a focus on North America, Europe and LATAM

67 teams and talent management companies

32 tournament organizers and production companies

6 betting companies who operate in esports

ESI reached out to >470 esports companies during this research phase

• Surveys were completed by employees familiar with operations and payments within the organization

• Follow-up qualitative interviews were conducted with selected companies

• Companies were not paid for their participation, but did receive additional access to the data set

• Companies were informed that the research was commissioned by Nuvei and PayPal prior to survey

• Limitations

Sample size is limited Companies that have chosen to participate could skew results

− Companies surveyed skew towards League of Legends, Valorant, and CounterStrike: Global Offensive

Majority of surveyed companies operate in Europe

THANK YOU!

To all of the esports companies that took part in the research, including Esportsbet.io, Gamesquare, and Washington Justice.

Below are just some of the teams, tournaments, publishers and service providers that contributed to this report.

ABOUT NUVEI

Nuvei (Nasdaq: NVEI) (TSX: NVEI) is tomorrow’s payment platform. Designed to accelerate customers’ business, Nuvei’s modular, flexible and scalable technology allows leading companies to accept next-gen payments, offer all payout options and benefit from card issuing, banking, risk and fraud management services.

Connecting businesses to their customers in the more than 200 markets, with local acquiring in 45+ markets, 150 currencies and more than 570 alternative payment methods, Nuvei provides the technology and insights for customers and partners to succeed locally and globally with one integration.

For more information, visit https://nuvei.com/

CONTACT:

Sales

Contact us here

Public Relations

Alex.Hammond@nuvei.com

Content Lead, Gaming and iGaming

ABOUT PAYPAL

PayPal has remained at the forefront of the digital payment revolution for more than 20 years. By leveraging technology to make financial services and commerce more convenient, affordable, and secure, the PayPal platform is empowering 429 million consumers and merchants in more than 200 markets to join and thrive in the global economy. For more information, visit paypal.com

CONTACT:

Head of Partnerships

Jessica Tinker Jetinker@paypal.com

APPENDIX: RESEARCH DATA TABLES

Q: What challenges are you most concerned about when considering the future of the esports industry?

Q: Which esports does your company participate in? How many esports does your company participate in?

*Popular other titles include: Racing Games, League of Legends: Wild Rift, Quake, CrossFire, Brawl Stars, Clash Royale, and StarCraft II

Q: Approximately what percentage of transactions are from international customers?

Q: In the last 12 months [April 2021 - April 2022], did you earn any revenue from the following sources?

Q: Do you prefer shorter or longer sponsorship contracts?

Q: How many sponsorships or brand partnerships does [company name] have currently?

deals (for respondents that earn revenue from sponsorships)

the average duration of a sponsorship contract (in months)?

Q: How do you expect your sponsorship earnings to change in the next 12 months?

respondents who earn revenue from sponsorships

you have deals or would you be interested in working with brands from any of these

Q: Do any games or leagues you participate in restrict sponsorships from any of the following industries?

Q: What are the three biggest blockers to the growth of gambling in esports?

of companies where gambling is important to their business

Q: Is cryptocurrency or blockchain technology part of your monetization strategy?

Q: How do you use (or plan to use) cryptocurrency or blockchain technology?

you prefer payments in cryptocurrency or fiat currency?

Q: Are you worried about backlash from fans as a result of integrating crypto/blockchain technology into your strategy? % of companies using or considering crypto/blockchain technology

Q: Are you worried about backlash from fans as a result of integrating crypto/blockchain technology into your strategy?

Q: How worried do you think gamers are about COVID-19 and returning to in-person events?

Q: How satisfied are you with your current payments provider?

Q: Which payment methods do you accept?

Q: How easy are the following tasks for you and your colleagues?

Q: Are you planning to add more payment methods in the future?

Q: What features do you value most in payment processors?