This is an article originally written for IGN Southeast Asia which can be found here.

 

Quick Look: Value Chain. What’s this? In order for those less familiar with the industry at large to orientate themselves, this article will give a brief overview of what we call the value chain of the esports ecosystem. The value chain is how aspects of the industry interact with each other and fuel one another to create the big picture. Here, to keep things simple, we will only touch on the main links of the esports value chain: events, teams, players, platforms, developers, and brands.

 

Each of these groups is reliant on the others in order to maintain a healthy and balanced industry; and to generate revenue. Bear in mind that each game’s value chain is slightly different in that the balance of power between the links will vary depending on how it has been crafted organically or intentionally over time.

A very simple example of this would be the different developers in League of Legends and Dota 2, namely, RIOT and Valve respectively. The former invests heavily in the year-long ecosystem of a seasonal format and command complete control over the competitive ecosystem; the latter relies on the production of events throughout the season by third parties. This basic difference means that the way in which teams (and therefore players) interact with the competitive environment will vary: in League of Legends teams compete for the World Championships after being seeded through their regional leagues during the season; in Valve’s model, teams for the International are selected via a points system, through which players earn their points depending on which major or minor events they compete in, and do well at.

 

While on the topic let’s explore events as the first group in this value chain.

Events are responsible for providing content to the masses via broadcasters and make their money through sponsorships, ticket sales, broadcast rights, and streaming. Events must attract a big enough audience via content in order to earn money from sponsors though; and the creation of good content, and what ultimately attracts people to watch, relies on the quality of teams they have competing, the overall production value, which platform they stream on, and the ability to market their event well. A good event should also have a healthy working relationship with teams in the industry and reassure them that the events they run will be done so professionally, in a timely fashion, and ideally can create a new source of revenue for teams (such as through the sale of team merchandise on site).

Teams, in this value chain, are the equivalent of traditional sports clubs which house professional players, attract fans to their brand by producing content, and send their players to events to compete. Teams monetise what they do via sponsorships, merchandise, prize money, and player trades. Each team is different in how it interacts with the rest of the ecosystem. Or at least that’s how it was until franchising came in, but that’s a story for another time. But ultimately teams govern their players how they like, deciding if they are employees or contractors, how to pay them, trade them, produce content with them, or how they work with sponsors. Some teams are better at producing content than others; some teams compete in multiple games, others specialise.

 

Team Newbee during the Manila Masters 2017

 

Players are what attracts fans to teams and events. They’re the stars of the industry, and constantly demonstrate the skill, passion, and devotion that is required to compete professionally in esports. Players are paid salaries, and may earn revenue via additional methods like streaming, personal sponsorships, and merchandise. The route to becoming a professional player is, for most games, clouded, and many developers wrestle with how to provide a clearer line of progression from amateur to professional. Players, lastly, can be the perfect ambassadors for every other link in the value chain.

 

Platforms, i.e. Twitch, Facebook, YouTube, are responsible for how content is distributed in esports, and earn money through advertisements and subscriptions to those generating content on the platform. The broadcaster importantly also assists content creators (events, developers, streamers) to gain viewership and can assist with the strategic promotion of events, but are critically responsible for maintaining a stable platform for millions to watch multiple events across a variety of games at one time. Broadcasters are also important due to the innovation of tools they have created to assist interaction with content creators and the brands that sponsor them.

 

 

Developers are the companies that make the games, and may or may not take a direct role in how their esports ecosystems are run (although most now do play a lead role). The developer owns the rights to the game and the content they create as a result of it being played and broadcast competitively. Developers earn money either through game sales, in game item purchases, and broadcast rights. As mentioned earlier, some developers take a deeper involvement in how the esports ecosystem is run as a whole, some granting more power to teams than players, or vice versa. Developers are an important link to the mainstream too in the promotion of their events and the ecosystem they’ve built to media.

 

Brands are the companies who spend money in the esports ecosystem to generate new customers. These brands are responsible for the large amount of sponsorship dollars flowing through esports, and account for a large portion of how teams and events generate revenue. Brands who invest in teams usually look for product ambassadorship in addition to general branding and awareness, such as logo placement on team uniform or social media platforms. Brands who sponsor events are likely to focus more on general branding.