Esports is a huge but immature industry that needs to grow up fast

To some people of a certain vintage, computer gaming remains the preserve of teens and geeks – a niche hobby to be grown out of when real life kicks in. A world of digital fantasy with multiple sub-genres, terminologies and technologies that you couldn’t care less about. Unless you’ve got teenage kids or one of your clients is an energy drink, why should you be bothering your marketing brain thinking about computer games, right?

Wrong. This kind of broad-brush assumption may have held water 20 years ago, but research firm Newzoo predicts that by 2021, esports will generate more than $1.6bn in total revenue with $1.3bn coming from brand investments. Additionally, a 2018 research paper by Juniper Research forecast that global spending on ‘loot crates’ and ‘skin betting’ would reach $23bn this year and $50bn by 2022.

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Big numbers, and for the majority of those reading, likely to raise further questions, like: ‘What the hell is a loot crate?’ and ‘Skin betting? Sounds kinda sordid.’

If you work for a brand that wants to appeal to 12- to 35-year-old men (and a growing number of young women), it’s worth reading on.

Loot crates (also known as loot boxes) are virtual treasure chests containing undisclosed items that can be used within esports games, often to customise characters or weapons (known as ‘skins’). Initially developed in 2007 for the Chinese game Zhengtu, they were sold to ensure a revenue stream for the game developer, since most Asian players used internet cafes or downloaded the game illegally.

Global spending on ‘loot crates’ and ‘skin betting’ will reach $23bn this year and $50bn by 2022.

Within a year, Zhengtu Network reported monthly revenues of more than $15m, leading to the trend for game developers and publishers worldwide to release free-to-play games positively drowning in micro-transaction opportunities.

In America and Europe, the video games industry (led by the now omnipotent Valve Corporation with its Team Fortress 2 game) adopted and adapted the huge financial success of social gaming brands like Zynga (creator of mega-hit Facebook games Farmville, Zynga Poker and Words with Friends), which allowed players to pay in-game to progress through levels faster.

The computer gaming industry is rarely slow to pounce on potential profit, so popular game series such as FIFA, Counter-Strike, Battlefield, Call of Duty and Overwatch have all since adopted their own versions of loot crates. Soon enough, everyone was at it and the money started rolling in.

Dark markets

‘Skin aftermarkets’ sprung up around 2016, including unlicensed third-party trading and casino-style betting sites. Being unregulated, these betting sites were open to anyone with an account on Valve’s online gaming platform, Steam. Most frighteningly, they were available to kids.

The UK government’s response to this multibillion-dollar dark market has been long overdue. But the Department for Digital, Culture, Media and Sport (DCMS) has this week finally announced it will investigate loot boxes alongside a review of the Gambling Act.

In response to a DCMS select committee report into ‘Immersive and Addictive Technologies’, minister Caroline Dineage acknowledged: “During the coronavirus pandemic, we have seen more people than ever before turn to video games,” and as a result “the government has committed to tackling issues around loot boxes in response to serious concerns about this model for in-game purchasing”.

Unsurprisingly, being a political decision, the next steps involve a call for evidence, contribution to further investigation, research into the impact of gaming, and workshops including representatives from academia and the esports industry. There’s a 187-year-old giant tortoise called Jonathan living on the island of Saint Helena who moves faster than this.

Most professionals I know in the regulated gambling and esports industries are hugely in favour of player protection. As such, we could probably save DCMS and its political overlords some time. They should:

• Regulate the sale of in-game loot boxes and skins in all esports games
• Implement ‘problem gaming’ protocols in line with regulated gambling policy
• Educate esports players about the risks of problem gambling and offer the required resources to mitigate such risks
• Require skin betting sites to be licensed, with any of the 200+ non-compliant offshore sites being blocked or prosecuted

Most esports businesses are run by pretty savvy folk. They’ve known which way the wind was blowing for some time and have adjusted their sails accordingly. From 2017, publishers started culling loot boxes from their games, most notably Epic Games within the world’s most popular game, Fortnite. In 2019, Blizzard Entertainment removed real-money loot box purchasing from its Heroes of the Storm game.

Research suggests that by 2021 esports will have more regular viewers and fans than all US sports outside the NFL, and globally esports is well on track to overtake football as the most popular sport to watch within the decade.

With this many eyeballs come billions of dollars in revenue, often through not entirely wholesome means. It is therefore vital that the gaming brands and policy makers get up to speed to protect young and impressionable fans before they get in trouble.

In doing so, they’ll create a path to sustainable growth for esports, as well as the safe environment needed for more and bigger brands to feel confident in the sponsorship opportunity it offers.

Harry Lang is founder of Brand Architects, a UK based brand and marketing consultancy specialising in online gaming and esports, offering brand, marketing strategy, copywriting and PR. Contact him at Harry@BrandArchitects.co.uk or connect on LinkedIn.