Thousands of fans scream in a jam packed arena, standing on their toes out of hopes of glimpsing their favorite star athletes. Around the world, over 20 million people are tuning in to watch the match live. The athletes emerge from their locker rooms and stride onto the playing field with focused, nervous energy. Over $20 million is on the line.
Is this the Masters? The NBA finals? The Stanley Cup? Nope. It’s the Defense of the Ancients (DOTA) 2 International Championship.
DOTA 2 is one of the top games in an emerging industry called eSports. Just as it sounds, eSports encompasses professional competition in video games and all of the fandom that goes with it.
For sports agencies like Catalyst Sports, times are changing in big ways. Their job used to be to identify the best football, basketball, baseball and hockey players at a young age, sign them to management contracts and then negotiate salaries and endorsement deals on their behalf.
Traditional sports, long the backbone of broadcast television, are showing cracks in their armor. Through the first six weeks of the 2016 NFL season viewership has dropped by 11%. ESPN, the Disney-owned broadcaster of non-stop highlights, sports news and live games has lost over 4 million subscribers over the past 12 months.
For sports agents looking to diversify their business away from overly competitive and shrinking industries, eSports offers a goldmine of opportunity – albeit with a required change in business model.
The challenge facing these agents is that because the eSports industry is so new and unorganized, there aren’t clearly established channels of monetization in place. Stalwart advertisers such as Coke and P&G are unsure of where to invest their marketing dollars. Do they buy a team? Sponsor a tournament? Run ads during Twitch streams? Additionally, there aren’t clearly defined leagues or roster rules across the industry. Players change teams as they see fit and tournaments serve as the only reliable battle ground for determining ranks.
As a result, eSports is currently only monetizing at about $2.83 per fan, compared to approximately $15 per fan for basketball.
An additional challenge facing sports agents in this new digital world is the existence of game publishers in the ecosystem. In the professional football industry, no one is the owner of the sport of football. There is the NFL who operates the league, the team owners and the players. There is no risk that the NFL is suddenly going to lose the right to play the sport of football.
In eSports, however, the athletes are competing with each other in video games that are owned by separate, for-profit companies. Game companies such as Valve or Activision Blizzard could conceivably shut down, tax or impose restrictions on all broadcasting and monetization of competition on their games. This is an incredible risk to the business model of sports agents trying to play in this world. The old gate keepers of the sports world were CBS, the NFL and Anheuser Busch. Now the gatekeepers are Valve, Electronic Arts and Activision.
Additionally, the way that fans consume eSports is very different than how they consume traditional sports. This isn’t sitting on a couch every Sunday to watch your home team play. This is live streaming on Twitch, posting videos on YouTube, traveling around the world for competitions and SnapChatting about your life as a pro gamer. The most profitable athletes will need to be dominant at video games and also charismatic enough to draw a digital following.
Catalyst Sports has evolved in line with these challenges. The traditional agent model of taking a cut of a player’s salary in exchange for representation does not work in eSports. Players don’t get salaries, but rather compete for prize money and collect advertising checks from YouTube and Twitch. What Catalyst has decided to do instead is to serve as a Sherpa for brands and advertisers looking to participate in this lucrative but disorganized industry.
The new job of these agents is to bring order to a disorderly, growing industry and to provide channels for reliable marketing investment. The excitement is there and the viewers are there. Now it is time to turn eSports into the profitable, reliable marketing engine that the NFL has traditionally been.
 Catalyst Sports. Josh Swartz. Harvard Business School, Cambridge. 17 Nov. 2016. Performance.