Digital Dollars: The Impact of Social Media Incentives on Esports Revenue

The esports industry, once booming during the pandemic with valuations soaring as high as half a billion dollars for companies like FaZe Clan and TSM, is now facing significant setbacks. The decline from these heights has been dramatic, exemplified by FaZe ceasing trading and TSM shutting down its major esports divisions, even selling its lucrative LCS (League Championship Series) franchise.

The euphoria that marked the esports industry’s rapid expansion has subsided, leading to a stark reality where ludicrous investments have dried up. In response, esports organizations worldwide are pivoting their strategies. No longer solely focused on brand expansion, these teams are now prioritizing revenue generation with sponsorship deals becoming increasingly vital. From the dynamic markets of Southeast Asia to the competitive fields of Europe, the importance of sponsorships as a primary revenue stream remains a constant. “Primary revenue model for esports organizations has always been sponsorship, whether you are in SEA or Europe, it doesn't matter," reveals one team owner.

The lifeblood of these sponsorships is visibility. The more an esports team can showcase its presence, the more lucrative deals it can secure. Traditional methods like branding on team jerseys and equipment continue to be prevalent, but social media has emerged as a key driver of audience engagement. Platforms such as Twitter, TikTok, Instagram, and Twitch provide unique opportunities for teams to directly connect with fans. 

So for esports teams, achieving a decent reach is not merely beneficial—it's a necessity to keep the industry profitable. Teams that manage to establish and maintain a strong online presence can tap into wider markets, engage more fans, and create more opportunities for lucrative sponsorships. This visibility acts as a multiplier effect, where the greater the reach, the greater the potential for revenue through sponsorships, merchandise sales, and invites to high-stakes tournaments which in-turn leads to even more reach.

Publishers like Tencent and Riot Games understand the critical role that visibility and engagement play in the esports ecosystem. This is why they actively incentivize teams to increase their reach and engage with fans more effectively. According to Devesh Kabdwal, Chief Revenue Officer of BOOM Esports, these publishers offer programs that provide tangible support to teams, helping them to expand their audience and strengthen their branding.

Kabdwal explains, "Tencent has its own incentive programs for PUBG Mobile and it has been in place for three years. There has been support from the publisher, regardless of whether you are a top team or not. They pick up the top 10 or 15 teams in the region and then they actually help them with a marketing support fund to grow the team's respective social media channels and hire more streamers. Later, the teams are further rewarded based on their social media and streamer performance through a tiered incentive program that pushes them to leverage their social media channels better. This indirectly helps these publishers cement their reach and fanbase in the respective region and helps them engage and grow their overall community around the teams."