Esports Tournaments as Marketing Goldmines: How Events Boost Revenue
Hello friends 🙂
Why do game publishers hold live tournament events even though they may take a loss on them? In this episode, we discuss esports promotion, how it drives sales, and what the optimal strategy is.
• Promotion is crucial for every business, and live events are an especially effective channel of advertising.
• Tournaments, for video game publishers, are a marketing investment with the goal of increasing revenue.
• The authors used game, sales, review, and other data from a 20-year period.
• Sales of game copies have dropped since 2010, mostly due to changes in the business model (free-to-play and microtransactions are today's standard).
• User ratings significantly drive revenue.
• 83 tournaments per year is the optimal number when it comes to maximizing sales.
• Events in one region also impact sales in other regions, and the same is the case for games within genres. For instance, a League of Legends tournament would also increase sales for Valve's DotA 2.
• The optimal strategy is to have 83 tournaments in different regions. However, due to the difference in business models, fewer live events where purchasable in-game items (e.g., skins) are showcased may be better.
🏷️ Esports Tournaments as Marketing Tools
Generally speaking, promotion to increase sales of products or services is crucial for every business. For that reason, companies work on new and efficient ways and tools to communicate with consumers. One of those ways is event marketing. Especially live events are considered, by consumers, to be more effective than other forms and channels of advertising in fostering awareness for products, services, and the company.
"Companies must consider a tournament as a marketing investment, understanding that an event by itself might not be profitable [1]. Riot Games, the organizers of the Legends Championship Series, states that this tournament is ‘a significant investment that we're not making money from' [2]."
In their paper, the authors aim to evaluate whether esports tournaments influence the sales of a company. In doing so, they use video game sales to measure the effectiveness of an esports event. Put differently, they assume that esports tournaments are a marketing tool that should positively impact the sales of the specific video game.
💽 20 Years of Data
The data consisted of the names of games, their genre, publisher, annual sales, and game reviews in different regions (NA, EU, JPN, etc.) for the period 1997-2014. The authors included only games with copy sales over 100,000 per year.
🤑 How (much) Publisher Make per Esports Tournament
The first finding of the authors was the expected decline in sales around 2010. Why did I say expected? Well, around 2010, publishers started to switch their business model. Previously, their pathway to making money was selling physical or digital copies of their games. In today's era, most video games are free-to-play, and in-game purchases are how these companies make their money.
Second, they found that user ratings have a great impact on the publishers' sales numbers. An increase in user ratings (e.g., a 4.5/5-star rating instead of 4.0/5) meant an additional 50,000 copies being sold (~7% of the average number of copies sold).
Third, interestingly, the authors found that a classic U-shape curve exists for the optimal number of tournaments. At a certain point, the "value" an additional tournament produces goes down again. Hence, the optimal number of tournaments is at the peak.
"... 83 events per year are indicated by our analyses to be the optimal number [1]."
Fourth, the researchers provided evidence that one additional tournament increased the number of copies sold by 20,000 in the same region. This is about 2.9% of the average number of copies sold.
Lastly, there may be a spillover effect for genres and regions. For instance, a League of Legends (MOBA) tournament may increase the number of copies sold of games in the same genre, and/or other genres (FPS). This may be similar for regions too.
"... we find empirical evidence of regional spillover and between-genre spillover. There is evidence of in-genre spillover effect on game popularity, but without a direct effect on game sales [1]."
Put differently, a tournament of genre A in region Y leads to more copies sold in genre B and region Z. Also, the same tournament tends to promote other games of the same genre but doesn't lead to significantly more games being sold.
🤔 What can we learn from it?
It should be noted first that due to the shift in how companies in the industry make money today (free-to-play with in-game microtransactions), these results aren't as "relevant" anymore for a lot of companies. Nonetheless, they provide us with a better understanding of what publishers do or did.
"[Based on to the results,] an optimal strategy of a company is to organize events in different regions, because they help to promote products in all regions. Organizing events to promote another product of a particular company will also be beneficial for all of the products of the company [1]."
Since a good amount of companies are no longer driven by selling copies of their games, they may hold fewer events but instead put an emphasis on showcasing digital items or skins that can a) be bought in their in-game shop, or b) be gained by massive amounts of playtime. Both will presumably increase the company's revenue.
Another aspect is that since a tournament by publisher A does not directly increase publisher B's sales, publisher A should not be afraid of free-riders. Simply put, promoting your product may, at best, provide marginal benefits for your competition.
Lastly, as a side note, with reviews having a significant impact on game copy sales, it's easy to see why companies may buy reviews and why you now see it everywhere. We tend to believe other people's opinions, especially when they are positive and when there are many of them.
Thanks for reading, and hope everyone has a great week. Best,
Christian 🙂
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"I love this type of content, thank you Chris."
