Minicast: The business model of esports

The esports industry has evolved into a multi-billion dollar business with a complex and diverse revenue model.

Digital Nation Australia recently spoke to Clayton Larcombe, chief investment officer at PAC Capital about the business model of esports and its emerging revenue streams.

Larcombe noted that, similar to traditional sports, esports operates using a similar model of teams, sponsorships, stadiums, and paraphernalia. However, the industry has also created synthetic revenue streams that rely on selling virtual merchandise or in-game items.

"What that means is that there's a really scalable business for an esports or gaming company because the margins are quite high," Larcombe said.

The esports industry's lucrative business model has made it attractive to companies looking to invest in the sector.

Larcombe discussed the evolving esports fan base and their engagement with the industry. Just like traditional sports, fans want to see their favourite esports stars play at competitions and tournaments.

"People want to go and see their favourite stars play and want to learn from them. How do they kick that goal or how do they get to the next level?" he said.

Using a live case study, Larcombe talked about a company that PAC Capital seeded called Talon, an esports team out of Hong Kong. The team is the fastest growing esports team in Asia, winning 33 tournaments in the last 12 months.

"Most of their revenue comes from sponsorship or merchandise or stadiums that are starting to fill out selling tickets or having the sports stars speak at events or go and game at certain charity events," he said.

In terms of revenue streams, tournament wins are not as lucrative as sponsorships for esports teams, said. This has made the esports industry attractive to investors looking for new opportunities to invest.

"It's quite a lucrative industry for companies that are all trying to get involved," said Larcombe.