Web3: Esports' Ever-Fattening Cash Cow

How many times have you heard the acronym “NFT”? Chances are, unless you live under a rock, you probably encounter the term daily on social media and elsewhere. And if you’re reading this, odds are you’ve seen an esports team try to activate in that space. 

I’m not here to litigate the morals of Web3, nor am I evangelizing it. The reality is that industry has become the hottest bet in venture capital, and there’s a lot of money to go around.

In 2021, venture capitalists invested more than $30 billion in crypto companies, according to Pitchbook. In January, Forbes estimated that more than 65 Web3 companies are worth over $1 billion, and that 40 of them were founded in 2021. The Web3 industry is flush with cash, and esports is an indirect beneficiary of its massive marketing spend. 

It’s no secret that esports teams and leagues struggle to bring in revenue. There are some key missing components to this puzzle that exist in traditional sports—significant media rights deals, gambling and sportsbook partnerships, event tickets, alcohol sponsorships, and most of all, more favorable revenue sharing among teams.

There’s a trend across conversations I’ve had with league and team executives about their Web3 sponsorships: “It’s the biggest deal we’ve had.”

It doesn’t matter that gamers categorically hate Web3 and that nearly almost every activation with a crypto or NFT sponsor gets met with loud vitriol from the audience. Only one that I remember didn’t: 100 Thieves’ limited-edition collectors chain NFT, which released for free and came with a well-thought-out marketing campaign to educate fans about NFTs and blockchain.

Yet, seven League Championship Series teams and six League European Championship teams have cryptocurrency or NFT deals. The LCS itself struck a seven-year deal with cryptocurrency exchange FTX. Across the esports industry you can find even more Web3-backed companies and events.

Right now, Web3 companies and their giant marketing budgets are providing a lifeline to many of these teams and a big bump to several of these leagues. The real question is: for how long?

“Like any category—especially where there's so many young and new companies—some of these companies may not be around, or be bought out or may not be branding at the level that they are in a number of years,” TSM senior vice president of sales Ned Watkins told me on Wednesday. 

TSM signed a 10-year, $210 million naming rights deal with FTX in June. It’s the company’s biggest sponsorship deal—Watkins, a former salesman at Pac-12 Networks, CBS and Fox, declined to disclose specifics, but said, like in traditional sports, naming rights deals range from 2 to 5 times the amount of revenue of a normal sponsorship. Watkins said he’s confident in FTX, which is valued at $32 billion, and its business longevity. 

In many ways, TSM is the odd man out. Even seven or eight years ago, the company—which is the most valuable in esports, according to Forbes—started diversifying its portfolio. TSM is a big piece of an even bigger pie: Its parent company, Swift, owns highly-trafficked guide websites and a talent agency that reps star influencers.

“I think the team business is strong, maybe it's because of the vantage point I'm sitting in with TSM,” Watkins said. “I feel like we're in a stable, good place from a financial standpoint. I could tell you that we're constantly looking at new games and teams to add. We're in full growth mode. I would say that it's no secret that there are some orgs that are looking for different revenue streams.”

That they are. As both a journalist and a founder myself, I’ve seen the shine come off esports more and more when talking to investors over the past year. In many ways, the bullish Web3 investment market reminds me a lot of esports. From 2015 to 2017, investment money flooded the esports space—a lot from five-year-minded venture capitalists who now are understandably disappointed that the mergers and acquisition potential of their business isn’t what they hoped it would be. 

Families such as the New England Patriots ownership (aka the Krafts) have quietly lowered their risk, the Overwatch and Call of Duty Leagues have deferred franchise payments, and I expect within the next 12 to 18 months or sooner, we’ll see even a few LCS teams go up for sale (feel free to quote me on that).

So here we are: Each time a new Web3 sponsorship gets announced in esports, fans will likely blow up on the team or league that’s taking the money, and that team or league will have to eat the negative backlash—because right now they don’t have another choice.