Russian esports must go international or go extinct

After three years working in the Commonwealth of Independent States [CIS] region, namely Russia and Ukraine, with some of the leading esports organizations such as StarLadder and ESforce Holding (Na’Vi, Virtus.pro, Cybersport and Epicenter), I have grown to better understand what makes this region so competitively viable in the international esports business sector but also the disadvantages they face both as a region and as competitors. Within this article, I will outline CIS advantages but also underline their weaknesses that may reflect what the industry, itself, is also challenged with. In summary, the CIS (mainly Russia and Ukraine) are a skillful region with low cost of operations and an abundance of talent. That said, their challenges range from growing beyond their CIS-audience based ROI and the difficulty in reaching international sponsorship budgets, to undercutting competitors in prices, due to the point of potential extinction.

Since 2016, Epicenter has been a staple pinnacle of Russian esports events and businesses. Later this year, they will hosting their upcoming CS:GO event in Moscow. 2020 will be their Dota 2 Major.

The CIS Ever-changing Approach

As esports moves from a regionally-split ecosystem to a service-for-marketing business for game titles and developers, the CIS region remains a competitive service production brand (especially for tournament orgs). From the PUBG Europe League, BLAST Pro Series: Moscow to the Boston and Kiev Dota 2 Major (white-label). CIS continues to make moves within the international market to act as a production service for a very cheap cost. That cheap cost, especially in an industry that struggles to break even is something only the CIS region can offer. That advantage means that CIS events cost 20 to 30% less to produce compared to Western European events. To add, sponsorship rates are sold at traditional rates, leading to low costs but strong sponsorship revenue. This is why CIS companies are looking to go international as opposed to looking inward, within their own countries, to expand their positioning and opportunities.

From my article: Dota 2 Majors are not guaranteed profitable events (June, 2019). Remember that 35% of costs to run an esports tournament comes from staffing, production, equipment and more

The CIS Challenge

The biggest hurdle the CIS region is facing is reaching international marketing/sponsorship budgets where their ROI is not just with CIS audiences but internationally. Within esports, there is no doubt that Russia and Ukraine are among the largest player-base and viewers for some esports titles. For Dota 2, almost 20% of all daily matches are played on Russian servers. The International 2019 saw a peak viewership of 670,000 Russian views.

For hosting events in Russia or Ukraine, physical turn-out for these events require a lot more effort and cost to achieve than in some more internationally-viable countries like Germany that are in proximity of other European Union countries. The reasons for these additional CIS efforts include:

  • Flying professional players and teams to Russia or Ukraine has a lot of bureaucratic visa hoops to go through than in European countries
  • For most events (not just esports), fans not native to the Russian or Ukranian hosted city, do not internally travel to that city. So when an event is hosted in Moscow, its audience reach is mainly Moscow-living residents.
  • In advertising and sponsorship, the CIS region is considered a tier 3 market behind the US (North America) and Europe (Germany, Spain, Italy, UK and France)
20% of the player-base are in Russia combined to the US which only has about 2 to 5% combined (depending on the hour)

When ESforce acquired Virtus.pro, Na’Vi, Cybersport.ru, Epic Esports Events (Epicenter) and RuHub Studios, it looked to create an internal ecosystem that:

  • Signals the international impact of CIS brands
  • Represents CIS on the international stage to improve perception of CIS businesses
  • Creates enough collective reach and marketing value for international sponsors
  • Is self-sustaining and self-dependent

While some of those goals were achieved, not all appeared to be ambitiously possible. The truth is that ESforce is an attempt for self-sustaining profitability within the CIS region and with endeavours internationally. From YOTA Arena, a LAN Cafe and esports physical space for local to regional tournaments, to Fragstore Holding, a merchandise company seeking to bring international team merchandise to the CIS marketplace, ESforce explored many (failed) avenues of monetization to capture the CIS market under one umbrella. As many newcoming organizations are seeking physical spaces for their esports endeavours, they’d be wise to look into those who have already trailed this space and failed.

YOTA’s arena had a LAN Cafe, a stage for hosting tournaments and even a bar and karaoke room for gatherings and parties. After every Epicenter, an after-party would be hosted at YOTA Arena.

White-Label Services and Undercutting

As written in my previous works: “Publishers are dictating what esports will be” (October, 2019), publishers are dictating the direction of their competitive titles. With it comes the transformation of CIS tournament orgs. providing production services for these games, sometimes even for other esports organizations like PGL (Boston & Kiev Major, 2016-2017), Winstrike (Blast Pro Series: Moscow) and more, acting as a white-label – meaning without their brand attached. The recent Berlin Major, though performing weaker in comparison to previous majors, highlights StarLadder’s continued reach to go international along with their production services to companies.

In terms of event development in Russia and Ukraine, it is internally rumoured that CIS companies are now paying for events to be in Russia such as Winstrike paying Blast Pro Series $600,000 sum to deliver their branded event in Moscow (with white-label production from StarLadder). In exchange for that fee, Winstrike can sell local sponsorshp rights and keep the ticket revenue (which is still a net loss) and Blast keeps all international sponsorship revenue plus a nice country fee they’ve never received before!

If the rumours are true, new-coming CIS brands purchasing tournaments may signal poor health for the region. Or worse, that buying opportunity may become the norm for Eastern European businesses. To add, if more brands turn to being event production service companies for international businesses, companies will continue to undercut each other to the point of providing services for free or at a low cost that could never be recuperated (e.g: WePlay and the Late Game show for CIS).

Conclusion

While Russian/Ukrainian businesses continue to prosper and receive new investment, it is unfortunate that the CIS region as a whole does not have much going within but a lot to offer for the outside. As westerners, we tend to either dismiss, overlook or underrate the value the CIS region has to provide. At the same time, these businesses also face many hurdles as they transition towards the international stage. With American brands dominating stronger esports markets like North America while also moving towards the European and Chinese regions, it will be very important for CIS countries to make their place as the esports scene solidifies. In addition, they must adapt their work culture practices to attract international leadership and staff if they are to connect with businesses outside their region. This is also true for CIS teams for attracting international audiences. CIS teams create content for their CIS fan-base but also must find ways to attract and connect to their international (minority) audience despite the language and cultural differences.

Having worked in many CIS esports business, I’ve found to be among a mix of smart leaders and big spenders. I am often caught by surprise of the work culture in the CIS region where employees sacrifice 14 hours a day, 6 days a week, for salaries that equate to $12.50 an hour. That said, some of the best events and crowds I’ve ever seen were in Russia and Ukraine. I continue to believe that Russia and Ukraine are viable markets for future investment but also feel that going international is not only something these CIS companies must immediately focus on but that all of esports is aiming for the past few years now.

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