The most important aspect in esports is the pro-players. Without the players, there would be no competitions, teams, sponsors, industry, etc. The second most important entity in esports are the tournament brands.
Around since the late 90s, tournaments have been a public stage to display the popularity, growth, interests and brands in esports. Tournaments are how an esports game showcases their value and opportunity. Tournaments provide a/an:
- physical gathering for fans
- public stage to market teams
- direct reach to consumers for sponsors
- majority of livable income for commentators & talent
- display of popularity for a game developer’s product
- platform for players to compete for major prizes
- entertainment for viewers at home
With that said, the public discussion about tournament brands earning a profit on their events has been troubling in recent years. This article seeks to reveal the range of costs and revenue for tournament brands as well as the challenges they face.
How much it costs to run a Dota Tournament
Regarding cost, there are a lot of factors to consider. In this piece, we take on the assumption that this tournament is a Valve-sponsored Major (which means that Valve only provides you with half the prize-pool)
Depending on the region, a Dota Tournament can cost approximately 2 to 3 million U.S dollars including the prize-pool of $500,000 (Valve provides the other $500,000). The largest costs being technical production and accommodations which is about 50+% of a tournament’s costs.
As you can see, the largest costs are not paying for talent or even the prize-money but rather producing the entire event and hosting the players/talents coming in (travel & accommodations). For Dota tournaments especially, this cost is harrowing as Valve forces 16 teams to attend which is approximately 112 people who need flights, rooms, training facilities, shuttles, visas, three meals a day for 12-13 days (teams need to arrive before group-stages begin).
To take an example, MDL DisneyLand hosted players at the Newport Bay Club Hotel which is about $325 to $450 a night (before group discount/negotiations): ~$580,000. An alternative example is 2018 ESL Katowice, which had talent and players staying at the Atlus Prestige for $150 a night (some players/teams may have been at other hotels due to lack of rooms): ~$218,000. This doesn’t include talent, cheaper hotels for working staff or all other costs needed to accommodate.
The cost to run an event is incredibly high because of the number of players attending as well as the forced number of days an event must be held for.
How do tournaments make their money back
Before we talk about revenue, we should note that some tournament organizations have long-standing deals with small towns like Katowice and ESL where the venue may be discounted (or free) as these events drive a lot of tourism to a city that most people would likely never visit.
The revenue streams for event organizer’s is relatively straight-forward, it’s just the values that shift depending on the event: please note that each event is different and these are only approximations to help give you a sense of ratios between costs and returns.
- The largest revenue stream for a Dota tournament is sponsorship/advertising sales.
- Depending on your largest (title) sponsorship, it can be approximately equal to your consumer ticket sales.
- Sponsorships have decreased over the years from $700 to $800,000 to now more $400 to $600,000 (maximum).
- Some events like to load up on a lot of sponsors at lower prices while others like to sell minimum packaging for high-prices but cover a lot of areas (branding, advertising, on-site booth, etc.).
- Depending on how you package your sponsorship deals (per-event level packages, annual multi-event agreements, etc.), this number heavily fluctuates.
- Media Rights Sales
- Media Rights are a tricky business and the numbers range depending on the region you are selling rights to.
- China is the most valuable region and sales go at approximately $200,000 (maximum). Other regions can earn up to $100,000 but it’s rare.
- Some broadcasting sales are fixed fees or performance-base
- I’ve opted to not talk about the Facebook deal amount, Twitch negotiations and more because it’s a much larger subject.
- Consumer Ticket Sales
- Consumer ticket sales heavily fluctuate depending on the region and experience of the organizer to advertise and push sales.
- Typically Majors are announced a few months in advance, very little time for many attendants to afford and make travel plans to attend. This affects # of tickets sold.
- Additionally, this is why many tournament organizers apply for next-year event dates: to ensure proper leeway to plan and advertise their event.
- At the MDL Disneyland Major, a lot of factors were stacked against them that made their event challenging (and thus even more impressive they pulled it off):
- They began selling tickets much later than the usual, meaning promotion/advertising to get people aware and interested in the major is much harder (flights/hotel costs go up, closer to the event’s launch)
- They launched an event in a country that is not known for its Dota player-base. League has been hosting major events in Paris for almost 5 years.
- They chose a venue location very far from Paris at a much higher cost than other events. This can turn many people off who are not financially comfortable spending that much money for a Dota event (yet they are your target demographic)
- Merchandise and misc.
We should also consider B2B convention sales such as what ESL achieves with Katowice (conventions), however this is not common for most Dota tournament organizers and heavily affects the variable venue rental costs, resources and human resources to manage this aspect. For the sake of brevity, I’ve excluded ESL events (though anyone could write a whole lot about ESL and its business history and relationships).
Beyond the obvious challenge of keeping costs low versus improving your revenue streams, the involvement of a Valve’s “rules” to run a Major have become increasing leaning towards the player & viewer experience. This is not to say it is right or wrong, but depending on the perspectives – this heavily affects a TO’s costs and revenue. Some of these “rules” include:
- Nearly a two-week long LAN event
- as mentioned before, this multiplies several costs to run an event.
- Must have all 16 attending teams go through qualifiers
- Tournament organizer’s can no longer invite popular teams to their events, reducing viewership and increasing administration costs, time and human resources to manage these qualifiers.
- Non-exclusive viewing options
- Non-tournament affiliated user brands can re-stream the event – re-streams do not help the event organizer in any way and heavily affects its bottom-line by reducing its future market-value for sponsors and media right broadcast sales.
- Fans can view matches in-game
- previously, digital tickets provided a valuable alternative revenue streams for tournaments (since their Twitch agreement may exclude any possibility of channel-subscription sales).
- Uncertainty of a Major status (this affects sponsorship sales) Major status approved 3 to 6 months before your event.
- This affects venue rental options
- Some tournament organizers pay to hold a venue on the dates they proposed to Valve, uncertain if they will be approved for those dates until a much later point in time (in which they are paying for that waiting period)
- No gambling or betting sponsors
- Side-note: betting sponsors are approx. 30 to 50% greater than current sponsor sales depending on the size of the event.
Many of these factors are for the benefit of the viewer but disempower the tournament’s business and ability to stay in the black.
At the moment, there are many flaws and concerns about the Dota Major system for all parties:
- Tournament brands are facing increasing costs with diminished potential returns.
- The more Majors per year, the less value each Major is as sponsors now have more choice.
- Players are feeling mentally and physically exhausted from too many events
- May lead to a new Major tournament system, perhaps at the expense of tournament opportunity.
- Talent are being negotiated down their previous rates as tournament businesses seek to cut costs to accommodate increasing expectations
- Valve permitting re-streams provides more eyes on their product/game;
- however this reduces the tournament’s viewership and marketable value for tournament brands.
- Tournament brands must then re-invent their event to provide more than just games, but is challenged by the cost to do it.
- Additionally, re-streams hurt a tournament’s revenue stream as it means less viewers, thus less value for sponsors as well as media rights sales to other broadcast companies.
In short, tournaments are a business above all but they are a source of human resources to market a product for a developer, income for many talents and commentators as well as a platform for teams and pro-gamers. As of right now, profits to run Dota events is tightening with each Major system iteration. Over the course of Dota 2, the cost to run events has increased but the actual returns have decreased over time. Once a developer becomes involved in an esports eco-system, there is no turning back, the environment is forever changed and that involvement must be kept and maintained. Valve’s involvement has created a consistency and opportunity at the benefit for the players and spectators, but it may be time to consider balancing the other end of this industry: ensuring the longevity of tournament organizer’s involvement with Dota 2.