Is the Esports Bubble Bursting? Insights from Tomas Lyckedal on the Rise and Fall of Major Esports Companies

First G-loot, then Space and now Esportal. Three very different esports companies, but all in similar sectors: tournament platforms and gaming venues.

G-loot described itself as the “Spotify of Esports” when it raised large amounts of capital in a couple of rounds. First it became a platform around games for money, then a tournament platform and finally a stats overlay that compiled and rewarded your achievements. Much simpler and several values ​​later.

Yes, the business model of G-loot almost does not exist puts its finger on the heart of the pole with esports in particular. It makes sense to build a functional business model and your own IP (intellectual property, intangible assets) together with the game publisher’s IP.

Many have seen the problem. Charging users and fans for esports. But no one has solved it.

The difference between traditional sports and digital sports is that e-sports are owned by different companies. In the case of Counter-strike by Valve Corporation – and that’s where the money is made. Valve has an annual revenue of SEK 140 billion (2022); primarily through the STEAM platform but also the sale of CS2 skins, i.e. products in the games, which had a turnover of SEK 10 billion in 2023.

So, Space and Esportal fell

Space was called “a cultural center for the digital generation”, but also “the biggest game center in the world”. It was a co-op, a restaurant, an arena, a gaming center – a little bit of everything for gamers and esports players. But also the most central location in Sweden and therefore also high rent at Sergels torg.

In the case of Space, it is a serious misunderstanding from the start, a lack of focus and fragmented thinking, and an overconfidence in building a technical infrastructure (which has little demand and already at home) and zero focus on content, building the IP itself and community involvement.

Esportal, on the other hand, is a more organically growing competition platform for CS based in Sweden, which in 2017 bought the legendary gaming center chain Inferno Online and became a company with two legs: competition platform & gaming centers.

“The acquisition creates synergies for both companies and allows Esportal to develop a stronger position in the esports market. ” was said in the first press release after the acquisition.

The difference between Esportal and G-loot and Space was that Esportal came from within, they were considered native to the market, and they were more involved in the community through both Esportal competitions and Inferno Online operations.

Gasped too fast

The few who generate income in esports are good at building their own IP that can be paid for, despite their reliance on publishers. Esportal got it right. But it turned up too soon and a little late compared to other competitors.

In recent years, Esportal took in more and more capital to accelerate development, a total of 235 million according to Breakit. It is not clear about the total investment capital of G-loot, but it went back -471 million in the last five years and raised about SEK 1.1 billion in the years 2017-2023. Meanwhile, Space lost 149 million in two years of operation.

Perhaps the three companies share a similar journey during capital raising and level the playing field. There have been slides about the esport “new sport” that is about to explode and indeed a gaming market that has a turnover of hundreds of billions. Actually, they are two completely different businesses.

Superstitions and an unfortunate mix of numbers and pictures. Sports arenas with esports fans and the gaming industry’s impressive turnover figures.

This is at a time when capital has been raised sn loop abbt and crazy in many industries, especially in esports. With the words “we are taking place in the new digital sports of the world”, the reference of ESL Faceit Group left with Saudi Arabia for 1.5 billion usd as a guiding light and often said things “it is still an immature business ”and “we will solve the money problem.”

Some sell at the right time

In the case of Esportal, there were two working business models, but as more of a management nature, they stole resources and focus from each other (B2B focus over the unique uspen and primary income in B2C) to grow find it faster. A classic dilemma for many esports companies is that the bigger the advertising revenue, the bigger the execution costs too – you become an organization.

A big reason for the break is also that the Esportal platform never recovered after the launch of CS2 and the mono-focus on one game (CS) as well as only one main geographic market (Sweden) which became the Achilles heel of the platform, against, for example, the competitor Faceit (many games) and global thinking (many markets).

Despite this, Faceit might not have survived had they not been bought at the right time by Saudi Savvy Games in a timely exit with ESL and the creation of the Faceit ESL Group. No one knows, but it is very unlikely that Faceit will be profitable and they are still struggling with the solutions of the game developers.

This is how the money is distributed

And therein lies a large part of the problem. Simply explained, the revenue model in esports revolves around sponsorship and media and platform revenue. Let’s say about 80-90 percent. There is user income, in the form of event tickets (eg DreamHack) or merchandise (some specific esports teams) but it is a very small percentage. The other percentages. Few companies have found a model to take advantage of the following; often data locked in social media and on Twitch,

The huge revenue of digital users ends up in the pockets of game publishers and platforms. The average American esports fan is said to spend about $5 a year on esports each year, while American sports fans spend an average of $664 on “real” sports. No one knows, except my 20 years of experience in esports, of that $5 we’re talking about – I’d say $3 goes to Valve and RIOT. Twitch takes a dollar and every other esports company splits the last dollar.

Swedish esports has grown from 2021 to 2022. If you look at about 30 Swedish companies with an esports connection in 2022, according to my calculations, they had a turnover of about Space & Esports).

The last two years have been the two most difficult years in the advertising market for esports companies, but also the post-covid effect in events, restaurants and sales that affected the business of gaming centers. Which affected all three companies.

Nevertheless, the explanatory model surrounding these three closures/bankruptcies is not linked to the economy. But everyone took advantage of a different investment situation and in that process, just like many in the industry (teams, tournament organizers, etc.), they promised development too fast in terms of reality.

On the other hand, the disruptions and closures indicate that there are difficulties in generating revenue around esports and games without being a game publisher or a publisher with digital revenue models directly linked to the games.

Here the dilemma of esports continues in the future and how to create direct income from fans that will drive the sport forward.

It is clear that none of these big initiatives, with many knowledgeable and intelligent people involved, could crack that nut.

However, there are some amazing lessons learned that are important to take into account before your next startup or venture.

Both for entrepreneurs – and for investors.