Esports team owners and professionals are reportedly convinced that many organizations are overvalued, and because of that, a market correction is looming on the horizon.
This prediction comes after esports organizations Infinite and Echo Fox laid off staff, signaling the start of a market correction which seems likely to carry into 2019.
As reported by Sports Business Daily, in the past two years since traditional sports teams started acquiring esports organizations, faith in the long-term potential of video games has grown.
On the other hand, pessimism about the short- and medium-term longevity of esports teams is also growing as the pressure to spend grows faster than revenue.
The terms at which some leading esports teams have raised additional investment capital appear separated from standard business metrics, according to Sports Business Daily.
Outside of sponsorships, there needs to be a consistent physical source of revenue (ticket sales and in-person merchandising) coming in for esports teams to offset spending deficits.
Mike Sepso, an esports consultant and founder of Major League Gaming, explains how market expectations around esports organizations are based in optimism. To investors, esports are the perfect blend of of both technology and sports.
“The optimistic point of view is you’re combining both the long-term value accretion of sports franchises with high-growth, early-stage tech multiples,” Sepso said.
He continues on, saying that revenue pressure isn’t a major issue yet, and investors believe sponsor and ad dollars will trickle in. “There is always urgency to monetize, but at this stage in esports, it’s definitely not panic.”
The strongest organizations are the ones least dependent on competitive teams to make money. So teams that run other endeavors on the side (for example Team Liquid runs gaming community websites, a Wikipedia-style site, etc.) are more likely to generate more revenue.
It’s worth noting that these are just market predictions so it’s too early to draw conclusions.