The Death Of The Esports ‘Middle Class’

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In 2015 and 2016, the future of esports looked inevitable. Big money and big names were investing into competitive titles on the (overinflated) promise that they would be the next big thing. But the boom times have not lasted.

Today, esports organizations and publishers are feeling the pain, but the layoffs and crunch are not happening uniformly across the industry. Bigger teams and publishers have — so far — weathered the winter better. Instead, the middle class of esports is on the precipice of a mass extinction event.

Smaller esports teams are folding

Esports teams are the bedrock of the industry. Esports layoffs have been widespread like many other sectors in recent months. In an effort to become cashflow positive, top organizations are letting go of talent and pulling out of games to cut costs and reduce their burn rates. These drastic measures are a sign that esports teams are preparing for the worst.

But smaller teams aren’t just cutting costs — they’re beginning to drown. Since November, some medium and smaller-sized teams have ceased operations. Australia’s ORDER was the first domino to fall. More recently, American organizations eUnited and Torrent have joined them.


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There are a number of reasons for the demise of these smaller teams. Esports organizations are heavily reliant on sponsorships. Ad spend is on the decline as brands tighten their belts over recession concerns. The entire industry is feeling the pressure but smaller teams are feeling the brunt as their reach (and potential value add for sponsors) is compared to their more premium competitors.

On top of this, the crypto winter has hit the esports industry hard. Given the market fit and similar audiences, many esports teams signed deals with crypto companies in 2020 and 2021. This influx of cash vanished overnight, removing a lucrative source of sponsorship revenue. It also dampened plans for teams that planned to monetize through NFTs and fan tokens.

Outside VC funding was once a solution to this cashflow problem, but new funding is drying up. Drake Star reported that 59 esports financing deals closed in 2022 worth $400 million, down 81% from 2021’s $2.1 billion across 718 deals.

Despite these concerns, many teams held out hope in 2022 for a life line. Several esports leagues rolled out plans for partnership programs. Similar to franchising, these programs limit the top level of competition to partnered teams and offer a revenue sharing program. Getting in creates a reliable asset for an esports organization. Riot Games’ Valorant Championship Tour (VCT) program was particularly attractive as there were no franchise fees and the game is growing. Halo’s partnership program was less prominent, but created similar issues.

For teams that got in, the program would be a major boost. But it was a disaster for the dozens of teams that didn’t make the cut. The organizations that went all in to get in are being forced to pivot.

Not just teams

This downward pressure on the esports market is also affecting publishers and games, not just teams. Several esports leagues — particularly those for smaller titles — are showing signs of instability.

Gears of War was the first casualty. Last year, The Coalition shut down its esports program after 15-plus years. While the title had a cult following, it never reached the same recognition as its competitors.

Halo is in a similar boat. While many in the community are cautiously optimistic, many of its partnered teams — FNATIC, G2 Esports and eUnited — pulled out of the league. Halo Infinite and its tumultuous development cycle has lead to instability within the game and its esports community. The lack of content and glaring bugs crippled viewership.

Blizzard also has its hands full trying to keep its esports programs on a steady course. Hearthstone has waned in popularity and the developer has massively cut back support for its official circuit.

However, Blizzard’s larger issue is the Overwatch League which has been fraught with issues since its 2018 launch. The ambitious plans of a global traveling league inspired by traditional sports has not panned out after six years. COVID was a major setback, but mismanagement and overpromising can’t be discounted. The team owners have begun a collective bargaining process against the league as a result of high operating costs and missed promises on revenue.

The launch of Overwatch 2 was seen as the game’s last great hope. Viewership for the 2022 Finals was strong, but the title will have to keep that momentum through March 23 when its preseason competition kicks off. Unfortunately, Blizzard is losing a critical market after its deal with NetEase expired. Overwatch cannot be viewed or played in China which is a massive problem for the teams based in the country. Moreover, a significant proportion of the game’s viewership is from China which will hamper the league further.

Creative Destruction

The esports industry is beginning to feel the pain of a coming crisis. Smaller teams and smaller games — the middle class of esports — are facing instability. Without the resources and prestige of their larger counterparts, they are not as equipped to face the esports winter.

Moreover, its optimistic to think that these cuts and closures will be limited to these smaller players. Many teams, including prominent names, are also signaling that they’re taking on water. 100 Thieves, Team Liquid, Evil Geniuses among others had rounds of layoffs. Publicly traded companies like FaZe Clan, Guild, OverActive Media, and Astralis have seen stock prices fall over 75%. Tournament organizers like Nerd Street Gamers (backed by Comcast Spectacor) and Generation Esports are in trouble too.

Right now, the esports industry needs to buckle up for some creative destruction. These early closures are just the canary in the coal mine. The industry itself will survive the coming tsunami in some form, but the teams, leagues and games that can’t adapt will not survive.

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