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How the Coronavirus Recession Will Impact Esports Startups

by biasharadigest

For the past two months, esports has become the talking point of mainstream media. The COVID-19 global pandemic has canceled most sports events such as Formula 1, NBA, NFL, Olympic Games, and all soccer leagues as well.

Some pioneers in these sports are pushing for virtual competitions, such as the virtual NASCAR series that is being broadcasted over TV.

Nevertheless, esports is a part of the global economy and will feel the consequences of COVID-19 policies.

Kristalina Georgieva, the International Monetary Fund (IMF) managing director, assessed the current situation and warned us that the current global recession could be worse than the 2007-2009 one.

We’ve seen many reports stating that esports is immune to the Coronavirus pandemic, but that simply isn’t true.

Many subindustries that are part of esports are in trouble.

Competition organizers, venues, and esports organizations are dependant on merchandise, ticketing, sponsorships revenues, and media rights.

Because spectator events are all banned, some of them up to September, these subindustries face uncertain futures because their revenue streams are drying out. Additionally, many companies that are sponsors of esports teams have rebalanced their budgets, and maybe they’ve cut down on marketing, sponsorships, and partnerships.

One subindustry that didn’t lose out was the esports betting industry. Established websites like dota2-bets.com are thriving in these times of increased online tournaments. More people are staying home and betting on their website.

The current situation affects different subindustries differently, and in this article, we’ll only look at esports companies that are susceptible to the negative impact.

Esports Startups

Compared to other ecosystems, the esports one is rather young, and because of that, there is a large percentage of startups. Startups come in all shapes and sizes, which includes software development companies, hardware manufacturers, data providers, media outlets event organizers, and esports teams.

It’s a project-based company where an entrepreneur or a group of entrepreneurs is trying to develop a sustainable business model.

There are two main approaches to financing a startup: raising debt/equity and bootstrapping.

Most startups aren’t profitable straight away. Startup equity and debt are usually provided by investors in volumes that last a couple of months. Bootstrapping relies upon that the business will create revenues that will offset costs.

When the startup shows the potential to turn profitable or exceed expectations, that’s where it usually gets another round of funding.

The current COVID-19 situation is increasing all the major points of startup failures. Those are usually too much competition, saturated markets, bad business ideas, outdated technologies, barriers to entry, and so on.

Management problems are also more visible during the pandemic, such as poor research and planning, changes in spending, wrong motivation, not identifying industry trends, and so on.

Rising from the Ashes

Some esports startups will fail during the COVID-19 situation. That is inevitable. But there are some great opportunities for other startups.

For example, esports, gaming, and game live streaming services are feeling a huge boost. Additionally, a crisis is a good opportunity for small startups to prove they are sustainable.

If they can show that, they just might get that funding that will change their lives forever.


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