I was drenched in the esports scene yesterday at the [a]list Summit in Los Angeles. At the event, esports companies and brands gathered to figure out how to make money in the industry, which generated $892.4 million in revenues in 2016, according to market researcher SuperData Research.

For many years, esports wandered in the wilderness. ESL, which is now the biggest non-publisher company in esports, started 15 years ago. Back in the early days, people laughed at the idea of watching someone else play a video game or getting paid to play video games.

But while a lot of people still say they don’t get it, esports viewership hit 213.8 million people in 2016, and brands put $662 million of sponsorship money into it, SuperData said. The International tournament for Dota 2 had a prize pool of $20.8 million, and the finals for event filled a huge stadium. For brand advertisers and sponsors, that means players and spectators are spending huge numbers of hours engaged with a brand in an organic way, said Chris Younger, director of strategy at Ayzenberg, the Los Angeles agency that put on the summit.

Steven Roberts, chairman of ESL

Above: Steven Roberts, chairman of ESL

Image Credit: Dean Takahashi

The esports pyramid

The esports industry has become like a pyramid, as Peter Moore, chief competition of Electronic Arts, pointed out last year at GamesBeat 2016. The top tier of professional players represents the top of the pyramid. Below that are the other 99 percent. Amateurs vie to become professionals. And below that are those who enjoy competing for fun. Each one of those tiers is an opportunity to make money.

At the base of the pyramid are startups like Skillz, a platform which turns just about any mobile game into a competitive match. Casey Chafkin, founder of Skillz, said in a panel that I moderated that his company has run more than 100 million mobile esports tournaments and awards more than $5 million in cash prizes to players every month.

“A lot of mobile users don’t consider themselves gamers, but someone can be an expert at Finger Bowling and make a living at it,” Chafkin said.

Uyen Uyen Tong Nu (left) of Super Evil Megacorp and Casey Chafkin of Skillz.

Above: Uyen Uyen Ton Nu (left) of Super Evil Megacorp and Casey Chafkin of Skillz.

Image Credit: Dean Takahashi

Likewise, Super League Gaming, a Santa Monica, Calif.-based startup, also targets the amateurs among players of League of Legends and Minecraft. Super League Gaming rallies esports fans around city tournaments in places like theaters to generate civic pride and inter-city rivalries. Ann Hand, CEO of Super League Gaming, said that she partners with movie theaters to transform otherwise empty places into community arenas.

So far, it has been hard to generate local affinity for esports teams, as many of the esports competitions are global in nature, said Steven Roberts, chairman of ESL.

But NBA teams like the Philadelphia 76ers are moving into esports with the acquisition of Team Dignitas. That could be key to generating local enthusiasm in the same way that the 76ers do with pro basketball.

Another layer of the esports industry consists of the independent leagues that bring together players in huge tournaments, filling stadiums around the world. ESL has become the largest non-publisher esports company with tournaments for 65 games.

Ann Hand of Super League Gaming.

Above: Ann Hand of Super League Gaming.

Image Credit: Dean Takahashi

“Most publishers see that esports can be healthy for their core games,” Roberts said. “We need more games that can have the scale to fill stadiums.”

North America is ESL’s fastest-growing market, and it has all of the ingredients for success, including brands that want to get engaged in esports and facilities in places like New York, Roberts said. The company’s production team produces around 20,000 hours of live esports content.

And at the top of the pyramid are company-owned esports events, such as Riot Games’ League of Legends World Championships and similar events run by Electronic Arts and Blizzard Entertainment. Leagues are coming together to represent the interests of players, owners, and investors. Non-endemic brands like Coca-Cola are coming in to help grow the base beyond core gamers.

More people watched the League of Legends World Championships (43 million) than the Super Bowl (40 million).

Hurdles to overcome

Major League Gaming's huge Counter-Strike event.

Above: Major League Gaming’s huge Counter-Strike event.

Image Credit: MLG

But esports isn’t as big as physical sports in many ways. Right now, traditional sports such as basketball monetize fans at $15 per person, while esports is monetizing at around $2.83 per person, according to market researcher Newzoo. Not everyone is going to get rich.

Brands are key to that monetization, and they’re dipping their toes in the water. Christina Alejandre, general manager of Turner Sports’ ELeague, said that slapping a brand on an esports event won’t automatically work. Matt Wolf, the esports head at Coca-Cola, said he wants moments where the fans organically embrace his company’s brand, with more authenticity.

Esports will likely see consolidation, and that could be healthy.

“This meteoric growth of esports will mature and the folks who dove in for a quick buck will drop out,” Roberts said. “The playing field will be made up of much stronger foundations where the brands will have a much better chance of success.”

Player behavior can be a double-edged sword. The players with personalities are fun to watch, Roberts said, and they make it interesting. It gives esports the emotion and human element, to the point “where people start caring about players and their teams,” Roberts said. But if the players get out of line, as athletes sometimes do, it can lead to various controversies.

One of the bumps in the road became visible when a group of players rebelled when their team owners decided to pull them out of ESL’s Counter-Strike: Global Offensive tournament in favor of their own fledgling league, the Professional Esports Association. After the player revolt, the PEA canceled its league. The owners said there wasn’t enough financial support for two leagues to exist.

“It’s going to coalesce and mature, but until it does, there will be fragmentation,” Roberts said.

The mobile esports future

Vainglory's mobile pro gaming continues.

Above: Vainglory’s mobile pro gaming continues.

Image Credit: Super Evil Megacorp

I moderated a session on mobile esports with Chafkin and Uyen Uyen Tong Nu, director of marketing at Super Evil Megacorp, creator of Vainglory.

Mobile esports is much earlier in its maturity, but it offers huge potential for players, spectators, and brands, said Ton Nu. That game is a simplified version of League of Legends and yet is more complex than the mass market Clash Royale mobile game. When Vainglory first came out in 2014, it didn’t even have a spectator mode. As fans began to demand it, Super Evil Megacorp tore up its plans and revised its game engine to enable spectating. In the past year, Vainglory’s audience of spectators grew ten-fold.

“Mobile is certainly going to be the area to watch over the next three years,” Roberts said. “The consumption of video about esports on mobile is growing faster than any other platform.”

Disclosure: The [a]list Summit paid my way to Los Angeles. Our coverage remains objective.