Finding value in college esports
As the value of the esports market explodes globally, the team at Baker Tilly US is helping colleges in North America take their game to the next level and score points in student engagement, recruitment, and retention.
The global esports market is set to bank $US1.08 billion in 2021, a year-on-year bump of +14.5% ($US947.1 million) in 2020, with more than 75% ($US833.6 million) coming from media rights and sponsorship. But in 2030 esports crack the big time, with the market predicted to reach $US4.75 billion globally.
The biggest esports market in the world, North America, is powering up for a Battle Royale with the Asia-Pacific, which makes up 57% of the global esports audience. In 2021, North America’s esports market is expected to reach $US300 million.
In a sign of bigger things to come for esports in North America, in 2020 Fortnite superstar Tyler ‘Ninja’ Blevins became the first professional gamer in the world to reach the $US100 million milestone.
It’s not small change, and the US college sector – always looking for the next edge in student recruitment and retention – is sitting up and taking notice.
Across North America, more than 170 institutions are delivering varsity esports and offering close to $US16 million per annum in scholarships, according to the National Association of Collegiate Esports (NACE).
Powering esports’ college prospects is the $US18.9 billion in revenue generated by the National College Athletic Association (NCAA). In 2019, of the $US18.9 billion in revenue, $US3.44 billion was sourced from media rights, $US2.87 billion from donations, and $US1.55 billion from student fees.
Determining the value of esports to colleges doesn’t require sabermetrics. Much more than a video game, the esports market is a performance booster packed with revenue streams including branding, gaming rights, media rights, licensing, merchandise, sponsorship, streaming and ticketing.
In the college context, it can help boost recruitment, shore-up student retention, increase engagement on campus, and act as a differentiator in the crowded market.
Baker Tilly Higher Education Practice Leader and CPA David Capitano says colleges need to go beyond thinking about esports just as games and to consider how the broader ecosystem can offer opportunities that meet other goals.
“We look at the complete esports ecosystem. What’s the technology, game development, marketing and branding play? These are curriculums that you already have in place. You could build and recruit around this,” Mr Capitano says.
“When you get to the professional level, that world is going gangbusters. It’s one of the largest growing industries we currently have. So, what does the workforce need to look like? What’s the talent that needs to go into that? Schools have an excellent opportunity to train, educate and develop the future talent to move into these areas.
“We look at the complete esports ecosystem. What’s the technology, game development, marketing and branding play? These are curriculums that you already have in place. You could build and recruit around this.”
– David Capitano
“If our colleges are looking to be innovative, if they’re looking to be competitive, if they’re looking to enhance their student engagement, esports checks all the boxes for them.”
And for colleges considering coming off the side-lines and wading into the esports arena, student engagement is key driver.
“I would say at the top of the list is student engagement, you have a population of students growing up playing these sports, and in front of their computers, so the culture of these students coming into college are very much engaged in it,” says Mr Capitano.
“So, when you get to a college campus, what is the idea with regards to making sure that you’re really engaged with your student body? It’s to get them into the population and making sure they’re taking part in different activities. You don’t want them sitting in dorm rooms, playing games all night long and not interacting with students.
“Colleges are saying if we were to put a center on our campus, that will allow the students to come out of their dorms and engage with each other in a more formal setting, we would have better retention efforts and be able to use it for future recruiting – and that’s exactly what they’re doing.
“Colleges are seeing declines broadly due to generational shifts and population changes. So, if esports can have positive impacts in those areas, getting students to stay and persist across all four years, that is a positive thing.”
– Adrienne Larmett
“They’re developing and changing different spaces on their campuses into more formal gamer centers to allow for a larger engagement and it grows from there. It starts as a club sport, then it becomes a team sport, and ultimately a varsity sport at the competitive level.”
Baker Tilly Senior Manager Risk Advisory Practice Adrienne Larmett says with colleges feeling the pinch of declining student engagement, the rise of esports is seen as a potential gamechanger.
“We’re seeing positives around increased recruiting and retention, which is a big thing here for colleges,” Ms Larmett says.
“Colleges are seeing declines broadly due to generational shifts and population changes. So, if esports can have positive impacts in those areas, getting students to stay and persist across all four years, that is a positive thing. Then you also have benefits in the form of increased engagement and student wellness outcomes.”
And the positive impact of esports goes beyond student engagement, wellness, recruitment, and retention, through to creating scholarships in new disciplines and offering portfolio diversification to donors.
“They are now increasing opportunities for students to get funding to support their education, which is something we hadn’t seen for this particular discipline before,” she says.
“On top of that, there are potential increases in advancement and donor giving, so we’re seeing more people give to universities to support esports.”
The digital divide
The evolution of esports poses significant compliance, governance, and social risks for colleges, particularly in relation to the application of gaming cryptocurrencies and mobile gaming. Mr Capitano says esports’ relative infancy means it doesn’t possess the structural rigour commonly associated with traditional sport.
As a global professional services network, Mr Capitano says Baker Tilly is uniquely placed to support colleges with auditing, compliance, and taxation services.
“We represent more than 400 colleges and universities across the US, providing a variety of different services including audit and tax services, and over 50 per cent of our work is also done in the compliance area,” he says.
“There can be controversy around the games being played, and the lack of potential inclusion. So, when colleges are getting involved in esports they need to make sure that they have a good game plan around their policies and procedures, what their governance is going to be, how they’re going to outline how they’re going to deal with these issues, how they’re going to engage with both the male and female audience, and the security around the technology.
“When colleges are getting involved in esports they need to make sure that they have a good game plan around their policies and procedures, what their governance is going to be.”
– David Capitano
“You’re in a social media driven platform, on your computer in some level of isolation. So, you need to be very particular about the policies, procedures and governance around diversity and inclusion, based on how you’re handling yourself on that platform, so there’s no abuse with regards to language or violence due to the nature of the games being played.”
Mr Capitano says the compliance, governance and social challenges associated with esports provided Baker Tilly with the opportunity to support its clients to understand the risks and prepare strategies to mitigate and manage them.
“The chairman of the board of one of my colleges came to us and said I’m living in this esports ecosystem, and it’s the Wild West out there. We’re really concerned about all these issues, and we need a firm with credibility like Baker Tilly to help us kind of understand it,” he says.
“We saw the opportunity to come in and advise our clients and say here are the challenges, but here are the solutions or potential solutions to mitigate those types of risks.
“We help colleges figure out how to put that infrastructure in place that really allows them to have a successful program with regard to student engagement, making sure that they’re abiding by a set of rules that they feel very comfortable with, and that align with their strategy, values and principles.”
But Ms Larmett says colleges looking to take the plunge must first decide whether esports is going to be a student organisation or a varsity sport. Classifying esports as a student organisation necessitates several internal policies and procedures, but to be recognised as a varsity sport, colleges must comply with Title XI of the 1972 Education Act.
“Typically, student organisations need to apply to have their club approved, then they’re given a portion of student fees that come in as part of tuition, and they typically need to have an academic or administrative sponsor, so there’s a number of steps they need to take. But as a varsity sport, Title XI, which covers equity in educational activities, comes into play,”Ms Larmett says.
Title XI of the 1972 Education Act prohibits sex discrimination in any education program or activity receiving federal financial assistance.
Varsity esports are disadvantaged by the governance vacuum created by the National Collegiate Athletic Association (NCAA). Ms Larmett says esports aren’t presently governed by the NCAA, which has prompted the National Association of College Esports (NACE) to step in to provide oversight.
“Whether or not esports is classified as a student organisation or a varsity sport, NACE governs 94 per cent of esports clubs in the US. They set eligibility criteria for players which members must abide by,” she says.
A new breed of athlete
Esports is changing the perception of online gaming from the pimple-faced teenager playing Fortnite in a dark basement, to the professional gamer rocking Balenciaga shoes and playing to a packed stadium.
“A lot of our institutional colleagues are approaching the training of esports athletes the same way that they do traditional turf-based athletes.”
– Adrienne Larmett
Mr Capitano says colleges are now seeing esports as varsity sport, with some seamlessly integrating esports into their athletic departments.
“Many of your traditional athletes are in the same demographic, so on Saturday afternoon, they’re on a football field playing against each other. But, on Friday night that same player could be playing against the other on a video game. So, it is really a cross-section of traditional athletes and this new breed of athletes,” he says.
As a result, Ms Larmett says colleges are starting to approach esports athletes the same way as those involved in traditional sports.
“A lot of our institutional colleagues are approaching the training of esports athletes the same way that they do traditional turf-based athletes in terms of making sure they’re getting enough sleep, making sure they have a proper diet, making sure they’re getting the mental health and wellness support that they need,” she says.
“There’s also a rethinking of infrastructure that goes with this. Maybe it won’t be the development of a stadium in the traditional sense, but it’s stadium-like seating, because what we see is everybody likes to come and watch – it’s a good opportunity for the college, for the gamers, and for the community.”