How Crypto and Esports Are Fueling Each Other’s Growth

When cryptocurrency exchange FTX announced a 10-year, $210 million sponsorship and naming rights agreement with leading esports club Team SoloMid (TSM) in June 2021, the towering terms sent shockwaves throughout both the crypto and esports worlds.

But it wasn’t the first major move aligning the two buzzy, tech-centric industries. Popular teams like OG and Team Vitality launched crypto fan tokens via the Socios platform a couple years back, generating revenue while engaging fans and letting them vote on team decisions.

That was followed by a flurry of sponsorship deals that erupted across 2021, as crypto firms like Coinbase, FTX, and Uniswap aligned with major teams, tournaments, and leagues. That trend continued into 2022 along with growing NFT and Web3 initiatives from teams and leagues, plus the rise of tournaments built around NFT-powered games.

What’s driving the ongoing convergence of esports and crypto? Decrypt spoke with leaders from both industries to discuss the opportunities they see, how esports teams and leagues are pursuing deeper Web3 initiatives, and the potential for esports to help elevate and draw more attention to NFT-driven games.

From DMs to TSM FTX

There’s clear overlap between the participants in both esports and crypto: Both are largely male-dominated industries populated by young, tech-savvy adults who grew up alongside the video game industry. They value digital items, and they’ve seen both esports and crypto blossom from niche interests into major industries.

FTX’s deal with TSM is not only the largest disclosed partnership between crypto and esports firms in terms of dollars, it’s an ideal case study. Believe it or not, the conversations that led to the $210 million deal—which resulted in the team going by the TSM FTX moniker—ultimately started in Twitter DMs.

That’s according to TSM VP of Operations Walter Wang, who told Decrypt that team CEO and founder Andy Dinh sent FTX founder and CEO Sam Bankman-Fried a DM out of the blue as Dinh fell further down the crypto rabbit hole.

Bankman-Fried is a noted League of Legends enthusiast, and TSM fields one of the best-known teams that competes in the North American League of Legends Championship Series (LCS). They apparently bonded over shared interests, and then one thing quickly led to another.

“They got to talking, and then the idea came up to partner together through DMs and a couple calls. From that moment on, it was pedal to the metal,” said Wang, who explained that sorting deal terms, filming marketing videos, and making the announcement all happened within two months. “It was one of the craziest points of my working career.”

The image of Bankman-Fried in a TSM jersey has circulated widely over the last year. He’s dramatically richer and more famous than most of the target audience, sure, but otherwise he’s the model of the crypto-savvy, plugged-in gamer TSM and FTX hope to duplicate en masse.

FTX doubled down on esports investments in August 2021, when it announced a seven-year deal to sponsor Riot Games’ League of Legends Championship Series (LCS) league (terms weren’t disclosed). The exchange added another team in April, signing Brazilian squad Furia to a one-year deal valued at approximately $3.2 million, the team told Esports Insider.

Such deals came as FTX also spent lavishly on traditional U.S. sports—agreements with Major League Baseball and the NBA’s Golden State Warriors and Miami Heat—meanwhile stars like Tom Brady and Steph Curry came on investors and ambassadors. In January, Bankman-Fried sized up the impact of its esports moves while appearing on Decrypt’s gm podcast.

“The amount of brand impact has been much bigger from the esports side than it has from the not-esports side—the traditional sports side,” said Bankman-Fried.

“Again, it’s a different audience, and to some audience—not most, but to some audience—it’s like the most impactful thing in the world,” he continued. “It’s a much more targeted thing at a particular audience that we think there’s high overlap with.”

Bankman-Fried clarified that some metrics they’re tracking around crypto and esports are “shockingly high,” but that FTX doesn’t believe that metrics are the “be-all and end-all” to justify such investment. “This almost isn’t a metrics-driven thing in some ways,” he added.

Interestingly, there have been a couple high-profile examples of esports industry leaders shifting into prominent positions in the crypto space, too. Ryan Wyatt, now CEO of Polygon Studios, previously worked for Major League Gaming (MLG) before heading YouTube Gaming, which broadcasts esports tournaments. Meanwhile, Benoit Pagotto was brand and marketing director for team Fnatic before co-founding RTFKT Studios, the NFT startup that Nike later acquired.

‘Not for the faint of heart’

Crypto firms want the esports audience—and esports startups need the cash. It’s long been an open secret that esports teams are bleeding cash in the short-term in the hopes of eventually being rewarded as the industry grows and attracts more eyes. Countless teams and leagues have crumbled and faded along the way.

As esports teams go public, including the David Beckham-backed Guild Esports, the struggles of funding a team have become all the more visible. Guild, for example, posted a nearly $6 million loss for the latest half-year period, and was forced to slash staff. The team Astralis posted a $5.2 million net loss for 2021 after losing $7.9 million in 2020.

FaZe Clan, which went public on the NASDAQ in July via a SPAC merger valued at $725 million, disclosed a $36.9 million loss for 2021 based on revenue of $52.9 million. On the flip side, Danish esports club Copenhagen Flames celebrated posting a $6,351 profit for 2021, making it the only team to share positive financial details for the year, per Hitmarker.

“Running an esports team is a labor of love and the promise of a big outcome someday,” said Mark Donovan, co-founder and CEO of Web3 startup Kolex, which offers esports team NFTs. “Even running an esports tournament organization is a lot of the same, and it has been for 20 years. It’s not for the faint of heart, that’s for sure.”

Even the most successful esports teams aren’t immune to the recent economic downturn. In July, TSM FTX and 100 Thieves—which Forbes claims are the two most valuable teams in esports—both laid off employees, just as many crypto firms did.

The leagues don’t yet attract the same kind of cash or mainstream attention as leading traditional sports leagues, despite a pandemic-fueled viewership pop for the digital-first industry. But for an audience that has potentially significant overlap with that of crypto, as Bankman-Fried suggested, esports sponsorships could provide greater value.

“Relatively speaking, for the audience size and how it fits with these companies, the price tags are not very expensive to sponsor these leagues right now,” said Donovan. “Going out and sponsoring a [traditional] sports league is way more expensive, and probably not as good of a bang for your buck.”

Sponsorships make up the bulk of teams’ funding, and such crypto deals have come at a steady clip since early last year. Coinbase sponsored notable clubs like Team Liquid, Evil Geniuses, and BIG—the last of those a “multi-million dollar deal,” per the team—while Uniswap backed Team Secret in a deal passed by a DAO vote.

Coinbase also signed major tournament operators ESL and BLAST. Team Vitality added blockchain platform Tezos as its primary sponsor earlier this year, while exchange Bitstamp sponsored teams Immortals and Guild. Bitstamp’s three-year Guild sponsorship will cost the crypto firm about $5.5 million, while Immortals terms weren’t disclosed.

And that’s just the tip of the iceberg for crypto-esports deals, which are putting the names of crypto exchanges and blockchain platforms onto team jerseys and into Twitch streams, Twitter feeds, and widely viewed tournament broadcasts.

Blockchain blowback

But such partnerships haven’t always been an easy marriage, largely because of pushback from some gamers over crypto and especially NFTs. Common complaints include the environmental impact of certain blockchains, the prevalence of crypto scams, and the belief by many that game publishers will use NFTs as another way to fleece cash from players.

An NFT is a blockchain token that serves as proof of ownership for an item. Along with things like profile pictures and sports collectibles, one can represent usable video game items like avatars, weapons, or digital land that can be developed and monetized within metaverse games.

Backers of NFT-backed games believe that the tech will shake up traditional game publishing models, providing more benefits to players via the ability to resell items on secondary markets, yield reward tokens through play-to-earn (or play-and-earn) models, have a say in governance, and potentially use interoperable NFT items across multiple games.

“We do believe that over time, people will create a lot of fundamental value through NFTs, crypto, and blockchain,” said TSM’s Wang, who suggested that ongoing crypto education is key to imparting the perceived benefits of Web3 technology to players. TSM FTX also collaborated with Solana project Aurory on an NFT drop last fall.

Epics, which sells NFT trading cards inspired by Counter-Strike: Global Offensive (CS:GO) and PUBG Mobile players and teams, launched Ethereum NFTs in 2019. Donovan recognized the potential for NFT ownership after seeing demand for rare, in-game CS:GO weapon skins, which have sold for hundreds of thousands of dollars apiece.

“There’s leading-edge people in esports that are super into it, because they’re gamers. They’re tech-forward thinking, but if you saw what happened with Discord, there’s a huge group of gamers who absolutely despise NFTs as well,” he said. He also said that education is needed to show players that NFTs can be more than just pricey profile pictures.

Chris Hana, VP of business development for Kolex and formerly CEO of esports business publication The Esports Observer, suggested that NFTs tap into the same kind of desire for digital status symbols that CS:GO skins do. He sees other parallels, as well—including that crypto is facing a similar kind of backlash that esports has encountered.

“It was the same kind of resistance, right? You always have people who burn for it and love it,” he said, “and you have people that feel like, ‘Oh no, it’s crap, It’s not going to work. It’s just a scam.’ It’s always a lot of skeptics.”

But he’s also seen Web3 embraced by startups as a buzzword in the way that esports has previously—a trend chase for firms to look tech-savvy and try to boost funding. “It almost seems like ‘crypto,’ ‘blockchain,’ and ‘metaverse’ are the new terms you have to put forward to be perceived as cutting edge and at the forefront,” said Hana.

Blockchain technology could bring tangible benefits to the way the esports industry operates, however. In the past, leagues and teams have shut down amid claims of unpaid players and staff, unfair financial splits, and an overall lack of transparency.

Community Gaming, a startup that raised $16 million last spring, is developing a tournament platform that taps blockchain tech to provide that transparency on a public ledger, ensuring that competitors are paid efficiently and with lesser fees, that revenue shares are distributed, and allowing tokenized ownership of league franchise slots.

Teams in Web3

Even amid skepticism, esports firms are building in Web3. Popular team G2 Esports announced a Solana-based NFT collection in January that serves as an entry pass into a private “Samurai Army” fan community. A previous NFT deal between G2 Esports and crypto platform Bondly had gone sour, since yielding a lawsuit from the esports organization.

While Solana is billed as an environmentally friendly blockchain platform and uses much less energy than something like Ethereum, G2 Esports still faced backlash from fans. Ivana Brecek, G2’s head of digital and innovation, again pointed to the need for greater crypto education.

“At G2, we believe NFTs and blockchain are the technology of the future that will fundamentally change how we interact with digital goods,” Brecek told Decrypt. “We want to be at the forefront of this technological revolution.”

Another popular team, 100 Thieves, launched a free NFT mint via Ethereum scaling solution Polygon and managed to give away more than 300,000 such collectibles in 24 hours—even though it avoided using NFT terminology. Meanwhile, Team Vitality plans to issue NFTs via Tezos, and ESL has launched an NFT platform on Ethereum scaling platform Immutable X.

Increasingly for esports organizations, however, competition is just one part of the business model. Teams have their own streamers and influencers, they’re developing lifestyle content and trendy merchandise, and more. TSM owns tech services like esports analytics and training app Blitz, for example, and 100 Thieves is even developing its own game.

Creating Web3 platforms and experiences is another potential next step for teams.

Misfits Gaming is a prime example. The organization, which operates franchised teams in League of Legends and Call of Duty, announced plans to launch a new Tezos-based platform called Block Born that will publish NFT games and launch tournaments and content around them. Block Born aims to highlight games that are primed for tournaments.

“We tried to find a unique opportunity to do something,” Block Born Senior Vice President Will Pazos told Decrypt when the platform was announced in March. “We like the idea of blockchain, but we think there needs to be a heavier focus on competitive games.”

Meanwhile, the massively popular FaZe Clan—which has turned its founders and influencers into online celebrities—has signaled major moves ahead in the Web3 space.

In a recent GQ profile of the team, FaZe CEO Lee Trink said it would be “totally unsurprising” if the team pulled 80% of its revenue from Web3 efforts in a decade. In the same article, the company’s Web3 head, Tarek Mustapha, appeared in digitally enhanced photos as Mynt, a digital avatar he created for the metaverse.

FaZe Clan Chief Strategy Officer Kai Henry took part in a panel discussion at an NFT NYC event in June for the Ethereum metaverse game The Sandbox. He and Sandbox co-founder Arthur Madrid teased some type of unannounced FaZe activation for the game, and Henry spoke to FaZe Clan’s approach to building in Web3.

“We’re taking our time and making sure that we’re aligning ourselves with people that have our community’s best interests at heart, to be honest, and not forcing us to do what they think they should be doing,” said Henry. “Over the next year or so, you’ll see us make some big steps there.”

Even esports leagues are looking to the metaverse to potentially transform the way that fans watch and experience pro tournaments. In July, Activision Blizzard’s Call of Duty League and the New York Subliners team partnered with Mountain Dew to host a live esports tournament watch party in Decentraland, the Ethereum-based metaverse game.

‘It’s about engagement, right?’

The ever-growing convergence of crypto and esports is now coming full circle. We’ve seen CS:GO modified to provide Bitcoin rewards for players via the Lightning Network, and now NFT game makers are hosting their own tournaments with sizable prize pools on the horizon.

Axie Infinity, the Pokémon-inspired, monster-battling NFT game that shot to prominence but has cratered lately amid a failing economy and a devastating hack, recently announced plans to hold an official world championship at September’s AxieCon event in Barcelona. All told, the three tournaments will provide $1 million worth of AXS tokens in total prizes.

Community Gaming is developer Sky Mavis’ official tournament operator for the Axie Infinity championship events. The firm has worked with other Web3 game developers to host tournaments with prize pools and notable esports commentators, helping to boost visibility and create a competitive community around such titles.

“It’s about engagement, right? People get bored playing matchmaking all day, and they want to have a more social experience,” co-founder and CEO Chris Gonsalves told Decrypt. “When you bring everyone together for a structured event, that is [a] really important and valuable aspect for the community.”

Immutable’s competitive card battler Gods Unchained is another long-running NFT game that has teased esports ambitions for years, but has yet to hold any large-scale competitions.

The game’s website notes that a $570,000 prize pool has been amassed thus far, however Immutable recently announced it will begin with smaller, community-run tournaments. Justin Hulog, Immutable Games Studio’s chief studio officer and formerly of Riot Games, told Decrypt that the initial tournaments have drawn hundreds of players, with more initiatives to come.

“Esports is an intrinsic part of Gods Unchained as both skill and strategy sit at its core,” said Hulog. “We’re here to challenge the misconception that Web3 games aren’t fun, and believe esports can help showcase aspects players love—like competition.”

It’s easy to lose sight of fun in the Web3 gaming space, where speculation over NFT and token prices helped fuel Axie Infinity’s surge last year—and hastened its demise. Some early NFT games have felt more like decentralized finance (DeFi) applications dressed up as games, rather than robust games with ancillary NFT or token elements around a compelling core.

Gonsalves suggested that the Web3 gaming market is seeing an evolution as veteran developers from the traditional games industry enter the space, while creators and players alike learn lessons from the Axie-driven play-to-earn boom and bust.

The next wave of games, he suggested, will make NFTs optional but desirable, fueling players’ need for digital status while ultimately seeking to provide a fun, free-to-play game for the masses to enjoy. He highlighted online shooter games like EV.IO, BR1, and Undead Blocks, each of which riffs on a tried-and-true genre with NFT-powered enhancements.

Community Gaming worked with NFT gaming marketplace Fractal to hold a $10,000 tournament for EV.IO this spring. Fractal co-founder Justin Kan—also co-founder of Twitch—said that he sees such events as both beneficial marketing and a useful reframing of NFT gaming for fun and competition, rather than keeping speculation top of mind.

“We are seeing more Web3 games use esports tournaments as a go-to-market strategy,” Kan told Decrypt. “I think this is a good culture shift as it is putting the games first. Players love fun and competition. To acquire [players], a blockchain game should deliver an excellent game experience, and a good tournament is the best way to achieve it.”

“After all,” he added, “games are about having fun!”