03 August 2022 - Article
The first half of 2020 has seen the cancellation of a great number of internationally-renowned sporting events because of the COVID-19 (Coronavirus) outbreak. All sports, from football to tennis and from basketball to motorsports, have been disrupted or in some way affected.
Notwithstanding the above and given that the global sports industry generates about USD 756 billion annually, the insatiable appetite of sports fans did not go unabated during this global lockdown. Although traditional sports have been suffering significantly from the lockdown, the first 6 months of this year have been characterized by an increase in competitive video gaming, i.e. esports, which have attempted to fill the void created by the pandemic.
Almost all world-renowned esports competitions that would normally be played in arenas in front of the public have also been cancelled. However, the fact that people have been sitting at home, whether voluntarily or due to a formal governmental lockdown, has resulted in an increase of sports fans playing videogames, whether alone or against others, or participating in professional esports competitions.
The majority of video games are purchased online. This allows the public to acquire games, download and play them remotely. In addition, today’s technology and communication systems permits gamers to interact with friends and other players, as well as stream or watch others streaming their games without having to leave the safety and comfort of their own homes.
Formula 1 and its Esports Virtual Grand Prix series
Formula One World Championship (Formula 1/F1), the highest class of single-seater auto racing sanctioned by the Fédération Internationale de l’Automobile (FIA) and owned by Liberty Media, was one of the first traditional sports who had the foresight to create and successfully develop an all-online alternative to its cancelled races. In reality, it had a head start over other sports when it launched its inaugural F1 Esports Series in August 2017 as a way to involve the official F1 video game and its community of players, providing a new avenue for greater engagement with the sport of F1. In 2018, the official F1 teams joined the programme for the first time to set up their own esports teams to compete in the F1 Esports Series championship
In March 2020, Formula 1 solidified its leadership position in esports when it launched its new F1 Esports Virtual Grand Prix (EVGP) series, allowing fans to continue to enjoy Formula 1 races, on a virtual basis, in spite of the ongoing COVID-19 crisis. A unique and exciting element of this virtual competition is that current real F1 drivers participate in the EVGP series.
Over the past few months, the EVGP series has become increasingly popular. As indicated above, the basis on which the EVGP series lies is the Formula 1 Esports Series, F1’s highest virtual championship.
The EVGP involves the ten F1 teams competing on the official F1 online game. As explained in a recent interview by Dr. Julian Tan, Head of Digital and Business Initiatives & Esports at Formula 1, the series is articulated in three stages:
- Qualifications, which take place primarily online and allow anyone to participate as long as they have an original copy of the official Formula 1 video game released by British developer Codemasters;
- Pro Draft, in which the highest qualifying players around the world meet to attend a seven-day long boot camp culminating in a final live show where the ten official F1 teams chose the best players to represent them;
- Pro Series, in which the official F1 teams compete against each other while being broadcast live. Just as in real competitions, two drivers participate in twelve races across the season. The players may earn points for themselves and for their team on the basis of how they finish on the grid. At the end of the Pro Series, a team champion and a driver champion win the competition and are awarded with a trophy. A portion of the prize fund is distributed to the teams based on their standings.
Virtual competitions as a replacement for real-world Formula 1 races
On 22 March 2020, the first F1 EVGP was successfully held in conjunction with the Bahrain Grand Prix, which was won by Renault’s Chinese test driver Guanyu Zhou.
One week later, esports fans were given the opportunity to compete and challenge real F1 drivers. McLaren’s Belgian-British racer Lando Norris competed against both professional drivers and members of the public on Codemasters’ F1 2019 game.
The magic was repeated during the following weeks and, on June 7, Williams driver George Russel brought home his third consecutive Virtual Grand Prix by winning the Virtual Azerbaijan Grand Prix in Baku over Red Bull driver Alex Albon.
The Baku event was the penultimate F1 EVGP. The series ended on 14 June 2020, with the Virtual Canadian Gran Prix won by George Russell at the computerized version of the Montreal Circuit Gilles Villeneuve. Indeed, after real-life racing was put on hold because of the Coronavirus outbreak, F1 has finally announced the official start of the 2020 season by revealing a confirmed eight-race revised calendar which include a number of double-headers. The eight races currently confirmed on F1’s 2020 schedule are packed into a nine-week period, and all eight will take place in Europe.
In accordance with the FIA’s regulations, eight is in fact the minimum number of events required in order to be classified as a world championship. After an almost four month delay, the 2020 season begun with the Austrian Grand Prix at the Red Bull Ring on the weekend of 3 to 5 July, 2020 – the first global sporting event of the Covid-19 era – with a second race at the same racetrack a week later and, despite the absence of fans at the race, it was an exciting and dramatic GP with the younger drivers demonstrating their competitiveness, skill and ambition against the more experienced drivers with Britain’s Lando Norris of McLaren achieving his well-deserved first podium in F1 and holding Lewis Hamilton at bay.
The unprecedented success of the F1 EVGP
While stakeholders and global fans are looking forward to the official start of the season, it should be highlighted that the EVGP series has been an unprecedented success. All of the F1 EVGP races have been widely distributed including by being broadcast live on F1.com, on F1’s YouTube and Facebook channels, as well as on Twitch, the video live streaming service operated by Twitch Interactive (a subsidiary of Amazon). According to F1, during the lockdown, the EVGP achieved a breaking record of 30 million viewers worldwide across TV and digital platforms. TV viewership estimates suggest the EVGP also accumulated a further five million views through Formula One’s broadcast partners in more than 100 countries.
Part of the success of the EVGP series derives from the fact that both F1 fans and sports celebrities have had the opportunity to participate and battle against professional F1 drivers. As an example, goalkeepers Gianluigi Donnarumma of A.C. Milan and Thibaut Courtois of Real Madrid C.F. took part in the Bahrain Grand Prix, by competing with the Alfa Romeo and AlphaTauri teams respectively.
Esports: a booming industry
From a general point of view, it has been estimated that, during the month of March 2020 alone, esports viewership on Twitch went up 31%. For the first time, the platform, which primarily focuses on video game streaming, exceeded 3 billion hours watched.
Streamlabs and Stream Hatchet recently released their live streaming industry report according to which, with reference to the first second quarter of 2020, Twitch reached all-time highs for hours watched, hours streamed and average concurrent viewership.
In addition, US-based microblogging and social networking service, Twitter, confirmed an increase in esports conversation volume of 71% as well as an increase in gaming content, in the second half of March 2020, of up to 38%.
But this is just the cherry on the cake and follows the long period of time in which esports in general have been booming all over the world. Indeed, esports is a billion-dollar competitive video gaming marvel, as well as a thriving market for video game publishers, event organizers, teams, players, and sponsors. The opportunities offered to content providers, media rights holders and sponsors, are significant with the added benefit to engage with a younger and technologically savvy fan base.
In its sixth annual Global Esports Market Report, market research firm Newzoo forecasts that global esports revenues will grow by USD 150 million this year reaching the record of approximately of USD 1.1 billion for 2020. Esports sponsorship deals alone will be responsible for generating over half this amount or USD 636.9 million in 2020. In light of these figures, it is clear that commercial sponsorship and partnerships are the highest revenue generators for the competitive gaming industry around the world and this not that surprising given that broadcast revenue for esports is unlikely to compare to live sports in the medium term.
According to Newzoo, sponsorship (whether endemic or non-endemic) and media rights revenues (the latter being an essential component of the monetization of esports) are together responsible for three-quarters of the total figure at an amount of up to USD 822.4 million. Newzoo expects this number to increase to USD 1.2 billion by 2023.
Clearly, these numbers are set to reach even higher peaks in light of the new esports ecosystem created by the Coronavirus outbreak.
Winning the most challenging race
Formula 1 is one of the best-regarded motorsports series in the world, with more than 470 million TV viewers annually. According to Forbes, last year, the British Grand Prix alone attracted 351,000 spectators. Broadcasting rights fees reached an average of USD 28.7 million per race, or a total of USD 602.1 million. In addition, the races generate a high amount of tourism by show casing to the world the countries in which the events are held. These figures are hard to beat.
Nevertheless, as reported by Forbes, it has been estimated that, in spite of the ongoing pandemic, Formula 1 could make revenues of up to USD 530 million even if it just held eight GPs this year, between July and September.
Indeed, the lockdown brought about by Coronavirus has offered Formula 1 and its stakeholders the opportunity to think through some of the challenges faced by the motorsport industry, including sustainability, finances and distribution of income.
In November 2019, Formula 1 took the first step towards sustainability by introducing projects for the reduction of carbon emissions and pledging to make all its racing competitions sustainable by having a net zero carbon footprint by 2030. This would include eliminating the use of plastics as well as making sure that the refuse produced during its GPs is recycled or somehow reused in a more sustainable way.
Financial sustainability is also a major challenge for Formula 1. In October 2019, Formula 1 announced a ground-breaking new cost cap aimed at creating more competitive championships, long-term financial stability, as well as sustainability of its ten teams. Entering into force in 2021, Formula 1’s new financial cost cap will limit, in a similar way to UEFA’s Financial Fair Play, the amount of money that a Formula 1 team is allowed to spend during a given calendar year. If the teams breach the cost cap, they will receive a fine on the basis of three types of possible breaches. Formula 1 stakeholders agreed last October to introduce an annual cost cap of $175m – excluding some aspects such as driver salaries, marketing and engine costs – from 2021. The coronavirus pandemic prompted a re-think and the cap has been revised to $145m for 2021, lowering to $140m in 2022, and $135m from 2023.
Whether teams will be able to agree on a new distribution of income is another matter for harsh debate between the Formula 1 teams and the relevant rights holders. The teams are currently in the process of renegotiating their agreements with Formula 1, including contracts for the distribution of income generated from the events. For various reasons, historical teams like Ferrari receive additional income by way of a bonus in recognition of their historical contribution to the sport whereas other teams do not. Some argue that the ten teams should be treated equally.
Regardless of the above figures and considerations, the important question today is, will esports be able to compensate for the significant financial loss incurred by the traditional sports industry because of Coronavirus? With the official season kicking off on 5 July 2020, let us all enjoy the show and wait for time to give us the answer.
This piece was written for and first published by LawInSport, the original is available to view here.
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