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Dear superstar,
Today’s article features part four (4/4) of the Sports Business Models Miniseries (SBMM), where we analyze four different business models (aka, how a business makes money) in the sports industry.
The first ones featured three brands I found fascinating. If you’re new here, or you missed out on them, check them out:
I received various requests to write the fourth piece about companies from different excellent areas of the industry, including sponsorships, consumer products, events, scouting, and more. However, the most requested sector of the industry was eSports.
Therefore, today’s article on the SBMM will feature the business model of Epic Games— a video game and software company.
Let’s get to it!
Epic Games
Founded by Tim Sweeney in 1991 and based in North Carolina, Epic Games is a software company that develops, publishes, and distributes videogames.
Tencent Holdings (also known as “The Apple of China”) became the first outside investor in Epic Games in 2012 when they bought over forty-eight percent stake in the business for 330 million USD.
Epic Games was worth 17.3 billion USD after a 1.78 billion USD funding deal in its last valuation.
I’m sure you’ve heard about Fortnite – the world’s most popular battle royale game with over 350 million players. Well, Fortnite is an Epic Games production.
Besides Fortnite, Epic owns the Unreal Engine software, which powers many of the world’s top games, and industries such as film, architecture, automotive, manufacturing, and simulation use it.
Today, Epic is a leading interactive entertainment company and provider of 3D engine technology.
If you’re interested in game development, creation, and design of virtual animations, check out this video about Epic Games’ Unreal Engine (spoiler alert: it is absolutely surreal):
Fortnite made 2.4 billion USD in revenues in 2018 and 1.8 billion USD in 2019 — and the videogame accounts for over 40% of Epic Game’s annual revenues.
The most surprising fact of them all is that Fortnite itself is a free game!
How Epic Games Makes Money?
Epic provides an end-to-end digital ecosystem for developers and creators to build, distribute, and operate video games.
Their business model has three primary revenue sources: Fortnite, the Unreal Engine, and the Game Store.
Fortnite’s business model:
Fortnite has various monetization strategies.
The videogame is free, but they offer in-game purchases such as outfits, skins, and accessories paid with real money. Ironically, none of the assets can give you a competitive advantage on the game, but millions of people still buy them!
Additionally, Fortnite hosts paid events, engages in numerous sponsorships, sell merch, and offer an alternative paid version of the game.
Unreal Engine’s business model:
Epic doesn’t charge other companies to use the Unreal Engine — it is free. Epic takes a 5 percent cut of all gross revenue on applications created using the Engine.
More than 7 million people currently use the license of the Unreal Engine.
Lastly, Epic also generates revenues from their Game Store — a virtual store that hosts and distributes videogames made by third parties — where Epic takes a 12% share per sale to cover the store's operating costs and still make a profit.
Due to the pandemic, the video game industry has experienced a significant increase in demand as consumers looked for alternative forms of interactive entertainment. From this, I’d expect Epic Games to get some benefit from it in the short run, but way more substantially in the long run.
QUICKIES
🎙 Growing the Sports Business Through Digital; This week’s Halftime Snack features Sean Callanan. He's the founder of Sports Geek, SG Esports, and owner of League of Legends professional team Gravitas. We talked about Sean's story, his sources of creativity, esports, how the sports business will change in the future, and how to develop a sports-biz career. Listen on Apple | Spotify | Google
🛋 “Too much working from home can be bad for your health”; For five reasons: less energy, uneven cadence, fewer encounters, the fear of exile, and lack of meaningfulness.
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Until next week,
Ronen Ainbinder
Twitter: @Ronenain
Website: ronenainbinder.com
Book a call with me: superpeer.com/ronen
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