Written with Han Park, CEO of Prize Payments. Previously, Han founded ESS and served as President of ESL North America.
The issue of paying out tournament winners in esports has become more complex due in large part to the 40% year-over-year growth in esports prize pools.* As prize pools increase, event viewership (live and online), sponsorship dollars, and the prestige of the events themselves grow. The buzz esports competitions generate is often tied to the size of their cash based prize pools — from community-based arcade and LAN events to The International (Dota 2’s premier event) which had a $34.3 Million prize pool in 2019.
The first few tournaments my company held in the early 2000s were very different from what we see in esports today. The prize purse was at most $500 or $1,000, split between a team of five for Counter-Strike 1.6. It was a grassroots movement that started in gaming centers, PC cafe’s, and small hotel ballrooms where gamers from the region would compete. Players and teams would spend more money in travel expenses than they would win. By placing in the money, teams hoped to build their reputations within the region and prove they were the best at a live tournament.
Over time, these events became recognizable brands like the Cyberathlete Professional League (CPL), Major League Gaming (MLG), and World Cyber Games (WCG) which attempted to determine who was the best in the world. These properties attracted major sponsors like Intel, Nvidia, and AMD, and we saw prize money increase from $1,000 local LANs to $50,000 events, which was a lot of money at the time. Tournament organizers were not used to paying out that much money, and even with these smaller prize amounts there was significant difficulty in paying prize money. This was especially challenging when dealing with foreign players.
When these events were organic and community-driven, how to handle prize money did not show up on anyone’s radar. Oftentimes, tournament organizers would literally hand out cash or checks at the end of the event, and they did not deal with taxes. Despite prize pools growing significantly, the solutions for paying winners have remained very much unchanged.
Today when a certain threshold of prize money is paid to individual players or esports organizations, it triggers a lot of different compliance requirements. Since esports is global, you often have players who are competing from a variety of different countries, which means that tournament organizers have to consider the tax requirements, as well as international Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. I experienced this firsthand when I ran the U.S. offices for ESL for five years.
It is really hard to pay people cash, especially internationally, because it comes with many challenges that need to be addressed. Even if you are able to pay someone quickly, you still need to collect proper documentation, the player’s information, perform compliance checks, and apply the right tax rules which makes for an incredibly inefficient process. Once you layer corporate policies and accounting workflow on top of this process, the delays snowball. The old way of just cutting a check does not suffice in the current era.
An efficient solution for processing esports prize money:
Delays in prize money payment are a black mark in the industry, and you can see the negative effect it creates from complaints on social media. In order to solve the payment issue in esports, tournament organizers and publishers need a holistic solution that directly addresses the complexities of making fast and compliant payments to keep gamers happy and for the industry to grow.
* Based on data from esportsearnings.com
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