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Why esports franchises are big business beyond gamers


Rasmus “Caps” Winther hoists the trophy for the best 1-versus-1 LoL player in the world.

There’s less than a minute on the clock. The score is tied. Your heart is pounding so hard you think it will jump up out of your throat. You focus through the nerves, the noise of the crowd and the drama because this is it. The entire game, the prize and the pride—it all comes down to these pivotal few moments. You say one final breathless prayer and rev the engine on your rocket-powered conversion van.

That’s the palm-sweating reality for esports gamers, whether they’re driving a rocket-powered battle car in Rocket League, seeking headshots in Counter-Strike or Overwatch, or looking down on the League of Legends battlefield.

Esports is all the gritty drama (and big money) of professional sports but featuring an entirely new breed of superstar. For most people on the outside, the industry is a confusing mess of hundreds of video games, thousands of Twitch streams and dozens of professional teams and players commanding massive salaries. With every hot new game, it changes. But esports is maturing beyond the revolving door of the next game. One of the most popular gamers ever, Ninja, graced the cover of ESPN The Magazine, breaking into the mainstream sporting world in a big way. And games such as League of Legends and Activision Blizzard’s Overwatch are selling team franchises to build out global leagues dedicated to a single game for the long term, much like the NFL or NBA.

While it might be “just video games” to some, the esports industry generated $655 million in revenue in 2017 and grew by 32 percent to $865 million in 2018, according to Newzoo, a major provider of esports data and analytics. According to the firm, the industry will crest $1 billion in 2019. For some context, the NFL brought in an estimated $14 billion in 2017 and the NBA pulled in $7.4 billion. In 2018, the MLB brought in $10.3 billion in revenue.

League of Legends players

Top League of Legends players face off in front of a crowd of hundreds in  Las Vegas.

Is it a sport? Who cares?

The term esports is a point of major contention for people, but mostly outside the industry. There’s a laundry list of questions: Is it a “real” sport? Are these people athletes?

The resounding answer from industry insiders is, who cares? These gamers train hard, compete at the highest level and play in front of millions of passionate fans. Someone like Soren “Bjergsen” Bjerg, a Danish League of Legends (LoL) player on team SoloMid, draws fans, earned more than $200,000 in prizes and more via streaming, but can he dunk? Well, no—can you?

“Whether you look at the competition we have here and acknowledge it’s a sport or it’s a competitive entertainment product, I try not to get hung up on the titles,” said Chris Greeley, senior manager of esports league operations with Riot Games, the maker of League of Legends. “Bjergsen cannot beat Lebron James in the 40 and probably can’t jump higher either, but the rigors they go though day in and day out for their competition is akin to what you’d see in professional sports.”

The definition doesn’t matter much to the players, either; they’re just trying to stay in the game and beat the competition.

“It’s just like traditional sports, if you don’t do well they’ll just bench you and slot someone else. So you do have to continually prove yourself. You have to be constantly on top of your game,” said Eric “Licorice” Ritchie, a Canadian LoL player and coach on team Cloud 9.

He said the typical day at the Cloud 9 team house includes two three-hour training blocks where teammates play each other or “scrim.” They watch the game footage for errors or missed opportunities, and then play more LoL in their evening free time. Some pros practice, drill and scrim up to 15 hours a day. That’s more effort than the average person puts into anything and these players do it with levels of hand-eye coordination and reaction times seen in NASCAR or F1 racing and the strategic prowess of a warlord. But it’s not about effort or semantics, said Ritchie; it’s all about top-tier competition among extremely talented individuals.

“I know there’s a lot of debate around whether esports is a sport. People get stuck on that. The better way I think to look at that is it’s just a competition of the highest level, and you’re celebrating the talent of the highest level players,” said Ritchie. “That’s a really interesting thing to watch.”

Fans who traveled to the League of Legends All-Stars event held at a new dedicated esports facility inside the Luxor Hotel in Las Vegas didn’t seem all that caught up in definitions. During the All-Stars—akin to the fun gathering and breezy competition seen at the MLB All-Star game—some of the biggest stars came out to play for big charity prizes and determine the best one-versus-one player in a traditional team game (the Danish Rasmus “Caps” Winther won in a nail-biting victory). And it was a great place for superfans to get close to their favorite stars, grab autographs and selfies, and chat about the game with the best of the best.

One of the brightest stars, Lee “Faker” Sang-hyeok, was a big draw. The Korean player on team SK Telecom T1 brings in an estimated $4.6 million every year from prize money, sponsorships and streaming. Nobody asked if he considered himself an athlete; they were too busy taking photos.

League of Legends All -Stars

 Coaches, refs, the media and rapt fans at the 2018 LoL All-Stars, held in one of the first esports venues at the Luxor hotel in Vegas.

Major money for fledging industry

The economics of esports is still a work in progress. At the core of the big bets is the massive viewership numbers. In March 2019, viewers watched nearly 1 billion hours of content—and Twitch isn’t the only streaming platform. In 2018, professionally organized esports events for just the top 10 games accounted for more than 83 million hours of viewership.

The esports vertical of the streaming industry especially drives live viewership, something TV advertisers remember fondly. The 2018 League of Legends World Championship drew 99.8 million unique viewers, nearly half during the live competition. The first-ever Overwatch world finals drew 10.8 million viewers. The 2018 Super Bowl pulled in just 98.2 million viewers, well down from the average of 111 million.

The demographics make that insatiable demand even more attractive to advertisers and sponsors. According to Nielsen, the largest cohort is the valuable 18-35 demographic. The best way to get in front of those key consumers that make up more than half of esports viewership is through these new channels. That’s bleeding into real-world viewership, too.

Major League of Legend events have sold out the 80,000-seat Beijing National Stadium in China, the 21,000-seat Staples Center and the 20,000-seat Madison Square Garden.

Fresh from the inaugural Grand Finals that brought in 11,000 people, the first-ever Overwatch home game in Dallas sold all 4,500 seats.

Geoff Moore, the president of Dallas Fuel, the Overwatch franchise for North Texas and Oklahoma, said fans were hungry for a live event.  

“We’re selling tickets like hotcakes which is good,” said Moore. “Now we’re just coordinating with the league. They’ll handle the broadcast and we’ll handle the experience. You have kind of a one-to-one interaction with a fan and the team on Twitch, a live experience adds that festival element to share it with people who may not be as avid, I think that’s an exciting element that’s going to add to the growth of esports.”

Dallas Fuel sits inside the Team Envy organization, a wide-sweeping esports group founded by a group of veteran esports gamers who did especially well in early competitive gaming. There are a few player-owned and player-run organizations; a lot of the franchises are owned by the same people who own major sports teams. And the model fits that group pretty well.

There’s no traditional FDD, but a franchise fee of about $10 million for LoL and $20 million-plus for Overwatch gets viewership rights much like a traditional sports team. Like some major leagues, both LoL and Overwatch include revenue sharing, though the latter won’t dispense any revenue-sharing dollars until 2021 when it’s projected to hit critical mass.

The LCS, the league encompassing 10 League of Legends teams, sends 50 percent of revenue back to the teams—a portion distributed evenly and the remainder returned based on team performance and viewership or fan engagement.

The big sponsorships are figured out, and Moore said the league is among the most professional he’s worked with. But the rest of the traditional revenue sources such as merchandise, food and beverage, and ticketing is still to be addressed. Despite big valuations, most teams don’t make any money yet.

Kevin Knocke, VP of esports at RektGlobal, said teams should look beyond the sponsorships. His firm helps companies get into esports in an authentic, not “cringey” way, and has its own esports team, Rogue.

“There are a lot of people that are trying to get into esports,” said Knocke. “But brands need to have a long-term focus, this is not a flash in the pan that you work on for 18 months and get a huge ROI.”

He said many teams must still figure out how to make money. “The teams that are backing the core team business with a real business behind it are going to succeed. We see a lot of teams that are going for $200 or $300 million valuations, that’s all focused on the sponsorships coming in,” said Knocke.

But at $465 million in sponsorships in 2019 across esports, according to Newzoo, that just doesn’t add up. “In our example, we have a good and profitable in-house agency which does real representation for real businesses,” said Knocke. “We have that flashy awesome team that everyone wants to see. Investors love it and they love the crowds. But we back it up with something that might not be as sexy to the general public.”

League of Legends All-Stars

 A focused crowd watches the big plays and big personalities battle on a virtual field as analysts give the play-by-play.

The franchise angle

As for getting into esports, many brands are in the sponsorship mix. Wendy’s runs sponsorships and uses its social media prowess to stir up activity around the ultra-popular Fortnite, especially among esports stars. Arby’s and Yum Brands have both sponsored online and in-person events. Twin Peaks is supporting Team Envy’s home game in Dallas, and all are getting some media coverage on ESPN2 for their efforts. Jack in the Box is also supporting the event, and locked in as the exclusive jersey-rights partner for the Overwatch team within Team Envy.

Buffalo Wild Wings made a big bet on esports in 2017, in an attempt to bring fans in for events it sponsored. But esports fans don’t really drink beer like other sports fans. Apart from the journalists at the LoL All-Star event, most fans were drinking juice or water. And the clumsy early efforts didn’t trickle down to the locations. Reports from fans said they went to watch and employees were baffled by their request to turn on Counterstrike. Paul Brown, CEO of BWW parent Inspire Brands, said they would continue to watch the industry.

At this stage, it’s lots of branding and not much clear ROI. But Knocke pointed to insurer State Farm as a standout in esports. Insurance polled as the least desired industry among esports fans, but the company leaned on its traditional sports heritage, wrapping its brand around game tips and highlights. A year later (a nanosecond in the branding world) the majority of polled fans said State Farm provided value.

And State Farm was hard to escape at the All-Stars event. It was on screen, on custom signs and the broadcast. It’s one sign of success in this very young industry that is growing at a breakneck 30 to 40 percent each year. How it angles upward depends on that next hot game, the star talent behind the keyboard and the competitive drama.

Judging by the passion of the few hundred people in Vegas for the LoL event, just a sliver of the hundreds of millions of watchers, this really is a competition of the future. And with every rocket car goal, headshot and game-changing play, it grabs another fan.

League of Legends All-Stars

Live From Vegas

It’s kind of hard to know what you’re in for at an esports event until you’ve been to one. The League of Legends (LoL) All-Stars at the new HyperX Esports Arena in Las Vegas was a breezy, mostly for-fun event compared to the typical intense competition. But it still offered me a small slice of life as a competitive gamer.

Just like a typical football or baseball game, the event put the athletes and streaming personalities on center stage, giving fans a unique, up-close look at their talent and the broader competition. Even without expert understanding of the current LoL nuances (I haven’t played the game for years—a lifetime in the gamer world). Still, it was really exciting to see these dramatic plays, and watch the successful get pumped up or the defeated players sink down, rethinking their strategy as they worked back to the battlefield. The fans were cheering or sulking along with them.

As for those fans, they were enthused, rapt and excited to be there. Some passionate enough to don ornate costumes and others flash gamer signs. And they were really into the athletes. Ever had a crowd of fawning women watch you plug in your mouse? Me neither.

But don’t expect to make a lot of friends—these aren’t your typical slap-on-the back or trash-talking sports fans. They’re not eager to buy a round or head to the bar after the game; mostly they preferred juice with their wings and to hang with the group they came with.

The professionals around the game were really fascinating. From the stoic referees (oh yes, there are lots of rules behind the keyboard) to the rapid-fire analysis of the commentators, they added another layer of professionalism to the event. Their jargon-filled expert analysis of the game was like listening to a cricket match—I understood about 20 percent of it, but they sure knew what they were talking about.

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