Jul 31, 2019

Axios Sports

By Kendall Baker
Kendall Baker

🎮 Happy Wednesday! We're trying something new: a mid-week special edition with an afternoon send time. Might do it again, might not. Let us know your thoughts.

  • Special edition: Today, we'll be embarking on a mini-deep dive into the business of esports. Without getting too dense, I hope this provides a clearer picture of the ever-evolving landscape.
  • P.S. ... If all you care about is the MLB trade deadline, here's a running list all of the trades that have been made.

Today's word count: 1,562 words (~6 mins).

1 big thing: Everyone wants a piece of esports

Kyle "Bugha" Giersdorf after winning the $3 million first-place prize at Sunday's Fortnite World Cup. Photo: Eric Ananmalay/ESPAT Media/Getty Images

Esports can be a difficult thing to grasp when you're on the outside looking in, but here's something everyone can understand: It has quickly become big business for traditional sports.

Driving the news:

  • $30 million in prize money was handed out at the inaugural Fortnite World Cup on Sunday, which was held in Arthur Ashe Stadium — the same site that will host the U.S Open next month.
  • Kroenke Sports — owner of the LA Rams, Denver Nuggets, Colorado Avalanche and Arsenal — has agreed to pay $30.25 million to acquire a departing team's slot in the League of Legends Championship Series (LCS).
  • The NBA 2K League playoffs are officially underway in New York. All 21 teams are owned by NBA teams, with Blazers Gaming and Mavs Gaming sitting atop the standings.

The big picture: The burgeoning relationship between esports and traditional sports speaks to how much interest there is in reaching the esports demographic — and is proof that something big is happening.

  • Take the NBA 2K League, for example. NBA teams view it as a way to turn esports fans into clients for real-world basketball, and brands wanting to target a younger audience buy in-game ads on the virtual courts that they play on. No, really.

Yes, but: The esports boom is being fueled by massive amounts of venture capital, and some industry veterans fear the numbers that attracted investors were inflated, creating a "completely unsustainable" situation.

""When you're seeing teams right now raising over $300 million valuations on revenues under $25 [million], you're kind of like, what?"
Jason Lake, founder, Complexity Gaming, per SBJ

The bottom line: What the esports industry will look like when this period of sky-high valuations and high-intensity growth comes to an end remains to be seen.

  • Best case scenario: Esports emerges as a mature industry with enough mainstream appeal to become a staple of the average sports fan's diet.
  • Worst case scenario: The esports boom proves to be an overhyped, investment-fueled fever dream that eventually cools off and forces esports out of the limelight and back into the fringe sports abyss.
BONUS: Chart du jour
Expand chart
Data: Axios research; Chart: Andrew Witherspoon/Axios

In 2009, South Korea's Lee Jae-dong won the most prize money in esports, collecting $86,265 over the calendar year.

  • A decade later, 16-year-old Kyle "Bugha" Giersdorf earned $3 million in a single day by winning the solo division at the Fortnite World Cup.

Go deeper.

2. Two ownership models; two visions for the future

Flush with funding, esports organizations are beginning to build their empires and turn their long-term visions into realities.

The intrigue: Those visions vary greatly from organization to organization. Some are focused exclusively on gaming, while others see a much larger opportunity.

  • The "traditional sports" approach: Some organizations own a single team and focus all of their energy on winning championships, getting sponsors and selling tickets to local events.
  • The "lifestyle brand" approach: Others own multiple teams across different esports titles, all while operating more like media companies and lifestyle brands than "sports teams."

Let's explore both models in the two stories below...

3. The "traditional sports" approach

Photo: Bryan Bedder/Getty Images for Blizzard Entertainment

Overwatch is one of the most popular games in the world, and when its lead developer, Blizzard Entertainment, launched the Overwatch League (OWL) last year, it blended esports and traditional sports in a myriad of ways.

Details: First and foremost, all 20 OWL teams are tied to a city (13 in the U.S. and 7 abroad) — a common model for traditional sports but unusual for esports, which is full of free-floating teams and one-off tournaments.

  • OWL employs a commissioner, uses a familiar format (regular season, playoffs, etc.), and players are guaranteed minimum annual salaries.
  • Many Overwatch owners take the "traditional sports" approach mentioned above and focus all of their time and money on this one franchise.
  • Next season, OWL will fully adopt the away/home format, with games taking place in home arenas for each team.

How to play: Teams consist of six players, each of whom controls one of 26 "heroes" — cartoonish characters with unique skill sets who fall into one of four roles: offense, defense, tank or support.

  • It's a bit like basketball, if you think about it. Each player has certain strengths and weaknesses, plays a specific "position" and is expected to perform their clearly-defined role to help the team win.

Go deeper: Esports' grand Overwatch experiment

4. The "lifestyle brand" approach

Matt Haag (L) and John Robinson. Courtesy: 100 Thieves

Founded by former star Matthew Haag and co-owned by Drake, 100 Thieves is one of a handful of organizations that are exploring what's possible in an industry that's still figuring itself out.

How it works: Similar to how European sports clubs like Real Madrid have teams that compete in various sports, 100 Thieves has teams that compete in various games.

  • Its teams have won the two most recent Call of Duty major championships, and it sent six players to the Fortnite World Cup.
  • Success across multiple games has made the 100 Thieves brand omnipresent in the gaming world, which has in turn helped the company sign some of the best individual talent.

Between the lines: While competitive gaming is at the heart of everything 100 Thieves does, the most interesting part about the business model is how far beyond gaming it expands.

  • Content creation: Earlier this month, 100 Thieves closed a $35 million Series B and will use some of that money to build a new facility in LA that will house its entire operation — including practice facilities, streaming stations and a content production soundstage. Take a tour.
  • Apparel: The facility also includes a retail storefront, where the company will sell its limited-edition clothing. Thanks to the combined reach of its athletes, the most recent apparel "drop" generated over $500,000 in under five minutes.

The big picture: If you think of each esports game as being a different "sport," 100 Thieves is kind of like one company owning an NBA team, an NFL team and an MLB team — and housing them all under one recognizable brand name.

  • And then, on top of that, putting all of those athletes under one roof where they can train, record podcasts and promote their personal brands, all while simultaneously promoting the company.
"The best way to describe 100 Thieves is that there's a part of us that wants to be the Lakers (sports), a part of us that wants to be 'The Ringer' (media) and a part of us that wants to be Supreme (apparel)."
— John Robinson, President/COO of 100 Thieves, tells Axios

Go deeper: The rise of live-streamer style

5. Building the esports pipeline

Illustration: Sarah Grillo/Axios

Imagine what the NFL would look like if big-time college football didn't exist and very few high school students played football in a formal setting.

  • That's basically esports right now. While the professional leagues are thriving, the ecosystem that exists below them lacks infrastructure — and the talent pipeline is only just now being built.

1. High school: The Electronic Gaming Federation (EGF) just announced a partnership with Disney to host its high school national championship at the ESPN Wide World of Sports complex in Orlando for the next five years.

  • How it works: Teams will qualify by advancing through regional competitions operated by EGF throughout the school year, with the national championship taking place June 12–14.

2. College: In addition to operating high school leagues across 14 states, EGF is also one of several organizations angling to become the NCAA for esports.

  • Ohio State is building a 4,000-square-foot arena that will house its esports teams that will compete in EGF's newly formed league of Power 5 schools.
  • Meanwhile, last semester, nearly 3,500 varsity esports athletes participated in programs operated by EGF's competitor, the National Association of Collegiate Esports (NACE).
6. July 31, 1989: Game Boy hits U.S.
Photo: SSPL/Getty Images

30 years ago today, Nintendo's Game Boy was released in the United States, bundled with the game Tetris.

  • Why it mattered: There had been other handheld consoles before it, but the Game Boy was the first to let you insert different cartridges and change games.
  • By the numbers: Over the span of 16 years, Nintendo sold over 120 million Game Boys globally, across all iterations (Game Boy Pocket, Game Boy Color, Game Boy Advance, etc.).
  • The big picture: Because of its cultural importance, the original 1989 console has a prominent place at the National Museum of American History — right next to pagers, early cellphones and the original iPod.

Go deeper: Game Boy changed the way America played video games (Smithsonian)

7. Food for thought

Imagine if, 10 years from now, human beings stopped playing basketball altogether and replaced it with a different sport. The esports industry lives in constant fear of something similar happening to a game.

The state of play: The top esports leagues are built around games (aka, "sports") that aren't guaranteed to be popular in the future, which makes paying millions of dollars to join such a league a risky proposition.

  • On top of that, technology is always improving and new games are frequently released. All of that adds up to create a landscape that is virtually impossible to plan for or predict.

The big picture: While every game is vulnerable to a decline in popularity, certain titles have attracted so much investment that they're almost guaranteed to be around for a while, esports consultant Rod Breslau tells John Wall Street.

"It's become a case of 'too big to fail'. So much money has been invested into [some] games … that it would take an incredible catastrophe for the game's popularity to decline far enough ... for it [not] to exist at a professional level. League of Legends, Fortnite, Overwatch and Counterstrike, they'll all be around in 2050."
8. Good reads

NBA commissioner Adam Silver announces the No. 1 pick at the first NBA 2K League Draft at Madison Square Garden last April. Photo: Mike Stobe/Getty Images

Inside an NBA 2K team: The Pistons' 2K team is having a brutal season and their reasoning, per The Athletic (subscription), sounds a lot like real sports: They made a trade and it destroyed team chemistry.

The next big thing (or not): Apex Legends exploded onto the gaming landscape in February and looked like it might be the next big esports property. But just five months after its release, the hype has slowed down and only a handful of one-off tournaments have been announced.

New metric: OWL developed its own player-performance metric called player impact rating (PIR), which appears to have been inspired by basketball's popular player efficiency rating (PER).

Kendall Baker

See you tomorrow,

Kendall "Who wants to play me in Madden" Baker