Why Are Professional Sports Teams Investing in eSports?

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The line between professional sports and virtual sports continues to blur as more and more franchises acquire interests in eSports organisations.

FC Bayern München, Paris Saint-Germain, West Ham, the Miami Heat, the Philadelphia 76ers, the Boston Celtics, the New England Patriots…and the list goes on and on.

These emblematic professional sports organisations embody no more than a slender pinch of the growing ranks of sports franchises that are booking their seats on the flight to the world of eSports.

Make no mistake – this is no ordinary travel. Your first-class ticket comes with a skyrocketing total revenue growth that is expected to hit nearly $1.5 billion by 2020. Add to that an estimated global viewership of roughly 590M by the same yearand you are facing irresistible figures that magnetically lure investments from all sorts of businesses and industries.

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What makes traditional sports a formidable match with eSports are their pillared similarities. The classic cohort of sports gained stability that eventually facilitated their transformation into mammoth enterprises through an assemblage of distinct changes.

These alterations gradually culminated in the now established trend of running sports organisations in a business-like predictable manner that fuels profitability, both on the field and on the balance sheet.

The two giants of the gaming and eSports industry, Riot Games and Activision Blizzard, have made analogous adjustments to their eSports leagues that are currently rife with permanent franchises, revenue sharing agreements, player-centric features and other standard ingredients borrowed from their more traditional counterparts.

Such modifications are rather innovatory for the field of eSports and will presumptively result in a much more predictable ecosystem for game publishers, owners, players, sponsors and other industry participants.

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All Hail the Overwatch League

A tangible result of such conducive transformations is the Overwatch League (OWL) developed and fully controlled by Blizzard Entertainment. This professional eSports competition accommodates 12 teams representing cities across the United States, Europe, and Asia.

The league is planning to expand for its Season 2 that is set to break a viewership record of as much as 280K viewers from the competition´s opening week. According to leading financial services firm Morgan Stanley, the competition could generate up to $720M per year in the future.

If this prediction proves to be correct, OWL would generate more revenue than the United States´ top football competition, the MLS. Buy-in prices for the following season could increase by as much as 200% for incoming franchises (they currently stand at $20M for the ongoing edition).

Hence the startling list of professional sports teams involved in the OWL via their eSports affiliates that includes the likes of the New England Patriots (NFL), the Miami Dolphins (NFL), the New York Mets (MLB), Colorado Avalanche (NHL) or the Philadelphia Flyers (NHL).

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OWL teams receive an equal share of all league-wide net revenues and further revenue streams are created through advertising, ticketing and broadcasting rights. All teams have a license to operate and monetise up to five amateur events in their home territory each year.

Overwatch merchandise and league-affiliated fan items are also sold by each team individually, with half of those revenues streaming into the net shared revenue pool for all teams.

Blizzard went all in with the OWL and the fish seemed to have taken the bait. The video game company coaxed its sponsors and advertisers with ´´opportunities that are unparalleled in the eSports space, with global fan bases not found in traditional sports, along with better targeting and analytics than traditional forms of advertising´´.

The dazzling numbers suggest these were no empty promises.

 

Differences Don´t Seem to Matter

One big contrast between traditional sports leagues and eSports competitions is their structure and the rights of franchise owners.

In a classical setting, principal owners of a league´s franchises are in the driver´s seat. If they want to admit a new team, approve an ownership transfer or push through a major rule change, they simply vote on it.

Distinctively enough, Riot Games is a private company while Activision Blizzard is a public corporation. This means that they both ultimately serve the interests of their shareholders. They also own their intellectual property and control how the game is played and presented. In this concept, franchise owners acquire the status of business partners who must play by the rules of the game.

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Money Makes the World Go Round

So why is West Ham´s number 50 a FIFA player and why does FC Copenhagen own a Counter-Strike team? Why do Paris Saint-Germain and FC Schalke 04 have League of Legends teams?

The answer is plain and simple: $$

  1. It´s Cheap

The Philadelphia 76ers acquired Team Dignitas and Apex Gaming for a total sum in the range of $5-10M. The Milwaukee Bucks bought a League of Legends Championship slot for $2.5M.

These teams represent the crème de la crème of eSports. The price of smaller organisations is substantially lower, just like in any other business. However, if the industry doesn´t deviate from its soaring trajectory, these investments may triple in the following years.

Secondly, payroll costs in eSports are significantly lower when compared to traditional sports. eSports teams generally employ fewer players and technical staff is virtually non-existent in most e-organisations.

The salaries of the best European and American LoL players range from $500k to $800k a year while the best CS:GO players can cash in between $200k and $300k a year.

For comparison, the smallest payroll in Ligue 2, French professional football´s second highest division, is roughly $3.5M.

 

  1. Billions on the Table

Although the $1.5 billion the industry is expected to generate by 2020 is still somewhat far from the $13 billion beast of the NFL (American Football League), the gap is reduced rapidly when we look at the likes of top-division professional football in France that is spawning numbers just below the $1.5 billion threshold.

As long as the continuous growth of eSports shows no signs of fatigue and investors don´t stop betting on long-term returns rather than immediate profitability, cash will swell the pockets of those smart enough to have had invested in the e-world.

 

  1. It´s Global

With its gradual expansion towards the Asian market, the global image of eSports is obscuring borders elevated by traditional sports. The predominant part of the action takes place online and the importance of physical spaces of the type of company headquarters is largely diminishing. Few people know where the offices of eSports legends G2, Fnatic or Liquid are located.

These applauded brands have risen beyond the concept of nations and countries while benefiting from worldwide support and exposure. Traditional sports teams are afforded the luxury to be able to exploit the international aura of eSports.

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  1. An Exciting and Young Audience

Unlike traditional sports, the public of eSports is very young. According to market research firm Newzoo, 52% of eSports fans are aged between 21 and 35 and 20% of them are between 10 and 20 years old. Further estimates suggest that at least 92% of American youth play video games at least once a week. These numbers are likely to be boosted with the frenetic uptick in the popularity of mobile video games.

eSports can rejuvenate ageing audiences that traditional sports clubs are failing to engage with. The NBA executive board is well aware that almost 50% of eSports fans also watch basketball. It is no coincidence that basketball invests by far the most in eSports and social networks.

eSports offer traditional clubs the opportunity to communicate with their audiences digitally. They redefine brand loyalty by striking a chord with the millennial fan who no longer watches TV nor follows a sports club in what most would call the ´good old-fashioned traditional way.

 

You can read more about esports and the esports market at gresports.com

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