Top 5 Esports Industry Narratives from July 2017

With July wrapping up, it’s time to see the forest for the trees. Here are the five narratives that stood out above the rest. I encourage you to leave your thoughts and comments below.

#5 Esports Teams are Having a Hard Time Remaining Competitive without VC

July was bookended by funding announcements of RFRSH & CLG. If it wasn’t abundantly clear already, outside funding is necessary to build competitive esports teams for premiere titles. A large portion of these announcements mention live events as vehicles for revenue growth. Immortals with venue operator AEG, CLG with MSG, and RFRSH directly in their press announcement. Success will require many independent and frequently competing entities to align. It’s going to require esports teams to evolve their businesses in a direction they have little experience with, largely at the guidance of their investors. There are risks associated with this strategy.

I view esports teams in the same lens as platform developers. Zynga was able to achieve massive growth by letting Facebook be it’s rising tide. When their interests diverged, Zynga was kneecapped. Esports teams have captured growth in the ecosystems built by publishers. While it’s all koom-ba-yah in esportsland right now, some of these financiers will be in for a rude awakening when the interests of the platform operators (video game publishers), leagues, & teams come into conflict.

#4 Gfinity is Growing

For years Gfinity has been working to move into the upper echelon of esports service providers. While it may be too soon to put them in the same league as ESL, their recent growth has them gaining ground on the incumbent.

This month Gfinity

• Acquired tech service provider CEVO for $2.7M,
• Penned a deal to broadcast their Elite Series with broadcaster Eleven Sports,
• Announced another partnership with BBC that will see the Elite Series on BBC3,
• Hired a TV exec who apprenticed at Simon Cowell’s SYCO Entertainment
• Fed the esports stage trope and gave their set a serious upgrade

These moves are funded by their May ’17 raise and seem to be inline with their YoY growth.

#3 The Peripheral & Hardware Business is Heating Up

(CEO of Logitech and TSM Owner Reginald on Mad Money — July 28, 2017)

July saw some massive announcements & consolidations in the hardware space. The first was the Logitech acquisition of Astro for $85M. Astro has had an interesting journey to get to this point.

1. Astro Gaming designs was founded in 2005
2. Took in $3.5M in funding in 2010 (Triangle Peak Partners)
3. Sold to Skullcandy for $10.8M in 2011
4. Skullcandy was acquired for $196.6M by Mill Road Capital Management in 2016
5. Astro was spun off for $85M in 2017 to Logitech

While the specifics of these deal terms have never been revealed, Astro has had a healthy journey thus far, selling off for more by each of it’s successive owners.

Corsair, another peripheral company in the esports space, was acquired by EagleTree & Partners for $525M. The funds will be split between developing Corsair products and paying off the a previous funding round of $75M. Corsair faces stiff competition from Razer, who has been quite active in past months.

Razer has filed for an IPO on the Hong Kong stock exchange that could value the company at $5B. It’s hard not to view them as the esports market leader Logitech and Corsair hope to catch up with. Razer recently:

• unveiled an esports concept store
• announced mobile phone targeted at gamers
• sponsors 12 different esports team
• announced a virtual currency
• launched a new VR webcam
• demoed prototypes of an in-room gaming projection system & a 3 monitor laptop

All of these stories paint a picture of an upwards trajectory, capitalizing on this narrative with an IPO seems like a no-brainer.

#2 ESL Evolving its Business

ESL’s parent company MTG is bullish on esports. Wether that’s with the interest to flip ESL for short term gain or part of a long term strategy remains to be seen. MTG CEO Jørgen Madsen Lindemann said he expected the section to deliver it’s first quarterly profit in Q4 of this year. He expects to achieve this by running bigger esports events more frequently. It’s an interesting juxtaposition when viewed alongside ESL’s official statement regarding a recent round of layoffs; “As part of that process, 5 percent of the global workforce,largely from our event operations and executive TV production, will be leaving the company. “ Restructuring has the potential to increase margins. Time will tell if this is sustainable in the long term.

Reading between the lines, advertising budgets for Q4 are much larger than at any other point in the year. If you’re going to achieve a quarterly profit, Q4 is the quarter you’re going to do it in. Extrapolating Lindeman’s statement to be indicative of a business’ overall P&L is a much bigger jump to make.

To fulfill these goals ESL has brought aboard a new CRO, Martin Hubert, who will be accountable for revenue and profitability.

Finally, ESL is attempting to grow their television business with a Disney deal. The mouse has been active in the space, airing EVO on ESPN & Disney, rebranding their ESPN Esports vertical, and putting aXiomatic (parent of Team Liquid) into their Disney accelerator project.

ESL’s past TV announcements include

• a partnership with Pilgrim Media Group to create esports TV shows
• a partnership with Canal+ & Vivendi to air tournaments in France
• a partnership with Kwese in South Africa
• a Movistar esports channel in Spain
• a premium esports production service with David Hill

#1 Blizzard Announces First Overwatch League Teams & Owners

(Robert Kraft & Bobby Kotick on Bloomberg discussing the OWL — July 12, 2017)

Finally, some official news on the OWL. Domestically these teams are largely funded by established traditional sports conglomerates. By population and economic output Florida, Nor-Cal, So-Cal, NYC area, & Boston are all huge markets. If you’re going to try and make a geo-location based league work, these are the right markets to be operating in. Shanghai & Seoul are also massive by these metrics, but they are part of different international jurisdictions which will provide their own set of unique logistical difficulties to surmount.

Three OWL corollaries:

Rekt Global recently announced an aggressive expansion for their advisory business in esports. Rekt will have Sterling Select on their executive team. Sterling Select is a venture development & investment platform affiliated with Sterling Equities. Sterling Equities is a key part of the Mets ownership group. Amish Shah, the CEO of Rekt Global, assisted Team EnvyUs with funding via his vehicle Sierra Maya 360. Team EnvyUs has a very dominant Overwatch team. This feels like too many coincidences to be serendipity.

According to this Bloomberg article from August 2016, Activision CEO Bobby Kotick controls approximately 20.1 million shares of Activision stock. The OWL announcement caused a ~$3 spike in price from $57.98/share to $61.02/share. This news increased Mr. Kotick’s paper net-worth by $60M in a single day. Kotick also sits on the board of directors at Coca-Cola, who has been making their own moves in esports. I look forward to seeing if the two entities will find synergy.

It’s hard to discuss the OWL without comparing it to Riot’s LCS. Popular opinion is that a spot in the OWL runs about $20m, Riot has aggressively priced a spot in their newly restructured league at $10m. Teams that pass Riot’s vetting process will be announced in Q4 2017, which will overlap with the rumored start of the OWL. If the OWL or it’s partners stumble in anyway, Riot will be sure to tout their ROI, due diligence process, & track record in an effort to defend their place as the premiere esports property.