SBJ/July 10-16, 2017/Leagues and Governing Bodies

Summer of cash, clarity for esports

Leagues nearing deals to sell permanent spots

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If esports is still the wild west, the sheriff and mayor are coming to town this summer.

In the coming weeks, two video game publishing titans will lead a series of eight-figure deals that will lend unprecedented clarity to the exact worth and growth prospects of an esports team, and draw a clear line between the haves and have-nots in the nascent industry.

Activision Blizzard will announce as early as this week the first buyers of permanent, city-based franchises in its startup Overwatch League, giving the early investors a stake in an untested but heavily promoted esport for roughly $20 million each.

On Friday, Riot Games is scheduled to close the window for accepting applications to buy a franchise in the reconstituted North American League Championship Series in “League of Legends,” the world’s most popular esports game. Selections will come by November.

Interest is robust for Riot’s franchises, valued at $10 million with a one-off $3 million fee for new entrants. Industry sources believe Riot could receive between 30 and 50 bids for the proposed 10 spots, and a Riot spokeswoman said they have not ruled out accepting more than originally planned.

First Look podcast, with esports discussion beginning at the 8:15 mark:


Allen & Co. is advising Activison Blizzard’s Overwatch League efforts. Riot has not disclosed its outside advisers.

“I’m personally aware of two dozen who are pretty credible trying to make a run at this,” said Avi Bhuiyan, executive vice president of esports at Catalyst Sports & Media. Interest is coming from a diverse group, he said, including existing esports organizations in and outside of the current league, venture capitalists, traditional sports ownership groups and their affiliated arms.

Spots in Activision Blizzard’s Overwatch League and a Riot Games League of Legends circuit (above) are up for sale.
Photo by: RIOT GAMES


The sale of permanent league spots in two titles has already changed the economics of esports. Without relegation risk and with the publishers’ promises of revenue sharing, the franchises are worth far more than what individual teams in relegation-promotion leagues have sold for. Last December, Milwaukee Bucks co-owner Wes Edens paid a reported $1.8 million for a spot in Riot’s League Championship Series for his team, FlyQuest, the public high-water mark for a single team that risks relegation.

The stakes are immense for those hoping to profit off esports and deciding to take a chance with Overwatch, or hoping to pass muster with Riot.

Franchise holders in League of Legends will be entitled to 32.5 percent of league revenue, Riot says, a pie that already includes at least $300 million secured through a media and technology development deal with BAMTech. They also will get the semi-permanent right to compete in an esport with four years of steady viewership growth and track record of selling out arenas for major events.

Teams that don’t win a spot from Riot will have to either focus on other games, hope for a spot in a future franchise system in the European league or hope for expansion. Overwatch is a far less certain commodity, and Activision Blizzard encountered stiff headwinds in the market en route to the franchise sales. But the publisher will put vast resources into promoting the game and ensuring its success, and also has promised revenue sharing and local team-level sponsorship and merchandising options.

There are other esports titles with viable fan bases, notably Valve Corp.’s “Counter-Strike: Global Offensive” and “Dota 2.” But in terms of certainty and potential upside, those pale compared to the permanent franchise spots being sold by Activision Blizzard and Riot, said Kurt Melcher, executive director of esports at Intersport.

“Do you want into the NFL or the NBA? You have a chance to get in right now, at the beginning, from year zero,” he said. “And if you don’t, maybe you’ll be left with pro cricket or pro lacrosse.”

Either way, the dual franchising process has quickly educated the market about what it means to buy an esports team, where the opportunities are and what they’re worth, said Sal Galatioto, president of the investment bank Galatioto Sports Partners, who has evaluated the offerings but isn’t handling any active deals.

“My feeling was six months ago … you didn’t know what was going on. There wasn’t a lot of structure,” Galatioto said. “Now there’s much more structure. You can do a better analysis of what exactly you’re investing in. You still have to figure out if it’s going to work.”

Some insiders predict Riot will wait-list some would-be buyers, hoping to follow Major League Soccer’s success in building a market for future expansion.

For the Overwatch League, one Activision Blizzard document foresees at least 28 franchises across the globe. That could depend greatly on the success of its first season, set to start in December. Activision launched its sales effort at its annual convention last November.

The extraordinary interest in the Riot opportunity has been tempered by the short time frame to respond. Teams and investors have had just six weeks to put together bids and gather $10 million, a time frame not explained by Riot but considered by the market to be a barrier to low-quality bidders.

“There’s been a ton of activity around people trying to figure out how to put the best foot forward,” Bhuiyan said.

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