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Volume 22 No. 6
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NBA owners line up to play in esports space

NBA owners are rushing to acquire stakes in esports teams, hoping to expand their own digital media empires and play a role in the long-term development of the emerging industry.

Owners of the 76ers, Wizards, Warriors and Grizzlies all closed deals last week, and more are coming, sources say. One esports insider suggested most of the league’s owners are looking around, including Mavericks owner Mark Cuban, Cavaliers owner Dan Gilbert, Nuggets owner Josh Kroenke and Madison Square Garden and the Knicks.
The ownership groups are acting independently of each other, with no formal league involvement. But there is a common thread to the NBA enthusiasm.

In the fourth quarter of 2015, a team of NBA league office execs started taking meetings with esports consultants. Earlier this year, both league CFO Jason Cahilly and Commissioner Adam Silver discussed esports with team owners, highlighting it as an opportunity.

On a basic level, esports offer a chance for traditional sports teams to reach a new, younger audience at a time when fan bases are aging up. But basketball execs in particular see similarities between their own game and esports, said Dan Ciccone, managing director of rEvXP, an esports brand consultancy.

Esports tend to involve small teams of young stars with outsized personalities, and are consumed by an international, youth-dominated fan base. For the teams that own their venues, it’s a new way to fill seats.
Getting into the game

grows less risky

    Two recent developments in esports have provided clarity to would-be investors about the direction of the industry, mitigating some of the risk to buyers:

In a far-reaching letter to fans Sept. 24, Riot Games executives said, “We want these partners to have permanent stakes, to be invested in a stable future and to profit from the continued success of the sport.” That was widely interpreted as a signal that Riot intends to shift away from its relegation-and-promotion system and give permanent spots in its top-tier leagues to certain teams. The letter said that would happen by 2018.
   “It’s tough to make such a substantial investment when you might get relegated in six months,” said Steve Arhancet, the co-CEO of Team Liquid, who sold to the Leonsis-Guber group.

Seven major North American teams in the game “Counter-Strike: Global Offensive” formed to create the Professional eSports Association, the first team-owned league. That gives members new clout to dictate their teams’ business relationships and competition terms.
                                                     — Ben Fischer

But as the flood of investment dollars continues, some are contemplating a future where the NBA owners control a material percentage of major esports teams — and possible venues in the U.S. Possibilities include an NBA-led 2K league, or a partnership with Riot Games to build a schedule of traveling League of Legends tournaments that would regularly visit NBA arenas.

“You get enough NBA teams involved in esports, suddenly they become power brokers and they can start dictating to publishers,” Ciccone said.

Video game publishers, which hold all the IP rights to the entire ecosystem, seem to want the help. On Sept. 24, Riot published a note to fans acknowledging that its esports operation is not yet profitable, and expressing its desire for stronger, better-capitalized teams. “We need to grow the pie so that there’s more for teams and pros,” the statement reads.

Warriors co-owner Peter Guber, who along with Wizards owner Ted Leonsis and a large group of partners acquired Team Liquid Sept. 27, said his group can help publishers and tournament organizers by maximizing Team Liquid’s value. Investors in his new esports entity, aXiomatic, include executives from Dick Clark Productions, NextVR, the Washington Nationals, Los Angeles Dodgers and many others in media, sports and live entertainment.

NBA owners Peter Guber and Ted Leonsis (below) joined a large group of partners in acquiring esports’ Team Liquid last week.
“[Publishers] know they need this other structure to be vibrant, strong and engaged, and to have a unique, innovative element to be successful,” Guber said. “There’s plenty of value to be parsed amongst the participants.”

So far, there’s no standard blueprint for team owners to follow. The 76ers acquired Team Dignitas and Team Apex, then merged them into a single unit within the Sixers’ organization. Grizzlies co-owner Stephen Kaplan substantially increased his stake in Immortals and also became its fourth board member, signaling a growing role in setting strategy but still operating separately from the team.

Terms have not been disclosed in any of these transactions, but an industry source pegged the Sixers-Dignitas deal in the low-to-mid-seven figures. Other sources say mature esports franchises are generally valued between $5 million and $18 million, depending on their competitive strength, number of games they compete in, and their ancillary merchandising and online content business lines.

Esports’ appeal could extend to any sports business, but Guber said the NBA and Silver have been especially proactive in watching the space. “He’s looking to learn from them, how to utilize them and grow from them,” Guber said. “He’s always interested in what’s attracting audiences, especially location-based audiences.”

Leonsis’ son Zach introduced him to Team Liquid co-CEO Steve Arhancet. The three attended a Caps game together last season, sitting in Leonsis’ suite. Leonsis did not know at the time that Arhancet also was talking with his friend and fellow team owner Guber. When Leonsis and Guber finally figured out they were both considering getting into esports, both owners immediately saw that they could bring their experience as NBA owners into the nascent sport.

“We can add value on platform and technology,” Leonsis said. “We know how leagues work and CBAs are structured. We can sell sponsorships and create partnerships. We can add some value in negotiating media rights deals. I saw a lot of this when I was chairman of the NBA media committee. We had Turner and ESPN. You could see all the interest that Turner and ESPN had in egaming.”

Leonsis said he believes esports can grow by helping to create world-class players and leagues in North America. He also said that the sport can grow in the U.S. if it becomes more mainstream.

“We have to let the game remain authentic and allow the players to have big personalities,” Leonsis said. “But we also have to help it become a bit more on the edge of becoming mainstream. … We have to find more scalable business models through media, through merchandising. That’s what got my juices flowing. This is the birth of a new enterprise — a new league, a new business with really, really smart, talented, gifted people.”

Leonsis said he wanted to partner with people like Guber and Bedrock Manufacturing CEO Tom Kartsotis, both of whom are involved with virtual reality.

“Virtual reality is going to be a big driver of multi-user gaming,” Leonsis said. “Let’s bring in a lot of people that know a lot about these nascent businesses that can add a lot of value.”