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Volume 22 No. 14
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Team Envy’s move to Dallas, Overwatch franchise come together in rapid-fire marriage

Team Envy, owner of the Dallas Fuel, fields seven teams in six video game titles.
Courtesy of: TEAM ENVY
Team Envy CEO and owner Mike Rufail had been searching for an investor to bankroll the organization’s rise to the big time for 15 months. By late May, his sense of urgency was becoming acute.

Meetings with more than a dozen possible partners hadn’t borne fruit and the clock was ticking. Video game publisher Activision Blizzard was just weeks from announcing charter members of the Overwatch League, and on June 1, Riot Games demanded applications for permanent spots in its League of Legends circuit by mid-July.

Rufail wanted Team Envy in both leagues, but combined they required $30 million in buy-in fees he didn’t have.

“We had been taking our sweet time wanting to find the right partner,” said Rufail, a native Texan who had set up Team Envy in Charlotte. “But then [Riot’s announcement] happened, and that quickly went out the window.”

One thousand miles west in Dallas, energy tycoon and Texas Rangers minority owner Kenneth Hersh’s investment fund was also craving more esports action.

Hersh Interactive Group had so far acquired a small stake in European team Fnatic, and also placed bets on social streaming platform Maestro and gaming tournament operator Super League Gaming. But it still wanted to control a team, ideally bring it to Dallas and make a play for both Overwatch and Riot’s reconstituted League Championship Series.

Despite their overlapping need, Rufail and Hersh Managing Director Randy Chappel didn’t even know each other on May 31. Just two days later, they were planning a future together. Now they’re sharing offices.

As the esports world took off this year, the Envy-Hersh connection is just one of several rapid-fire marriages of institutional money and endemic teams arranged during a frantic spring and summer. It was a fast, easy deal to do, both sides say — once they eventually found each other through the developing networks bridging the tech world to sports.

The nexus of this particular deal was Bryce Blum, a 29-year-old lawyer who has handled general counsel duties for most of the biggest American esports organizations from his firm, ESG Law.

Last November, he joined former Relativity Sports execs Happy Walters and Josh Swartz at their new agency, Catalyst Sports & Media, as executive vice president of esports. In that dual perch of consultant and attorney, he was one of just a handful of people who knew both the sell side and buy side of esports during this critical time period.

Catalyst first heard about the search from Anthony Borquez, an L.A.-based gaming entrepreneur and board member at Hersh Interactive Group. He told his friend and golfing buddy Charlie Jackson about their hunt for an esports deal. Jackson, an executive vice president at Catalyst, put his team to work in the spring looking for options.

By Wednesday, May 31, Catalyst had found two good options but ultimately suggested Envy to Hersh. That afternoon, Blum Skyped Rufail: “Have five minutes?”

Already on his way to Dallas that weekend for Envy’s matches in the ESL Pro League tour, Rufail stopped by the Hersh offices that Friday. (Keep in mind, Riot had announced its league reforms and buy-in fee the day before.) Over the course of the afternoon, Chappel and Rufail clicked like only fellow Texans can.

“I know it was only two hours, but it feels like a perfect fit,” Chappel recalls thinking. “Everything about what he was saying, his mannerisms, his humility, his background.”

Rufail had his capital partner before he even made it to the ESL match. Term sheets were circulated the next week and were executed a month later. Both sides began talking to Activision Blizzard about the OWL spot. Jared Bartie from O’Melveny & Myers advised on both the Hersh-Envy talks and the OWL entry. The deal fully closed Aug. 22.

Negotiations weren’t totally seamless. They haggled over valuation of the Envy organization, which fields seven teams in six video game titles, and at the time had not yet been promised a spot in Overwatch League or League of Legends. (ESPN has reported that Envy was rejected from League of Legends, but that has not been independently confirmed.)

The precise size of the investment has not been made public, but Borquez said it was in the range of $35 million. Rufail and Chappel would only say it exceeded $20 million.

The deal was so smooth, all parties said, because they arrived at the table with broadly similar goals. Envy had already rejected other offers that would have amounted to a takeover, Rufail said. Chappel said Hersh had no appetite for bringing in a new management team or building an esports organization from scratch, as Kraft Group and Kroenke Sports & Entertainment did via their direct purchase of Overwatch League spots.

Above all else, they wanted a team already diversified into several game titles, with an experienced CEO who didn’t want to cash out or cede day-to-day control, and with a simple ownership structure. Hersh wanted to be the big capital partner.

Ultimately, Chappel said, he’s pleased with owning a major, but not controlling, stake in Envy.

“I’ve been [investing] since college and I’ve noticed very little correlation between what percentage we control and how well it goes,” Chappel said. He added: “At the end of the day, somebody’s got to be in charge and I’d rather it be the guy who’s been around the business and has experience doing it than me, or Ken for that matter.”

Neither party had many other options. By this summer, most investment-quality esports organizations that had a real shot at one of the big franchised leagues had taken on investors already.

Today, Envy still is controlled by a small group. Rufail remains principal owner, and Hersh Interactive joined two smaller investors: Brock Sports, a vehicle controlled by former Coca-Cola CEO John Brock III and his son, John Brock IV; and Fedor Holz, a German professional poker player who once wore an Envy jersey during the World Series of Poker.

Envy has now left Charlotte and is operated from the Hersh Interactive offices in Irving, but it is looking for space of its own. In the short term, it’s focused on building the brand of the Dallas Fuel, the Overwatch League team that must have a new name under Activision Blizzard rules.

In hindsight, Rufail notes, almost any major hiccup in the Hersh negotiations would have made applying to Overwatch or League of Legends very difficult, because of how quickly both leagues wanted applicants and fees. But their long wait was made worth it.

“We struggled a bit to get to the point of finding the right partner, but I’m really happy we stuck it out and waited,” Rufail said.