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Volume 22 No. 35

In Depth

The Atlanta Reign takes the stage during the second of three Overwatch League homestand weekends.
Photo: ben pursell for blizzard entertainment

Franchising has been an important tool in getting traditional sports investors involved in esports in recent years, but the effectiveness of the system itself conversely remains a controversial and hotly debated topic within gaming.

Major video game publishers Activision Blizzard and Riot Games have added franchising systems to their biggest esports leagues in the past three years, decisions that set off a wave of investment from sports owner/entrepreneurs such as Stan Kroenke, Peter Guber and Ted Leonsis. Other publishers are said to now be weighing implementing franchising for some of their games. 

Proponents of the move say that franchising has added investment, a more sophisticated business structure, stability, expertise and enterprise value to esports. That’s because the ubiquity of the franchising model in traditional sports has helped make the structure of esports leagues more understandable and thus more alluring to prospective owners and advertisers.

But questions remain about whether some of the franchise fees were exorbitant, whether geo-location is the best way to unlock fandom for franchised leagues, and whether some games that are currently not franchised would be best served by staying that way. 

Sports Business Journal talked to 10 industry experts about whether franchising is the right way to go for all esports leagues or only some, and when team owners can judge whether their initial investments were properly priced.

“What franchising really gives is stability for the teams and a level of commitment to whoever is running the league,” said Bryce Blum, founder of ESG Law and Theorycraft, who serves as a lawyer for many of the top North American teams. “It creates a framework for more collaborative structural decision making and revenue sharing — and for leagues it creates a reciprocal dynamic where teams can’t just walk away. That level of commitment both ways can be very valuable.” 

Activision Blizzard started the Overwatch League in 2018, after selling 12 franchise slots in 2017 heading into the inaugural season — with franchise fees reported to be $20 million. Activision Blizzard also is moving forward with 12-team,  franchised  Call of Duty League next year that will be city-based. Franchise fees were said to be $25 million for that property. Riot Games sold 10 franchise slots for its North American League of Legends Championship Series in 2017 for $10 million to existing teams and $13 million for new teams. 

Several popular esports remain unfranchised, including DOTA, Fortnite and Counter-Strike: Global Offensive. Among those that could move to franchised systems in the future are FIFA, Apex Legends and Rocket League.

Unfranchised leagues are closer in structure to open tournaments, where any team has the chance to qualify as long as it reaches certain achievements or prerequisites. Some unfranchised leagues also have promotion and relegation.

It is far from a consensus that franchising is the only model.

For example, Jeremy Dunham, vice president of publishing for Rocket League owner Psyonix Studios, said that while franchising is something some of its teams have been interested in, “there’s no outright evidence that says that is the only way to go.” He added that while Psyonix is considering franchising, “there are all sorts of different models to make it bigger and better and still get more opportunities for players to make money, get prestige and have more access to the game.” 

Blum noted that a publisher’s goal for a given game is among the most important determinants of whether an esport should go to a franchise model. Epic Games, for example, is seen as more interested in growing Fortnite as a video game than creating a pure esport, and it has focused more on individual players than teams in its competitions. Fortnite has ever-changing elements within the game that increase the randomness and decrease the need for elite skill to do well. This makes it less likely that the game would move to a franchise model. Other esports simply may not have the fan base to support franchising.

100 Thieves, a team that got its start playing “Call of Duty,” withdrew from the league as it moved to a franchised model.
Photo: getty images

“The answer to the question, ‘Is franchising right for all professional esports around the world?’ cannot be ‘yes’ because there’s going to be some games and leagues too small to reasonably justify the type of friction, and massive financial and legal lift, that comes with setting up franchising,” Blum said. “I do think it’s fair to call into question whether or not the cost [of esports franchise fees] matches the risk-reward profile, but that’s a separate question entirely than whether franchising as a structure has the potential to be a good thing for a particular esport.” 

One positive that franchising has provided in esports is stability and security, industry experts say. For example, the LCS dropped its promotion and relegation system after it moved to a franchising model, giving LCS teams the confidence to know they could invest in and plan for the long term since there is no chance the team could drop out of the league. Teams in the Overwatch League know they’ll share in league revenue around media rights and sponsorship.

While unfranchised esports leagues such as Rocket League have set up certain revenue-sharing opportunities for teams, experts say that the biggest potential to distribute revenue from sponsorship and media rights is in the franchised properties, where the team owners help own the league itself.

For example, the OWL has had media-rights deals with Twitch and ABC/ESPN over its first two seasons, and the property is starting to land blue-chip sponsors such as Bud Light, Coca-Cola and Toyota with regularity. Along with getting local revenue from holding home events and selling tickets to them, getting revenue from these growing streams is part of how OWL teams plan to make their operations profitable in the coming years.

First Look podcast, with esports discussion at the 13:05 mark:

The nonfranchised Rocket League Championship Series lets teams sell certain in-game items such as branded car decals or wheels to people playing the video game as a way to help teams make money. But such revenue, while welcomed, is not seen by teams as massively material, and some in the Rocket League space say they would be happy to see a franchised model be implemented.

Still, industry experts point out that not all esports leagues are necessarily ripe to move to a franchising model for a multitude of reasons. Some critics and fans also feel that franchising takes away a grassroots element of a game’s esports ecosystem by getting rid of open competitions and taking away the ability to have Cinderella stories.

For example, Fortnite’s esports scene is not franchised, and it touted that 60 million people try to qualify for its World Cup event earlier this year. Some in the Rocket League space also said they were averse to the franchising idea after Sports Business Journal reported that Psyonix League was considering the move.

As franchising leads to deals for exclusive media rights, an esport’s distribution could be limited. The OWL in its first two seasons, for example, had deals with ABC/ESPN and Twitch, so its games weren’t on YouTube.

There also have been some longtime teams that have dropped out of a game’s esport league after it moved to a franchising model. Most recently, the Call of Duty League has faced some negative headlines over a couple well-known teams from its prior, nonfranchised model not switching over to its new franchised system that is debuting in 2020. One of them was the esports organization 100 Thieves, whose founder Matt “Nadeshot” Haag gave an impassioned explanation in a video released on social media where he cited the price of an expansion slot among the reasons for the move.

Haag also noted that 100 Thieves was trying to build a global fan base, which didn’t fully match up with the Call of Duty League’s new city-based model. To that end, the question over whether to geo-locate is another subset of the franchising debate within esports.

Unfranchised Fortnite said that it saw 60 million competitors attempt to qualify for its World Finals.
Photo: getty images

While Activision Blizzard’s two franchised esports leagues are trying out the home-team model like traditional sports, Riot Games’ League of Legends franchises are not tied to specific areas, which has led to dual visions on the best way to grow a competitive gaming property. 

OWL owners and executives are reporting early positive results in their bids to build local fan bases, and they see the exclusive territorial marketing rights afforded to them as another benefit of Activision Blizzard’s franchising system.

Joe Heyer, Spectra’s director of esports partnerships who is helping sell sponsorships to Comcast Spectacor’s new $50 million Fusion Arena in Philadelphia (see related story), likes to tell a story from a recent watch party for the Philadelphia Fusion team in the Overwatch League. A Philadelphian walked into the bar where the Fusion was holding the watch party and questioned Heyer on what the fans were watching.

“He didn’t fully grasp it, but then I said, ‘By the way, we’re playing New York.’ And he said, ‘Go Philly and (expletive) New York!’” Heyer said. “That’s the spirit we’re trying to tap into.”

Among the most important business aspects to watch in the franchised leagues over the coming years will be how team owners come to view their investments in relation to their initial franchise fees. Most OWL teams, for example, have yet to turn a profit, so the pressure is increasing to find more revenue and keep costs from skyrocketing.

Rocket League is considering switching to a franchise model. Currently, teams sell in-game items to video game players as a way for teams to make money.
Photo: getty images

Ben Spoont, co-founder and CEO of Misfits Gaming, which owns franchises in the Overwatch League, Call of Duty League and League of Legends’ European series, predicted that team owners will start to know the value of their investment within three to five years.

Tucker Roberts, president of the Fusion and son of Comcast CEO Brian Roberts, said the Fusion has already seen its value go up, but that “we’re really in the first inning of esports,” and his family maintains confidence that the investment will pay off handsomely in the long run.

Potential expansion by the franchised leagues is also likely. The OWL would like to expand into Europe, and sources said that the Call of Duty League had more than 12 prospective investors and only stopped at a dozen teams for the first year for competitive structure purposes.

Chris Overholt, CEO of OverActive Media, which owns franchises in OWL, Call of Duty League and League of Legends’ European series, said he remains “a big believer” in the franchising model set up by Activision Blizzard CEO Bobby Kotick and Activision Blizzard Esports CEO Pete Vlastelica.

“We were compelled by the Overwatch League model, and the way Bobby and Pete have put that together has allowed us to participate in the sharing of revenue and enterprise value over time,” said Overholt. “We have a long view to this industry, and we know what it’s going to take to make profitability and enterprise growth a reality.”

For more coverage of the business of esports, visit our partners, esportsobserver.com.

Traditional sports team owners say they are seeing crossover benefits from investing in esports, applying lessons they learn from one realm to the other.

Team owners from every major sport in the U.S. have entered competitive gaming in recent years, largely with franchised leagues owned by Activision Blizzard and Riot Games. Families from traditional sports that are involved in esports ownership range from the likes of the Wilpons (New York Mets) to the Aquilinis (Vancouver Canucks) and the Krafts (New England Patriots).

There have been some suggestions raised over the last year that franchised esports teams in the U.S. are proving harder to make profitable than anticipated. Dallas Mavericks owner Mark Cuban took that conversation to a more public level last month when he made national headlines by calling esports ownership in the U.S. an “awful business” in an interview with Fox Sports.

But to the contrary of Cuban, companies such as Monumental Sports & Entertainment and Comcast Spectacor say they’re still confident their investments will pay off.

“We’re incredibly happy investors,” said Zach Leonsis, whose family invested in well-noted esports organization Team Liquid. “What people sometimes forget or fail to realize is traditional leagues like the NHL and NBA are close to 100 years old; these are incredibly established brands and organizations — and really we are in the top or bottom of the first inning for esports.”

Comcast Spectacor is a partner in the T1 esports joint venture in South Korea’s regional League of Legends series.
Photo: getty images

Leonsis said what made his family and Monumental want to get into esports is the realization that a significant percentage of esports fans weren’t following the traditional sports leagues in which they’re invested. Leonsis said a particular eye-opener for him was when he went to the E3 video game conference a couple years ago, and was told “no” when he asked several people there if they were following the NBA Finals.

In late 2016, Monumental acquired a controlling interest in Team Liquid alongside Golden State Warriors co-owner Peter Guber. Team Liquid is one of the longest running and most successful teams in esports history, having been around since the turn of the millennium and now having won the North American League Championship Series four years in a row.

Similar to Monumental, Comcast Spectacor saw the desirable demographics of the esports fan base, according to Dave Scott, the company’s chairman and CEO. Comcast owns both the Philadelphia Fusion of the Overwatch League and is a joint partner in the T1 Entertainment and Sports esports organization that competes in South Korea’s regional League of Legends series.

“We are excited about the steps we’ve taken and remain bullish about the future of esports,” Scott wrote in an email. “The Philadelphia Fusion has outperformed our initial financial model in every major category through two seasons. We have now expanded into League of Legends, the South Korean esports market and multiple gaming segments via our T1 joint venture. … [And] Fusion Arena, our 3,500-seat purpose-built esports venue that broke ground in September, is going to be a game changer.”

Other traditional sports investors involved in esports include Jeff Vinik, Stan Kroenke, Mark Ein, Micky Arison and the Rooney family.

One of the benefits of dual ownership across traditional sports and esports is the ability to transfer best practices between the various entities owned by investors. Taking a lesson from esports, Leonsis pointed out that Monumental’s traditional sports teams like the Capitals have started leveraging the Twitch streaming platform more by setting up channels to showcase players who are avid gamers. Likewise, Monumental helped Team Liquid design and build a new training facility with the knowledge it has from traditional sports.

Traditional sports investors also can leverage their formidable connections to help their esports teams. For example, Team Liquid’s ownership group helped get the organization in touch with Marvel Studios, which eventually produced a co-branded “Avengers” jersey line with Liquid.

In terms of the transfer of know-how between Comcast Spectacor’s traditional and esports properties, Scott indicated the company’s increasing focus on younger demographics helped shape the $265 million renovation of Wells Fargo Center. He also wrote that esports has made Comcast think more globally with the Flyers. He noted that the team opened the season in Prague for the NHL’s Global Series, and “as recently as five years ago, the concept of trading a home game for an opportunity to build and strengthen our fan base in Europe may not have worked.”

The Flyers also are working on a dual-ticket option with the Fusion, and the team has had popular mascot Gritty lead the Fusion out of a tunnel during pregame introductions and attend watch parties and the Overwatch League Grand Finals at Wells Fargo Center in October.

Now that team owners have started to watch their investments mature over a couple seasons, they’ll be looking to start turning a profit in the near future.

“It’s still early days — people want instant gratification, and I wouldn’t say it’s a challenge [trying to turn a profit in esports] — it something we’re excited to see play out,” Leonsis said. “For us, it’s the opportunity to engage with a new audience that we likely wouldn’t have had the chance to [engage with] otherwise.”

For more coverage of the business of esports, visit our partners, esportsobserver.com.

Fusion Arena is set to open in 2021 as part of the Philadelphia Sports Complex, near Xfinity Live, Lincoln Financial Field and Wells Fargo Center.
Photo: comcast spectacor

From shopping malls to purpose-built arenas, a cascade of new venues are under construction or in development to meet the rise of esports in the U.S., becoming the real-life battlegrounds for competitive gaming.

Esports is a hot sector not only in the sheer number of investors but also in the new leagues, teams and related ventures that have been founded in recent years. While esports is digitally based, the industry increasingly needs a variety of physical spaces to house its in-person events, so a boom period is starting around building competitive gaming infrastructure.

Even well-known sports architects and design firms are getting in on the trend, as gaming properties build their own homes and some destinations refurbish their confines to become alluring to tournament organizers.

In addition to training centers that several teams are building, projects currently underway in the U.S. include:

Construction of the $50 million, 3,500-seat Fusion Arena owned by Comcast Spectacor, which owns the Philadelphia Fusion of the Overwatch League.

Amazon-owned Twitch streaming platform buying a sponsorship with the Las Vegas Raiders’ new Allegiant Stadium that includes a branded lounge.

Allied Esports’ partnership with Simon Property Group, which will now build esports arenas in malls.

Customized for esports

“We’re building this from the ground up with esports as the main component; it’s not a retrofit [but rather] something we’re customizing for the esports enthusiast,” said Brian Esposito, vice president of partnerships for Spectra, which is the exclusive sales agent of Fusion Arena.

For example, Esposito noted that all seats are being built facing the main stage. That often isn’t the case when esports events are held in traditional sports venues that are bigger and require a portion of seats behind a stage not to be used. The arena, developed with The Cordish Cos., is being built in the Philadelphia Sports Complex, which also houses Lincoln Financial Field, Wells Fargo Center and Xfinity Live, giving it close proximity to a hive of sports passion in the city.

The exterior of the venue will have a sleek metallic look comparable to Mercedes-Benz Stadium, and it will include a 6,000-square-foot public entryway plus premium loge boxes, exclusive seats and a training facility. Populous is the architect of the arena, which will have numerous LED screens around the concourses and other areas. The Fusion will host at least a handful of Overwatch League homestands a year once it opens.

The $50 million home of the Overwatch League’s Philadelphia Fusion will feature a 6,000-square-foot public entryway.
Photo: comcast spectacor

Esposito and his team are selling naming rights to the venue and talking to brands about buying founder-level sponsorships — similar to what is seen with new traditional sports venues. While Esposito wouldn’t reveal the exact stage of talks Spectra is in with prospective naming-rights buyers, he confirmed that the agency expects to unveil a deal either late this year or early next year.

The venue will open in 2021, but Spectra wants to get a partner in early so it can help design the venue, according to Joe Marsh, who formerly was chief business officer of the Fusion before taking on a different esports-related role for Comcast Spectacor.

The arena is being touted as the largest new purpose-built esports arena in the Western Hemisphere. Other esports arenas in the U.S. include Allied Esports’ HyperX Esports Arena in Las Vegas; Full Sail University’s Fortress Esports Arena near Orlando; and Esports Stadium Arlington in Texas.

Beyond streaming

Leading digital streaming platform Twitch is taking another venue route by sponsoring the Raiders’ new Allegiant Stadium, which will include a branded lounge in the lower level of the venue.

Doug Scott, CMO of Twitch, said that this deal is the first of its kind for the streaming giant, which is planning both esports competitions and non-esports events at the lounge. Terms of the deal were not disclosed; Legends Global Partnerships secured the pact on behalf of Allegiant Stadium. Twitch declined to share the square footage or capacity of the lounge.

Twitch’s esports lounge at the Raiders’ Allegiant Stadium under construction in Las Vegas will feature streaming stations and viewer screens.
Photo: raiders.com

In an email, Scott indicated that the lounge will have streamer stations and viewing screens, and Twitch will leverage the space to bring out its community of streamers to various events. Twitch is also trying to expand beyond just being known for streaming gaming, as Scott noted that there are Twitch streams on topics including cooking, music and painting that his company could do events around at the lounge.

Scott declined to say if Twitch will be looking to build out similar physical spaces in other sports stadiums.

“Everything we do is in service of our community, and our audience has made their love of sports loud and clear. We’ve seen a lot of success with ‘Thursday Night Football’ on Twitch where top personalities host streams of the game and comment in real time with it,” Scott wrote. “The opportunity to be a founding partner at Allegiant Stadium was a perfect way to build on this. Additionally, the audience crossover between esports and traditional sports is massive.”

Reimagining the mall experience

One of the country’s biggest real estate owners is turning to competitive gaming as a way to reinvent its properties.

Simon Property Group, the largest mall operator in the U.S., invested $5 million in esports infrastructure company Allied Esports in a deal announced in June. As part of the investment, Simon will work with Allied to build esports facilities in several malls that will host gaming competitions among other events.

Simon and Allied Esports have not yet announced which mall locations will get the esports facilities, but Allied CEO Frank Ng said that the locations will be more like community centers than full-blown arenas.

For Simon, this is a way to help turn their malls into more experience-driven hubs that will continue to give people a reason to come out in person at a time when e-commerce is leading to more people shopping at home.

“Esports is a giant baby as an industry — it’s still very young … but one very important factor is we must bring the viewing experience offline like you have with concerts for music and theaters for movies,” Ng said. “You have to have the physical touch points to create authenticity so real hardcore players in the community will become the influencers to spread the gospel around, so that’s why we believe creating these physical touch points is extremely important for the industry.”

For more coverage of the business of esports, visit our partners, esportsobserver.com.

Ninja, the top-ranked esports streamer on Twitch, has since moved to the Mixer platform.