Artist Capital Management has closed a $100 million fund for investing in esports. It’s another sign that investors believe that competitive gaming will eventually outgrow traditional sports.

The fund is called the Artist Esports Edge Fund, and it is aimed at getting institutional investors a chance to reap some of the potential rewards of esports investments.

Artist Capital Management takes a “theme-driven approach” to investment research. The firm believes esports — or professional, competitive, online gaming — is a groundbreaking “theme” for growth.

First, the audience for esports is large (380 million unique viewers in 2018), according to market researcher Newzoo. It is global and it is “demographically advantaged” (79% of viewers are under age 35) and growing.

Second, Artist Capital Management believes that esports revenue — at $900 million in 2018 — has significant potential to expand in comparison to traditional sports leagues, with the NFL alone generating over $16 billion of revenue in 2018.

Third, the firm views the formation of franchised esports leagues as a key inflection point for the industry. Franchised esports leagues, such as Activision’s Overwatch League or Riot Games’ League of Legends North American Championship Series, could hasten the flow of fan, sponsor, and broadcasting dollars into esports.

The fund takes concentrated positions in leading, private companies that it believes are well positioned to benefit from industry tailwinds.

Above: 100 Thieves’ leaders: CEO Matthew “Nadeshot” Haag (left) and John Robinson, COO.

Image Credit: 100 Thieves

“Similar to the evolution of other internet verticals, we expect that a small number of esports companies will eventually win the lion’s share of industry revenue and market capitalization” said Josh Dienstag, Artist Capital Management’s chief investment officer, in a statement. “We hope to partner with the entrepreneurs who are building those winning platforms.”

The Edge Fund’s current investments include 100 Thieves, the Los Angeles-based lifestyle brand and esports organization; Washington Esports Ventures, the owner of the Washington Justice team in the Overwatch League; and chatting and viewing apps in the ecosystem.

“Our investors continue to prioritize access to innovative products that provide thoughtful exposure to burgeoning investment themes,” said Matthew Lindholm, managing director at Houston-based CAZ Investments, in a statement. “Artist Capital Management was an early mover in esports, and the Edge Fund provided an institutional solution for esports investing.”

With a 10-year duration of capital, the Edge Fund said it plans to partner with esports companies for the long term. The fund also has a flexible mandate and can invest across stages and in both primary and secondary securities.

In July of 2019, the Edge Fund led 100 Thieves’ $35 million second round, and Dienstag joined 100 Thieves’ board of directors.

“Artist Capital Management has been an excellent partner: they understand our industry, appreciate our differentiation and support our vision. The esports industry is fundamentally changing entertainment and brand affinity and we’re really happy to be working with a firm that recognizes these trends,” said John Robinson, president and chief operating officer of 100 Thieves, in a statement.

In addition to the Edge Fund, Artist Capital Management also raised $35 million of incremental capital from its limited partners in separate, co-investment vehicles. Those funds were all deployed in 2019 to further support Edge Fund portfolio companies.

“Artist Capital Management is the premier institutional investor in esports,” said Mark Ein, CEO of Washington Esports Ventures, in a statement. “They know the industry better than anyone else and are deeply engaged to use that expertise for the benefit of their portfolio companies. They have been a terrific partner for us since the first day that we met them.”

Paging Dr. Ziegler.

The Overwatch Mercy’s Recall Challenge is now live, allowing players the chance to earn a very impressive Dr. Ziegler skin for healer Mercy.

From now until 2 November, those who play and watch Overwatch will be eligible for a number of Mercy-themed rewards, as follows:

Mercy’s Recall Challenge: Play rewards

• Dr. Ziegler Player Icon: Win 3 Quick Play, Competitive Play or Arcade games
• Lab Coat & Evaluation Sprays: Win 6 Quick Play, Competitive Play or Arcade games
• Legendary D. Ziegler Mercy Skin: Win 9 Quick Play, Competitive Play or Arcade games

Mercy’s Recall Challenge: Watch rewards

• On the Clock Spray: Watch 2 hours of Twitch Overwatch content
• Healing Touch & Hanan Sprays: Watch 4 hours Twitch Overwatch content
• Suit Fitting, Late Night & Ascent Sprays: Watch 6 hours Twitch Overwatch content

Any Twitch streamer in the Overwatch category will count, though you’ll need to link your Twitch and Blizzard accounts to redeem the rewards.

Mercy’s Recall Challenge Bonus: Valkryie short story

“Following the explosive downfall of Overwatch, Angela Ziegler was left amidst the organization’s ashes, wanting to put it all behind her,” Activision Blizzard said, describing Overwatch‘s newest short story.

“But the reappearance of familiar faces dredges up memories, and a threat forces her to take wing to save the lives of innocents. In Michael Chu’s “Valkyrie,” Angela is faced with a choice – will she remain Dr. Ziegler, or will she dust off her suit, answer Winston’s recall, and once more don the mantle of Mercy?”

You can read Valkryie here.

Overwatch is currently available on Windows PC, Xbox One, PS4 and Switch.

By Fiona Delaney | November 12, 2019

Editors’ Note: This dispatch is part of the Voice of OC Youth Media program, working with student journalists to cover public policy issues across Orange County. If you would like to submit your own student media project related to Orange County civics or if you have any response to this work, contact Digital Editor Sonya Quick at squick@voiceofoc.org.

Blizzard President J. Allen Brack apologized at BlizzCon at the Anaheim Convention Center on Nov. 1 for punishing a video game tournament player over showing his support for Hong Kong protesters.

Yet his apology did little to appease the 50 protesters parked outside the convention halls.

The professional Hearthstone tournament player, named Ng Wai Chung, publicly sided with Hong Kong in a dispute about its opposition to Chinese policies. 

Anaheim protesters, and thousands of social media protesters, felt Blizzard was afraid to take on China, where Blizzard sells millions in products.

The Anaheim Convention Center has been home to every Blizzard convention, known as BlizzCon, since 2005. Year after year it has grown to become a significantly large event, and in 2018, it had an attendance of more than 40,000 fans.

While not mentioning the specific incident, Brack issued the apology at the Anaheim convention’s opening ceremony.

“Blizzard had the opportunity to bring the world together in a tough Hearthstone Esports moment about a month ago, and, we did not,” Brack said. “We moved too quickly in our decision making, and then, to make matters worse, we were too slow to talk with all of you.”

But the protesters said the apology isn’t enough for what happened.

“The fact he didn’t have any actions and say what they’re going to do, going forward, is very telling,” said protester Ben Harris in an interview with Eurogamer.

Activision Blizzard is a multi-billion dollar American video game publisher and developer based in Santa Monica, California. Among some of Blizzard’s most popular games are Warcraft 3, World of Warcraft, Hearthstone, and Overwatch.

Blizzard has been receiving backlash from fans after punishing Chung – known by his gaming nickname of “blitzchung” – early this October. 

The Hearthstone player was stripped of his monetary prize and suspended of one year of professional competition in Hearthstone after sharing his support for Hong Kong protesters in a post-match interview. 

Although Blizzard has lessened his punishment, fans are still calling out the company for taking action under the pressure of the Chinese government and for restricting freedom of speech.

The Hong Kong protests started earlier this year in March, where Hong Kong citizens protested an extradition bill that would allow criminal suspects to be extradited to mainland China.

The Chinese government has targeted companies who either support Hong Kong or fail to punish affiliated persons who do so. 

Chinese state broadcaster CCTV did not air pre-arranged NBA preseason games following a tweet in early October from Houston Rockets general manager Daryl Morey, where he stated his support for Hong Kong protesters.

Since Blizzard has a large fanbase in China, fans are accusing the company of selfishly protecting its financial interests instead of human rights. The gaming company has denied the charge in multiple published accounts, saying that Chung’s actions went against its competition policy of offending a portion of the public and damaging the company’s image.

Many gamers and activists online and at the BlizzCon protest were not impressed with the apology. They argued that Blizzard hadn’t taken action to show that it was sorry, and that the apology itself was empty, fake, or purely a PR move. The protesters at the convention continued to protest for the rest of the day.

Fight for the Future, a non-profit organization that strives to ensure freedom of expression and creativity on the internet, and one of the organizers of the protest at the event, took to Twitter to express its view of the apology.

“This was not an apology. An apology means taking responsibility for your actions and explaining how you are going to do better. This was a carefully scripted, but meaningless PR statement. If Blizzard is sorry they should change their policy banning political speech,” tweeted Fight for the Future.

This was not an apology.

An apology means taking responsibility for your actions and explaining how you are going to do better.

This was a carefully scripted, but meaningless PR statement.

If Blizzard is sorry they should change their policy banning political speech. #BlizzCon https://t.co/wTYlVFzRhe

— Fight for the Future (@fightfortheftr) November 1, 2019

Another twitter user expressed his anger about the apology, tagging a creator of a web show (Jim Sterling) that criticizes the game industry to make a new video about the controversy.

“@JimSterling Did you watch Blizzcon’s intro? That ‘apology’? That was pathetic and cowardly. They did not address China or Hong Kong, the controversy or anything. I hope you have a video coming up about how weasley that ‘apology’ was,” tweeted Manuel, whose last name wasn’t given.

@JimSterling Did you watch Blizzcon’s intro? That “apology”? That was pathetic and cowardly. They did not address China or Hong Kong, the controversy or anything. I hope you have a video coming up about how weasely that “apology” was.

— Manuel (@MaAlGon3) November 1, 2019

Fight for the Future teamed up with Freedom Hong Kong and Hong Kong Forum, Los Angeles (HKFLA) for the protest on the first day of BlizzCon, Nov. 1. The protest was coordinated with the gaming and internet activist communities through online message boards and social media accounts.

The protesters raised awareness on the struggle in Hong Kong and freedom of speech rights.

The protesters handed out 4,000 free T-shirts sponsored by Freedom Hong Kong to attendees. The shirts featured an image of Mei, a popular Chinese character from the video game Overwatch, holding a Hong Kong flag, with the phrase “Mei with Hong Kong”. 

Mei has become a symbol of the protests against Blizzard.

The Freedom Hong Kong protest at #blizzcon pic.twitter.com/4dkATqSMvZ

— alessandro fillari (@afillari) November 1, 2019

Charles Lam, one of the protesters from HKFLA, said that he was mostly concerned about democracy in Hong Kong and not gaming companies. However, he admitted that the two issues came together here.

“We really treasure the freedom of speech in America and we urge the companies here not to succumb to Chinese bullying on the freedom of speech,” said Lam in an interview with PC Gamer.

Many protesters held umbrellas, a symbol of the Hong Kong protests, and dressed in Hong Kong protester gear and other costumes to show their support. Protesters also carried signs with statements supporting Hong Kong or calling out Blizzard to take action.

I’m here at #BlizzCon2019 in Anaheim: here are some shots of the protesters outside pic.twitter.com/Eeo7SCXFAJ

— suhauna hussain سہانہ (@suhaunah) November 1, 2019

One of the more popular protester costumes was Winnie the Pooh, another symbol of the Hong Kong resistance. Winnie the Pooh was banned in China because of the multiple comments that compared Chinese President Xi Jinping to the cartoon character.

#BlizzCon2019 Hong Kong protest is in full effect. A group of Winnie the Poohs, and shouts of “Free Hong Kong!” and “Support democracy” pic.twitter.com/TUOdNJyBiK

— Alex Stedman (@a_sted) November 1, 2019

Various chants from the protesters were heard throughout the day, such as “Gamers for freedom,” “Gamers unite for human rights” and “Oppression is wrong, free Hong Kong.”

While the protest numbers might not have been large, many attendees said they supported the protesters and their message. Some attendees even raised their fists and cheered while walking past the protesters.

For those that did protest on the convention floor, some wore costumes that supported Hong Kong or walked out of specific game segments. According to PC Gamer, crowd members in different game promotion stages such as Hearthstone and World of Warcraft walked out at the beginning of the segments. 

Some fans, having already bought the ticket itself months ago, decided to not buy any Blizzard merchandise.

Another young attendee named Matan Evenoff interrupted a fan question, chanting “Free Hong Kong.”

https://twitter.com/Slasher/status/1190831031315828736

Blizzard president Brack told the audience: “We aspire to bring the world together in epic entertainment, and I truly believe in the positive power of video games.”

Mentioned in this article

Companies:

Summer was host to some of the biggest esports tournaments to date, in terms of prize pools and viewership. Several leagues organized by developers such as Riot Games’ regional League of Legends leagues as well as Activision Blizzard’s Overwatch League and Call of Duty Pro League concluded during July, August, and September. Furthermore, the two largest prize pools in esports were on the line at the Fortnite World Cup in July and Dota 2’s The International in August.

This seasonality of esports competition is reflected in The Esports Observer’s PC Games Impact Index for the third quarter of 2019. For a detailed breakdown of the key performance indicators that determine a game’s index score, click here to review last year’s initial Impact Index report.

Most Players + Large Competitive Infrastructure = Rank 1

Riot Games’ League of Legends claimed the quarterly TEO PC Games Impact Index’s first rank for the second consecutive time. League of Legends continues to be the most played game on PC by a large margin. Throughout the third quarter of 2019, all major League of Legends official regional leagues including the League of Legends European Championship (LEC), North American League of Legends Championship Series (LCS), the Chinese League of Legends Pro League (LPL), and the League of Legends Champions Korea (LCK) concluded. Coverage for the LEC and LCS summer split on the developer’s official Twitch channel was 33.1M hours watched from June 1 to Sept. 15, up from 29M for the same season in the previous year. 

A World Cup and $49.46M in Winnings 

The Fortnite World Cup briefly became the highest prize pool esports tournament when it paid out $30M in July. Epic Games reached 4.4M hours watched during its 26 hours of airtime covering the Fortnite World Cup, taking place in New York’s Arthur Ashe stadium, on its official Twitch channel. Sixteen-year-old Kyle “Bugha” Giersdorftook took home the single largest winning stake of $3M by winning the tournaments’ “Solo” event, while the tournament distributed a total of $30M for its “Solo” and “Duo” competitions. 

Over the period of the third quarter, Fortnite was the game with the highest total prize pool with $49.46M distributed during the time frame. 

Valve Pocketing $130.8M, or Esports’ Largest Prize Pool

While Epic Games’ Fortnite World Cup prize pool surpassed last year’s $25.5M The International as the highest prize pool esports tournament, this year’s Dota 2 competitive highlight claimed that title back a couple of weeks later when the tournament’s $34M prize pool, of which $32.7M was raised through the game’s community contributing (25% of which was put towards the prize pool, the remaining 75% or $130.8M going into Valve’s accounts) was distributed amongst the teams participating. The winner of the tournament, OG, took home 45.5% or $15.6M of the prize pool, making it the team winning the most prize money in Q3 2019, followed by Team Liquid and Lazarus. 

The tournament that serves as Dota 2’s premier yearly event, is generating some of the highest Twitch viewership each year. While the 2019 edition didn’t manage to reach the same level of viewership as it did in 2018 overall, the event’s max concurrent viewership (CCV) of 482K during the finals was higher than last year’s peak of 397K CCV. The combination of the tournament’s prize pool and viewership helped the title to improve one rank in the TEO PC Games Impact Index compared to last quarter.

Q3 Total Prize Pool of $5.56M Pushes Series Above $100M

Counter-Strike:Global Offensive’s year-around competitive calendar brought the second Valve sponsored Major Championship of the year to Berlin with the $2M StarLadder Berlin Major 2019. The Danish team Astralis won the tournament, and with it, its third Major Championship win in a row. Furthermore, the “esports cathedral,” ESL One Cologne, took place in July for the fifth year in a row and the format also made a stop in Brooklyn’s Barclays Center, New York for ESL One New York.

In total, the game’s esports scene put $5.56M in total prize pool on the line during Q3 2019. Other tournament highlights in the game’s tight esports schedule were IEM Chicago, BLAST Pro Series Moscow, and BLAST Pro Series Los Angeles. Beyond the regular tournaments, the scene witnessed two special events happening. First, during ESL One Cologne Team Liquid secured the $1M Intel Grand Slam organized by ESL and DreamHack. Second, the $300K prize pool for ESL One New York pushed the Counter-Strike series’ all-time combined esports prize pools above $100M.



Blizzard’s Best Staying Put in Relevancy

The second season of Blizzard’s Overwatch League (OWL) came to a close during Q3. NRG Esports’ franchise, the San Francisco Shock, took home the championship by defeating the Vancouver Titans in the Grand Finals held in the Wells Fargo Center in Philadelphia. Additionally, the seven regions of the Overwatch Contenders 2019 Season 2 came to a close, paying out a combined prize pool of $1.3M.

Blizzard’s second-highest ranked competitive esports title Hearthstone took rank six, just like in the previous period. The Masters Tour 2019 stopped in Seoul, South Korea, where French player Theo “Felkeine” Dumont took home the winner’s share of the $500K prize pool.

Realistic First-Person Shooters Battle for Market Share

The three first-person shooter games; Tom Clancy’s Rainbow Six Siege, PLAYERUNKNOWN’S BATTLEGROUNDS (PUBG), and Call of Duty: Black Ops 4; secured rank seven to nine.

Rainbow Six Siege crowned a new Major champion at the Six Major Raleigh in Team Empire and made appearances at DreamHack Valencia and DreamHack Montreal with Rogue and Team SoloMid, respectively, coming out on top of the competition.

PUBG held its $500K Nations Cup in Seoul organized by the game’s developer, PUBG Corporation. In the tournament’s finals, Team Russia topped Team South Korea. Furthermore, the PUBG Europe League 2019 Phase 1 and Phase 2, the MET Asia Series, and the GLL Grand Slam concluded during Q3 2019.

In the Call of Duty esports scene, eUnited was crowned as champion of the $2M CWL Championship 2019. The team also became the last champion of the $1.25M CWL Pro League Finals in July before Activision Blizzard’s new franchised Call of Duty League kicks off in 2020.

Five Games Hanging in There and One Newcomer

Ranks 10 to 15 were occupied by Rocket League, StarCraft II, World of Warcraft, FIFA 19, Magic: The Gathering Arena, and Riot Games’ TeamFight Tactics.

Just like Rainbow Six Siege, Rocket League was played at DreamHack Montreal and DreamHack Valencia. The event in Montreal also featured this quarter’s highest prize pool StarCraft II competition, which was won by Finish player Joona “Serral” Sotala from Ence eSports.

Soccer simulation game FIFA 19 held its FIFA eWorld Cup in London, as well as the FIFA Global Series 2019 stops in Berlin and Hamburg before the series latest version FIFA 20 was released on Sept. 24.

The Twitch Rivals format featured both a Magic: The Gathering Arena tournament as well as a Teamfight Tactics competition during Q3 2019. After its release in the previous quarter, Teamfight Tactics made it into the Top 15 of the Impact Index for the first time, improving from rank 27 in its inaugural quarter in the index.

Upcoming Event

Esports Rising – Nov. 14 | Who Is Attending?
Esports organizations in the likes of Team Liquid, 100 Thieves, Gen G. Game developers, including Riot Games and Blizzard. Non-endemic sponsors such as adidas, Anheuser-Busch InBev, and Jack in the Box and more. Sponsored by Lagardère Sports, and presented by Sports Business Journal / Daily, with support of The Esports Observer.

Blizzard has released a short story featuring Mercy, which gives a tease of what’s to come for the character in Overwatch 2. This is a completely free story for you to download and read, and clocks in at 24 pages long. Learn about Mercy’s time working as Dr. Angela Ziegler in different countries, and much more.

Check out the story here

News Analysis

A new Rand think tank report suggests that Fortune 500 corporations can learn lessons from video game maker Blizzard-Activision’s handling of comments by one of its champion online players in support of Hong Kong protests.

Rand suggests corporations are skilled in dealing with international friction such as Mercedes-Benz’s 2018 Dali Lama-inspired advertisement and the NBA’s entanglement from a team general manager tweeting Hong Kong protestor support. But “U.S. firms such as Blizzard are in a more precarious position precisely because their digital products are co-located with a readily adopted tool of protest: a computer or phone.”

Video game revenues are approaching $90 billion, equivalent to about 40 percent of all worldwide television revenues. The key to video game growth has been the addictive “bingeable” nature of online gaming and the tremendous growth in esports. Games are available in every nation on the planet, but the United States with a 29 percent market share and China with 37 percent share account for almost three-quarters of global game revenues.

For digital U.S. companies to legally enter the Chinese market they must, by law, sign tech sharing-agreements, such as Blizzard’s 2008 deal with China’s NetEase that covers all Blizzard franchises such as “World of Warcraft,” “Hearthstone,” and “Overwatch.”

Chung Ng Wai, a Hong Kong citizen known by his professional “gamer handle” as “Blitzchung,” donned a gas mask and shouted: “Liberate Hong Kong, revolution of our age!” during a company “casted” interview following his Oct. 6 live-streamed victory at the Taiwan-hosted Asia-Pacific Hearthstone Grandmasters championships.

Despite the Fortune 500 company’s posted “Living our Values” code of conduct that emphasizes responsibility, creativity, and integrity, Blizzard on Oct. 8 sanctioned Blitzchung for violating the Hearthstone competition’s official rules by removing him from the Grandmasters tournament, issuing a 12-month ban and canceling his winnings. Blizzard also terminated interviewers “Virtual” and “Mr. Yee” for encouraging Blitzchung.

Blizzard’s official corporate release stated: “While we stand by one’s right to express individual thoughts and opinions” … “players and other participants that elect to participate in our esports competitions must abide by the official competition rules.”

But that was substantially different than its harsh Chinese corporate statement posted on Weibo: “We express our strong indignation and condemnation of the events that occurred in the Hearthstone Asia Pacific competition last weekend and absolutely oppose the dissemination of personal political ideas during any events. The players involved will be banned, and the commentators involved will be immediately terminated from any official business. Also, we will protect our national dignity.”

Rand highlights that in response from the famously irreverent and snarky gamer crowd, Blizzard suffered an online torrent of accusations for compromising its ethics to maintain positive relations with Chinese regulators. Fans of Overwatch, Hearthstone and World of Warcraft began “conscripting Blizzard intellectual property directly into their protest memes”—perhaps in an attempt to run Blizzard’s leadership directly into the jaws of China’s Great Wall cyberspace administrator.

Gamers hacked the Overwatch adventurer/climatologist female character “Mei-Ling Zhou” (周美灵) to add protest tattoos, place her in Tiananmen Square riots with the motto “Our world is worth fighting for.” The rebellious meme caused Great Wall’s automated and human censors to execute Blizzard title blocking and take-downs.

Angry gamers review-bombed and down-voted products associated with Blizzard, as threads on Twitch and Reddit referred to Blizzard as a proxy for China authoritarianism.

U.S. gamer ire rose slowly with the launch of #BoycottBlizzard on Oct. 9. But it picked up several days later after company president J. Allen Brack stated on Oct. 11 that in the Blitzchung action, China “had no influence on our decision.” Gamer boycotting quickly started trending on Twitter and two U.S. Senators spoke out against Blizzard.

With the viral protest going global as the company opened its 2019 BlizzCon in Anaheim, California on Nov. 1, Blizzard president Brack apologized to a huge crowd and live-streamed to hundreds of thousands:

“We moved too quickly in our decision, and then, to make matters worse, we were too slow to talk with all of you.” He added: “We didn’t live up to the high standards we set for ourselves. We failed in our purpose. I am sorry and I accept accountability. What exactly is our purpose? BlizzCon is demonstrating it as we speak. We aspire to bring the world together in epic entertainment. I truly believe in the positive power of video games.”

The viral techdirt.com on Nov. 9 summed up gamers’ take on the apology: “Very little is clear in any of this, save for the simple reality that Brack’s apology was corporate nonsense. If any of this was supposed to tamp down the fervent anger at Blizzard’s actions, I can’t imagine it working.”

Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.

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.”

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