PRO ESPORTS: A LEAGUE OF ITS OWN. JULIANA KORANTENG Editor-in-Chief/Founder MediaTainment Finance (UK)

Transcription

1 PRO ESPORTS: A LEAGUE OF ITS OWN JULIANA KORANTENG Editor-in-Chief/Founder MediaTainment Finance (UK)

2 TABLE OF CONTENT 1. INTRODUCTION Page 3 2. THE NEW ESPORTS LEAGUES: AN OVERVIEW Pages FRANCHISED LEAGUES SETTING THE AGENDA Pages THE EXPERTS SPEAK: THE INTERVIEWS Pages White Paper: 2

3 INTRODUCTION For the still growing esports to fulfil its potential as a high-revenue generator in tomorrow s media and entertainment sectors, its business culture needs the stability and solid infrastructure associated with traditional professional-sports leagues and their franchises. The year of 2018 sees the launch of the first stand-alone professional-esports leagues built on the paid-for franchise model. It will allow investors and brand owners, especially non-endemic sponsors and advertisers, to know their money is being spent on ventures with the facilities to remain steady, sustainable and scalable. This White Paper, Pro Esports: A League of Its Own, delves into the creation of the first multi milliondollar franchised leagues in professional competitive gaming and illustrates why it is a really big deal. White Paper: 3

4 Logos for Overwatch League and teams White Paper: 4

5 OVERVIEW Professional esports has been compared to legacy sports, from football and basketball to baseball and tennis. They centre on large-scale live events watched by millions of enraptured spectators at venues and on screens via TV and streaming platforms. The business of legacy sports is based on leagues of teams and players competing against each other in tournaments. These elimination competitions see winners promoted and losers relegated. Furthermore, the teams and players are attached to permanent franchises, usually ones linked to communities, cities and countries. Great examples are the US National Football League (NFL), the UK s English Premier League (EPL), La Liga in Spain and the Olympic Games. They are organised around dependable frameworks able to generate billions for investors, in terms of money, and for sponsors, in terms of brand exposure. The more tournaments a team wins, the greater the glory and hence the team s value to investors, brands and, of course, fans. White Paper: 5

6 White Paper: England s professional football leagues originate from 1888, the NFL is almost 100 years old and the Olympics goes back as far as anyone can remember. Pro esports, by comparison, is still an adolescent learning the craft. Esports leagues as we ve known them The organisations called Electronic Sports League (ESL) and Major League Gaming (MLG) are professional organisations that organise esports tournaments. But there are other numerous tournaments with their own organisers and elimination processes. When a team is victorious, there is no structured system for measuring its success nationally or globally. When it is eliminated, there has been no universal procedure for determining how it can revive its fortunes to return into a league. Consequently, even the most ardent esports players have never felt secure about their career prospects. That is about to change. Why franchised leagues are a big deal US-based Blizzard Entertainment has launched the Overwatch League (OWL) tournament, arguably the biggest of the new franchised-based esports leagues. 6

7 White Paper: The competition centres on Blizzard s recent hit Overwatch, a game that is played by more than 35 million fans, who will be keen to follow the players at the professional level. OWL is breaking from past practices because it takes on only city-based franchises. If a team s owner wants one of its franchises, it has to pay US$20m. There is no relegation. You can either afford to belong to the league, or not a good enough incentive to ensure you invest in the best squards and practices. As with legacy-sports leagues, each OWL team will have a franchise logo, colours and shirts. Every player will be guaranteed a minimum salary of US$50,000, providing the security to focus on what they do best. Other franchised leagues kicking off this year are the North American League of Legends Championship Series (NA LCS), the NBA 2K League and the emls. The LCS European edition will be revamped as a franchised league in A summary of these new leagues can be found in Chapter 3. In return for buying into the franchise system, each team, player and team owner will receive a share of the revenues generated, including income from media rights, related intellectual properties, sponsors, plus the sale of physical merchandise and digital products. 7

8 White Paper: The franchise system should go a long way to establishing esports as a true professional competitive event. But there are still some gaps to fill. Pro esports needs the amateurs and fans Chester King, CEO of the British Esports Association, argues that the industry should do more to develop competitive gaming at the grassroots level. This will guarantee the professional game is continuously replenished with high-standard talent. The UK pro scene is very small, with only about 30 pros living in the country, compared to 3.6 million amateurs playing. Even the players in London Spitfire (Cloud 9 s franchise in OWL) are all Koreans and will be based in Los Angeles, he says. And UK-headquartered Team Dignitas was sold to the NBA basketball team Philadelphia 76ers last year. So, at the moment, there are no big British teams to inspire anyone, not many options to invest in esports in the UK, unless you want to create a new esports league or a team from scratch. Also, the captivated fans devotion should not be taken for granted, advises Paris-based Chloé Julien, data and B2C director at AP2S, the e-commerce unit at French entertainment company Fimalac Group, as well as CEO/founder of BandSquare, the social-media marketing tech firm. 8

9 White Paper: From what we ve seen at BandSquare, online fan engagement is as important in esports as in legacy sports, in terms of content interaction (Likes, Comments, Shares). Esports fans do share their data more easily and the conversion rate is 20% higher, she states. But they are also more careful with their data. For instance, they don't easily Facebook connect and would prefer the traditional sign-up invitation to interact with content. 9

10 FRANCHISED LEAGUES SETTING THE AGENDA IN 2018 White Paper: Logos for NA LCS; NBA 2K League; 10 emls

11 White Paper: The Overwatch League (OWL) Launch year: 2017 Start of first season: January 2018 Game: Overwatch Game publisher: Blizzard Entertainment (a subsidiary of US-based Activision Blizzard) Franchise model: Centred on at least 28 international city-based teams Participating teams/organisations: The 12 signed up to date are:- Boston Uprising (Boston, Massachusetts) Florida Mayhem (Florida) Houston Outlaws (Houston, Texas) London Spitfire (London, England) New York Excelsior (New York City, New York) Philadelphia Fusion (Philadelphia, Pennsylvania) Dallas Fuel (Dallas, Texas) Los Angeles Gladiators (Los Angeles, California) Los Angeles Valiant (Los Angeles, California) San Francisco Shock (San Francisco, California) Seoul Dynasty (Seoul, South Korea) Shanghai Dragons (Shanghai, China) Qualifications required to participate: To license one of the Overwatch League s city franchises, team owners must cough up a reported US$20m fee each. 11

12 White Paper: North American League of Legends Championship Series (NA LCS) Launch year: 2012 Start of first season: February 2013; franchised edition to start in January 2018 Game: League of Legends Game publisher: Riot Games (a subsidiary of China-based Tencent Holdings) Franchise model: Centred on at least 10 permanent team owners Participating teams/organisations: The 10 signed up to date are:- Echo Fox 100 Thieves Cloud9 Clutch Gaming Team Liquid FlyQuest TSM (Team SoloMid) Counter Logic Gaming OpTic Gaming Golden Guardians Qualifications required to participate: To license one of the NA LCS franchises, existing team owners are charged a US$10m flat fee. Any organisation that wants to join from now on must pay a US$13m fee. 12

13 White Paper: European League of Legends Championship Series (EU LCS) Launch year: 2013 Start of first season: February 2013; franchised edition to start in 2019 Game: League of Legends Game publisher: Riot Games (a subsidiary of China-based Tencent Holdings) Franchise model: Centred on at least 10 permanent team owners Participating teams/organisations: The 10 signed up to date are:- Team Vitality (France) Giants Gaming (Spain) Team ROCCAT (Germany) Misfits Gaming (UK/Germany) FC Schalke 04 (Germany) Splyce (international) Fnatic (UK) H2K Gaming (UK) G2 Esports (Spain/Germany) Unicorns of Love (Germany) Qualifications required to participate: The existing relegationand-promotion system will be scrapped and replaced with an official league similar to the NA LCS format in

14 White Paper: NBA 2K League Launch year: 2017 Start of first season: May 2018 Game: NBA 2K series Game publisher: 2K Games (a subsidiary of NASDAQ-listed Take-Two Interactive Software) Franchise model: Created in partnership with the NBA Participating teams/organisations: The 17 signed up to date are:- 76ers GC (part of the NBA team Philadelphia 76ers) Blazer5 Gaming (Portland Trail Blazers) Bucks Gaming (Milwaukee Bucks) Cavs Legions GC (Cleveland Cavaliers) Celtics Crossover Gaming (Boston Celtics) Grizz Gaming (Mephis Grizzlies) Heat Check Gaming (Miami Heat) Jazz Gaming (Utah Jazz) Kings Guard Gaming (Sacramento Kings) Knicks Gaming (New York Knicks) Magic Gaming (Orlando Magic) Mavs Gaming (Dallas Mavericks) Pacers Gaming (Indiana Pacers) Pistons GT (Detroit Pistons) Raptors Uprising GC (Toronto Raptors) Warriors Gaming Squad (Golden State Warriors) Wizards District Gaming (Washington Wizards) Qualifications required to participate: Each participating NBA team is required to bring along a reported US$750,000 to lock in a 2K esports franchise for at least three years. 14

15 White Paper: emls Launch year: 2018 Start of first season: April 2018 Game: FIFA series, including most recent FIFA 18 Game publisher: EA Sports (a subsidiary of NASDAQ-listed Electronic Arts Inc.) Franchise model: Created in partnership with the US soccer governing body Major League Soccer (MLS), and is the biggest esports league centred on an official soccer league Participating MLS teams/organisations: Chicago Fire Colorado Rapids Columbus Crew SC FC Dallas Houston Dynamo LA Galaxy Minnesota United FC Montreal Impact New England RevolutionNew York City FC New York Red Bulls Orlando City SC Philadelphia Union Portland Timbers San Jose Earthquakes Seattle Sounders FC Sporting Kansas City Toronto FC Vancouver Whitecaps FC Qualifications required to participate: Only 19 of the 23 MLS clubs are taking part. Details of any franchise fees have not been disclosed. But unlike the Overwatch, League of Legends Championship Series and the NBA 2K leagues, the MLS teams will be represented by individual players during emls tournaments (as opposed to teams). The emls winner gets the chance to represent the league at the finals of the eworld Cup in This is organised by FIFA, football s global governing body. It is recognised by the Guinness World Records as the largest online gaming competition, and the 2017 top cash prize was US$200,000 for the winner. 15

16 THE EXPERTS SPEAK: THE INTERVIEWS 16

17 Interviews Tahir Basheer, Lawyer/Partner, Digital Media and Esports, Sheridans Jonny Madill, Lawyer, Sports and Esports, Sheridans London-based legal firm Sheridans focuses on media and entertainment. Its sports and esports specialists explain why contractual agreements among the stakeholders form the foundation for pro esports future. Esports BAR: There must be much that esports can learn from the way players/athletes in legacy sports are legally treated. Sheridans: The things that a potential investor will want to see in an esports team will not be dissimilar to that of any start-up company or organisation. First and foremost, they ll want to see where the income streams are, what kind of engagement/reach the esports team has, what the long-term growth potential of the team might be, how long the key players are contracted for, who the management is and whether there is an effective second tier-management in place. 17

18 Interviews Accordingly, the team should have a business plan and strategy which should answer at least the following: What is the corporate structure of the organisation? What game title(s) does the team intend to participate in and focus on? From a brand protection perspective, an investor will want to see clear evidence that the team not only understands its own intellectual property, but has taken clear steps to ensure it is protected. In addition, an investor should want evidence that the team has documented in writing the terms on which it engages any individual. This not only means players (arguably a team s most important and significant asset), but also any other individuals engaged on an independent contractor or consultancy basis this might include designers, social-media contributors, production team, photographers, videographers, other content creators or indeed anyone else who is providing any services to the team Esports BAR: Just like traditional sports, why is it that player contracts are such a necessity for professional esports players and teams? Sheridans: There is a myriad of reasons why esports organisations should have contracts in place with their players. First and foremost, if they are constructed and executed correctly, esports-player contracts provide a legally binding document confirming the exact terms of the agreement/relationship between the organisation and the player. This ultimately benefits both parties as it creates clear communication 18

19 Interviews between the parties and also a reference point if things are queried or questioned. Ultimately the contract provides a source of security to both the organisation and the player. For the players, this covers their rights and welfare. For the organisation, the players are ultimately its greatest assets (both in terms of their gaming expertise and also the value that they add to the organisation from a sponsorship, marketing and commercialisation perspective), so the contract provides a form of stability. Esports BAR: Presumably the esports player contract is also important in ensuring that unscrupulous and potentially bogus team owners do not take advantage of a still growing industry by exploiting of aspiring young players? Sheridans: If the player is under 18, then the contract may be unenforceable against the player. Therefore, it will be important for the player s parent or legal guardian to sign off on the agreement, and then put in place a plan of action for when the player turns 18. What should be included in an esports player contract will ultimately depend on the context of the team, the player and the game title(s) / competitions in which it competes. 19

20 Interviews However, there are a number of important points which will apply across the board and which are key in ensuring the interests of both the team and young players are protected. The relationship between organisation and player will also have other consequences, such as tax, implied statutory employment rights and the right to a pension these are important, too. Will the player be contracted to the organisation on an exclusive (i.e.: the player can t play for another organisation) or non-exclusive basis or will parts of the engagement be exclusive and other not? In addition, the agreement should set out what law governs the contract and which courts have jurisdiction to hear disputes. Esports BAR: Is poaching of players by teams a problem in the industry? Sheridans: Indeed there have been various instances of player poaching occurring in the esports world. For example, a part-owner of an LCS team was sanctioned with a prohibition that he could not hold an official position for any team in any Riot-affiliated competition for the next two seasons after he was found guilty of tapping up a player who was under contract with a competitor. The player contract is important. A buy-out or release clause may be appropriate i.e. a clause in the contract that states that certain obligations (such as a payment of money) must be performed before the player can be released from the contract. 20

21 Interviews Esports BAR: What about the governance and regulation of competitions and international tournaments? How does the current esports landscape compare to traditional sports? Sheridans: At present, there is still a lack of a centralised governance structure within the esports industry, but we are seeing some steps being taken to improve this. At its core, esports mirrors the traditional elements of sport: athletes; teams; leagues; agents; sponsors; fans; broadcasters; software providers; and venue owners. However, in reality and unlike the majority of mainstream, established sports, there is a clear lack of uniformity. In football, for example, there are local, national, confederation and world governing bodies that are responsible for the sport as well as having overarching powers to enforce particular rules and regulations. The esports industry is much less uniform in its governance structures and how competitions are regulated. It is worth noting that ensuring suitable regulatory and governance structures are in place across all leagues will not necessarily lead to uniformity across those entities. One of the key differences to consider is that in the context of traditional sports, no person or entity owns the core game, whether football or otherwise. But within esports, the games are usually owned by the publishers, giving them an element of control in the regulation of leagues that feature their game. 21

22 Interviews Mathew Jessep Interim CEO Esports Games Association Australia (EGAA) In December 2017, the Esports Games Association Australia (EGAA) was launched to unify the different stakeholders in the country and neighbouring New Zealand. Interim CEO Mathew Jessep tells Esports BAR why the move was essential to show investors and sponsors the value the two markets bring to the global table. Esports BAR: Why is the EGAA being launched now and what are its aspirations for the sector? Jessep: The EGAA is a well thought out and considered response to the Oceanic esports scene s need for a broad based membership body that seeks to represent and advocate for the shared interests of the various stakeholders. 22

23 Interviews The scene in Australia and New Zealand is at a point where the significant growth has raised several issues and created a need for the EGAA. With a board of directors made up of industry veterans and experts with a broad representation of interests, we have spent time building the foundation of an industry body that will assist the various stakeholders to adopt and implement policies and procedures that will help to mitigate risks associated with the high growth that esports is experiencing. This can only be achieved via agreements with the various parties - publishers, league organisers, event organisers, teams, players, fans etc. The EGAA will not be a governing body in the sense of traditional sports. Agreement will be sought via the offer of membership services. The more relevant and useful the services are to each member, the more the EGAA can positively modify behaviours. The external aspirations of the EGAA are to be a spokesperson and advocate for the scene to nonendemic parties, such as governments (federal and state), interested sponsors, and investors. Esports BAR: Globally, esports is still a developing business. What is happening the Australia's gaming, sports and media industries or among fans to make esports a viable industry in the country? 23

24 Interviews Jessep: The latest data I ve seen does indicate that contribution to industry-wide revenue from fans is increasing. This increased direct contribution to revenue as the scene monetises its fanbase will only get better. However, the leagues and teams (and maybe the players themselves) need to ensure that the experiences of the better supported teams and leagues is shared. Particular initiatives in this regard at the local level include: - increased number of live events, in larger and better suited venues, with enhanced ticketing/gate revenues, from 2018; and - better leverage of intellectual property and brand awareness, by leagues, teams, and individual players, with sales of merchandise and branded items. For a team or event organiser struggling to pay salaries and overheads against increased market expectations, this additional revenue could mean the difference between winding up and continued operation. The better teams and organisations will adapt and survive via these and other means, as in the normal course of capitalist-based commerce. 24

25 Interviews Esports BAR: What would you say would be the selling points in Australia, if investors where looking to invest in esports there? Jessep: Australia loves sport. Australia also has a sophisticated gamer culture and is rapidly embracing esports. As a close neighbour to Asia and with easy access to the USA across the Pacific Ocean, Australia straddles both of the high-growth esports markets and offers publishers, leagues, and investors a great base to invest into and operate from. Indeed, Australia is already well supported by the major publishers, with Riot, Blizzard, and EA all calling Sydney home in Oceania, along with a suite of other local and international developers throughout most major capital cities. Along with a Western-style democracy, a relatively stable government, and well-capitalised financial markets, Australia also offers international investors access to established esports infrastructure based around domestic leagues and the hosting of international tournaments and events. As in the cases of Gfinity s joint venture in Gfinity Esports Australia and ESL s longer-standing and hugely popular local leagues, international investment in Australian esports has been proven as a concept. With IEM Sydney 2017, and the Overwatch World Cup Playoffs also in Sydney in 2017, esports in Australia went further into the mainstream. 25

26 About the Author Juliana Koranteng is the founder/editor-in-chief of MediaTainment Finance (MTF) and TechMutiny, the business journals that cover investments in international media, entertainment and creative sectors, and the impact of related digital technologies. Koranteng, a London-based international journalist, has been a contributing editor at Billboard magazine, the Hollywood Reporter, Advertising Age, and a correspondent for TIME magazine, the Washington Post, The Economist, UK national newspapers and the author of several Financial Times books and reports. She is a reporter on the daily magazines published by Boutique Editions at the annual MIPTV, MIPCOM and Cannes Lions events in Cannes. MediaTainment Finance and TechMutiny are published by JayKay Media Inc, which also includes an editorial consultancy, speech-writing, ghost-writing and photography-design among This report is brought to you by ESPORTS BAR Reed MIDEM s Esports BAR is the leading networking, knowledge-sharing and business event for companies operating in the international esports ecosystem. The upcoming edition will be taking place in Miami, September SHARE THIS REPORT ON AND Contact Esports BAR at: BARtender@reedmidem.com Visit Esports BAR at: