Drilling deep on how to monetize esports

Takahashi: I’ve looked at the Overwatch League and the structure for that, with the emphasis on local teams. That seems a pretty good mirror of traditional sports, where almost all traditional sports out there are really tied to local teams and local audiences coming out to stadiums. They’re not coming from around the globe to fill a stadium in New York City. I thought it was interesting that Mike Sepso, the co-founder of MLG, just joined the New York Excelsior team to try to develop that local audience and local revenue opportunity there.

Other kinds of games out there, though, don’t have that localized structure at all, like Rainbow Six: Siege. Robb, I don’t know whether you guys are looking at whether localization of esports is going to be a huge opportunity.

Chiarini: That’s great timing for me, in that–Ubisoft traditionally is a very territorial and regionally strong company. We have 36 offices around the world, studios. Each of our different regions and communities have their own marketing teams on the ground, as well as community teams to support local initiatives. We split the world in half between NCSA and NEA, but then within each of those regions, we have very strong markets. It’s always been a strength of ours.

At times there’s been conflict. You have all these different programs and things going on, and trying to make it a holistic approach can be difficult and challenging. For esports it’s been a change in the way we operate our business in that we’ve always been so strong at the local level. Bringing something up to a global level with our pro league and being able to do something worldwide was a growing pain. It was challenging, but fun.

On top of doing our global pro league, where we have a North America region and Latin America and Europe, we’re also starting up, in each of those regions, localized national programs. For instance, in the U.S. we have the U.S. Nationals, which is a U.S.-based program. All the teams have to reside within the U.S. somewhere. We’re splitting it into eastern and western conferences, very traditional to sports. Our finals are coming up next weekend in Las Vegas. It’s really about the local market and adding a layer of esports at the professional level to cater to that particular market, just as you’d mentioned.

We’re doing those programs all over the world — Brazil, France, Belgium, all these other different groups are spinning up local initiatives on top of the global stuff. It’s a little bit faceless in some ways when you have an “NA” team. That can be difficult for somebody to connect to. But a U.S. team that’s based out of the west coast, that’s very familiar. You can connect with that a bit better. That’s one of the initiatives we’re tackling.

Takahashi: The audience might benefit from understanding a bit more about the Overwatch League and how that’s structured. There’s a buy-in that the owners pay to get a slot for a team, but there’s also revenue sharing coming back. Kent, can you talk about some of that?

Wakeford: What the Overwatch League has done, as well as what Riot’s done with franchising for League of Legends last year, that’s changed the overall dynamic within the esports market. In my opinion, it’s really propelled the growth of the entire market. With franchises, where you pay money to buy in and secure a lot, similar to a sports team buying into a league, and you own that.

You own it in perpetuity, which means that as a team owner, I can make a long-term investment. I can sign long-term agreements with my players. I can sign long-term sponsors. I can invest in marketing. In the Overwatch League, where we’ll be hosting live events in our own arena in Seoul, I can invest in the infrastructure to be able to host live events. That really changes the dynamic and the investment thesis going into esports. That’s what’s made me so excited. I believe that franchising is here to stay. It’s what ‘sunlocked a rapid and massive flow of capital into the esports market.

To your question about league revenue sharing, now that we’ve paid into the league and we own a franchise, own a part of this league, as the league sells sponsorships and merchandise and in-game assets, there’s a rev share back to the teams. Over time we receive value back from the league, from all the activities the league does. It’s a great model, and it’s been great for us as a team ownership group.

Takahashi: It’s like a dividend you get back when you buy a blue chip stock, something like that.

Wakeford: That’s a good analogy. [laughs]

Singer: We’re talking about lessons learned from traditional models and where we’re going, but one of the things that traditional models haven’t had to deal with–in a way they’ve sort of had to deal with this, in that sports players are personalities with their own brands. But are there any questions around cash flow and what you do with players who not only own their own brand, but own their own channels?

There’s a weird divide between esports and personal broadcasting, right? Players bring their audiences with them. They have Twitch channels or they’re on Mixer or what-have-you. As a team owner, you need to play back and forth with their need to keep their channel alive, or compensate them for losing their channel. If you want Ninja to leave his daily Fortnite channel to be on your Fortnite team, you’d have to pony up a lot of money. Is that a concern at the team level? What are both of you dealing with around this as you talk esports?

Wakeford: It’s a great a question, and it’s a very real dynamic within esports. As a team owner, we view this as an opportunity. All of our players stream. They stream on Twitch. They stream on other channels throughout China and other areas of the world. It’s part of the everyday life of a player within esports. From a compensation perspective, that goes into the compensation for the player. They’ll get the bulk of the revenue being derived from their channel on Twitch, but they’re going to do it under the team brand.

For a player, the more views and subscribers and followers they have, the more money they’ll make from streaming. What you’re seeing is a lot of both the highly dedicated professional players, as well as streamers who are playing in Fortnite and other games–streaming is a fundamental part of esports. As a team ownership group what you need is to be able to balance how much time your players are spending on streaming versus training. That’s the interesting dynamic for a team ownership group. The rest of it all just flows through in the economics to the players.

Singer: The reason I wanted to start off with that is because I was curious as to how that confuses advertisers. We talked about advertising being one of the main revenue forms, both in traditional sports and in esports. In traditional sports the NBA had to figure out how to get you to keep watching your TV and not walk away when commercials came up. There are ways to do that around relevance of the content.

When we all got on this webinar, one of the first things Rachel said was, “Please disable your pop-up blockers.” One of the big concerns is around the relevance of your advertisements and the fact that in many of these big markets, ad block penetration is incredibly high. That’s between 15 to 25 percent in a lot of developed markets like the United States and western Europe and Australia. It’s even higher in Scandinavian countries, and in India as well. More than 25 percent of people are using ad blockers.

That’s a big issue that I think folks are going to have to target when they look at how they’ll extract money from esports. If you install an ad blocker, that probably means the content you’re being served isn’t relevant. “This is a bother to me,” versus–if the new Star Wars trainer is coming out, Robb, whatever he thinks of the past two movies, he’d go out and watch that trailer, because that’s relevant advertising. I know Robb loves Star Wars. There’s a big question around relevance of advertising that I think this market needs to answer going forward.

Wakeford: Let me jump in from a team perspective. I keep going back to opportunities. One of the big reasons why sponsors, big brand sponsors, are jumping into esports is to be within the stream. Not an ad that can be blocked.

We talked about the percentage of ad blockers, but really, with the audience of esports, they’re millennials, right? These are millennials who watch more esports than baseball or the NHL. Yes, they have a high propensity for ad blockers and everything else. But when they’re watching the stream and what is in the live stream, whether that’s the player’s jersey sponsors — in our case Nighthawk — or the brands that are integrated into the actual live viewing of an Overwatch game, those brands are not being blocked by ad blockers.

Those brands are part of the fabric of esports. They’re supporting the teams and the leagues. That’s the opportunity for brands that come in. They’re able to connect with this highly targeted demographic of millennials. They’re able to get in front of them and be part of the conversations. That’s one of the big reasons why I see so many big brands looking and starting to engage with esports. It’s specifically this ability to connect with a highly valuable demographic in an authentic way.