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Esports: The First Global Digital Sports

Esports come of age with traditional sports investment.

Turner and WME/IMG’s ELEAGUE is kicking off its third year of esports competition with a preview at CES as part of the two-day CES Sports Zone, Presented by Turner Sports. Professional video game players are now a mainstay at CES, as these rock stars of the video game world attract global followings and huge brands.

Riot Games sold out Beijing National Stadium in November, also dubbed the Bird’s Nest, a venue built for the 2008 Olympic Games. More than 80,000 League of Legends fans converged from around the globe, while more than 30 million fans watched the finals between Korean teams Samsung Galaxy and SKT T1. This event occurred just a few months after Valve Corp. awarded more than $24 million in prize money to the top Dota 2 teams, including $10.8 million to Team Liquid. That annual competition, called the International, packed Seattle’s KeyArena while attracting more than 92 million streaming views.

With more than 385 million fans worldwide, esports has grown from an underground millennial and Gen Z pastime to a global phenomenon. Research firm Newzoo reported a 41.3 percent year-on-year growth for the esports economy, which topped $696 million in 2017.

While esports originated in South Korea and spread across Asia and Europe, North America is now the largest esports market with revenues of $257 million last year. Brands, led by many mainstream and non-endemic companies like Coca-Cola, Hisense, Mercedes-Benz, Samsung and T-Mobile, invested $517 million in esports last year (in 2017). And Peter Warman, CEO of Newzoo, expects that number to double by 2020.

As esports has become big business, and one of the easiest ways to connect with the elusive millennial and younger audience, traditional sports companies are also investing in professional video gaming.

Shaquille O’Neal, co-owner of NRG Esports, says this wave of traditional sports investment vindicates the work he, Andy Miller and Mark Mastrov (all co-owners of the Sacramento Kings) have done in esports.

“We jumped in early because we saw the huge fan base, the passion and the communities that were developing across all gaming titles,” O’Neal says. “More money, more attention, more professionalism is only good for the esports scene. It is still early days, but it’s growing up fast.”

The Philadelphia 76ers and Miami Heat were the first two traditional sports organizations to acquire esports teams (Team Dignitas and Misfits, respectively), but they are just the tip of the spear.

Michael McCullough, executive vice president and chief marketing officer of the Miami Heat, says the organization’s strength across multiple disciplines has helped grow the Misfits brand through marketing, retail and fan events, and activities. The Heat has launched an exclusive online store for in-house created and core-culture branded Misfits clothing, which ships out of U.S. and European fulfillment houses — something the small esports team couldn’t do on its own.

The Heat brought Misfits’ Counter-Strike: Global Offensive (CS:GO) team to Miami in November to sign autographs in the arena plaza during halftime.

“We had a couple hundred people waiting in line for the autographs and pictures with the team,” McCullough says. “Across social media we saw esports fans talking about this being their first NBA game. That event reaffirmed what we could do, and why we’re doing this.”

The Sixers and Heat got together for a double-header, pitting their esports teams in a competition ahead of the real NBA action. That type of competition will become a staple in 2018 when Take-Two Interactive and the NBA launch the NBA 2K League, which is comprised of 17 NBA teams. The second year of the league is expected to attract every NBA team, with plans to expand into new territories like Asia.

NBA 2K League

Brendan Donohue, the NBA’s managing director of the NBA 2K League, says the 70-year-old league brings a perfect marriage of traditional sports and interactive competition. It also connects the NBA and video game audience, which intersect as millennial, tech-savvy and multicultural.

“We understand the details and all that it takes to run a successful league,” Donohue explains. “And the relationships we have, both with potential partners and our 17 NBA teams, also gives us an advantage.”

For the inaugural season, the NBA and Take-Two’s 2K Sports will host events at a central studio or two, but Donahue says using NBA arenas is part of the long-term plan. Popular esports games like CS:GO, League of Legends and Dota 2 have all sold out events in NBA and NHL arenas over the past five years.

Donahue believes the ability for everyday NBA fans to try out for their local team (for the first 17 participating clubs) opens up an aspirational element that has not existed before for traditional sports fans. Each participating NBA team will field a team of gamers to play the five vs. five NBA 2K18 video game, wearing jerseys that include the traditional team logo. Players will practice in their market during the week and then fly in for games.

“The players will play with their own avatar, and the reason for this is to create true competitive balance,” Donahue explains. “It wouldn’t be fair to have LeBron James playing the fifth-best starter on another team. We want to have a level playing field so the only true differentiator for a player’s performance is their own personal skills.”

Overwatch League

Activision Blizzard has taken a page from traditional sports with its 12-team Overwatch League, which kicks off competition this month (January 2018). Many of the owners of the new league come from sports businesses, including New England Patriots owner Kraft Group (Boston Uprising), LA Rams, Colorado Avalanche and Denver Nuggets owner Kroenke Sports & Entertainment (Los Angeles Gladiators), NRG Esports (San Francisco Shock) and Comcast Spectacor (Philadelphia Fusion).

Nate Nanzer, commissioner of the Overwatch League at Activision Blizzard, says the league has been set up for longevity, allowing teams to benefit from the global audience while establishing local fan bases.

“In addition to receiving a share of global revenues from media rights, contracts, sponsorship, merchandise — both physical and virtual — and in-game items, teams also have a structure built to encourage local entrepreneurship and build a local business,” Nanzer says. “The structure keeps the lion’s share of local sponsorships and tickets at the team level.”

MLB great Alex Rodriguez, who’s a co-owner of NRG Esports and sits on the board, says the move by game companies like Activision Blizzard opens up many new opportunities for esports.

“With franchising and with permanent local markets we now have an esports structure similar to traditional sports franchising,” Rodriguez says. “This makes it easier for investors, brands and fans to make financial and emotional investments in teams that the fans know are going to stick around and become part of the local sports scene for decades to come.”

Jim Pekala, senior vice president of strategic planning for Comcast Spectacor, says that the Overwatch League is structured so that it matches up with the company’s strengths surrounding the creation of business extensions and additional revenue streams associated with running a successful professional sports team like the Flyers.

“Our history with the Flyers has given us an opportunity to create and continually strengthen a great relationship with Philadelphia’s passionate fans, and we’re looking forward to introducing them to the Fusion,” Pekala explains. “Comcast Spectacor’s portfolio also features the Wells Fargo Center and several client properties throughout the region, and we plan to explore marketing partnerships that leverage these touch points.”

All eyes are on Riot Games and Activision Blizzard with these new franchise leagues, which could be a bellwether of things to come as esports continue to evolve into big business. But traditional sports aren’t going away. If anything, the investment by sports teams (including Dallas Cowboys owner Jerry Jones recent backing of Complexity Gaming and Boston Celtics player Jonas Jerebko’s acquisition of Renegades) solidifies the future of esports — the first global digital sport.

Three-time NBA champion Rick Fox, owner of the Echo Fox esports organization, believes this wave of professional teams recognizing esports will continue. “They can educate the esports fan base about football, basketball, baseball and hockey,” Fox says.

“Some teams are moving in from a defensive place wanting to make sure they have a stake in the future. Some of them are moving in to educate themselves, and are stepping in at a level that allows for further escalation in coming years. And others are turning a blind eye to esports, and I would say they’re going to regret that.”

John Gaudiosi