Building an Esports Franchise Part 1: The Foundation
This will be a multi-part intro to gaming organizations and an analysis on the teams I believe will become the next Dallas Cowboys or Real Madrid of the digital world. It's time to build?
Today we are exploring the 2 foundational pieces of a successful gaming org: Competition and Fans
I will draw a lot of parallels to traditional sports and other industries but I don't want it to come off as a direct comparison. Esports are still young with immense room to change & grow, putting on a traditional sports hat and analyzing esports does it a disservice. I mostly mention these things for context and so the reader can become better familiar with the industry.
As a disclaimer, I will be primarily focusing on NA and EU organizations, as I have the most context for how they operate and how they are perceived. There are some insanely successful orgs in Korea and China but due to the fact that I can't understand Korean or Chinese, it's hard for me to get a pulse of the scene besides just reading what English journalists write. I still have my opinions on them but not nuanced enough to be including them in depth on here. I will be referring to them at points due to the fact that they are so successful, but if anyone is more experienced in these scenes, please don't hesitate to DM me and we can work on another series :)
Competition
I highly recommend listening to Blake Robbins on Invest Like the Best if you want an overview of the gaming industry. There are some great notes on the episode here as well.
Here’s a quick tldr:
Majors/Circuits, think Golf
These gaming competitions are split into various smaller tournaments where teams or individual players qualify for a spot to compete. Valve, the creators of CSGO, take a very hands-off approach to these competitions. This paved the way for ESL, IEM, Dreamhack, and BLAST to be some of the top organizers of these tournaments. Epic Games operates 50/50 with self-run and 3rd party tournaments. They famously held the biggest esports event ever, the Fortnite World Cup, which had a prize pool of over 10 million.
Benefits: A thriving amateur scene and relatively low barrier to entry. If you're a prodigy at one of these games, you can easily catch the attention of any org. For the organizations, you are competing with 100s of other orgs including the giant incumbents but not directly. You can "climb the ladder" and compete in amateur events, mid-tier, and eventually into the majors. The incumbent advantage doesn't become apparent until the very elite brackets and even then, Cinderella stories of rag-tag teams are common.
Downsides: Consistency. Cash prizes are substantial but not enough to sustain entire organizations. Most of the revenue comes from partnerships and brand deals, who usually pay $ for a logo on their jersey or provide some kind of subsidy for travel or equipment. The problem here stems from gaming not being like traditional sports. It is somewhat predictable when a young star will hit his prime, and when they start to fizzle out, except Lebron can always just be Lebron. Updates and patches to the games mean certain items, characters, or abilities become stronger(buffed) or weaker(nerfed), leaving some players out to dry as they see their strengths slowly become liabilities on a much quicker timeline when compared to other sports, months rather than years. Many orgs can't afford to miss consecutive Majors due to financial constraints, meaning an org can hit a nosedive and dissipate very quickly.
Franchising
NBA, NFL, NHL, MLB (lol). In America, it's what you think of when you think of sports. You can be the Knicks for as long as the Knicks have been the Knicks, and still not get any pressure from the league to at least fake being competent. Brands will still sponsor you because you will get air-time and there is no relegation or promotion system for the time being— esports leagues are too small to support that robust of a system. These spots will run you $20+ million dollars and are reserved for the massive incumbents in the industry. I’ll split this section into which leagues are doing it right, and which are doing it wrong.
Winner: League of Legends!
My best comparison here is the Champions League in Europe. Competitive League of Legends is split into several major and minor regions, who compete for pre-allotted spots in the world championship: 2019 saw 3 Chinese (LPL) teams, 2 Korean (LCK), 2 European (LEC), 2 North American (LCS), 2 Taiwan/Macao/Hong Kong (LMS), 1 Vietnamese (VCS), and 4 Wild Card (all regions). Teams compete domestically, usually split into a Spring and Summer season, for their respective region’s spot in the World Championship. You earn points based on your placement in the season with the top point earners representing their regions at Worlds. What’s great about this model is that brands know they will get at least 6 months of airtime sponsoring a team, and 8+ months sponsoring the leagues.
I may be bias because it's my favorite game, but I really enjoy what Riot has created in their competitive landscape. Fans always have a reason to tune in and it's due to the fact that there is always a relevant brand or personality on stage during these competitions. In my opinion, LCS is the most mature league in esports. Teams get a cut of the pie in revenue sharing and get to keep their brand integrity. There is a developing amateur scene and budding partnerships with huge brands like Verizon and MasterCard. The only caveat here is that since there is very little pressure from below, teams have the option to become the Knicks. It hasn’t turned out well for teams who did manage to take the nosedive, but as the league continues to evolve, there must be a system in place that prevents complacency.
note: Every major region is slated to be fully franchised by 2021.
Losing (not Losers yet): OWL & CDL.
Both leagues are separating the brand from the teams. Teams are being associated with cities, not with the organization behind the team. An example: Cloud 9 is the top dog org in this industry but their Overwatch team is called London Spitfire. A fan from one end may not identify with the brand on the other side. What happens if OWL goes under? Does C9 just stand to lose a majority of their Spitfire base? Best case scenario OWL booms and Spitfire becomes one of the most valuable assets of C9, C9 has to work to capture this value instead of it just being a natural acquisition. There is no "Oh I like C9 CSGO, I'll support C9 League too." This is a common problem and a gatekeeper for many rising orgs. Teams have openly denied pursuing CDL spots due to financial commitment but most importantly, loss of branding.
Yes, by associating with a certain market, you can attract some casual fans and have an identity that expands beyond gaming. But don't take off the training wheels after 1-day. These esport brands & their associated personalities currently drive league attention. One day, when esports is a much more mature industry, these city teams will no longer rely on their parent orgs for survival or relevance, but now is not the time. I also believe it is healthier for the young industry, no teams can slack off and become the Knicks. The Knicks benefit from their history and from being in NYC. Few teams in esports have history, and almost none are tied to a region, which pushes constant innovation and striving for excellence in order to maintain the fanbase. Esports is still a niche interest, Kappa Apple Pie won't throw a "World Champs" event just because Seattle Surge won the CDL, but Seahawks win and Greek Row is in shambles. Let the organizations flourish as their own brand and if you want to be associated with a city, put emphasis on the parent organization first.
Something that is hurting OWL more so than CDL: having electronic-sports play home and away games. I won't completely dismiss it because it is nice to attend events that aren't in LA or Vegas, but remember the word electronic. The beauty of these competitions is that they can be played anywhere at any time, it's why they have flourished during COVID. You are putting unrealistic expectations on these players and teams when they have to travel 71,000 miles in a single season. To put this in perspective, the record for NBA travel belongs to the Lakers at 78,433 miles with a league average at around 47,000 miles. Spitfire avg = NBA record.
Takeaway: Franchising is a net good but only for the teams who can afford it. I believe it is where we are heading eventually, just due to the risk mitigations associated with these league structures. Team has a franchise? If OWL or CDL, only a good sign if already a giant and well established in other leagues. In League of Legends, good sign in general. Some of the best organizations don't hold a franchise spot, but are very well equipped to bid for one in case of future expansion or new opportunity within a new gaming title.
Fanbases: Cast, Creators, and Content
You need fans to be successful, but acquiring them can be a challenge. How teams have captured fans: the cast & the content. Fans are created by content creators, or by the supporting cast of the gaming org, think the players, coaches, and personnel that make up the teams. Supporting cast is kind of misleading but I had to make the alliteration work— there are certain players who make the brands.
Let's first talk about the "cast" and take a young David Beckham's career and compare it to Huni's, a League of Legends Top Laner:
Both Beckham and Huni bursted on to the scene as young rookies on well-established teams, Man U and Fnatic. They were uplifted by the existing organization's popularity (and they were also insanely talented). Eventually, they moved on to other giants, Real Madrid and SKT respectively, and brought along their newly acquired fanbase. When the flame was starting to sizzle out but the excitement of their brand remained intact, they made their move to budding organizations who greatly benefited from their arrival, LA Galaxy and Clutch Gaming.
This highlights the approach teams have to the "cast" portion of the equation:
Create the Cast:
Tier 1 organizations grab promising stars and turn them into personalities, establishing their brands and in turn, creating content centered around their narrative. G2 Esports, TSM, and C9 do this very well. They are dominant teams in the scene and many of their players are known to go on Twitter to cause noise or are featured in their team's Youtube channels. A lot of organizations create "behind the scenes" content of their teams, mimicking a Hard Knocks type of series, again benefiting from the personalities they help establish.
Buy the Cast:
Another route organizations take is picking up stars—the NY Yankees or Real Madrid approach. Team Liquid had one of the best examples of this, when they signed the biggest name in North American League of Legends, Doublelift. He was already huge and after picking him up, TL skyrocketed to "prime time" game slots, constant narrative discussion during the season, and greatly increased coverage of the team. It works well, but only for the rich. Otherwise, it is unsustainable. Doublelift recently left TL to rejoin Team Solo Mid (TSM), another organization in North America. While TL didn't suffer too much, a noticeable shift of attention occurred. Any other less established organization and it could have signaled the end.
Hand-me-down Cast:
Finally, we will talk about the MLS strategy of being a retirement home for the stars of the past. A common and effective tactic that I can't blame teams for trying. Stars on the tail-end of their careers still command a good bit of attention but these organizations suffer the same fate as previously mentioned, you lose the star and you lose the fans.
This brings up an important point I would like to mention: players > teams. Very few orgs have transcended being greater than the sum of their parts. Gaming and streaming offer a unique dynamic where e-athletes can form communities around their fanbase, who will follow them anywhere. Currently many teams owe a majority of their fanbase to the players who make up the team. Of course, there will always be Lebron's and Ronaldo's of the world who break this rule, but I believe a huge step in the maturation of esports occurs when fans identify with the org more than the player. It's happening already with the top orgs but still a long way away from the scene not being dominated by the player's brands. With that said, it is important to diversify content and not rely too heavily on the players. Fans will go to Doublelift's stream or Youtube before they go to the TL Youtube channel to watch some highlights of Doublelift. I believe great content is crucial in the success of a gaming organization but only if done right.
Creators
This brings us to content creators. These are streamers or video creators who play games in an entertainment fashion rather than a competitive one. An important distinction to make here is that content creation has to be intentional—no team does this better than 100 Thieves. Every legitimate organization has streamers under contract but it ends there. Slapping an acronym in front of their name and having the team watermark appear on stream is about the effort many organizations have for their content creators. But when you find a team that does it like 100T, don't look away.
100T is relatively young in the industry and is quickly becoming one of the top orgs. The reason can be attributed to standing out and creating excellent content.
8/12 videos are creator driven content, and not just clips from their stream but well produced content that drives engagement and eyes to the 100T org. I am personally a huge fan of this approach as the creators are the focus while the professional teams aren't forgotten. The dynamic I mentioned earlier about players > teams applies here, they are going to the respective player's stream or Youtube channel, not the org's. Focusing on creators allows for the Youtube channel to be more than just a highlight reel while establishing the brand as somewhere gamers can go to be entertained. Teams who do this well can reach that threshold of being greater than the people who make up the orgs. 100T was "Nadeshot's team" at first, with a majority of fans following him from Call of Duty. Now that 100T has successfully leveraged content creators and their professional team's following, if Nade left tomorrow their fanbase would stay intact. If he left in 2018 the org would have fallen apart.
Here is where esports > traditional sports. The Knicks cannot hire some of your favorite personalities from YMCA pickup and have them produce some content and expect any ROI. A team like 100T isn't doing too hot competitively this year but they keep going up and to the right thanks to their content and creative team, a very unique benefit to the digital first landscape.
An important point: The incumbents can sometimes get away with just their player's fanbases and success in competition. Many established orgs have a content creator roster of retired players or older personalities. But if you are an early investor in an esports organization or just getting started building your own, you need something to differentiate yourself while you scale up to compete with the giants in-game: content.
Takeaway: Fans are brought on by the players, the creators, and the content they produce. Leverage player content by offering behind the scenes looks and pushing their "narratives". Similarly, allow your content creators to flourish, don't stick a logo in front of their name and call it a day. This allows you to successfully create a brand and become a place where fans go because of the org name, not because of certain individuals. Content is also a great hedge against a slump in performance, can help maintain growth.
What Does This Mean?
The greatest gaming organizations will need to compete and create. The great thing about esports and the digital landscape is that you don't need $25 billion to start a team. The barrier to entry remains low and the wide range of opportunity allows certain orgs to approach growth in unique ways. Competition and content form the "foundation" but there are many ways to approach them as a rising org. I'm super excited for esports and gaming as a whole in the future, we are still in the formative years and it is a great time to get involved in this space.
With that said, next time I'll touch a few other factors that build a successful org, as well as dive into the winning orgs, and why they won.
You made it this far
Thank you if you're still here! I tried my best to keep things relevant and interesting for someone who has not had an intro into this world of gaming. If you have any suggestions, feel free to DM me on Twitter @JoelMon97!