Written By Kevin Kelly
Earlier this month, I attended the American Bar Association’s annual Forum on the Entertainment and Sports Industries to hear about where the esports business exists currently, and where it’s headed over the foreseeable future. The panel was led by Robert Quiles, one of the esports industry’s leading attorneys and head of Quiles Law, Krista Hiner of ESG Law, the only law firm in the world that is focused exclusively on esports, Scott Rupp, a founding partner in BITKRAFT Esports Ventures, a venture capital firm specializing in video game and esports organizations, and finally Chris Carvalho, the former COO of Kabam, a mobile game developer, and currently a board member of Roblox.
The panel started with discussion on the differentiation of esports and traditional sports and what the biggest factor is that separates the two. Intellectual property is what drives esports forward, rather the litany of other factors that are at the core of say, American football. Since the industry is driven by IP, it has opened up the avenue for publishers to become much more hands on with the titles that are prominent in esports. Companies like Riot are involved almost every step of the way with League of Legends, while others like Valve, who were previously more hands off, are becoming increasingly active in developing and managing Counter-Strike: Global Offensive. The advent of streaming has provided these publishers with the incentive to take a greater role in the development of esports viability for their games. Rupp added that it’s the emergence of new tech has allowed esports to evolve and continue to grow. Case in point: League of Legends generates 2 billion dollars in revenue. When there’s so many big value figures being thrown around, the ones at the helm are always going to want to see what’s going on, and see what other potential avenues for revenue can be explored.
One of my biggest takeaways from this panel is that esports is entering a new phase. The powers that be are going to want to try and take advantage of every opportunity possible, which may include things like the ability to gamble on esports and a greater influence on brand building for organizations.
The panelists also addressed what the plan for the long term growth of esports may involve, which includes a different perspective. Rupp posed that instead of viewing esports teams strictly as sports organizations, that interpreting them as media companies will help achieve long term profitability. When you introduce a concept like that, change in business models are likely to follow.
Rupp continued on to pose the idea of esports organizations getting a revenue cut of the sales of the games that they play under, and other possible methods of creating somewhat of a revenue sharing model between publishers and organizations. This leads to an interesting scenario where certain esports titles move toward a franchise based model, and instead of collective bargaining, similar to traditional sports, publishers like Riot and Activision have opened the floodgates, and taken a first come, first serve mentality giving franchise spots to whichever organizations were willing to pay the lofty entry fees. Aside from predicting that this would backfire significantly for certain esports organizations that weren’t as well equipped in a business sense, Rupp posed the question of how these teams would generate some direct to consumer revenue in the absence of revenue sharing with publishers. This is where I personally believe brands like 100 Thieves are set up to thrive. The care that CEO Matt “Nadeshot” Haag and his team have taken building the 100 Thieves brand to ensure that there is a unique and distinct relationship with consumers sets them apart from almost every other organization currently in esports. 100T’s direct to consumer model centers around a very skilled team of content creators with very dedicated audiences, and a lifestyle clothing line that has very high brand recognition and is in constant demand.
Another aspect of the panel that I found interesting is how esports will treat games that are not inherently competitively driven. While Call of Duty may be moving to a franchised, city-based model many would believe it to be on the lower end of the spectrum, comparatively speaking with Overwatch, League of Legends, etc. And the direction of the panel became more about the analysis of cost and risk for the industry overall. Issues like inflated player salaries that companies aren’t able to generate enough revenue to justify, especially in ecosystems that aren’t exactly healthy. This ended up being attributed as one of the chief reasons that most esports organizations don’t operate at a profit.
Finally, to wrap up the panel, the guests took part in a dissection of one of the most controversial incidents facing the business side of esports, that being the dispute between Turner “Tfue” Tenney, and the esports organization, FaZe Clan. In somewhat of a roleplaying exercise, Quiles and Rupp assumed the role of hypothetically negotiating on the behalf of FaZe, while Hiner and Carvalho advocated for Tenney. The specifics of the contract were discussed, and key aspects of the process were pointed out and made to be examples of what esports organizations should absolutely avoid when constructing deals with players.
There is a bright future ahead for the esports industry; it’s not without it roadblocks, and I believe there are hard lessons to be learned along the way. This panel gave me a really good insight on how esports may take the next step.
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