Disruptive Technologies for eSports: Ethereum


HBO's Silicon Valley (Photo: YouTube)

HBO's Silicon Valley (Photo: YouTube)

TNL Industry Guest Post 005: Over the past 13 years, Anton Ferraro has helped develop numerous esports focused properties including tournament broadcasts, television programs, streaming platforms, branded campaigns, digital products & live event activations.

Anton began his career in 2004 by organizing and playing at local Halo events and shortly thereafter joined Major League Gaming to assist their media efforts. After 8 years with the company Anton transitioned to the West Coast and helped build the Azubu streaming platform as Director of Content.

Anton currently resides in Brooklyn, New York with his wife and pug. Too much of his time is spent playing Overwatch. You can view his work at www.AntonFerraro.com

TNL Take:  The Ethereum blockchain is an incredibly complex idea that has gained increasing momentum in the past few months. While I am an avid fan of the tech, I will be the first to admit that my understanding of it is basic at best, so I encourage you to explore the below ideas on your own.

For fans of HBO’s Silicon Valley, Ethereum is apparently the focus of this season’s story arc.



The Blockchain (Photo: BlockGeeks)

The Blockchain (Photo: BlockGeeks)

The blockchain is a concept first pioneered by BitCoin. The Bitcoin Blockchain is a ledger of all existing BitCoin transactions. Think of it as a giant database for every use of BitCoin ever. It uses decentralized technology to verify every transaction to prevent fraud and a failure of the system by compromising any single node.

In the same way that Torrents utilize multiple computers to distribute content, BitCoin uses the blockchain to verify all data in the network. Users on the system have digital wallets in which they can store digital currency.

If you compare BitCoin to something like the US Dollar a clear difference emerges. Every year more and more dollars are printed resulting in inflation. Every year the dollar buys less than it did the year before. BitCoin differs from most traditional currency by installing a cap on the total number of BitCoins that can be in circulation. This has generally caused the value of BitCoin to increase.

Warning: BitCoin prices have fluctuated wildly over the past several years. Do not invest without doing due diligence into the size of these shifts and their causes.

BitCoin was the first mover in the space but it’s current limitations spawned several competitors that seek to fill the holes BitCoin does not. Enter Ethereum.

5 Year Bitcoin Growth (Left) and the S&P500 (Right). Huge Potential for Growth with the Volatility Risk (Photo: Coindesk and Yahoo Finance)

5 Year Bitcoin Growth (Left) and the S&P500 (Right). Huge Potential for Growth with the Volatility Risk (Photo: Coindesk and Yahoo Finance)

Ethereum took the Blockchain idea and expanded it to a true platform. It provides multiple services already and many more are being built out by developers.



Let’s look at the traditional functionality of an eSports contract. Two parties agree to an exchange of services which will result in an exchange of currency. Here are some eSports related examples:

  • I will stream for 20 hours in exchange for currency.

  • I will compete at a tournament for which I will be compensated a certain amount of money for my performance.

  • I will engage in sponsor content for which I will be paid a certain amount.

Once the service is rendered one of the parties is then obligated to pay the agreed upon amount. However as we know there have been many cases where this party renegotiates for an alternative rate or absconds with the payment altogether. The recourse for the wronged party is to seek legal action which is time consuming, difficult, expensive, and frequently ineffective.

It gets even more complicated if the two parties are in different international jurisdictions.

You would not have this problem on the Ethereum Blockchain. Via it’s smart contract system, once both parties agree to the contract, the contract will automatically execute. Parties agree to terms, designate mutually agreed upon “watchers” for the contract (or utilize API hooks to monitor the desired metrics) to execute the contract.

In essence it acts as a computerized escrow account over which neither party has full control over.



eSports Startup Firstblood (Photo: Firstblood)

eSports Startup Firstblood (Photo: Firstblood)

The Ethereum blockchain allows the creation of custom tokens. These tokens can be used to weigh votes, signify membership, and interface with contracts.

In eSports this can be utilized to create a Pro Players Union that can provide benefits. Tokens can be awarded based on smart contracts. Union rewards and fees can be collected programmatically from each member’s connected wallets.



Many an eSports Kickstarter has collected funds from the community without ever providing the advertised result. With Ethereum you can design smart contracts that connect to custom created tokens. These tokens can be sold to raise funds. If the agreed upon product never materializes, the currency pledged by the community can be returned back to the community.

Additionally third party services such as Kickstarter or GoFundMe will be cut out of the equation resulting in more funding going directly to the project.

Many of the Apps being built on the Ethereum blockchain are funded through this method. Some have been able to raise incredible amounts of money in a short period.



There is a lot of functionality in Ethereum already and I encourage you to explore the topic at greater length. The above ideas barely scratch the surface of what is possible with this decentralized technology.

Institutions such as Bank of America and Microsoft have already made inroads in building their own products on the Ethereum blockchain and many other traditional players are entering the space.


Utilized properly the Ethereum blockchain can eliminate many of the Wild-Wild-West antics of eSports while maximizing organizational efficiency.

[Edit: There are few startups-  Firstblood, Skincoins, DMarket, NeverDie and activity - Hungry Panda Games ICO-  in the space that The Next Level will cover next]

Startup Dmarket (Photo: Dmarket)

Startup Dmarket (Photo: Dmarket)

eSports: The Missed Billion Dollar Opportunity For Publishers and Platforms


eSports: The Billion Dollar Opportunity For Publishers and Platforms (Photo: Bloomberg)

The 2nd in The Next Level eSports Industry Guest Post comes from Ed Chang, an Entrepreneur In Residence at The Chernin Group (TCG), a privately held, independent media holding company. He also founded an eSports talent agency that sold to Flood Interactive. You can find him on Twitter @ed_chang

eSports is no longer a secret.

Every week there's a new report detailing how big the industry can really be, but there's also an elephant in the room. Startups and third parties are finding it hard to identify their segment of the space and monetize, due to a complex relationship with the companies who create the actual games - the publishers.



Traditional Sports Leagues (Photo: SportsRoll)

The traditional sports ecosystem is dominated by two models of organization. The most decentralized sports, like the PGA Tour or NASCAR, consist of largely independently organized competitions, which are sanctioned and governed by an administrative body and are open to any qualifying athlete.

The second are leagues like the NBA or Premiership, which have a set number of recurring teams and players, and are extensively managed by a league front office that's owned by each team.

eSports are quite different.

If you choose to race without NASCAR or play basketball without the NBA, there's nothing - and no official body - that can prevent you from replicating the experience. No one 'owns' racing or basketball, but someone does own Overwatch, and if you want to play you essentially have to go through that company (Edit: Blizzard)

If you wanted to create your own eSports league, your ability to market or represent it would be entirely dependent on the legal team of the game's publisher. Furthermore, the core experience is fully controlled by that publisher.

Leagues that are operated or endorsed by publishers can do unique things - e.g. item drops, exclusive/first-release capabilities, bundled original content - and offer unique monetization opportunities.

Three months before The International, the annual world championship for Dota 2, Valve sells interactive in-game items that directly contribute to the tournament prize pool. This model has been so successful that, in 2016, the prize pool reached $19.17 million.

Most tier-one publishers also handicap the data streams that the public can leverage. Whereas in traditional sports there are multiple providers of a firehose of sports data, game publishers offer barebones APIs that allow access to little more than character information and select match data. Valve offers an open API but, as events this year have demonstrated, it can shut off access and change policy at any time.

On the platform side, Twitch is miles ahead of its competitors in terms of creating an external ecosystem thanks to its two year head-start and passionate developer community, but it maintains an ever more precarious balance between build vs. buy.

Because of these walled gardens, the investible opportunities within eSports often end up being features not products, which set them and their investors up for more of an acquihire than a "Twitch-esque" exit. There's a strong argument to be made to publishers that working with third-party developers will lead to a stronger overall bottom line, foster innovation and provide defensibility.



Principles of Economics (Photo: Rice University)

It's no secret that being a top publisher is a lucrative business. Activision reported $1.6 billion in revenue for Q2 of 2016 and EA $1.2 billion. It's rumored that Valve's 2015 revenues reached $3.5 billion in 2015, and Riot Games' over $1.6 billion.

It's not hard to see why partnerships with third parties and external API infrastructure aren't a priority with so much money flowing, but that's myopic. As publishers start thinking about how to monetize beyond game licenses and In-Game Purchases, every moment not spent developing the ecosystem is a wasted one.

This isn't unparalleled and we can see examples of where large platforms in other verticals have made the decision to invest in their future, often early on in their company lifecycle. Salesforce, an enterprise software company, has a market cap of $50 billion. A report last year by IDC put the opportunity front and center: the AppExchange currently generates 2.8x the revenue of Salesforce itself and is expected to grow to 3.7x the size of Salesforce.

Slack, the enterprise collaboration tool darling, also gets it. Even before raising money in April 2016, at a $3.8 billion valuation and boasting over 1.25 million paying users, they announced the Slack fund in December 2015 - an $80 million investment into supporting new integrations.

Slack and Salesforce could have gone the closed route and developed these integrations and products internally, but they understood that the immediate revenue trade-off was well worth the ability to focus on creating the best core product possible, in addition to leveraging minimal company resources.

Now to everyone's favorite eSports comparison : traditional sports. During the height of the daily fantasy sports craze in 2014/15, the NBA entered a multi-year partnership with FanDuel that gave it an ownership stake. The NFL expanded its partnership with Providence Equity in 2013, investing $300 million to participate in, "media and technology deals where it believes the league could help play a strategic role." 

And these are just a few examples. Partnering with and investing in new properties allows older, larger establishments to participate in the upside of nascent industries quickly and cheaply.

Publishers are thinking about the shelf-life of games.  The NFL and NBA will both be around in 25 years, but what about League of Legends or Counter-Strike? Opening up the ecosystem not only benefits players and fans by allowing them an outlet to interact with their favorite IPs, but ultimately enhances the core value of those IPs and gives publishers an opportunity for additional exposure through revenue share, API fees and strategic investments.



In addition to commercial benefits, let's look at network effects.

Valve is the publisher of both Counter-Strike: Global Offensive (25+ Million copies sold, 8+ Million players in the last two weeks), and Dota 2 (87+ Million times downloaded, 11+ Million active players in the last two weeks.) While the titles have richer histories than virtually any other competitive eSport, Valve's open API, developer tools and hands-off approach has contributed to their sustained success and status as two of the top eSports titles.

Twitch eSports Hours Consumed By Game (Photo: Newzoo)

/01 Valve developer tools / Steam API: Valve has created a set of developer tools and an API that allows for custom creation of maps and in-game items, as well as access to match data and transaction facilitation. As a result, there are 125k+ approved items for CS:GO and 50k+ for Dota 2. Valve's developer tools have also been the foundation of sustainable, revenue generating businesses that keep players loyal:

FaceIt ($15mm Series A): 10mm+ game sessions/month

ESEA (acquired by ESL): industry leader in professional CS:GO leagues and anti-cheat technology

Kickback (YC W15): 8mm+ "money matches" played, 50,000+ players

For Valve, the boost in user acquisition, overall engagement and free marketing is well worth the short-term revenue trade-off.

/02 Competitive ecosystem: Valve has taken a hybrid approach to competitive eSports, where it has a handful of officially sanctioned major tournaments sandwiched between multiple leagues and LAN events. This has led to a very robust landscape, with events and leagues like the ESL Pro League, ELeague, FaceIt Esports Championship Series, Gfinity, ESL One and IEM. These streams of revenue have contributed to a high demand for professional CS:GO players, leading to lucrative contracts and opportunities.

/03 In-game skins economy: This feature has been the most lucrative, which allows players to purchase crates that contain different cosmetic versions of CS:GO weapons or Dota 2 items. (Edit: To be clear, these items give the user no additional benefit or advantage in the game)

During major tournaments, Valve has offered exclusive stickers that generate up to high six-figures for qualified teams. Valve has also allowed free reign on opening up use cases within this skins economy, which led to wagering, gambling and marketplaces (Bloomberg estimated yearly transaction volume to be >$7 billion.) Variations of this model have since been followed very conservatively by multiple franchises, including Call of Duty, Halo, H1Z1 and Overwatch.

On the platform side, Twitch's dominance in live streaming can largely be credited to going all-in on eSports first, but Twitch also has numerous native or platform exclusive features for its users. Diving deeper, this experience is powered by a blend of features that were built in-house or created by third parties. Examples include:

Bits, preceded by Streamlabs and StreamTip: Direct donations from viewers are one of the foundations of a streamer's income.

Clips, preceded by Oddshot, Plays.tv and Forge: Allows viewers and creators to efficiently capture highlights and share to different social media channels.

Subscriptions / Partner Program and 3rd-party services (Revlo, Gamewisp and Curse/Discord integrations): Subscriptions are another big source of income for streamers and the third-party services all add further value to a sub and reduce churn.

TwitchPlays: What started out as a fun social experiment (#TwitchPlaysPokemon) is now its own category to interact with potential customers for publishers.

Chatbots (Moobot, Nightbot and Xanbot): Automated assistants that help moderate chat to prevent spamming and inappropriate behavior.

Facebook Live has launched to much fanfare and given the massive distribution channel it will always be a huge threat. However, until it can get to feature parity, Facebook Live will need to rely on traditional media partnerships or viral hits to create consistent content.

These types of partnerships don't scale when we're talking about the individual streamers and professional players that have played a large part in getting Twitch to 100m+ MAUs, although the signing of G2 and Heroes of the Dorm is a good first step. YouTube Gaming is farther along and is doing a great job of starting to launch some analogous features. (Edit: Facebook is just getting started)

How then should publishers look to partner with entrepreneurs and third parties?

I'd like to see publishers create a vehicle - individually or collectively - in the model of Disney Accelerator, to offer mentorship, funding and support to kick-start the next generation of eSports businesses. Publishers should be developing their games as platforms, not individual entities . Tons of data are being generated and archived and there is a treasure trove of use cases for them.

I'm confident that we're slowly moving in the right direction. One day we'll see a truly open ecosystem with publishers and third parties living in harmony.