Franchising: Riot Games vs. Activision Blizzard

FRANCHISING: RIOT GAMES VS. ACTIVISION-BLIZZARD

Franchising: Riot Games vs. Activision Blizzard (Graphic: The Next Level)

Franchising: Riot Games vs. Activision Blizzard (Graphic: The Next Level)

By Feature Writer James Kozachuk and Manny Anekal

 

Back on November 4, 2016, Activision Blizzard made a huge splash by announcing a massive upcoming league around their latest hit, Overwatch.

It drew considerable press and excitement with a flurry of consistent of rumors around price points, endemic vs. non-endemic teams and cities. 

And we continued to wait.

Then last month, like Prometheus gifting mankind fire, Blizzard released details on the initial 7 cities and teams that would take place in the Overwatch League.

For those keeping score at home, that's 250 days. What's happened in the world since then? Trump became President....I guess we can stop right there.

In that time, the NBA not only announced their NBA2K ELEAGUE and 17 teams would be participating. Riot Games announced details around their North American league.

After Blizzard's city announcement, more details emerged around revenue sharing and SuperData created a great chart the same day comparing both franchises.

Since then even more insight has been revealed into both Riot Games NA LCS and Activision Blizzard's Overwatch League.

In conjunction with SuperData, The Next Level wanted to take a deeper look at how both franchise options stack up.

 

NA LCS VS. OVERWATCH LEAGUE

 

New York Yankees, Dallas Cowboys, Toronto Maple Leafs collectively have been in operation for 273 years. How have they lasted this long?

In eSports many teams rarely last a year; for example, only four teams from the first North American League of Legends Championship Series (NA LCS) are still placed in the league.

How is this solved in traditional sports? Franchising.

The Maple Leafs were a founding member of the NHL, the Cowboys were the first expansion team of the NFL, and the Yankees spent a lot of money and got lucky or something [Edit: Sorry, Mets fan]

Now both Riot Games and Activision Blizzard want to bring this concept to their two flagship competitions: the NA LCS and the Overwatch League (OWL). While each league concept is similar, there are a few fundamental differences between their approaches.

Here's a side by side comparison of both franchises with further analysis:

LCS OWL Franchising Riot Blizzard

 

TEAM PLACEMENT COST

 

NA LCS: $5M due up-front, $5M paid over time.

OWL: $10M due up-front, $10M paid over time.

With a high buy-in cost for OWL, Activision Blizzard seem to be focusing entirely on bringing in big-name brands, specifically traditional sports teams, which provide a large amount of legitimacy for their league to outside viewers - along with the accretive value that eSports brings to pro sports teams.

With this in mind the best case scenario for Activision Blizzard is the one they've created: endemic eSports teams will need to raise additional outside capital to even consider OWL.

7 of the confirmed Overwatch League Locations (Photo: Youtube)

7 of the confirmed Overwatch League Locations (Photo: Youtube)

 

LEAGUE GEOGRAPHY

 

NA LCS: While focused primarily on the North American audience, 2 of the 7 teams are located in Asia and expect more teams to be confirmed soon.

Friday Aug 4: Activision Blizzard to Confirm Additional Cities (Photo: Twitter)

Friday Aug 4: Activision Blizzard to Confirm Additional Cities (Photo: Twitter)

Sunday AM Aug7: Activision Blizzard to Confirm Additional Cities (Photo: Twitter)

Sunday AM Aug7: Activision Blizzard to Confirm Additional Cities (Photo: Twitter)

Assuming the audience is primarily North American but with Global reach, this makes sense for brands looking for both, like Coca-Cola, which has partnered with Riot Games before.

Sound familiar? Hello FIFA.

OWL: Hyperlocal with Global audience potential as well. US focused brands will see a lot of benefit in OWL, especially since they can get involved in the amateur initiatives that each team is required - or allowed?-  to put on. We'll see brands with a unified global strategy getting involved in OWL as well.

City based leagues are all the rage from Super League Gaming, to Australia's recently announced league and definitely more on the way.

Is this the right approach and the right time? For another The Next Level article.

The Championship Zed Skin/Ward Sales Totaled $11.76M USD. 25% of this ($2.94M) was Added to the League of Legends Worlds Prize Pool (Photo: Riot Games)

The Championship Zed Skin/Ward Sales Totaled $11.76M USD. 25% of this ($2.94M) was Added to the League of Legends Worlds Prize Pool (Photo: Riot Games)

 

TITLE MAU/MTX REVENUE

 

NA LCS: League of Legends is a game with a mature audience and after almost five years of competition; the style, format, and idea of what to expect has been solidified.

OWL: With Overwatch, there's no guarantee on what will happen five years from now - hence that's the bet.  During year one we believe that most of the matches will be played out of a studio in LA - we've tried to confirm this 100% - so when will we see Home/Away games and what will that look like?

An apt analogy is that investors are basically buying Ethereum (OWL) versus investing into a 401K (NA LCS). We just don’t know what the competitive Overwatch community will look like, it could be a huge flop or a massive success.

That being said, Activision Blizzard has been notoriously strict on allowing organizers the license to run Overwatch tournaments this year and the metrics might pick up once a stable competitive scene is created.

Riot Games Announced a Player Association for NA LCS (Photo: Youtube)

Riot Games Announced a Player Association for NA LCS (Photo: Youtube)

 

TEAM REVENUE

 

NA LCS: Riot has already locked in a media rights deal worth $300M over 5 years with MLB/Disney's BAMTech. With the platform being specifically developed with LCS eSports in mind, I'm sure they'll have access to data and analytics we just haven't had before in eSports- data and analytics that are heavily sought after by more traditional brand advertisers.

OWL: OWL is still a big bet.  On the media front, Blizzard has a broadcast integration with Facebook, a 2 year deal with Twitch and you can almost guarantee will be shown on MLG.tv's platform as well.

Oh and FYI, if you want to make an exit and sell your OWL team, you owe Activision Blizzard 25% of your sale price.

With ESPN being owned by Disney, who invest in both BAMTech and axiomatic, we don't foresee them making many further media rights deals in the US; but the rest of the world is potentially open.

Timeline for NA LCS Franchising (Photo: Riot Games)

Timeline for NA LCS Franchising (Photo: Riot Games)

 

PLAYER BENEFITS

 

NA LCS: $75K Minimum Salary + Full benefits + Housing + Player Union + Salary floor at 35% of league revenues

OWL: $50K Minimum Salary + Full benefits + Housing + 50% of team performance bonuses

Blizzard needs to make it easy for OWL franchisees to find talent, because there's a very limited base of established talent. This includes scouting reports, plans for a combine, and an entire PR campaign based around "Every Overwatch player is potentially a professional!"

At the same time, Blizzard has year over year cost that each of their franchisees pay, in addition to their huge placement cost, cost of developing local infrastructure - hopefully Blizzard helps with this - and especially given that Overwatch teams comprise at least six athletes to League of Legends' five athletes.

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)

 

Will the future of franchising take the form of Activision Blizzard’s strategy or will Riot’s safe and steady LCS model provide greater returns? 

Place your chips.

As Sports Viewers Skew Older, eSports Is Youngest

AS SPORTS VIEWERS SKEW OLDER, ESPORTS IS YOUNGEST

The eSports Audience: Younger Than Sports (Photo: Riot Games)

The eSports Audience: Younger Than Sports (Photo: Riot Games)

TNL Take: Recently Magna Global in a study for the SportsBusiness Journal used Nielsen data across 24 sports to analyze how the median viewership ages have changed from 2000-2016.

"Going gray: Sports TV viewers skew older" (Source/Photo: SportsBusiness Journal)

"Going gray: Sports TV viewers skew older" (Source/Photo: SportsBusiness Journal)

It's a great article filled with actual data and worth your time to read but a quick TL/DR:

  • Headline "Going gray: Sports TV viewers skew older"
  • The median age for Golf is ~60
  • The NHL saw the biggest increase in media age increase (+16 years) from 2000 to 49
  • 3 of the 4 major US sports leagues (NFL, MLB, NHL) are ~50 or higher

Why wouldn't they include eSports?

No data going back to 2000, only 1 data point from 2006 (MLG on USA Network) and no 100% apples-to-apples to comparison for eSports in 2016 yet. So all fair points.

But I was curious so I did it anyways.

Here's how Sports viewership on TV compares with eSports on TV: 

Before we get into the data a few HUGE caveats:

  • The Magna Global/SBJ data is quantitative Nielsen data over time. The 32 median age for eSports is based on Nielsen's 2016 eSports report which is a survey. So while not a true exact comparison, it's the closest publicly released data point available.
  • I won't even compare major Sports viewership vs. eSports - it's not even close
  • While eSports viewers are almost 2 decades younger than an NFL viewer, the ad revenue is the size of an ant compared to the blue whale money machine of football

So how close can we get to accurate data?

Let's say...you may hear some news shortly. But there are a 2 additional data points I can add:

  • There have been 50+ eSports programs on TV in the US from 2016 to today
  • The average of those 50+ programs is ~55% within the 18-49 demo

While that still doesn't give us a definitive median age for eSports on TV, the current data falls closely to the 32 survey age.

However, I didn't include this point in the chart to avoid confusing digital and TV - please stop that already - but in terms of media and eSports future, I believe it's important:

 

While the median age of eSports on TV is ~32, the media age on streaming platforms is even lower at 25

 

TV is a $70B+ industry in the US.  The NBA Finals draw 20M+ viewers - which has increased for the past 3 years. TV is not disappearing anytime soon especially with digital media mired in the  "programmatic/DSP/SSP, it's-not-adtech-its-martech, brand safety, what's-a-view-exactly" mud.

But if your target audience is 18-49 and you believe that moving (1) :30 second commercial spot for $250,000 to eSports is not worth your time - your competitors will.

The Next The Next Level

THE NEXT THE NEXT LEVEL

The Next Level (Graphic: Jordan Fragen)

The Next Level (Graphic: Jordan Fragen)

Last week was issue #201 of the The Next Level daily newsletter

What started as a late night random Medium post 13 months has turned into eSports business news with distribution across a variety of media.

Sorry for the awful pun but it's time to take The Next Level to the next level.

There won't be a Corporate Manifesto and will roll out slowly to avoid the usual copycats but I can say what it won't be:

  • The Next Level will not copy and paste press releases
  • The Next Level will not chase page views
  • The Next Level will not be littered with awful ads
  • The Next Level will not provide #HotTakes
  • The Next Level will not stray from showing the reality

 

As always, this would not be possible without you.  Thank you for the support and feedback. 

-Manny Anekal

Q1 2017: The Brands That Invested In eSports

Q1 2017: THE BRANDS THAT INVESTED IN ESPORTS

Intel Extreme Masters Katowice 

Intel Extreme Masters Katowice 

TNL Take: In 2016, we saw over 50+ Brands (FYI: Ending the term “Non-Endemic”, we are well past that) invest in the industry.

In the first quarter of 2017, we’ve already seen 30+ Brands make the move. When Brands re-invest in a platform, that shows belief in the ROI and returning companies like Coca-Cola, Gillette, Pepsi, Geico and others have done that.

Then there are brand new entrants like Dollar Shave Club, Aviasales - the largest Russian travel search engine - and Gerolsteiner, a German beverage Brand and more movie studios. 

As soon as there are 40 hours in the day, all of these deals with additional details will be in the TNL Brand Tracker.

Will we see 100 Brands invest in eSports in 2017?

At this trajectory, we very well could be. I present to you the 2017 Q1 eSports Brand list.

TNL Infographic 032: Q1 2017: The Brands That Invested In eSports (Graphic: Jordan Fragen)

TNL Infographic 032: Q1 2017: The Brands That Invested In eSports (Graphic: Jordan Fragen)

I'll post a high-res image shortly. As always, feel free to use this in presentations, pitch decks, chats with your boss, hang on your fridge – just please give attribution to The Next Level. And if you see 1 Brand missing - please email me.

Thank You.