Esports Money and eSports

Online eSports Money and eSports

There's a lot of buzz in the public markets about esports, a lot of people looking for somewhere to put their money that's been pulled out of things like cannabis, but the question of where the money is, is all encompassing.

Where is the money, in esports?

The evolution of video gaming from the original Chinese model in freemium games and micro-transaction, in-game purchases is that evolution of video game that's where the revenue capture is for all the developers. Before on the console market, particular in North America you'd go to EB Games, by a video game for $79.99, play it on your console and that's a revenue capture for the company that one single payment or opening weekend. Now, people on average are spending $4 per transaction, per day and at the end of the month it comes up to quite a bit of money, Everyone quantifies it, "Oh, it's just a Starbucks coffee." But at the end of month, you're spending $200 and you're doing that continuously month over month so you can see the abstract revenue generation now for companies that have freemium models. So in short, micro-transactions, and in-game purchases is where the revenue is gonna be coming from. As an example my 10-year-old and my 13-year-old managed to spend $3,000 on my credit card on micro-transactions.

Micro-transactions and that element are gonna be a recurring theme and topic. One thing we've seen change I think for those of us that are gamers as we saw the way that we buy and try out games has changed. Rather than paying that $70, $80 and then repurchasing every year, the model has switched towards what I consider a gaming experience. You're purchasing almost a subscription to a game essentially; you buy the game and then within that game you're able to augment your experience. What's really interesting about that, I think from a money perspective is that when the game is priced on the shelf everyone's paying the same amount regardless of how much you actually play You want to augment your experience, it's a set price.

The entry-level point for games is significantly lower and players essentially have the choice on how much they wanna augment their experience in games. So, do they want to stick at that pre-level or the $5 level or do they want to pay to advance faster through cosmetic upgrades in game, it's up to them, it's their choice, so it's a little more flexibility to the player. When we talk more about pepper from a tournament standpoint, we're trying to add layers on top of that again and say, "Right, as a gamer how do we augment your experience as a gamer?" But it's your choice, you don't have to participate, but we're providing you a way to continue augment that experience.

One of the biggest factors of revenue coming into esports, is really content and original content, and streaming. So, what I'm eluding to is viewership and that's viewership that's on Twitch and on your social medias and that's such a big part of what we're doing here at Title Gaming and obviously down to our esports vertical with Lazarus Esports. So once again, it's our professional players, it's our content developers it's our entire organization as a whole.

Viewership is a big revenue driver, in the esports industry, and that follows content that you're producing on OTA Networks and obviously on the Twitch platform as well. So that's the biggest contributing factor and one of the biggest contributing factors to our business model, and obviously our success and organic growth moving forward. And on top of that, it would also be traditional sponsorship and digital sponsorship as well so that's rights and naming rights too and logo placement and jersey placement for non-endemic sponsors coming into the space, or partners that are already in the space.

EEsports has a reputation of having grown very quickly. But Blockchain also had that and marijuana's had that and cobalt and lithium had that at one point. How do we wrestle e-Sports down to a place where we know exactly what it's gonna look like in two, three, five years time? Right now, it's everything, everywhere. There's a million tournaments, there's a million teams, there's a million leagues, but only really Dota and League of Legends are really penetrating globally in a big way. So as a game developer, what are the risks for you as you're looking to join those two joins?

I think where we see esports going because it's fragmented right now based on particular video games, they're multiple infrastructures that allow you to compete against other players and specific games, but I think in three to five years time, I think the unification of all the platforms together. So basically you get one social status or one credit status you get your player card sort of speak, over across all platforms on all the video games that you have played. I think that's what we're going to see. And I think moving forward in terms of more revenue generation, I think that's where the advertising dollars are gonna go.

We romanticize, some of the athletes in pro sports, like hockey, like football. But we're only beginning to attribute that sort of clout and celebrity status to esports gamers. And I think once there is that unification, let's say Player A has done this in Fortnite or has done this in PBG or this in Dota, being able to now bring up his player card and see, wow, he's really diversified in the way he plays video games, but he's also very good at multiple avenues. So I think moving forward, that's where we'll see esports. As a video game developer, what we have to focus on, and how we focus on it, is keeping up with the trends, giving players what they want. We have one main video game that is the flagship of our company, it's a 800 man-year video game that's been launched on Tencent's Wii game platform in China. We have a portfolio of nine other video games that are purpose built for esports.

The majority of the ideas that we generate for all these other nine mobile and PC games is from our school. We have a night vocational academy base for video game developers in Shanghai at our HQ. The five story building, the first four stories house 400 of our developers. The fifth is the video game school. We get over 30000 applicants every single semester, it's a semester year long program. At the end of the year... Sorry, the judgment criteria and how we want students to actually come to the school and why we want them is not only for their... 'Cause they're all mathematicians, they're all engineers, but in an essence, because they're video game players and developers they're artists. We wanna take not only their artistic ability and apply that to something that we can generate revenue from, but also we want their ideas. In that sense they are our target market. So really from a game developer's point of view, it's managing trends and kinda staying in front of the trends and understanding which game types are most popular and which game types are trending and be able to provide some sort of supply, some sort of video game to that demand, is a prime focus for us, and we do that through incubating ideas, and people and then giving them jobs after, to the top 3% give them jobs in the studio from the game studio.

On the tournament side obviously the game developers own their IP, and so a PEPPER's business model is to create a platform to allow individuals to run their own tournaments, if I'm correct. How do you penetrate to a higher level to where the real big money is?

Just to talk to the PEPPER platform. So we actually operate all of the tournaments. So the idea is removing as many barriers to entry and friction into the tournament environment. Essentially PEPPER is a esports tournament platform for casual gamers. So we don't wanna change how people game, we wanna elevate that experience. And ultimately, the trajectory for PEPPER is to, from the game publisher standpoint is to help those game publishers sell more games, get more exposure. If we're able to truly elevate and improve that gaming experience, gamers are gonna be more engaged with the titles that they're playing, and ultimately that's what the publishers wanna see, is both new sales and retention. And the way that we do that with PEPPER is, we don't wanna disrupt that existing gaming process. Most tournament platforms are requiring you to pre-register for a tournament, and then you start at a specific time, 5 PM on a Thursday with your team and then you play for four hours, and see if you won a tournament or not.

The way they developed PEPPER is by working directly with the data that the game publishers make available. Once you've registered you just connect your gaming account, play as many games or as few games as you want during the week, on whatever schedule you wanna play, and we're able to track that data. And your in game performance versus your skill level is what counts in that tournament versus other players that are in it. What I mean is very little friction. If someone plays two hours a night on Monday, Tuesday, Thursday, and someone else liked to play a full day on Wednesday, they can be in the same tournament. We're not changing how they play the game, how they experience the game, we're adding something on top. Why I think is important is when the publishers are looking at how to drive retention, and revenue and increase sales in their games, it's very important that they're not disrupting that gaming experience. They don't wanna necessarily change how players or trying to force them down certain directions. PEPPER, we wanna give everyone exposure to esports, the ability to play on competitively, and our strategy is to do that in a way that doesn't change how they currently interact with their games. I think from a revenue perspective, that's very important as well, continually increasing that level.

 

From the team's perspective, the problem that I have with a lot of companies that are out there in that side of the market is, I can pick this guy, this guy and this guy tomorrow, and we can set up a team and we can stop playing Rocket League, and tell ourselves that we're gonna get to the championship. You've actually set up teams in the past that have elevated in a big way in multiple esports. What's the difference between what happens when you decide to start a team in a given game and what happens when I decide to start a team?

The biggest competitive advantage to that is the fact that we've been doing this for close to a decade now and so it's really, just that industry experience and the relationships that we've developed over that time that allows us to go back. And just to echo what some of my fellow panelists had said here is that, it's really understanding and focusing on the trends and forecasting, and analysis and understand the emerging games that are coming available and the mainstream games that are just about to take off or have a next infusion of prize pools like $250 million for Fortnite in 2019. So once again the difference between you setting one up, and us setting one up is, frankly, once again, we've been in the industry for so long that we're more strategic with how we can utilize our capital and where to put that and ultimately how to drive revenue back to our teams.

On the video game development side, there's a long history of $100 million games that have flooded through the universe for two weeks and then disappeared never to be heard from again, Kickstarter. As a developer you have a lot of games going at once, but there are a lot of Indies out there that will spend a year, a year-and-a-half trying to develop one game, scratching around for coin, put it out there and the universe just doesn't pick up on it, what is the real risk for you even if you're developing nine games at a time that the resources you're putting in made no resources back?

 

To compare those prices based on man-year spent, 800 on our video game, Rising Fire, in North American market that's a $200-$250 million game. So, why I think our game will be successful is because we started this company in 2006. Private company from all ex-private equity guys, really love video gaming and they saw that because of the change in the allocation of broadband internet in China in particular, that video gaming was gonna soar in popularity. We started in 2006 as a joint venture partner to Epic Games. Now, everybody knows Epic Games right now, because they are the creators of Fortnite. As part of the joint venture we were the outsource partner providing content to the point where we actually built 40% of Fortnite in our studio in Shanghai, we also worked on Gears of War and a few other titles that Epic popularized globally. So in terms of experience I think that we are very competitive, not only because of the price or the lack thereof that it costs us to make these video games, but we have first-hand experience in building video games on the Unreal Engine.

Unreal Engine is a very popular backend infrastructure for that Epic licenses out to other companies to build video games. Our engineers spent so many years developing games for Epic that in 2011 we figured that we wanna go out on our own and build our own games, so we built Mars. Mars took us $3.6 million to make, an year to date it's generated $65 million. P&L looks great, but because we're in the largest video game market in the world it's a failure. It's a failure because we didn't have distribution, it was downloaded 23 million times globally based on those numbers and the average price per download we should have been $400-$500 million in terms of revenue generation and we got 65 year to date in eight years, distribution was the issue. We fixed that by partnering with Tencent on our new game Rising Fire that's currently in the market and Tencent is taking care of distribution. Then again, the real risk, it could not hit. I can tell you what Tencent has done in the two years and four levels of testing and the multiple, multiple patch updates that we have to deliver to them every six weeks. So in terms of success rate Tencent is one of the best in the industry, but there's always a chance that it doesn't hit. I mean, case in point you just mentioned it.

Maybe not $100 million game in China, but we're definitely double that in North America. So I think we're on the right track with it. Basically because of our distribution partner and our experience already making video games. So to echo what Tyler said, it's experience and understanding the industry from its very finite pieces and then extrapolating out there and catching these trends.

Most tournament platforms that exist today are catered towards the 200 million esports players that are out there, these are players that are trying to make money playing esports, they're trying to win tournaments for compensation. Now, the frustrations that I have experienced with gaming that people that I play with experienced is, I'm under no illusion that I could become a professional esports player, I put that dream to bed a long time ago, but I enjoy playing competitively, I want to participate, I wanna have that tournament experience. And what I found is, going back to our discussion earlier, most of the tournament platforms that are out there don't allow me to do that, they try and put me in a position which is... There's a lot of friction unless you're driven to become a professional esports player.

If that's the path you want, then there's a lot of platforms out there that can take you through that, but I just wanna be able to jump into a game every now again, but be part of a tournament, feel like I'm part of that competition. And so, 200 million esports players, there's 3 billion gamers in the world. And so, for us that's the target market that we're going after is those 3 billion gamers that want to... They're casual gamers, they wanna game on a casual basis, but every now and again they want to put a little bit more on the line, they wanna have a little bit of competitive edge with their friends, with the guys that they play with, so really...

So from a revenue standpoint right now, have you seen Alper, PEPPER is free to enter, the revenue streams are focused around working with game publishers, sponsors, advertisers a great advertising process for tournament platforms is sponsored tournaments, especially for the younger generation. They're less responsive to direct advertising, they don't like to click on adverts, but if there's something in it for them, they're much more engaged and the obvious ones are companies like Coursera, Logitech that can sponsor tournaments. But I saw one the other day, which was Domino's Pizza sponsoring a tournament this is another platform I saw. Which is great, who doesn't want to... If they're already game and now one click, they're in a tournament and they could win a month of free pizza and they're much more engaged with the brand. So there's a number of our revenue streams that we're exploring, but essentially it's really, it's engaging with the players and providing an avenue for publishers and sponsors to be more engaged directly as well.

 

I watched The Rocket League World Showdown on the weekend. And the day before that event happens, one of the top teams changed their roster. One player goes to another team, which then has to move a player to another team. And it struck me that we're putting a lot of money in the hands of 15-year-olds, who can be a little bit dramatic and a little bit impetuous, and don't necessarily care if you have a contract. As a team owner, who's putting resources into those kids, how hard is it for you to actually keep control of those kids and build a long-term team with an engaged roster?

There's sometimes there's certain games that sometimes we do dip below the under 18 market and Rocket League is one of those titles for sure, and we have had a pro Rocket League team in the past. And I always encourage to get involved with the parents. So, one of our first players on Rocket league was 16, one was 17 and another one was 18. And it was just like a multiple point conversation of really talking with the kids, working through the contract, speaking with the parents, educating them about the space, where the space is going, what their potential success is, and that this is a legitimate business for them. Where five years ago or 10 years ago, it wasn't.

Nowadays you're seeing individuals and kids nowadays that are playing Fortnite and Rocket League and making tens or hundreds of thousands of dollars in a weekend, and so once again, it's always an educational process, but to mitigate some of that risk as well Chris, is the fact that you wanna scout players, you wanna... If you're making a roster change before an event, it's not unlike any traditional sports team, like the Toronto Maple Leaf's or anybody else. Where you're constantly evaluating your team at every given moment and if there is an opportunity for your team to be better and once again, you have that direct line of communication with your team and your coaches and your analysts and your scouting team and your general manager, you have all of those voices and all that communication that allows you to make an informed decision which then obviously mitigates your risk from a team ownership point of view.

There are certain times where, yeah, you might have to make a drastic or what might seem as a drastic decision changing out a roster player, right before an event. But once again, when you're title gaming and you've been in the industry for so long and you surround yourself with great people and you have the right infrastructure and you have the right management, that's what allows you to be smart with your decisions and not be reactive but be proactive for ultimately, your ultimate success.

Rocket League is one game where the players are the ones that are invited to the championships based on previous form, not necessarily the teams. So as a team owner, in that particular game you can put all the work into getting them there but then they can decide next year, we're just gonna change the name and be our own team. Is that restricted to Rocket League or is that sort of thing that will also show up in CS GO or Fortnite or any of the other.

That's a very rare thing though, where once again, most developers and publishers, they want tier one organizations like title and our esports platform, which is Lazarus Esports. They want that name because that's only promoting their game. It's creating more viewership, it's organically growing on social media, so that it's not just one player, that's one kid that's not affiliated or partnered or sponsored. The developers and publishers of these games and the event hosts want the best teams, they want the best players that ultimately is going to lead to revenue and viewership as well.

Sometimes they can switch things on us, but once again it's understanding and having that direct line of communication and sometimes once again, we've been in this industry for so long, we've been in it for close to a decade now and once again, we get a lot of privy information from developers and that's just building great relationships over that decade. So every teams a little bit different, but I think if you have that great communication and that information line with developers and event hosts, you can circumnavigate that.

 

On upfront revenues on your games as opposed to micro-transactions, what's the split?

 

So, currently the video game is a free to play, free to download and micro-transactions start immediately thereafter. I mean... There's a large body of research that's going into when is the best time to apply advertising towards getting people to actually purchase things within your game. And you can argue that there's a transparency effect, 'cause you're not giving up a physical currency to actually buy something. And then there's the whole concept of micro-transactions and why they have grown in popularity... Going back to the online gambling world... Is that playing video games depletes the levels in your brain of how to control yourself, or how to prevent yourself.

Well it's a real thing. So that depletion leads to your buoyancy levels in your brain to prevent you from making stupid decisions, and it comes to a crosshairs where basically the advertisers know exactly at what point in the video game... After you do something really awesome, you beat the level, you kill a boss, or if you lose really bad and you're very upset about it. And then the game... Because the data analytics is tracking how many times you've attempted to kill someone, or how many times you've attempted a certain task. And at that point where you're at your weakest or at your highest, they will advertise something that you actually do want to buy based on your play habits and based on how much time you've put into it.

It's profitable, but you know the scarier thing? Or if you look at it from the other side, the positive thing about this is that there is a lot of research going into it. And as of now, the video game industry on the micro-transactions side is not overly regulated, which is why you see Fortnite making five billion dollars, which is why you see PUBG coming close to that, which is why you see all these... I'll tell you something. I was doing some research for a last presentation that I did, and I went through and I scoured the internet, and I wanted to find the top five opening box office movie hits and compare them to video games.

The top three box office movie openings aren't... The top two aren't even movies, they're video games. Now what Hollywood has done is that they've merged video games with movies and now call them entertainment opening weekends. The top two are video games. Number one is Grand Theft Auto 5. In opening weekend... And there's some controversy because it was released on a Tuesday and not a Friday. Regardless, over $1 billion opening weekend. Second game was one that was released in Q3 of last year... Q4 of last year, and it was Red Dead Redemption 2, $728 million in opening weekend. The first movie doesn't appear until the third spot, and that was the Avengers movie. And that generated 620 million. So you can see how much money is being derived from micro-transactions. I kinda went off on a tangent, I forgot the question. Was there one?

 

Scholarships, full-ride scholarships of major universities for esports athletes. Instead of Kumon or extra math and spelling help in elementary, middle, and high school, parents are now getting their kids extra help for Fortnite and PUBG so that they're now more popular at school.

I can tell you, my kid was bullied at school. Used to play Minecraft as a seven-year-old, I said to him, "I'll let you play as much Minecraft as you want if you start your own server. And you learn how to do it and you get a little bit of knowledge while you're playing." Man, he had every kid in school on that server and was the king of the castle. Completely changed his social status. Just quickly, finances on the team side. Realistically, there's a lot of talk about sponsorships making up money on all platforms. What's the reality of sponsorships as an income source for teams?

There's great success in that right now. And we've seen that just over the last year, let alone moving forward. And once again, there's a tremendous amount of sponsors and partners within the space, and then a lot of non-endemics. So you look at your Audis, your Mercedes Benz, your Snickers, your Coca-Colas, and they've all... Nike just came into the space as well for 441 million dollars. And once again, you're starting to see a huge amount of non-endemics coming into the space because they're realizing the opportunity. They're seeing the demographic, they understand that this is an under-served market, and once again, there is... They're buying spots.

 

Are they coming to the teams to spend that money, or are they spending that money on the platforms or on individual stringers?

It's a combination of all. It's the organizations, it's the teams, it's the players, it's the events, and it's... No matter where that money comes in, it's a trickle-down effect and it does come to us as well. So at the end of the day, it is direct-line to us, but if it comes from the top and floats down to Lazarus and Title Gaming, that's ultimately how it happens.

On the sponsorship side, there's a lot of companies that say, "We will get revenue for sponsorships." But actually getting into the board rooms and the advertising agencies of those big companies is difficult.