A couple weeks back Activision announced the initial seven franchisees for its Overwatch League (OWL). As expected, the roster of franchisees is largely made up of investors with some affiliation with physical sports teams. However, one ownership group stood out as a little unexpected – the franchise for Korea was awarded to a group led by Kevin Chou. Chou was co-founder of gaming company Kabam, which he recently sold leaving Chou with the enviable combination of money and free time. Our view is that by sewing up the Korea franchise Chou and company ‘won’ this round, walking away with what could prove over the long-term to be the most valuable asset up for bid.
One of the notable facets of the OWL bidding process was the fact that Activision allocated teams on a geographic basis. This sort of arrangement is common in physical sports leagues, but is unusual in eSports. The whole idea behind video games is that they can be played online, which theoretically loosens the restrictions of geography, Many, if not most, eSports tournaments are held online only. This reduces the need for players to travel, significantly opening up the player pool, especially when many competitive players are still in their teens. It remains unclear if other eSports leagues will move towards a geographic franchise model. While the idea goes against the grain of how we typically think of eSports, it is possible this model holds some advantages. For one thing, it makes it easier to have in-person meetings with local fans – local tournaments, training camps or other fan events. We suspect Activision used this model, in part, to force teams to work harder at developing eSports at a local level, instead of allowing teams to house their teams remotely – LA and Las Vegas are both popular choices for ‘team houses’. This local model can help instill grass roots player engagement.
However, one big drawback of the local model is that it will require franchisees to build local infrastructure. This helps Activision, but represents a meaningful cost for franchisees. They will have to build the fan base, equip a venue and integrate into whatever local eSports scene exists.
But this is precisely what makes the Korea franchise so interesting. Korea has probably the world’s most developed eSports scene. There is a full support infrastructure already in place, with Seoul boasting some of the most sophisticated eSports venues. Korea also already has the most important asset – an enthusiastic fan base. Korean eSports events are a big deal, drawing large crowds, and these events become the center of many cultural activities drawing pop stars and other celebrities. The team Chou is building enters OWL with an important leg up in terms of fan learning and consumer acceptance of eSports.
We think this is especially important because so much about eSports remains unformed. Since we began writing about eSports a month ago, we have ‘spoken’ to a dozen or so venture investors and others considering investing in teams. Almost every one of them freely admits that they are not clear about the ROI for buying a team. The economics and revenue opportunity are really unclear. Yet the interest in the space is real. We believe this disconnect can be explained by the simple fact that everyone believes eSports is going to be a huge opportunity someday. And the motivation for investing today is largely being driven by investors wanting to put some skin in the game as ‘tuition’. The long-term thinkers know they have a lot to learn, and by buying into a team they are really buying the ability to get the best education possible on what will and what won’t work in eSports. It could be that buying a team is a poor investment, but by having a front row seat these investors will have early access to where the best investment opportunities in eSports will emerge.
If this is the case, then owning the team in the most advanced eSports market will be a large advantage. There has already been a lot of learning in eSports in Korea. Some of the practices there may not apply in the US, but many more will. For instance, eSports events in Korea actually draw gender-balanced audiences, something which is far from true in the US. Moreover, Korea is an important talent pool for global eSports team, and having a franchise in Seoul will allow the team there to run the most up-to-date scouting operation. These are just some of the learnings possible from entering Korea. This OWL franchise will start out several steps ahead of the teams in the US who will have start largely from scratch.