In our posts so far on eSports (and here and here), we have focused largely on investing in eSports through the eyes of parties looking to invest in teams. That analysis has turned up a pretty modest investment case for participating in the franchise opportunities currently in the market (League of Legends and Overwatch). Buying a team can be a good investment, but it carries considerable risk, as I’ve highlighted before Increasingly, it is also going to require deep pockets and long investment horizons. That said, eSports is growing right now. Surely there must be other ways to make money in the space. In this piece we are going to brainstorm a few ideas.
First, at this stage in eSports, probably the best path to a good revenue stream is to start with a law degree. The industry is going to need agents and negotiators, and there will be some lawyers who make a great living from this. It will be interesting to see which established law firms (especially from the tech and media sectors) enter in a meaningful way. However, we want to focus on investable ideas and opportunities where investors can bring capital to bear and scale a business, not a sole proprietorship or simply a lifestyle business for the founder.
In looking for these opportunities, it is probably best to start by looking for pools of money that can be converted into a business model. Using the constituent analysis of our larger piece from last month we have players, teams, leagues, game companies and advertisers. We can probably rule out players, they are going to get outside resources through their teams. Nor are there enough of them around which to build a full scale consumer web business. We are also going to lump the teams and the leagues together, as there is considerable overlap in interests here.
Below is a list compiled through more of a brainstorming exercise than any strategy framework. In no particular order:
Real Estate – One idea we had was to invest in real estate. Teams and leagues need places to host local tournaments. Setting up such a venue requires some upfront expense, but then it is relatively simple to manage. Someone should go out and lease a bunch of old movie theaters, kit them out with heavy-duty networking and AV gear, and then rent them out to local eSports events. Admittedly, this requires a fair amount of upfront capital, yet in in the next ten years, it is likely someone will build a solid speciality REIT around eSports event hosting in the US and possibly Europe as well.
Team Management Software – Looking more closely at teams, these organizations all need coaching and analysis staff. There is a large pool of former and semi-pro players to fill these roles. However, they could probably use a nice suite of software tools to manage their teams. This suite could include a system for tracking recruits, of monitoring player stats, organizing training and scrimmage matches, and forecasting future needs. This seems like a great project for a former player/team manager to pair up with a solid coder and apply to Y Combinator or some other incubator. A small team, hyper-focused on working with users, over time could scale to be a nice business, one which could eventually be consolidated into a larger HR software organization. There are already a few dozen such tools for managing physical sports team, but we are not aware of a common solution used widely across any major league. We would argue that eSports lends itself more naturally to software monitoring tools than physical sports, but at heart the products may not be that different.
Video Analytics – Another interesting area would be providing tools for team analysts to better track gameplay. eSports teams generally all have analysts who watch gameplay video and provide detailed feedback. This should be something that is easily adapted to a smart software start-up, especially since eSports may be the most data generating sport we’ve ever seen. However, here we run into one of the big roadblocks – the game companies. The game companies own all the IP of their games. Some titles have APIs which throw off game stats, but this is done entirely at the whim of the game company, which will make it hard to build a stable business that lives at the mercy of Riot, Valve, Blizzard et al. One interesting approach would be to marry some of the smart video editing companies with gameplay videos. There are a few startups out there who can take hours of consumer videos and algorithmically edit them down to ten minute clips with soundtrack that are actually watchable. If those algorithms are tuned to recognize key gameplay moments, they could greatly ease the work of eSports analysts.
Digital Marketing – Another possibly promising area would be marketing tools for teams, leagues and even game companies. The world probably already has too many online marketing and advertising start-ups, but there is definitely room for some more expertise being brought to bear in eSports. The teams, in particular, will need to do a better job of building a fanbase and getting them engaged. We would argue that the game companies need help on this front as well, despite their significant marketing resources already in place. Here the goal would be to collect fan data from across social media, craft ‘engaging’ messages (“content”) and distribute them across relevant ad inventory. For instance, encouraging fans to tune into upcoming events and promote those events to their social media contacts. These tools already exist for other areas of online advertising, and should be able to find a home in eSports.
Betting – Betting is probably already one of the biggest business models in eSports. This is constrained because it is essentially illegal in the US. Nonetheless, we know of several of companies in Europe, Australia and the UK building nice betting books for eSports. Someone should take this to Las Vegas in a meaningful way.
These are just a few ideas we came up with recently. We encourage you to contact us or leave a comment with other suggestions.