eSports Investing as Tuition

Last week, we took a look at some of the winners of Activision’s OWL franchise program. At the end, we made a conclusion about how the Korean franchisee had a big advantage because they had the chance to learn from the best eSports businesses in the world in Korea. We realized there was a larger point to be made about eSports investing and wanted to expand on this thesis here.

It turns out that the motivation behind many prospective eSports team investments right now is the desire to learn the industry. As we have pointed out repeatedly, there are many unknowns about team revenue models. Despite the many risks, there is a large audience out there wanting to buy a stake in a team.

In many of my conversations with various investment groups, it quickly becomes apparent that very few of them have any more clarity of team business models than we do. In fact, several potential investors admitted to me that they are contributing minority stakes to owner groups for the ‘education’.

Under this model, they feel that by putting a ‘little bit of money’ (i.e. several million dollars) to work, they will get insight from the front lines of the industry. In doing so, they hope to get ahead of the pack in learning where the ultimate big opportunities lay. These opportunities may be teams, or they may lay in others areas. Either way, these small investments afford them a front row seat.

We imagine that some people may be uncomfortable with this. After all, we are talking about sums of money that are pretty meaningful to the average person. From our point of view, however, there is nothing wrong with this model. It is a smart investment, and so long as everyone has robust governance structures in place, this should not distract or harm the teams accepting these minority stakes. At worst, the team gets a little bit of capital from investors they never know. Alternatively, the teams can benefit from having professional investors on board, many of whom are knowledgeable about how to grow businesses.

Admittedly, there are risks for the investors (and really, their LPs). But in the grand scheme of asset allocation this is a pretty small price to pay for what could turn out to be na important investing advantage over the long-term.

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