The Next Great American Pastime
Major League Gaming is building the ESPN of eSports. And reshaping sports media.
Half of the 10 players are on the American team, named “Liquid.” They’re stalking a five-man team from Brazil called “Luminosity,” which is playing this round as terrorists. The Americans are patrolling the area of the onscreen “map” where the terrorists hope to plant a bomb, represented in the game by a small cube topped with a knot of wires. If the Americans prevent this, they win — and U.S. team gets first blood when one of them turns a corner and fires at close range on a member of the Brazilian team backed against a wall. But it’s a Pyrrhic victory: In just 57 seconds, the four remaining Brazilians pick off all of the Americans in a flurry of pistol fire that becomes hard to follow as the onstage screen switches among nine different first-person perspectives. Round one goes to the Brazilians, and the crowd quiets.
The teams alternate between playing as terrorists and counter-terrorists, in 30-round matches that can be won by the first team to take 16 rounds. As round two begins, a smoke grenade tossed by a Brazilian shrouds four Americans in haze. Then another Brazilian stalks out from behind a corner, mows down an American with a MAC-10, then pivots to shoot an American perched atop a stairway in the adjacent courtyard. The players pick each other off in a storm of bullets until there’s one American standing, who games by the screen name “Hiko.” “Hiko is going to have to pull out a massive clutch,” says the British-accented voice of one of the four announcers who offer play-by-play commentary from a nosebleed corner of the stadium.
Hiko quickly dispatches one of the two remaining terrorists, swipes the dead man’s MP7, steps out from behind a stack of barrels, and downs the last Brazilian. The crowd erupts — “Hiko! Hiko! Hiko!” — hoisting American flags and Don’t-Tread-on-Me banners. Acne riddled teens with their fathers and twenty-something men with their long-suffering girlfriends chant “U.S.A!” between gulps of Budweisers and Monster energy drinks.
Welcome to Major League Gaming’s “Counter-Strike: Global Offensive” Major Championship, the first-ever “major” held in the U.S. At stake is $1 million in prize money, and for team Liquid, the chance to be the first American team to win a major. Also, in some way, the future of eSports, which have become popular enough in the U.S. to fill most of this arena (where the National Hockey League’s Blue Jackets usually draw fans through a slightly less violent form of athletic entertainment).
“Like a regular sporting event, right — like a football game?” asks Sundance DiGiovanni, co-founder and vice president of brands and content for Major League Gaming — the eSports company hosting the tournament — as he watches it on his iPhone in a green room in the belly of the arena. “That energy, it comes out of the appreciation of a lot of skill, a lot of effort, and being able to not crumble when you look up and see 10,000 people staring at you and know another million are watching you from home. The spectacle of sport — why we love it so much — is that primal thing.”
Primal indeed. Unprompted, thousands of fans belt out “The Star-Spangled Banner”; six of them display bare chests painted in blue and white to spell out the American team’s name. Such scenes are becoming more common as eSports attract an audience around the globe. Two years ago, a “League of Legends” tournament sold out the second-largest arena in Seoul, South Korea, a 40,000-capacity venue that hosted the 2002 World Cup. Worldwide, the audience for eSports is 70 million and growing, according to a recent report by PricewaterhouseCoopers. Two years from now, DiGiovanni says, it could grow to 300 million. In the media industry, where eyeballs are currency, eSports could eventually end up minting money.
Unsurprisingly, platoons of venture capitalists, startups, and competing leagues have begun maneuvering to capture market share in what PricewaterhouseCoopers currently values as a $463 million industry. The championship in Columbus takes place just four short months after the video game giant Activision Blizzard acquired Major League Gaming for $46 million, assuming its debts. Other companies have made their own acquisitions: In 2014 Amazon bought the eSports streaming company Twitch for $970 million, and earlier this year Turner Media and the WME agency launched the eSports organization, ELEAGUE, saying it would be “unprecedented in its size, scope and production value.”
The size and scope of eSports is already bigger than most media executives realize, since the main audience isn’t even in the arena. The Columbus event’s most-anticipated showdown — the final match between Luminosity and the Ukrainian team Na’Vi, played for a $500,000 cash prize — was live-streamed by 1.6 million fans worldwide on Twitch and MLG.tv. All told, 71 million video viewers saw the five-day event, watching 45 million hours of video in 15 languages. And that’s just one competition. Twitch viewers spend an average of 106 minutes a day watching video gaming, and the service gets an average monthly viewership of 100 million.
It’s easy for outsiders to dismiss eSports — the slang is arcane, the action hard to follow — and the price Activision paid for MLG is modest by media-business standards. Even the industry’s current revenue of nearly half a billion a year isn’t much by the standards of a sports industry full of billion-dollar franchises. The Cleveland Browns, the middling NFL franchise up the road from Columbus, is worth $1.5 billion, according to Forbes.
This is still the early days of eSports, though. Within a generation or two, it’s entirely possible — although far from certain — that eSports could generate as much revenue as traditional sports. Consider, for example, how the value of the 32-team National Football League skyrocketed to $62.9 billion after its popularity eclipsed that of baseball in the late 1960s. When Denise and John York bought the San Francisco 49ers in 1977, they paid $13 million; today, the team is valued at more than $990 million, according to Forbes. A little over a decade earlier, Al Davis plunked down $180,000 for the Oakland Raiders. It’s now worth $797 million.
If anything in the current sports world can rival that kind of growth, it’s eSports. Youth participation in baseball, basketball, football, and soccer is on the decline. The audience for baseball is aging, with half of viewers over 55, according to Nielsen. Meanwhile, the average teen boy plays video games for 56 minutes a day, according to the nonprofit Common Sense Media. And PricewaterhouseCoopers says video game revenue is growing by more than 5 percent a year.
Like traditional athletics, eSports sell plenty of swag — MLG hoodies are big, as are mouse pads. And video games may off er more potential revenue opportunities than traditional sports, since so many fans are also players. Not every football fan has a ball, but almost every “Counter-Strike” fan has a copy of the game. And those players have to stay current by outfitting their digital avatars with the latest weapons and accessories. Valve Corporation, the producer of the game, makes it easy for players to deck out their in-game guns with virtual stickers that typically cost between 99 cents and $5 in the online store.
Then there’s advertising. MLG.tv says the company’s online video ads — for Mountain Dew and Wisconsin-based burger chain Culver’s, among others — do better than the industry average both in terms of how often they’re viewed by people instead of bots (99 percent to 44 percent) and how many of them are viewed in their entirety (90 percent to 72 percent).
At the MLG event in Columbus, 10,000 fans paid more than $45 for general-admission tickets and up to $150 for VIP seats. The concession stands did so much business that they ran through all of the food they had allotted for the day, plus what they set aside for the hockey game scheduled for the Monday after the weekend tournament.
All of this means that a weekend eSports competition like the one in Columbus could generate $40 million for MLG, players, their teams, and vendors, according to Jon Michael Bukosky, founding partner of Ultimate Gaming, a Huntington Beach-based company that works with eSports leagues to produce tournaments. More than 600 startups are focused on eSports, according to Crunchbase’s database of startups, with nearly $1 billion in cumulative funding. “It’s like the gold rush of the dot-com era,” he says. “Everybody’s trying to get into this. Everybody is trying to plant their flag.”
Worldwide, there are more than a half a dozen eSports leagues, from the Mexican eSports League to the European Gaming League. DiGiovanni doesn’t care for comparisons between what he does and traditional sports. “Because it’s like, we’re borrowing — like we’re taking a lot from the experience in terms of the competition,” he says. “But this is competition for the next generation.” Or, perhaps, the next great American pastime.
Major League Gaming was born 14 years ago, during a summer of “funemployment,” as founders DiGiovanni and Mike Sepso, now senior vice president at Activision Blizzard, tell the story. Back in 2001, they were sitting at Junno’s, a friend’s restaurant in New York’s West Village, having just ended careers at Gotham Broadband. (DiGiovanni was worldwide creative director, Sepso, co-chief executive officer.) They spent their months off playing in Halo tournaments for cash prizes and watching the Yankees. Eventually, they started wondering if there was a way to marry their interests — and turn that into a career.
“We had a big idea that competitive gaming could turn into a traditional sport or become something that could rival traditional sports,” says Sepso, sitting next to DiGiovanni in the bowels of Nationwide. It was an old idea, but one that had never been executed profitably. After an 11-year run of organizing eSports tournaments with five- and six-figure prizes, the Dallas-based Cyberathlete Professional League closed in 2008, citing the “current fragmentation of the sport, a crowded field of competing leagues, and the current economic climate.”
DiGiovanni and Sepso thought they could succeed where others had failed. “We’re very competitive people,” DiGiovanni says. “We’re sports fans. And we’re also fans of video games. You have a community that’s very passionate about it. It mattered to them. It mattered to us. We just had to figure out how to make it matter to more people. This is before we could stream on MLG.tv, on Twitch, on YouTube.”
And so — over a meal of Korean short ribs, edamame, and a lot of vodka — Major League Gaming was born. The following summer, it incorporated. DiGiovanni and Sepso bootstrapped the company for its first two years. “I had $700 to my name and a 7-month old son,” recalls DiGiovanni, then 29.
Earlier eSports leagues concentrated on organizing tournaments for average gamers who wanted to test themselves against their peers — not just the pros. But DiGiovanni and Sepso decided to focus on glossy events with professional production values that could be streamed online. In 2003, they met Adam Apicella, now a senior vice president at the company, who studied at Ohio State University’s sports management program. Apicella further professionalized the company’s live events. “How do we create a broadcast product that could be on par with the Super Bowl?” Apicella asks, looking up from the semifinal on his smartphone. “And how do we monetize that in a very sustainable way so that we can re-invest that capital back into the fan experience?”
Finding capital won’t be a problem now that the company is owned by Activision Blizzard. Major League Gaming was acquired in what appeared to be a fire sale after it had filed for multiple rounds of debt financing totaling $6 million in 2015, according to SEC documents obtained by The eSports Observer. For years DiGiovanni had told reporters the company was profitable before taxes, with about $20 million in annual revenue, but production costs kept margins low. “There’s not a tremendous amount of profit being made,” DiGiovanni admitted in 2013 to ESFI, the eSports news site. The company was barely breaking even.
Activision wants to change that. In a January 2016 statement announcing the acquisition, Activision CEO Robert Kotick laid out an ambitious vision for the company. “Our acquisition of Major League Gaming’s business furthers our plans to create the ESPN of eSports,” Kotick said. “MLG’s ability to create premium content, its proven broadcast technology platform — including its live-streaming capabilities — strengthens our strategic position in competitive gaming.”
Since Activision separated from Vivendi, its former parent company, Kotick has increased the footprint of what was already one of the world’s largest gaming empires. Last year, before the Major League Gaming acquisition, Activision paid $5.9 billion for King.com, maker of smartphone hits like “Candy Crush,” which currently earns around $670,000 a day, according to ThinkGaming.com. The Candy Crush franchise has reportedly brought in more than $3 billion to date.
Major League Gaming will allow Activision to forge a closer relationship with the most serious gamers — people like C.J. Sanders, a 24-year-old who drove nearly 10 hours from his home in Charleston, South Carolina, to watch the tournament in person. Sanders, who spent $150 on a VIP ticket, says he has spent about $100 on games and paraphernalia. “There are so many people who want to go to events like these,” Sanders says. “They’ve just never happened before.”
“Can you sign my mouse?” a teenage boy asks Spencer Martin, 26, a.k.a. “Hiko.”
Martin is walking through the crowd between rounds, offering autographs, accepting good wishes, and generally causing more of a stir than you’d expect for a guy in a hoodie and a baseball cap. “I’m the oldest gamer here,” says a fan with gray hair who asks for a Liquid t-shirt. Hiko hands him one.
The crowd skews young and male — the demographic with the highest awareness of eSports is 18 to 24, according to PricewaterhouseCoopers. The average fan is a 28-year-old who streams video online and spends about $245 a year on video games. Gaming fans spend a lot of time online, too, which is why websites like Slingshot and The Daily Dot cover Major League Gaming events the way ESPN follows March Madness.
If American eSports has a Michael Jordan, it’s Martin, who grew up in a Detroit suburb and started playing video games at 13. After high school, he took computer science courses at Oakland University in Michigan, and began juggling that with his life as a pro gamer. But that arrangement didn’t last. “The travel was too much,” he says. “I wasn’t able to do any of my classes.” So he dropped out of school.
Hiko looks like you’d expect a gamer to look: He’s a pasty beer keg of a man with wispy facial hair. And his fans are drawn to him differently than sports fans are drawn to, say, Tom Brady or Peyton Manning. Sure, they want Hiko’s autograph. But Hiko is like them, and they can see themselves becoming like Hiko. Some feel a deeper connection to him because they’ve played with him when he randomly dropped in on an online game they were engaged in. Imagine the connection a high-school football player would feel with an NFL quarterback he practiced with, and you’ll get the idea.
Hiko now makes six-figures as an “e-athlete,” and he’s not alone. The most popular players get team salaries, plus endorsement deals from companies like HTC and Alienware. Some stars also get a share of revenue from the ads that accompany the games they stream online — a class of profit-sharing unknown in traditional sports. And players like Martin get a cut of his team’s stickers — the digital decals “Counter-Strike” players pay to put on their guns and knives.
This trade in virtual goods is a one reason video games are better positioned than any other media business to capitalize on virtual and augmented reality. Microsoft CEO Satya Nadella told the New York Times that his company’s $2.5 billion 2014 purchase of the company behind “Minecraft” is closely tied to HoloLens, Microsoft’s augmented-reality device. Facebook spent $2 billion to buy Oculus VR, which packages its units with an Xbox controller and “Lucky’s Tale” — a VR game in the mold of Sega’s “Sonic the Hedgehog” and Nintendo’s “Super Mario Bros.” Google and Alibaba own major stakes in Magic Leap, an augmented reality company valued at $4.5 billion that has been experimenting with video games. An employee at Valve, the company that makes “Counter-Strike,” revealed in June that about a third of its designers and engineers are now focused on its own virtual-reality product.
Some figures from the traditional sports business are investing, too. “As a sports fanatic and owner of the NBA’s Dallas Mavericks, I’m excited to be involved with a new sport just as it’s poised for huge growth,” Mark Cuban told The Daily Dot last June after investing in the eSports startup Unikrn, which lets users bet on the results of matches in games like “League of Legends.” (Americans can’t legally use the site). Earlier this year, Cuban mused to TMZ about starting a professional “League of Legends” team, which he would run the same way he runs the Mavericks. And in December, former NBA small forward Rick Fox bought the eSports team Gravity for $1 million. “I see the way that the eSports world is growing,” Fox said in a statement, “and I know we are on the verge of something massive.”
In a high corner of Nationwide Arena, four announcers sit at a desk in front of three pillars decorated with MLG and Monster energy drinks branding. The lead commentator, Scott Smith — known by his online handle, “Sir Scoots” — is an eSports veteran who began playing “Counter-Strike” when the first version came out in 1999. “We’ve known forever that we’re real,” Smith says of eSports. “This is not a fad — this is not pet rocks. It’s only grown every year. Turner is starting a league. ESPN’s showing up. It’s a sport. The players take it very seriously,” he says. “We’re the real deal.”
If this seems overly optimistic, remember ESPN’s modest beginnings. The channel flickered to life at 7 p.m. on Sept. 7, 1979, thanks to a $9,000 investment in a transponder and the idea — obvious now, but counterintuitive at the time — that there was a demand for 24-hour sports coverage. At first, journalists laughed at the network’s broadcasts of rodeos, Australian-rules football, and local Connecticut teams. Now, ESPN is worth more than $50 billion.
Essentially, ESPN “found a piece of media that was extremely undervalued and that no one else thought was particularly monetizable,” says Prashob Menon, a consultant focused on telecommunications, media, and technology. “They invested heavily to the point where now they own it” — figuratively, if not literally. Like ESPN, MLG started out organizing teams and leagues, without getting much attention outside of a few bloggers. Then it started streaming events online. “It does very well, but without access or specific rights to games — in other words, having the rights to broadcast every ‘League of Legends’ game in North America,” Menon says. “Without those rights, you will never gain the same type of leverage that ESPN has. That’s a problem right now because the rights to ‘League of Legends’ are so diffuse. But over time, someone could pay enough money to get that.”
“League of Legends” — the most popular eSports title — is published by Riot Games, a video-game maker owned by Tencent. One of China’s biggest internet companies, Tencent is best known for creating Weibo, the Chinese equivalent of Twitter. It also became a major investor in Activision in 2013, when it helped put together an $8.2 billion bid to make Activision independent from Vivendi. That gives Major League Gaming a connection to the game, in addition to Activision’s own titles.
Activision bought Major League Gaming at a time when publishers are exerting more authority over who has the rights to run competitions of the games they own. Months before the acquisition, Major League Gaming lost the rights to host a “Call of Duty” championship to a competitor, German eSports company ESL. Adam Jones, a PricewaterhouseCoopers director who studies eSports, thinks the industry could be on the verge of mass consolidation. Soon, he suspects, eSports leagues will duke it out to get the rights they need to attract the audiences they want.
Last year, Steve Bornstein, ESPN’s former chairman, president and chief executive officer, became the chairman of Activision Blizzard’s eSports competitive video game division. “We’re in a unique position to play a defining role in eSports due to our history, experience, and community of gamers,” he says. “Activision Blizzard owns an incredible portfolio of the most iconic franchises in the world, and along with Major League Gaming has a proven history of innovating for eSports that goes back over a decade.”
Perhaps more important, at a time when twenty-somethings are cutting cable subscriptions (or simply declining to purchase them), eSports are ideal for streaming video. Or as Joost van Dreunen, chief executive officer and co-founder of market intelligence firm SuperData Research puts it, “eSports doesn’t need television. Television needs eSports.” In January, ESPN added an eSports vertical on its website. “What you’re seeing,” says van Dreunen, “is the first batch of television channels dipping their toe in this new phenomenon.”
Back inside Nationwide Arena, the crowd is cheering Hiko and team Liquid, now on the brink of becoming the first U.S. team to reach the finals in a Major League Gaming tournament. For the U.S., winning the tournament would represent an upset as unexpected and significant as if the U.S. men’s soccer team won the World Cup. It’s not to be, however. Liquid loses its best-of-three contest to Brazil’s Luminosity and finishes the competition in a tie for third place — respectable, but not record-breaking.
Like Liquid’s close-but-no-cigar performance in the semifinals, eSports still has a long way to go. “The eSports audience is already larger than Major League Baseball and the NBA, but those sports have had decades of professionally produced content and live events that attract millions of fans,” Bornstein tells me. “We’re in the ‘first period’ of one of the most intriguing sports business opportunities.”
In a quiet room off a high floor in the arena, Martin and his teammates pose for marketing photos. His rounded shoulders sag. “I think we could have done better,” Martin says. “We blew our lead and we blew our shot at making the finals.”
He’s still excited, though. “From what I’ve seen online — reviews, Twitter, whatever — people think this is the best crowd we’ve ever has,” he says. And the team won $70,000 — not bad for week’s work.
Whatever happens with competitive eSports, video games and the augmented and virtual reality technologies that go with them represent the future. They’re not just entertainment, van Dreunen says — they will shape the way we interact with the world around us. Already, videogame-like interfaces have “become a way for a younger audience to navigate vast amounts of information,” says van Dreunen, who is one of the first academics to study video games and now teaches at New York University’s Game Center. Look at the photos that New York Times subscribers posted on social media of their children wearing Google Cardboard viewers, van Dreunen suggests. Those consumers are the future. And they’ll expect companies like the Times to use the technologies that they’re used to.
“Consumers across the spectrum of content are signaling a desire for more immersive experiences, says PricewaterhouseCoopers’ Jones. “All products — whether e-sports, traditional sports, retail or otherwise — need to begin to orient or supplement their offerings to deliver those experiences.”
Martin understands this as well as anyone. As we leave the arena, I ask him about the future of eSports, and whether he thinks they’ll ever approach the popularity of the NFL or NBA. “That’s definitely where it’s headed,” he says, looking back at the arena. “Every event we get more money. Every event, there are more sponsors coming in. Eventually, it will get there.”
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