E-sports: What You Need to Know.

I very much stumbled upon the Fortnite World Cup last weekend.

It took place at Arthur Ashe Stadium (home of the US Open tennis in Queens, NY), which is connected to Citi Field (home of the NY Mets baseball team) by a walkway.

On my way to the baseball, I saw a lot of posters for this e-sports competition and poked my head in to see what was going on.

Turns out, it was the Fortnite World Cup.

You have probably seen it in the news; a 16 year-old earned $3 million for winning the tournament.

The asymmetry struck me.

Good old, leisurely baseball on one side; super-fast, new-age computer games on the other.

It's worth figuring out what the e-sports fuss is all about, and that is the humble aim of this article. 

We'll cover: 

• The Numbers From the Fortnite World Cup.
• The Structure of the E-sports World.
• The Power of Individual Players.
• The Key Investors.

A NUMBERS GAME

(A quick explanation of how Fortnite works, in case you are as far removed from this as I was just one week ago. Feel free to skip, if you're up to speed: 

100 players are dropped on an island, where they must build structures, find weapons, and shoot each other. To add a tad more suspense, the size of the arena is ever-decreasing, resulting in a final battle to the death. Last man (and in e-sports, it is almost always men playing) wins.)

The Fortnite tournament in New York was in fact a weekend-long event, featuring live music and food stalls referencing the game. 

  Here's just how big the Fortnite event was:

• 40 million players competed online for places in the finals.
• The finalists shared a prize pot of $24 million.
• The winner, 16 year-old Kyle Giersdorf, took home $3 million.
• He says he plays 8 hours a day, 5 days a week, which I believe. He was signed to a management company long before the tournament. 
• He's not even the biggest e-sports earner - Kuro Takhasomi has made$4.2 million from games tournaments. 
• 25,000 people paid between $50 to $150 to watch from Arthur Ashe stadium.
• A further 2.4 million watched live online. 

The "event" aspect is particularly revealing, if we want to figure out where all of this is headed.

The organisers (Fortnite developer Epic Games) opted for the US Open arena because of the capacity around the stadium.

This allows for an "immersive experience" that recreates the game's world in painstaking detail. These details, as Disney knows all too well, make the difference when trying to build a lasting brand. 

These games are built to last, too. Fortnite was released in 2017 and receives regular updates, known as new "seasons". 

But Fortnite is Not the Only Game in Town

To assess the long-term future of e-sports, it is worth figuring out the structure of this erstwhile subculture. 

There is a lot more to it than individual obsessives playing games in their spare room, then popping along to the odd tournament.

Fortnite can be played in teams, or as an individual. The individual game format opens different commercial avenues (similar to social media "influencer" dynamics), with the likes of Tyler "Ninja" Blevins raking in 7 figures per month from sponsorships.

Red Bull and Uber Eats have contracts with Blevins, whose defection from Amazon-owned Twitch to Microsoft's Mixer platform made headlines worldwide.

These are "influencers", but they are also pitted against each other in competition. 

That strengthens the allure for viewers, as it always has. 

Most other games are played in teams, however. 

E-sports companies hire players to take part in tournaments under the company's name. 

Many e-sports companies have built their own arenas to host tournaments, while others have created purpose-built training facilities.

Players live together at these training facilities and can transfer from one team to another for a fee.

The valuations of the companies below (carried out by Forbes) are very optimistic, in relation to current earnings. 

As noted later in the same Forbes article, 

"Our 12 companies have an average enterprise value of 13 times 2018 estimated sales. That’s rich. Facebook and Amazon go for 7.4 and 3.8 times this year’s estimated revenue."

Clearly, some people really believe in the commercial potential of e-sports.  

WHO ARE THE KEY INVESTORS? 

Stan Kroenke, owner of Arsenal FC and the LA Rams, bought an e-sports team in 2017, called the Los Angeles Gladiators.

He paid $20 million to enter his team in the Overwatch League and in July this year, bid $30 million to enter a League of Legends championship.

Robert Kraft, owner of the New England Patriots, invested $20 million to bring a team to Boston. 

These are significant sums for most, but not for investors like Kroenke and Kraft. 

Perhaps they are simply hedging their bets. As major players in "traditional" sports, they don't want to miss the next big thing. 

Their interest is piqued by a range of factors beyond sheer popularity, however.

For Kroenke, a major selling point was the emerging structure of the leagues and championships that will provide some stability for his team. This means a viable market is at their disposal, beyond the unpredictable realm of live streaming on Twitch. 

The Overwatch League now contains teams in the US, UK, Asia, and South America.

The global element is appealing for sports franchise owners.

The NFL and NBA have scheduled some fixtures outside the US, but good old geography still provides a barrier to the global market.

E-sports offers no such resistance. 

Teams have uniforms, which serve no practical purpose. One team in New York recently partnered with a streetwear brand to create a fashion line, too.

Clearly, this is not just about getting people to watch computer games. 

A very sizeable amount of investment has gone into the product, in terms of arenas and training facilities.

The sense that anyone, anywhere, could make millions if they just practised enough is one aspect of the e-sports allure.

And yet, the professional players need to be significantly better than the average player, or the whole thing falls apart. 

The Overwatch League states teams must pay players a minimum annual salary of US $50,000, so they can focus on the games. 

Teams are thrown out of the league if they do not meet this commitment.

Again, Overwatch is just one game, made by one developer. This is only one component of a varied landscape.

In fact, it's not even that popular in the grand scheme. 

We can zoom out again to size up the wider market, for perspective:

• Live-streaming site Twitch.tv (purchased by Amazon for $970 million) brings in more viewers than CNN. Over 1 million people are on the site at any given time.
• Gamers aged 18-25 spend 77 percent more time watching other people playing games online than watching broadcast sports.
• ESL Cologne, a gaming tournament in Germany, has sold out a 50,000 seat football stadium for a Call of Duty competition.
• The e-sports industry is estimated to be worth over $1 billion this year - a number that will more than double by 2022.

“We compete with (and lose to) Fortnite more than HBO."

— Netflix

How Do E-sports Companies Make Money?

Attendees at the Fortnite World Cup remarked that the tickets were cheap, compared to what fans were prepared to pay.

Those behind the e-sports phenomenon are not in this to make a quick buck today, though. They know the benefits of engaging the audience with a product they love.

At present, the ties that bind fans to games are fragile. Best to strengthen them first, before the developers can safely take a few commercial risks. 

Current e-sports sponsorships tend to be with the likes of Monster energy drinks and headphone companies, but Mastercard and SAP have entered the fray recently.

Combined with the involvement of investors like Kroenke and Kraft, there is a surfeit of knowledge when it comes to milking a sports franchise.

If they can engender a sense of affinity between fans and teams, new revenue streams will be opened immediately. 

That remains a big 'if', nonetheless. The application of a traditional sports franchise structure may prove to be a mis-step. 

Fans follow individual players. Often, they follow their favourite game. As yet, they do not follow teams. The teams have little lasting appeal beyond the players they have and the games they play.

Taking a subculture to the mainstream is always fraught with pitfalls.

E-sports may make the transition unscathed, providing the first truly box-office video game entertainment product over the coming decades. Kroenke, Kraft, and their cronies may bring a much-needed commercial edge that makes big business sit up and take notice. 

On the other hand, they may be left building their structures in a shrinking world, in a battle to the death with the competition.

At least they're getting their practice in now. 

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