John McRae made his first big paycheque from boxing. As co-promoter, he sold New Zealand on the ‘Fight of the Century’, a 2009 heavyweight bout between Shane Cameron and David Tua that still holds a pay-per-view television sales record.
The next big payday for McRae might also come from big-time sports action. But this time, no one gets hurt: McRae’s new business is in competitive videogames (or esport).
He’s far from alone in making the leap from real-life sports to electronic sports.
Traditional sports codes, which have an ageing fanbase and are finding it hard to connect with a younger audience, are starting to muscle in on the rapidly-growing world of esport. Big-brand advertisers are also showing interest.
It all makes sense when you learn that it’s predicted that computer gaming will soon overtake rugby in our national affections.
In America, basketball hero Shaquille O’Neal, baseball legend Alex Rodriguez and a range of professional NBA basketball and NFL American football teams have interests in esports teams. The buy-in for a franchise in one US esports league has climbed to as much as $US35m.
In Australia, Australian Rules clubs Essendon and Adelaide have recently bought franchises; NRL clubs are sniffing around and one market analyst says it’s just a matter of time before Kiwi sporting giants pile in too.
First, a primer for those for whom this is an entirely unfamiliar world. Esports is a world where computer games - such as the fantasy battle game League of Legends - are played competitively, with fans watching on streaming television websites, or for big games, at packed sports stadia.
It grew first in South Korea, but has spread worldwide.
As an example, League of Legends’ 2017 world finals in Beijing drew a sold-out stadium, 60 million online viewers and a $US4m prize pool. The world’s best players have amassed career prize earnings of close to $US3m.
“I think, for a long time, it was hard for people and traditional brands and sporting clubs to treat it as anything other than silly, just games that people play in their basement,” says one esports team owner, Chris Bridle.
“But once the numbers started coming out of how many people play games and watch esports - then the smart brands started to realise what these numbers mean.”
This is becoming big business - and now everyone wants in.
A numbers game
88,000 people paid $40 each to watch David Tua knock out Shane Cameron in the second round at Mystery Creek in Hamilton, and from those 187 seconds of action, it’s thought John McRae and his then business partner David Higgins each banked a six-figure sum.
They had met in 2004 as lowly employees of the Employers and Manufacturers Association, and formed events promoter Duco soon after, originally staging black-tie dinners with celebrity overseas speakers such as Bill Clinton, then moving into big-time boxing.
When the pair split, McRae partnered with Sky Television in events company Sky Arena, which staged a Shihad gig, three glitzy boxing promotions, and live-streamed sports events. When that wound down, McRae began to look for the next opportunity.
Now he owns a Sydney-based esports team, Tectonic, who play League of Legends in the eight-team Oceania Premier League competition.
Five full-time players, three of them Kiwis, live and train in a brand-new North Sydney apartment, with a resident team manager/matron to look after them; McRae employs a further nine coaching and analytic staff in support.
McRae also runs a New Zealand high school esports league, and through his esport business Let’s Play.Live, is a partner in a brand-new esports broadcasting suite which encircles the base of the Skytower in Auckland. He’s become a passionate advocate of esport.
“To me, it’s much the same,” he says of his new career. “You are dealing with talent, with media, with broadcasting. It might seem odd that someone has promoted boxing is involved in esport. But it’s actually funny how many boxing people I come across who have made the jump for the same reasons.
“It is the biggest entertainment industry in the world - so it doesn’t take a rocket scientist to say there might be an opportunity there.”
The new wave of investors into esport are attracted by the numbers. Consumer insights agency Gemba can show you some impressive ones.
They reckon one million Kiwis are playing electronic games, 470,000 are ‘consumers’ (who read, watch or listen to esports content), and 465,000 are interested in competitive esport events.
There are 620,000 esport ‘fanatics’ against 830,000 rugby union ‘fanatics’ - but one million participants in esports (although this captures everyone from someone playing Candy Crush on their cellphone to the world’s biggest gaming stars) against 55,000 rugby players.
Rugby’s figures are declining; esports are rising rapidly.
“It’s already big, and it’s going to get bigger,” says Gemba’s New Zealand country manager, Richard Howarth.
“New Zealand is not years behind the rest of the world: we are already switched on to esports and it is continuing to grow.”
The worldwide figures are even more compelling: the global esports audience is now 191 million people and predicted to reach 286m by 2020.
“I was just blown away by the sheer numbers,” says Melbourne derivatives trader Ryan Wilson. “It piqued my interest.”
Wilson did some work for an esports promoter, ESL, realised the size of the market and with three others, last year bought a League of Legends franchise called Abyss.
Within ten months, he’d had conversations about selling up with two NRL clubs and four AFL teams, and ended up selling a majority stake to the Essendon Bombers, an Australian Football team.
The Bombers relocated the team from Sydney to Melbourne, where they are now based out of the football club’s purpose-built training venue, the Hangar.
Wilson had originally seen the project as a five to eight-year investment. “[The sale] was a lot quicker, to be frank with you, than ideally we would have wanted. But it was just a great offer that we couldn’t knock back.”
For the sports clubs, buying into esports may be partly a panic measure.
The average team sports season ticket holder is around 40 years old, and there’s been a decline in the number of young people engaging with team sports.
If you want an example of “pale, male and stale”, says McRae, just look at rugby, league and AFL.
So how do they (and advertisers) talk to the “cord-cutters” of the next generation, who often don’t own a television set, don’t read print media and don’t follow regular sport?
“A lot of people will think the rise of esports is the fall of traditional sports,” says Jason Spiller, who has been involved in the Kiwi esports scene for well over a decade.
“I think that is an over-simplification - there are a lot of factors that come into it - but I do think there a lot of things the traditional sports can learn from esports.”
Wilson says he learned that the Bombers saw an issue with 13 to 25 year olds: they had kids involved in the sport through the OzKick juniors scheme, but lost them to other interests in their teens, and didn’t see them return until they were settled with their own family. “What they are hoping is that they will have a continuity with the Essendon FC brand,” he says. They also think they can offer their sponsors an in with a hard-to-reach demographic. “Certainly, they want them to watch the AFL team ... but this does provide an alternative for them to relate to.”
And for sports teams, while there’s plenty that’s new, a lot of this new world is also old hat: they know how to sign, recruit, manage and prepare players to compete at the highest level.
Gemba’s regional director of strategy, Craig Roberts, who advised the Adelaide Crows on their esports purchase, has mapped the major sports properties as if they were stocks - rating them on their potential for growth in key markets (essentially, young people, China and India). Sports competitions like English Premier League football and NBA basketball have least to worry about; the Olympics is big, but has no room to grow; events like the Indian Premier League cricket are growth stocks.
But if you overlaid esports on the grid, they would be one of the biggest rising stars.
The clearest example of Big Sport Inc’s arrival on the esports scene comes with the US-based Overwatch League, a competition for a six-a-side shoot ‘em up game.
It started in January, with nine city-based US teams, and one each from Shanghai, Seoul and London, a $20m buy-in, a reported $90m broadcast deal with Twitch, and the sale of ‘digital skins’ to fans, so the home player can watch his avatar compete in a Los Angeles Valiant jersey.
One of its senior executives is a former NFL official named Steve Bornstein, who said he switched from sports because you should “skate to where the puck is going”.
Franchises are owned by Stan Kroenke, who bankrolls Arsenal, and the owners of the New York Mets (baseball), New England Patriots (football) and Philadelphia Flyers (ice hockey). Season two franchises could be worth over $US35m.
But don’t be confused, says Spiller.
“The caveat is to notice that a lot of investors are from traditional organisations where $20m, $30m is one-quarter of a player buy,” he says.
“So they are spending that money as a speculative investment to get in on the ground floor… ‘if and when it becomes a massive thing we don’t have to pay $300m’. I’m saying, don’t get seduced by all this money coming in.”
He does, however, think it will pay off in the long run.
In to win
If the owners are piling in, the big corporate sponsors remain a (sometimes suspicious) step behind.
Gemba’s Richard Howarth has a powerpoint slide he shows to potential sponsors that describes the typical esports consumer. “It sometimes raises eyebrows,” he says, “because the stereotypical perception, or misnomer, is electronic games players are spotty 17-year-olds in their basement who never see the light of day. Let’s put that to bed.”
Howarth’s identikit consumer is clean-cut Eric, a 29 year old family man employed in professional services, who also likes traditional sports, buys electronic gadgets, foreign holidays and good beer.
“If we sat down with a company asking ‘Should we be involved in electronic games, because we don’t market to under 18s?’ we show them this and say ‘is this your consumer?’”
Which advertiser wouldn’t want to extract Eric’s dollar from the pocket of his designer jeans?
Daniel Ringland is the head of esports for Riot Games, who publish League of Legends and own the Oceania Premier League. He says the big brands are “past [the stage of] taking notice, they are interested”, they’ve signed up Samsung, LG Electronics and Hungry Jacks (the Australian version of Burger King) and have conversations most days with others trying to understand this complex world. “We hope the ice is broken.”
Howarth, likewise, is talking to major brands and persuading them this is a good investment. “It’s already a big audience, it’s growing and it’s a great way of connecting with perhaps a younger demographic. At the moment, there’s not that clutter: in New Zealand, over 100 brands sponsor rugby in some way. A handful sponsor esports… if I’ve got $100,000 to spend, in esports my money goes further.”
The increased interest of these so-called ‘non-endemic sponsors’ (that is, companies which don’t have a direct interest in gaming, versus those that do, such as laptop retailers) has persuaded the optimists that the boom time is coming.
But this is a world that grew up outside the traditional advertising model. Fans are suspicious of the corporate world.
Chris Connolly, 21, an enthusiastic gamer, probably sums it up: “It’s inevitable, isn’t it?” he says, with resignation.
“The big corporations get involved in everything.”
Ringland, the league organiser, says he thinks fans will accept the corporate dollar if it is spent in the right way. He points to Red Bull, whose largesse allowed them to develop a State of Origin-style tournament.
“Brands that come in and help the league to build something will get a strong appreciation and affinity with the brand, regardless of the sector they come from. If they just come and put a logo on a broadcast, it won’t achieve anything.”
Competitive League of Legends player Faker live-streams a practice match on Twitch.
Competitive League of Legends player Faker live-streams a practice match on Twitch.
The reason everyone hopes that the big sponsors flood in is that right now, if you own a team there’s no other way of making any money.
Back in the physical world, even the biggest sports clubs struggle to make money: of the 16 teams in the Australian NRL, for example, only the Brisbane Broncos have regularly turned a profit. But their main income streams are pretty clear: ticket sales, merchandise, and a share of the central sale of television rights.
But esports doesn’t offer any of those to team owners: they don’t play a traditional home-and-away calendar in front of crowds; merchandising is in its infancy; the games are streamed for free online, and the game publishers take any commercial revenue, and dispense it as they see fit.
So it’s hard to see where the new wave of game owners will make their money. Gemba’s Roberts says if he was chief executive of a pro sports club, he wouldn’t buy an esports team.
And Riot Games’ Ringland admits there’s no money to be made… yet.
One problem is that esport has always been free to watch. McRae, who sold some big money pay-per-view boxing deals in his day, says he’s “cynical” about it working here.
Riot say they won’t be trying it with an audience used to “getting content when they want it, where they want it”. They do want to move to home-and-away games eventually, but Ringland says “I think it is quite sometime before ticketing is a significant line item”. So the main flow of cash will come from in-game purchases (a little) and sponsorship.
But there’s also the intriguing trend of fans paying money directly to players and teams they like.
And here’s where the traditional sports might be able to teach the newcomers some tricks - for a big sports franchise has always been fairly expert at extracting money from their loyal fans.
“We’re not super-strong at that,” admits Ringland.
In esports, it’s not unusual for fans to make small donations to players as an appreciation for a piece of entertaining play - part of an interface that is much more democratic than the one between a star footballer and the man on the street.
As gamers play, fans will use a chat window on the same screen to ask questions.
“It’s as if I was somehow able to have a chat to [NRL star] Greg Inglis as he ran around the training field and ask him what he was thinking when he did that move,” says Ringland. “And then he explains it to me.”
Seven of the eight League of Legends teams are now investor owned, and the expansion question has been asked, but the money remains relatively low: the minimum salary is $11,000, paid for by Riot, with some teams topping up their best, and a good prize fund for a team would be around $50,000.
One new tournament, however, points the way: a Gfinity event has just been announced, with games played in Hoyts cinemas, and a $450,000 prize pool.
When esports began, it was usually five mates getting together to form a team. As the stakes got higher, one would usually drop back to manage those teams - leaving the first-generation of owners as men in their early 20s who loved gaming but didn’t know much about business. That appeal to those with sports or business nous who reckon they can ‘add value’ and make the teams more valuable.
Those first-generation guys are like Chris Bridle, who combines a day job in a Sydney warehouse and family life with JaM, a team he set up 18 months ago and has entirely self-funded them in “the low five figures”.
For now, buying a team is a relatively cheap and low-risk proposition - probably in the low three figures for one of the best teams - and there is a sense people are trying to get in now while they can, like landbanking a Ponsonby workers’ cottage and watching its value rocket.
“That’s the business model,” says Bridle. He expects the value to come from “creating an audience, a very lucrative audience, of hard-to-reach millennials.”
Bridle accepts times are changing.
“At this point in time, unless you’ve got a very large bankroll, it’s impossible to keep up with the rate the industry is moving at without some help. I think it’s only natural: it’s common with start-ups to look to outside investment to ensure the growth continues.”
Making it work
The world’s biggest esports events are some spectacle, say those who’ve been to events like the League of Legends world final, or the ESL European Masters, where 173,000 spectators attended over two days in Katowice, Poland, or even events in Sydney which have drawn 15,000 fans.
There’s all the passion and atmosphere of one of the world’s major sporting events, with the added dimension that many fans are also meeting up physically for the first time with people they’ve been online friends with for years.
But we shouldn’t let these scenes delude us in New Zealand, says Jason Spiller, who regularly travels offshore to the big events. We’re years away from anything like that.
There’s the usual reasons - our sparse population and isolation, but also our very good internet connections and our convenient timezone, which makes it easy for Kiwi esport fans to support overseas-based clubs (who until recently, were never tied to specific cities in the way regular sports teams are) and reduce any clamour for New Zealand-based franchises.
“The other parts of the traditional sporting industry will start to take notice when we start getting thousands out to events [in NZ],” says Spiller, who is the Kiwi representative on the Esports Games Association of Australia.
“But I don’t think it will ever be at the point where it fills out Eden Park - we don’t have the population for it. You have to realistically look your addressable audience.”
Gemba’s Richard Howarth is a former commercial manager of the Warriors. Should his old club be involved?
“I think the Warriors should,” he says.
He brokered introductions between the Warriors and the NZ Breakers basketball franchise and McRae’s Let’s Play.Live and had players become ‘ambassadors’ for teams.
When McRae tours me around the LPL studio, a Breakers player is duly hanging around. No New Zealand clubs have yet bought into an esports team. “As they realise the potential,” says Howarth, “it won’t be far away.”
The Warriors say they’ve explored the esports world and will continue to look at it.
Nick Brown, chief commercial officer at the New Zealand Rugby Union said, in a statement, that they had been “keenly watching how various sports have been integrating or partnering with esports internationally, and we have some good contacts in the industry we’re talking to about trends and the different opportunities that are emerging”.
Spiller says that esports in New Zealand lags some five years behind Australia and even further behind the US, giving the scene here time not to be sucked into a damaging arms race.
“The real danger is that we continue to throw money at it, so it becomes a race to see who doesn’t go bankrupt first, because nobody wins out of that.”
But he says: “We are on the cusp of something really interesting. There’s going to be an explosion of esports.”
It’s a feeling echoed everywhere.
Wilson, the converted derivatives trader, talks of a “full funnel” of the next generation of fans, aged five to eight, who will grow up in an online world. His faith is shown by his new project: he’s setting up a fantasy esports league - think fantasy football, where you pick a ‘dream team’ of players and score points based on their real-life exploits - which will launch next month.
“I do see a day when the average seven year old doesn’t see any difference between Shaker, the best player in the world in League of Legends, and Le Bron James,” says Wilson. “They will grow into being a sporting, cultural icon as opposed to being a computer games player.”
The question is: if you were a businessman, right now, would you rather own a footy club, or a computer games team?