The biggest week for eSports
Here’s a recap of what happened in the past week and why it matters. For those new to eSports — organized video game competitions — check out this eSports Market Ecosystem Map for more context on the players in this space.
- Friday, 9/18 — DraftKings announced that they were entering the fantasy eSports space.
- Tuesday, 9/22 — DraftKings announced the sponsoring of six eSports teams brokered by WME/IMG
- Tuesday, 9/22 — Unikrn acquires DotaProHub
- Wednesday, 9/23 — Turner Broadcasting and WME/IMG forms an eSports league with TBS broadcasting 20 live events in 2016
- Thursday, 9/24 — FanDuel is reported to have acquired AlphaDraft
- Thursday, 9/24 — Skillz announces a $15 million Series B round
Executive Summary
Daily Fantasy: More entrants in the fantasy eSports space is a great thing for everyone involved, including Vulcun. The daily fantasy business model is quite similar to the gaming portion of the casino business model — a low-margin, high volume business. In casinos, you play against the odds. In DFS, you play against the sharks and the DFS sites monetize by taking roughly 10–20% of the pot and distributing the rest. Multiple DFS sites exist for the same reason multiple casinos do, people don’t want to keep losing at the same place.
eSports Agency: WME/IMG came out strong this week. I predicted that CAA would be the most innovative player in this space. I was wrong. In one fell swoop, WME/IMG created a new league and will broadcast specific games of that league on live television. Meanwhile, they made a great play off of the AlphaDraft acquisition to partner with FanDuel’s main competitor, DraftKings, in scoring the first major agency-brokered sponsorship deal.
Competing for Money vs. Gambling: I previously wrote about the costs of owning eSports infrastructure and how it made sense to have an outsourced party do it for game publishers. Skillz seeks to be the SaaS of eSports infrastructure with a focus on cash winnings. Unikrn is an eSports gambling platform which just acquired an eSports data company. This could be indicative of where that company is moving towards: owning the fragmented data layer of eSports, a lucrative space.
Deep Dive: Daily Fantasy — Vulcun
If you haven’t been inundated with FanDuel and DraftKing ads like this one yet, congratulations. Both daily fantasy sports (DFS) sites have been aggressively buying ads. They spent $31 million on 9,000 ads during the first week of the NFL season alone. Yet according to the New York Times, neither have made a profit, most likely due to their user acquisition costs. That begs the question, is the heavy advertising an indication that DFS is a zero-sum game where the market-share leader wins?
According to Ed Chang, VP of Business Development at Vulcun, the answer is no, “If you look at the DFS market you’ll see at least 14 other sites in addition to FanDuel and DraftKings who have users actively playing. I don’t see it being any different with daily fantasy eSports (DFeS).”
Multiple DFS sites exist for the same reason multiple casinos do, people don’t want to keep losing at the same place. In casinos, you play against the odds. In DFS, you play against the sharks. Unlike brick and mortar casinos, DFS sites have low fixed costs so you need less users to come through to have positive net income.
Therefore, from a pure business model perspective, I’m excited as ever for Vulcun because the market got larger, not smaller. First, I am certain that some FanDuel and DraftKings users will cross over to DFeS. Second, the frothiness that usually follows FanDuel/DraftKings everywhere is likely to encourage more participants in the DFeS space.
From a team perspective — should Vulcun desire to pivot out of the low-margin, high volume business, I can’t think of a better team to do it. The co-founders detailed (part 1, part 2) their journey through 15 pivots over the past two years to land on something with great product market fit: Vulcun.
If you are looking to partner with some of the smartest guys in eSports, hit Ed up on twitter @ed_chang.
Deep Dive: eSports Agency — WME/IMG
WME/IMG purchased an eSports agency this January, signed three teams this June, and brokered two of the most interesting deals in eSports this month: one for themselves (eSports league broadcasted on TV) and one for their clients (huge sponsorship deal).
This matters because some eSports industry insiders were about to write off agencies as an unnecessary relic of traditional sports after seeing nothing for nine months. I disagreed with that view. I wrote that agencies are as important as ever in a world where anyone could be famous and some of the best content is user-generated. The industry needs a broker with the right connections and deal-making ability to put the right talent in the right content and distribute it in the right channels.
Will CAA respond? If they do, I think it would look something like this.
Deep Dive: Unikrn vs. Skillz
Why is it legal to bet $1 competing on a mobile game on Skillz but illegal to bet $1 on who wins an eSports match on Unikrn? This is a complicated and contentious topic but the TL;DR is that online gambling is permitted for games of skill versus games of chance. What are games of skill versus games of chance? There are federal laws such as the Unlawful Internet Gambling Enforcement Act of 2006 that defines this (it says that DFS is legal) and then there are state laws.
So what does this all mean? First, I don’t see online gambling legislation as a political topic that legislators will want to address, especially during an election year. Therefore, it makes a lot of sense that Unikrn has already made moves into the virtual currency space to operate in the United States. Finally, there’s the fragmented data layer of eSports which makes more money for some teams than their sponsorship deals. This area is ripe for consolidation.
Thoughts? Agree? Disagree? Would love to hear from you. Leave a comment or a response. If you liked the post, please hit ♥ so others can enjoy it too.
