Overwatch League Begins Search For Franchise Buyers, But Can Blizzard Make It Work?

[toc]Blizzard is beginning its roadshow to attract investors for team franchises in its new Overwatch League. And it is becoming apparent that the company’s strategy faces many obstacles. Blizzard announced that it would be forming an esports league specifically for Overwatch at the end of October last year. The plans were confirmed in November, but were broad brush in scope. A company the size of Blizzard can be relied upon to get the detail right. However in this case, the devil may not be in the detail but in the big picture. There are major risks associated with the overall concept, and Blizzard needs a strong sales pitch if it is to make the new league work.

The Overwatch League concept

The Overwatch League is based on the idea of creating competition that is both local and international. Team franchises are selling to major cities across the US and in the rest of the world. A combine system will determine where the teams draft their selections from a global player pool. Just like traditional sports, teams will “maneuver to sign the best players and build sturdy rosters for the season ahead.” There will then be “League action streams live every week, including a standalone prime time matchup between top teams. Game highlights and other features fill in the gaps between game days.” The league culminates in a championship where “the very best Overwatch teams compete to become legends as the first-ever Overwatch League world champions.”

Key execution risks for Blizzard

Blizzard faces execution risks at both the overall concept level and with implementing the concept details.

Overwatch is new and tournament management is not Blizzard’s core competence

The first risk Blizzard is taking is to operate the whole league itself. It has some valuable experience; the first Overwatch World Cup ran successfully at BlizzCon last year. Even so, there is a big difference between game development which is Blizzard’s core competence, and running tournament competitions. Third-party operators such as ESL have succeeded by putting together event packages, where tournaments are offered for several different games rather than just one title. ESL Chairman Steven Roberts recently explained that:

“ESL’s success is in the fact that we work across 65 different games. Most of those games are with long-term partners, with publishers that believe esports and competitive gaming can be healthy for their core product, which is selling games and getting people engaged with their IP.”

Execution risk is there, but is probably of a minor magnitude. The bigger risk is that no matter how successful Overwatch has been initially, it is still a relatively new game and doesn’t have the player base of market leaders such as League of Legends. Overwatch may simply not achieve the popularity to support the league as a business in the long term.

The city-based model contradicts the current global character of esports

Connecting esports teams with individual cities looks like a great model to get the benefits that traditional sports enjoy from their local fan base. It also gives teams a base, and makes a team franchise more attractive for investors. However, by their very nature, esports are global. ESL’s Steven Roberts doesn’t sound convinced that the concept is a natural fit for esports:

“To date, city by city has not worked. Fans have come to esports with that global nature involved. It’s much more team-oriented, as opposed to being focused on Chicago or New York or London. That’ll be an interesting new variable as it enters. It’ll be interesting to see how the communities take hold. But right now, it’s very global. That’s one of the nice things about esports and the community, that there are no barriers. We’ll see how the city by city and localization takes place.”

Team franchises are expensive

ESPN has confirmed reports that team franchises are on offer at a minimum of $2 million in non-major markets. The SportsBusiness Journal reported that for a major market like Los Angeles, franchises could cost up to $15 million. On top of the franchise cost, team owners will incur management and operating costs. Esports team revenues are growing rapidly as teams branch out into merchandise sales and non-endemic sponsorship deals. Even so, payback for franchise owners could stretch out for a long time before they recoup their initial investment. Valuing a franchise may also not be an easy thing for investors to get their heads around. Blizzard says that it expects the major part of team revenues to come locally. But there will also be a revenue share for the league’s income streams. Details of the revenue share proposals aren’t yet in the public domain, but will be critical to motivating investors to take the franchise risk. Esports teams are popular as investments at the moment. However, the big money is going to teams with exposure to multiple games and with top-ranked players. It is hard to see how pure Overwatch teams, subject to the rules and constraints of operating in Blizzard’s league will be able to command similar valuations. [geoip2 region=’ROW’][show-table name=betway][/geoip2]

Will the top players switch?

A plethora of smaller Overwatch competitions has sprung up over the last six months. This has been great for esports betting, and figures from Pinnacle suggest that wager volumes for Overwatch are set to increase massively in 2017. Enthusiasm for the game’s potential has led many of the big team names to add their own Overwatch squad and some celebrity investors have been intrepid enough to invest. Last October, DJ Steve Aoki invested in Overwatch and CS:GO team Rogue. This bodes well for Blizzard’s team franchise concept, but the company faces the risk that some of the top Overwatch players are already committed to contracts with other teams. Blizzard will need to induce some of the top players to defect from their current teams and make themselves available to be picked by the team franchise owners. The decision will be made more complex by the combine selection process and the city-based model, because players will not know in advance which team they will be playing for or where they will be based. Weighed against this is Blizzard’s commitment that:

“Anyone picked up by a team during the signing period will be guaranteed a contract that includes a baseline minimum salary and benefits package.”

Blizzard’s risk taking is what the industry needs

Pointing out the risks involved in a business strategy is a lot easier than implementing the strategy. The fact that Blizzard has set itself on a long, hard path is to be admired rather than criticized. It is by taking such risks that the future of the esports competitive landscape will be determined. Nate Nanzer, Blizzard’s global director of Overwatch esports, sounds confident that the challenges will be overcome and the league will launch in September on schedule.

“In terms of the actual nuts and bolts of the league in 2017, and content production, all that, there’s no delays there at all. You probably understand the amount of legal work that goes into doing this, and that time between BlizzCon and today has been spent finalizing legal documents.”

Blizzard still faces a long haul, but if it can successfully execute its strategy, the new global/local franchise model has a lot of potential. https://www.youtube.com/watch?v=OFHpK627XkI