So You Want to Buy an Esports Team

Pretend for a moment you’re Mark Cuban or some other wealthy entrepreneur interested in this crazy “new” esports movement. You’re smart enough to see the value of a digital sport in a new, digital era and you’re savvy enough to know that there are significant benefits for early adopters. You figure there are 30–50 professional teams in North America that might be interested in purchasing an esports franchise, but less than a dozen worth buying. Time isn’t on your side. The Sixers just bought Dignitas and a powerful Warriors/Wizards coalition just moved on Team Liquid. Rumors of sub $10 million dollar purchases have given way to a new reality of $15 million to $50 million valuations. But what exactly are you buying? Where does the true value reside beyond the obvious gross revenue figure? While there are no hard and fast rules, there are some basics you should keep in mind.

1. Management, Management, Management. Let’s be honest. Esports isn’t the most stable environment to invest millions of dollars. The past decade has been a digital wild west and any space that revolves around 19 year old young people with 250,000 Twitter followers can be a bit precarious. In addition, esports goes beyond a niche market and is really its own world in many ways. Securing experienced management is absolutely critical. Leading managers have political connections, game knowledge, relationships with players, leagues and media, and most importantly: authenticity. The esports scene is very insular and only by paying your dues can you earn real credibility and authenticity. In the question between “building or buying” an esports franchise, management is also key. History is full of failed managers, conmen and thieves. You will be closely associated with your managers for years to come. Choose poorly and it’ll cost you millions. Your purchase must start with a thorough evaluation of the management and staff. You’re taking a wise journey but be sure you have qualified guides. The wrong Sherpas will leave you licking open wounds.
2. Brand Equity. Like in traditional sports, there is something to be said about a globally recognized brand name. There are only a few brands that have managed to rise to the top and survive the different phases of esports’ evolution. Having a household name in the scene gives your investment an immediate boost. Having the genuine social media reach and solid metrics which are only built over time will enable you to monetize your new investment sooner. Yes, if you locate qualified management you can start your own brand, but you’ll be starting from the ground floor. I’d personally rather own the Yankees or Lakers than a new franchise. Few things are more valuable than old school, hard core fan bases.
3. Player Contracts. The core, forward facing asset of any competitive team is always the actual players. Top gaming brands generally have their players contracted for 1–2 years. If you’re debating whether to build or buy, you must take this into consideration. These cyber athletes are the superstars of tomorrow. Be sure your prospective organization has some talent on lock down.
4. Diversification. Unlike traditional stick and ball sports, esports is comprised of different gaming titles and those titles are always changing. I’m a big believe in gaming diversification via multi-gaming organizations. It’s dangerous to put all your eggs in one basket and some investors learned that the hard way when StarCraft 2 fell from grace. You might have a favorite game, but hedge your bets and be sure your prospective team is playing in several.
5. Corporate Hygiene, Diligence & Legal. If you can afford a top esports team these items will be obvious, but they’re important nonetheless. You’re buying a business that has been in operation for some time. It’s crucial to conduct due diligence and be sure the financials are in order, the taxes are paid and the law has been followed. Don’t buy a ticking time bomb. Get an escrow and withhold some of the cash payment for contingencies that might arise. Insert “key man clauses” that lock down critical managers and staff so they don’t immediately jump ship. Use a qualified M&A attorney.
6. Assets, Contracts, Revenue Sources. Again, this one is pretty obvious but shouldn’t be overlooked. Different teams have different sponsor relations, website assets and revenue sources. How is the cash flow? What are the streaming metrics? What is the merchandise distribution plan? If you’re able to purchase a team you’re most likely able to assist a great deal in these areas, but be sure to know where you’re starting.
7. Intangibles. As with any acquisition, the key is often in the intangibles. Do your core beliefs match up? Do you share similar visions for the future? Heck, do you like each other? Success is built on mutual respect, humility and cooperation. Choose your potential partners wisely. You’re embarking upon an exciting adventure in one of the most incredible spaces in sports and entertainment. Make sure the people are a good match.
8. League Slots. Last, but certainly not least, we come to league slots. Before you buy a professional basketball team you need to be darn sure it’s in the NBA. In esports, there are also valuable league slots that aren’t always easy to earn or acquire. Riot’s LCS is the crown jewel, with prices approaching $2 million for North America. Counter-Strike’s premier leagues (ESL ProLeague and Faceit’s ECS) are must-have assets. Call of Duty has CWL and HALO has HCS. Recently, the PEA (“Professional Esports Association”) was formed by seven leading North American brands. As a founding member, I can assure you this group will be absolutely critical in the years to come. Blizzard’s Overwatch plans are not yet public but prevailing rumors point towards a compelling “LCS style” league structure. Should this take place, you’ll want to own a slot. The bottom line is where you play matters. If your new team isn’t playing in the key leagues, you’re wasting your money.

This was a quick and basic summary of some of the things you should consider if you’re fortunate enough to be able to shop for an esports team. Obviously, there are more factors to consider but it’s my hope this article has provided fuel for the fire of thought. Check the comments below for additional observations. Thanks for reading. I look forward to your feedback.

Full disclosure: I am founder and CEO of Complexity Gaming, one of the founding teams of PEA. I'm also a fan of Mark Cuban so pass him my digits if you ever make it on Shark Tank.

You can find Jason on Twitter, Facebook, and Instagram: @JasonBWLake