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Betting on Yourself

Lack of opportunities to monetize skill in esports are structural

Publishers and Third-Party Competition Platforms

Blizzard Launches a New International Overwatch League

Earlier this week, Blizzard unveiled the Overwatch Champions Series (OWCS), "the next chapter" of professional Overwatch esports that stands to replace the recently shut down Overwatch League. While the previous format focused on city-based teams across two divisions (East and West) who would compete in seasonal matches and eventually a world championship, the new OWCS format is a multi-region competitive circuit that will culminate in two major international tournaments which will be hosted by Dreamhack (owned by Savvy Games Group).

What makes the format of the OWCS so interesting is the design is meant to democratize access to the highest levels of competition and move away from stagnant and cash-strapped, organization-dependent entities.

In North America (NA) and Europe, Middle East, and Africa (EMEA), teams will compete in a multi-phase tournament in order to qualify for the international stage. The host for these two regions is FACEIT (acquired and merged with ESL to form the ESL FaceIt Group, also owned by Savvy), a tournament platform. Instead of limiting registration to partnered teams (from professional esports entities who pay for a spot to compete), any team can register for the Open Qualifier stages.

Asia will have a slightly different format designed to better suit the unique needs of players in the region. There will be three regional subdivisions (South Korea, Japan, and Pacific) which will each have multiple tournaments with formats tailored to their respective local audience, which will funnel qualifying teams to the international tournaments. Each competitive stage will be operated by WDG with each subdivision featuring their own respective Open Qualifiers leading into Regional Tournaments hosted by WARA.GG.

Overwatch joins Valve’s Counter-Strike 2 and EA’s Formula 1 in making these changes toward a more open esports competition, both citing similar reasoning: the highest level of competition has become increasingly gated by business partnerships. Outside of these two games however, the highest levels of competition for top games are limited to professional teams and publisher-provided “ranked” modes (which do not give players monetary rewards for their performance). Outlets for non-pro team affiliated players to be able to compete for real-life rewards are typically gated and highly scrutinized by the publisher.

We believe these competitive ecosystems should be open. We have seen hundreds of startups try to establish game-agnostic tournaments or peer-to-peer (P2P) platforms for gamers to monetize their skill. This week we will be looking outside these established professional leagues and publisher-provided “ranked” modes by discussing the major headwinds that prevent the venture-scale growth of an alternative, monetizable competitive gaming platform.

Lack of Opportunities to Monetize Skill are Structural

Outside of professional leagues and publisher-provided, unmonetized “ranked” modes, there are 4 primary general competitive formats; players can compete on their own or on a team in either a “head-to-head” match or a tournament-style competition.

Generally there are 4 primary headwinds that prevent these platforms from being venture-scale:

1) Stringent requirements for licensure: As we touched upon in our last esports piece, a majority of top games require aspiring competitive organizers to apply for a license. These licenses range in limitations but often set requirements around entry fees, tournament pools, organizer goals, participant skill level and participant age. For example, Call of Duty Warzone tournaments can only allow participants aged 18 or older, reward fixed prize pools ≤$50,000, must give free entry to all participants (making the pooling of prize money difficult), and cannot be sponsored by brands in restricted categories (Call of Duty).

2) Association with betting, wagering and gambling: Competitive platforms that payout real-life rewards are subject to regional legal restrictions. In the US, such platforms are legal in most states because they are classified as skill-based wagering (versus real-money gambling, which is based on luck or chance). Despite being legal, this formal classification for “betting on yourself” has a negative connotation publicly that publishers are often wary of associating with, especially given the number of underage gamers that aspire to monetize their skill.

3) Control over the brand: When partnering with third-party competition platforms, publishers lack a fine degree of control over managing brand risks such as partnerships or associations with unapproved brands and inappropriate team or player names. For example, if a tournament platform partners with a tobacco product, players or parents of players who see that sponsorship could reasonably assume that the publisher of the game supports the usage of tobacco products.

For platforms that want a more legitimate feedback loop and seamless tie to setting up each match, pursuing a formal technical integration to the game is desirable. However, tournament platforms that cannot provide this put both themselves and the game at risk, as frustrations around the player experience of setting up matches and providing accurately reported results will reflect poorly on each.

4) Difficulty in accessing a significant scale of games: While some publishers like Blizzard solve brand risk by having strong relationships with individual platforms like FACEIT, other publishers such as Valve (CS:GO) have chosen to put structures in place to approve as many as appropriate. However, when many platforms can receive these permissions, there is little differentiation across providers.

Additionally, given the wide range of requirements and concerns that individual publishers have for their games, building a library of games that appeal to a broad audience of gamers is very difficult. Competitive platforms typically pursue one of two strategies: AA and indie games or building their own library of content. AA and indie publishers and developers often have fewer concerns around the risks listed in #1-3 above, however, these games often lack robust competitive player liquidity, making it difficult to sustain a business that caters specifically to these games. Platforms like Skillz can build a large library of hypercasual and casual games quickly and cheaply; however, these games are subject to the same genre-specific player retention problems.

Takeaway: While Overwatch and Counter-Strike 2 have made strides toward creating a more open and accessible competition format, third-party competition platforms still struggle with the issues of stringent requirements from skeptical publishers, the negative association with wagering, and limited game content access. The new formats solve a player pain point specific to the stagnant state of the pro leagues within those two games. While this can be extended to the pro leagues of other widely popular games like League of Legends or Call of Duty, publishers are not incentivized to  allow for third-party tournament and match-based competition platforms where players can monetize their skills.

Unlike any traditional sport, esport video game IP (the games themselves) are owned by entities (publishers and developers) that control where, when, and how players and third parties can engage with the content. This oversight fundamentally handicaps third party-party competition platforms and ultimately means they cannot control their own destiny as a business.

Betting on Yourself

Lack of opportunities to monetize skill in esports are structural

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