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Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

Call of Duty Franchising

City-based franchising coming to Call of Duty

Call of Duty Franchising

This week, the professional esports team 100 Thieves decided not to pursue a franchise spot with the Call of Duty league (CDL) due to two reasons: 1) too expensive and 2) not ready to commit to a city-based model.

Back in February of this year, we published a piece titled "Esports Leagues: Stop Franchising". As one of the most recognizable esports brands in Call of Duty, 100 Thieves not participating in the Call of Duty franchise league is only the latest iteration of our thesis on esports franchising playing out as we had expected.

Our concerns were echoed this yesterday by Matt “Nadeshot” Haag (CEO, 100 Thieves) in the video below: "We are not ready to pick a city. This is a worldwide brand…  To make a financial commitment as large as this just doesn’t make sense for us right now.” It’s worth noting that this video has 1.4M views on Twitter and 260k views on YouTube in less than 24 hours. There has been quite a bit of community backlash towards Activision Blizzard after this announcement.

Let me briefly address 2 key points around franchising and the city-based model.

1) High franchise fees: Franchise fees are way too expensive for esports teams today, especially given that the path to a risk-adjusted ROI is unclear at best. It does not make sense to charge ~$35M per CDL franchise spot for a game that gets only 35% of the viewership of Overwatch ($20-30M at launch) and only 9.8% of League of Legends ($10M at launch). I’m a bigger fan of CDL than I am of OWL, due to the longevity of the CoD franchise (started in 2003), but these high buy-in fees are an overreach by Activision Blizzard as they are effectively offloading the marketing costs for their own league to outside investment groups. It’s horribly mis-priced.

2) Esports & city based models: Over the past 20 years, esports has been built on a globally distributed landscape. This coincided with the rise of the internet, social media, and 4G connectivity. Locking teams into a city is tough for an inherently geo-agnostic fanbase. Taking the local city model from traditional sports and forcing that upon the esports ecosystem (inherently global and distributed by nature) is not being done well.

I do believe that esports has a key role to play at the local level, but Activisoin Blizzard is not letting the teams in the OWL or the CDL use their own global brands for their cities. This disconnect is near-sighted and has led to top esports teams not joining the CDL (i.e. 100 Thieves, Gen.G, Luminosity). In contrast, Riot Games is wisely letting teams (like 100 Thieves) use their global brand as their team brand in the LCS. Activision Blizzard is taking a 10-20 year view on brand ownership for a video game league that is still in its infancy. The next 3-5 years are much more important than trying to optimize for a hypothetical long-term. This is a key difference between sports & esports: sports are 50+ year-old competitive scenes whereas video games have much shorter life cycles (especially unproven ones like Overwatch).

What we proposed in our piece in February is for esports leagues to follow the promotion/relegation structure while charging reasonable annual dues based on whether you’re in Tier 1 (i.e. $500k-$2m/yr), Tier 2 ($100-500k), or Tier 3 ($25k/yr + open qualifiers). This would allow for the publisher to fund & operate the league while also limiting the financial burden on teams that want to participate in a league that will undoubtedly be short term in nature (<20 yrs, if not much shorter).

Today (talent flight): just today, Adam Apicella, Activision Blizzard’s vice president of league and event operations has announced his departure from the company. His departure comes following the final event of the Call of Duty World League, and ahead of next year’s launch of the franchised, geolocated Call of Duty Global League (CDL).