Call of Duty (CoD) is the third video game to pursue a franchising model for its competitive esports league. The first two were Overwatch World League (OWL) and League of Legends Championship Series (LCS). A key part of any franchised league is the media rights revenue, which is then distributed in part to the franchise owners. The OWL signed a 2 season, $90M deal with Twitch and while the LCS hasn’t announced what their terms were, at one point the LCS was rumored to have an agreement with BAMTech for $350M for an unknown term. As the Call of Duty League (CDL) is being franchised, we expect another media rights deal to be signed and hopefully made public.
Call of Duty was first released on October 29, 2003 and has had 15 new releases since then, making it one of the longest-running titles in video game history. It has been a mega revenue generator for its creators: Activision Blizzard, Treyarch, Infinity Ward, and Sledgehammer Games. In 2018, Call of Duty: Black Ops 4 and Call of Duty: WWII generated $605M and $506M ($1.1B+), respectively. Currently, the professional scene is predominantly played in the multiplayer mode (5v5, not battle royale) of Call of Duty: Black Ops 4. Similar to what Activision Blizzard did with Overwatch by franchising the league, they are now doing the same thing with Call of Duty. They have already sold 9 franchise spots (Dallas, Minnesota, Atlanta, New York, Toronto, Paris, Florida, and two in Los Angeles) for a rumored ~$25M per spot.
To get a bit of context for esports media rights, it’s worth taking a look at the deals in traditional sports. The deals in traditional sports are far greater than where esports is today, yet so is the monetization and size of the underlying audience for each video game’s professional scene. Below is a schedule of the major media rights deals across traditional sports.
Value per Viewer: if you look at the average # of viewers for the latest championship for each sport, and then include Overwatch (OWL), you get a value per viewer. While this is not entirely reflective of the underlying value in each league, this is one way to compare “apples to apples” across various competitive leagues. Interestingly, the value for Overwatch and MLB is identical at $52/viewer:
If you look at the Twitch metrics behind Overwatch (the entire game, not just the esports viewership) over the past 2 years (July 2017 to July 2019), we can use the $45M/season media rights deal for OWL to effectively price the popularity of this game. Below, we use the media rights deal as a benchmark to price each channel, hour watched, and viewer (Twitch only):
Using Overwatch as a benchmark for esports media rights, the below applies the same pricing per category (channel, hours, viewers) to Call of Duty and League of Legends over the same time period (last 2 years). While using only one data point with the OWL media rights contract is certainly limiting, it’s all that is publicly available as of today in esports for franchising media rights.
Comparing Each League: As the above shows, you can use the price per channel, hours watched, and average viewer to back into a price for the media rights of the LCS and CDL. Depending on which metric you look at, the pricing for the LCS and CDL is varied. I believe that the hours watched and average viewer metrics are the most pertinent for a media rights deal. The below is a summary comparing the OWL, LCS, and CDL:
In conclusion, we believe that the upcoming contract for the media rights of the CDL should be priced at $24M per season. We believe the most accurate pricing would be based on hours watched and viewers which would have the total deal (two seasons) priced at $48M. What matters most is the viewers, because that’s what you sell through as a media rights holder.
In theory, media rights revenue is split up evenly with all the franchise teams. With 9 franchises announced for the CDL, we expect them to announce at least 3 more, taking the total to at least 12 spots. Our estimates would indicate that each team would receive a max of $2M a season ($24M/12 teams). This assumes that Activision Blizzard takes $0 from media rights, which is unlikely to be the revenue split between them and the franchise owners. In reality, the franchise teams will likely receive quite a bit less.
There are definitely other costs and revenues associated with being part of this league, yet if we were to assume all teams are breaking even on the CDL before they receive 100% of media rights revenue ($2M/season, also unlikely), it would take 12.5 seasons to make back their franchise fee of $25M. That said, most investors don’t buy franchise teams for the cash flow but for the appreciation of the asset over time. However, unlike traditional sports that last for 100+ years, video games come and go and we firmly believe an investment strategy should reflect this different reality in video gaming.