Steve Arhancet, also know by his alias LiQuiD112, has seen esports grow from its infancy over the past decade. A former professional gamer, he is now co-CEO and co-owner of Team Liquid, one of the most successful esports teams in the industry.

Esports is expected to grow from $696 million in 2017 to nearly $1.5 billion by 2020, according to market researcher Newzoo. And Arhancet is positioning Team Liquid to be one of the leaders.

In September, 2016, Team Liquid was bought by Axiomatic, a company owned by Golden State Warriors owner Peter Guber and former AOL executive Ted Leonsis. Arhancet is co-owner and co-CEO of Team Liquid with Victor “Nazgul” Goossens. All told, the team has more than 60 athletes playing games such as Counter-Strike: Global Offensive, Dota 2, Halo, Hearthstone: Heroes of Warcraft, League of Legends, StarCraft II, Super Smash Bros., Street Fighter, and Overwatch.

We talked with Arhancet about Team Liquid’s rise and how to run an esports team. Here’s an edited transcript of our interview.

Above: Newzoo says esports revenue could hit $1.5 billion by 2020.

Image Credit: Newzoo

GamesBeat: Do you have some history you can fill us in on as far as Team Liquid?

Steve Arhancet: Team Liquid is an esports organization. We started about 10 years ago. It was founded by Victor Goossens. He’s based in the Netherlands. It was born out of a need for creating a community around StarCraft, which was one of the most popular esports of its time. It continued to grow from there.

I’d been running a League of Legends team and a Counter-Strike team. I merged those teams and the contracts I had with the LCS and the leagues we operated with into Victor’s brand and some of the other players he had. That was a few years ago. Since then we’ve continued to add teams and players. We now have two facilities – one in the Netherlands, where we boot camp and have office space, and another 20,000 square feet in Santa Monica where we house and train our athletes. We have 60 athletes and about 20 full-time staff, plus a number of other contractors.

We’ve consistently produced results in pretty much every major esport. We’re the third largest streaming network on Twitch. In July of last year we decided to do a strategic partnership with Ted Leonsis, the owner of the Wizards and the Capitals, as well as Peter Guber, the owner of the Golden State Warriors, and a number of other influential strategic partnerships with Magic Johnson, Steve Case, and executives from the Warriors. Since then we’ve been adding value to Team Liquid in a number of ways. That’s helped us stay one of the most competitive esports teams in the western world.

Above: Team Liquid coach with players.

Image Credit: Team Liquid

GamesBeat: Have you tallied up how much prize money your teams have won over the years?

Arhancet: I do not know that number off the top of my head, but I imagine it’s pretty significant. Most recently our DOTA team did pretty well last year, and the money there is significant. Our CS team last year did phenomenally well. At the CS: GO majors we were the most sought-after sticker in the game, with the highest prize value. I’d have to go research the exact number, though. In the millions, certainly.

GamesBeat: I would guess that’s only part of the revenue that comes in, right? You have other ways of making money.

Arhancet: Most people I speak with think esports teams just make money off their tournament winnings, and yes, that’s not the case. It’s actually a low percentage of our total revenue as a team. The first is the revenue we generate from the leagues we participate in. Just like the 49ers participate in the NFL, or the Warriors in the NBA, we participate in the various leagues represented by the games we’re in – League of Legends, DOTA, CS, Smash, Street Fighter, and so on.

What’s complicated—if we’re contracted with 10 different leagues, each of those leagues has varying types of contracts that share in the media rights and sponsorships generated at the league level. The NFL sells the rights for games to be broadcast on television, as well as digitally, and the revenue from that contract gets shared with teams and players. The same is true of our sports.

Then, after that, it’s partnerships we have with companies that do advertising on our jerseys, or through digital media, social media campaigns around our teams and players. We produce a ton of content – video, graphics – that features those products and services. We also distribute that through the streaming communities like Twitch. Between all of that, those partnerships and marketing activations make up a substantial portion of our revenue. After that comes prize money, in-game items – people buying Team Liquid stickers or skins for characters – as well as physical merchandise like hats and T-shirts.

That all makes up esports team revenue. One of the main reasons why things have blown up—the thinking is that the contracts teams have with leagues they participate in will yield, one day, the kind of revenue that you expect from other professional sports. It’s like beachfront property. A certain number of teams can get in each league. It’s hard for a league to add teams after they franchise.

Above: Multiple revenue streams will generate a total of $696 million for esports in 2017.

Image Credit: Newzoo

GamesBeat: What are some of your observations from being at this for more than 10 years? How has it grown, and what level of maturity do you think it’s at?

Arhancet: Esports has come a long way. I remember anxiously waiting to go to the computer lab when I was a kid so I could play Oregon Trail. The days of early video games. After that, signing up for Blockbuster events, where I’d go to the video store and try to get high scores so I could get to regionals and play in these competitions that were run by MLG. During that whole time, it was a kind of underground-ish ecosystem. A lot of people played video games, but you didn’t yet have a lot of people watching other people play video games.

What ended up happening was video games went from being mostly single player to multiplayer. They started being played online. The cost of bandwidth went down and the technology in games advanced. That yielded fun competitive multiplayer games that could be played online, and also broadcast online for other people to see in HD. When you had the convergence of all those things, you had a spectator sport. People enjoy watching a game as much as they do playing it.

Once that happened, then you saw the financial support to sustain an ecosystem around competitive video gaming. Now you had broadcasts of game tournaments that were being seen by millions of people. More people than watch the NBA or NHL finals. It was all just being broadcast online for free. You had these massive numbers and everyone was saying, “What is this? Is this even real?”

It got to a point where you had so many people watching that you got advertisers and marketers coming in. You had advertising on pre-roll and mid-roll and custom activations and teams and sponsorships. All this funneled into an ecosystem around successful titles that became competitive esports.

Above: Team Liquid

Image Credit: Team Liquid

GamesBeat: As far as comparisons to real-world sports, what do you think is true about predictions people are making about esports? Some people are saying this is going to be on a level with the NBA, or it’s going to surpass the NBA, or it’s just going to be different.

Arhancet: Just like other professional sports, you see the interest and the decline of interest happen over time. Imagine baseball viewership during World War II versus today. There’s a big difference in the number of people watching those games. The same goes for football and basketball. They all have their ups and downs over time, growing or diminishing viewership.

With video games, what everybody likes to think is there’s this one game to rule them all, one league where all games are played, but that’s entirely naïve. Each game is its own sport. Because of that complexity, you have 15 major, popular esports titles that are played, each with their own leagues, and each league may be run by a different company with different rules and viewership and monetization and teams.

Will this ever be just like football? Well, one game in particular may get to a point where more people are watching online than watch the Super Bowl on their couches. We may see that at time. We’ve already seen those peak numbers when you look at worldwide viewership. What’s catching up is not the viewership, though. It’s the monetization of the broadcasts.

Advertisers and marketers are apprehensive, and they’re not knowledgeable when it comes to buying streaming inventory. Even the jargon, the nomenclature used to describe impressions and unique viewers and peak concurrent viewers and average concurrent viewers and watch time associated with streams—there’s no dedicated rate card, no science about how to buy click ads within the streaming space. It doesn’t exist yet. When advertisers and marketers start to understand the value associated with a stream with 50,000 concurrents, you’ll see more spending from brands come into the sport, which will get us to the point where we’ll rival, I think, other professional sports.

That’s from a worldwide view. There are companies that care about worldwide impressions, as opposed to just North American products and services, or Korean products and services. You have to be thoughtful about how the ecosystem works worldwide relative to just the United States.

Above: Esports is a gold rush, and we’re gonna see who finds the treasure.

Image Credit: Azubu

GamesBeat: The alliances with the physical sports organizations, how do those make sense? It seems like there’s an interesting problem. There are very strong regional loyalties to physical teams, but esports is much different in that respect. Teams are international, and they have international audiences.

Arhancet: The thing is, this isn’t just being watched by going down to your local stadium. It’s online, on your phone or your computer. You can watch anywhere in the world, and it’s streaming live simultaneously in all these different countries. Every team has a different demographic as far as their fan base, which is usually a reflection of the players they have and the games they represent.

Some games are more or less popular in certain countries. In addition to that, certain players playing certain games are from different countries. We have the best Street Fighter player in the world, named NuckleDu. He’s born and raised in the U.S., and most of the Street Fighter tournaments are being held in the U.S. If you look at the demographics associated with our presence in Street Fighter, it’s 90 percent United States. But if you look at our DOTA team, our players are from four different countries. Between them, the DOTA audience is typically more European and Asian than from the United States. It’s important, when brands get involved, that they understand the demographic information associated with a particular team and why it’s that way, so they can customize their messaging based on the type of game represented by a team.

Above: Team Liquid in action

Image Credit: Team Liquid

GamesBeat: What would you see as big milestones coming up for the team?

Arhancet: For us, one of the next big ones is securing a partnership with a major non-endemic brand. We’re exploring those, and we’re excited about the opportunities and what can be done when a blue-chip brand associates with Team Liquid – all the creative and genuine things we can do in a gaming space that integrate the capabilities of those partners. I’m also excited about the opportunity for deeper franchise-like divisions with the leagues we operate with.

Just like in any other sport – let’s say football – there wasn’t always just the NFL. That’s not how it started. There were multiple leagues, and over time it got narrowed down to the point where there was one major league. That’s happening in esports. As that consolidation is happening, there’s better viewership for the predominant leagues. When that happens, and those media rights and sponsorships are shared with teams, and the value associated with those increases, you’ll see extremely rich agreements that increase enterprise value and revenue. It’ll create a sustainable ecosystem for esports in the future.

GamesBeat: I know the industry had some growing pains around things like drug use, Adderall and the like. How do you approach that, and training in general?

Arhancet: The way we view the physiological and psychological differences between the average gamer and your gaming athlete—a lot of their problems are similar. Athletes suffer from depression, morale issues, anxiety, from a lot of social pressure around competition. Understanding synergy, teamwork, cooperation, communication, just like in other team games. The intelligence someone has, and the understanding of psychological issues around interpersonal relationship development with teammates, that’s very similar to other athletes. Michael Jordan said that intelligence wins championships. There are aspects of that. The mental conditioning associated with long hours of practice and understanding games to the highest degree, that’s the psychological component of what makes an athlete top-tier.

The other side of it is physiological, which is more cognitive function, reaction timing, eye tracking, visual screening. If I were to tell you to look at a chess board for five seconds, then close your eyes and tell me the correct strategy for the next 10 movies, that’s visual screening. Athletes are able to take a bunch of data in very quickly and synthesize it to make quick decisions.

There’s also pattern recognition, where you practice and run drills over and over until you get to a point where you’re able to predict the movement of other competitors based on that repetition – running into a particular sequence of events that happens over and over. That goes for any sport. When you see Stephen Curry play and he’s just in the right place all of a sudden, it’s because he recognized a certain pattern of activity and anticipated where things were going to happen. All of that is hyper-illustrated when it comes to esports.

That’s what’s so awesome about watching an esport — when you see someone intellectually sparring with someone else and completely outplaying them, which means they predicted a series of events and reacted quickly. It gets you out of your seat. You just saw somebody defeat their opponent mentally and cognitively. That’s thrilling from a spectator’s perspective.

Above: Esports keeps growing and growing…

Image Credit: Electronic Sports League (ESL)

GamesBeat: How do you feel about game companies updating games every year, changing them in ways that affect the competitive landscape? And how do you deal with new games being introduced and becoming esports?

Arhancet: If anything, that’s one of the most damaging aspects of short careers for esports players. The analogy would be—what if, right before the NBA playoffs, they moved the three-point line back? It changes the whole game. Players that were used to shooting three-pointers have to adjust. And in esports that can happen every two or four weeks. You just mastered something – you’ve been shooting three-pointers for months – and then all of a sudden they change it. Now you have to relearn, readjust, recognize new patterns. It’s time-intensive, which creates burnout.

That’s a big detriment to player careers. But at the same time, it’s almost necessary to ensure the balance of the game. In the same analogy, if the basket on one side of the court was four feet lower than the other, one team has the advantage. It’s up to a developer to ensure that we’re all playing by balanced rules. That’s why changes happen, to keep fine-tuning the balance associated with the game. As they introduce new champions and new items, that turns the game on its head, and then they rebalance again to ensure fair competition.

GamesBeat: With all the changes in computing interfaces that people are predicting, I start to wonder if different physical skills in games might be necessary. We might have motion-captured control systems that call for real physical strength. Being able to throw a football could become a necessary skill for sports games.

Arhancet: Yeah, I could absolutely see that. It’s interesting to wonder, though. What’s more enjoyable to watch? People intellectually sparring with each other, or people brute-force running into each other? There’s an audience for both.

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