Interested in learning what's next for the gaming industry? Join gaming executives to discuss emerging parts of the industry this October at GamesBeat Summit Next. Register today.
A couple of weeks ago, European esports organization Team Vitality has raised €20 million, or $22.7 million, in an investment from entrepreneur Tej Kohli. That was part of a larger commitment by Kohli, through his Rewired GG fund, to invest €50 million, or $57 million, in esports startups.
Team Vitality said it believes the investment was the largest ever for a European esports team. You could say the sector is hot now, as market researcher Newzoo expects the business of esports to reach $1.7 billion in revenue by 2021. Kohli’s bet, shared by Team Vitality’s cofounder Fabien Devide, is that Europe’s esports sector will eventually rival Asian and North American esports markets.
And ultimately, just as there is with traditional sports, they believe there will be profits in esports related to both local franchise opportunities and global media rights opportunities as well.
Team Vitality has established itself as a leading professional brand in Europe with rosters across a number of titles. The team will use the money to develop state-of-the-art facilities, including training and performance centers, as well as a flagship store and office. It will also be used to build teams that can compete on the global esports stage.
Vitality has recently launched a team for Counter Strike: Global Offensive, better known as CS:GO. That team won the DreamHack Open esports tournament in Atlanta. Vitality was also recently confirmed as one of the teams that has secured a long-term partnership in the newly franchised European League of Legends Championship Series, which has been rebranded as the LEC.
With Kohli’s support, the team plans to first expand its presence in China and Southeast Asia to reach more viewers than it currently reaches.
Fabien Devide and Nicolas Maurer founded Team Vitality in 2013 in France. It has more than 50 players from 11 countries. The team has a current portfolio of 10 games, including League of Legends, CS:GO, Fortnite, PlayerUnknown’s Battlegrounds, Rocket League, and more.
Kohli is the backer of Swiss-based robotics and venture studio Rewired, which is focused on applied sciences and technologies. Kohli has committed $100 million to Rewired. And Rewired has now launched an esports division, Rewired GG, which is solely dedicated to investing in esports The backing of Team Vitality is the first investment for Rewired GG.
I talked to both Devide and Kohli about the opportunity in esports.
Here’s an edited transcript of our interview.
GamesBeat: I was interested in getting your perspective on investing in the esports sector. Could you talk about your background and how you were successful in e-commerce?
Tej Kohli: I’m widely invested all over the world. We have about 16 to 18 offices depending on how you look at it. We have one more in Paris now. We’re an international group. I’m into robotics, AI, genomics. We have a company that’s probably the leader in artificial blood. We’re very technologically driven.
Much of my success has come through e-commerce over the years, but it’s not one single thing. It’s things like we’re doing with esports – forward-looking projects where you invest in the right place at the right time and things work out. If you have good people like we do with Nico and Fabian, working in a good scheme, everything works out in life. That’s my experience. We like to do things before everyone else does. After we met Nico and Fabian this was a no-brainer for us.
GamesBeat: You have a 100 million euro fund and another 50 million euro fund?
Kohli: That 100 million fund isn’t for e-commerce, at least not yet. We’ve bought quite a few companies, and I have a large portfolio of companies I’ve invested in. I’m looking at self-driving cars, building sensors for that. That fund is for that area, investing in forward-looking technologies.
The 50 million, I’ve given that to Rewired, which is a group that’s invested with Vitality. I invest through these guys. I’ve known some of them for many years, and they’re some of the smartest engineers and technical people. That fund is for the esports business in general. That was before we invested in Vitality. Nico and Fabian met a lot of potential investors, and we also met a few potential companies that we looked into buying. But after we met Nico and Fabian, there was no doubt in my mind, or the Rewired guys—there was no other team we wanted to be with. We wanted it to be Vitality.
We can get into the reasons we chose Vitality, but it was mainly Fabian and Nico. They were a class act. They eat, drink, and sleep esports. They know everything about everything. What I was most impressed by in these guys was that they had done so much, becoming the second or third biggest team in Europe or whatever they were at the time, with the minimal amount of actual cash investment. It was how they achieved so much with so little.
And then there was the fact that they were predominantly a European team. In an area with such a global presence—the example I always give is, if you take baseball, it’s a big sport in the U.S., but nobody knows it in Europe or anywhere else except Japan. But this isn’t the case here. You can take almost any esport to any area geographically. League of Legends is played everywhere in the world. The potential is huge. I think we can help these young men take this team—not only by virtue of our investment, but we can help them in so many other ways. The potential is enormous.
GamesBeat: Nico, do you have any plans for how you want to expand?
Nicolas Maurer: We’ve always wanted to be international, even if we started in 2013 as a France-centric team – French players, French fans, telling our story in French. Very early in the life of the company we wanted to expand. When we moved into League of Legends at the beginning of 2016, it was our first way of expanding into Europe and gathering European players to reach a wider audience.
And now we can see that esports is a global business with global excitement. We can especially see that Asia and South America are very interesting markets, where esports is booming. For us that’s the logical next step. That’s one of the key reasons we chose to work with Mr. Kohli and Rewired. The financial resources are important, but so are the resources of the group when it comes to reaching out into new markets.
I can’t share precisely what we intend to do right now, but the idea is to establish ourselves in a few countries in Asia, move into new games there, and have a local presence. If you just operate the team from afar, you can’t really create content around the team and get sponsorships. It’s not very appealing. We have that experience from the past. We know that if we want to do something big there, we need to have a presence, have a very central project. That’s the next step for us, to expand the brand both in Europe and in new markets.
GamesBeat: It seems like you have interesting avenues to go down. Esports is global, but the opportunity, like in traditional sports, with the Overwatch League and other things—it seems like there’s a lot of local opportunity as well.
Maurer: It’s very interesting, because there are several models at the moment. The Overwatch League is a global league, but with geo-localization. You have a city-based team and then you can activate local audiences, which is very smart. Of course there are questions around the Overwatch League and the economics that are being figured out, but the model, the way they want to establish their operations, is very interesting.
You have other leagues that are region-based, like League of Legends with their European, Chinese, and North American leagues, and the world championship at the end of the year. That’s interesting because it creates narrative out of the competition between different regions. A lot of people and a lot of companies are trying different things in esports, and that’s one of the most interesting things about it.
We’re not locked into a region or a model like in traditional sports. It’s possible for us to have a French team in Counter-Strike, a pan-European team in League of Legends, a Chinese team in DOTA, and an Honor of Kings team in Thailand. We have a lot f possibilities, and that’s very exciting.
GamesBeat: Tej, as far as prioritizing esports, we’ve seen gaming go through different waves of investment, with VR and AR and blockchain in gaming. How do you approach this given that there’s been a lot of hype around some of those different areas of gaming, and the waves have gone up and gone down?
Kohli: First of all, esports has been around for a while. It’s just beginning to come into its own. You have to look no further than the U.S. esports teams and how they’ve grown exponentially. The same thing has happened in China. In Europe we’re behind. That’s an opportunity for people like us and Vitality. It’s all about eyeballs. Yes, some people say that it’s just millennials, younger people, but the sponsors are very smart. They’re coming to us. It’s not like blockchain, where today Bitcoin is down 80 percent from where it was four months ago. This market is coming into its own.
Now, having said that, I do understand that it’s still the wild west. We need to bring some order to it, people like us who’ve been in business before. We need to try to establish bodies that are self-governing and bring some degree of ethics and morals to it. Some of that exists now. I’ve met some very interesting people in this industry. But I think we need to set up that type of infrastructure. We fully committed to doing that as co-owners of Vitality.
GamesBeat: Which parts of the business model look most promising right now? Is it media rights for teams, or sponsorships, or something else?
Maurer: Historically, as you know, sponsorship made up the bulk of the revenue for esports teams. Not everyone in the industry thinks that’s a sustainable model, something we want. We don’t want to rely too much on sponsorship. We want to make money from sponsorship, but it should be a lower percentage of our overall revenue.
What’s most interesting in esports right now is the potential for media rights. We’re coming from basically zero there to a new era where we can see huge investment in the space. The Overwatch League had its multi-million-dollar deal with Twitch for two years to be the exclusive broadcaster for the league. If you look at traditional sports, it’s a big part of team revenue. It makes a lot of sense, because you have a lot of people who want to watch the product, whether it’s the Overwatch League or the League of Legends championships or whatever. The publishers have realized that they can go to the broadcasters and sell those rights. It’s a new influx of money for teams.
We believe that media rights will be a big part of our revenues in the years to come. It’ll take a bit of time for everything to be established, and the competition we can see in the broadcast space—you have YouTube wanting to catch up to Twitch, and Facebook trying different things in the space. That’s all very interesting for us.
When we want to look at our revenue stream overall, right now our goal as a company—we don’t want to think in the short term about this stream of revenue or that one. We want to build a brand, an international brand that a lot of people are passionate about. If you look at traditional sports, that’s the way sports teams make money, too. If you’re a worldwide brand and have a lot of fans around the world, they’ll pay to wear jerseys. They’ll subscribe to content around the team. They’ll subscribe to ways of watching the games. If you build a brand, a worldwide brand with a lot of exposure and a lot of fans, that’s where the money is.
What we’re thinking about with Team Vitality is to build that worldwide brand. Then we can start talking about individual streams of revenue. But that comes after the process of building this brand.
Kohli: Nico is very modest, as is Fabian, but they’ve managed to already draw some good sponsors over the last two and three years. I suspect that with our backing and our contacts that’ll only grow bigger. But that’s just one form of revenue. There are many others, and we’re looking at all sorts. But Nico is absolutely right. First we want to make sure that we can give our sponsors and our viewers the best brand that there is. That’s why we’re together.
Maurer: Getting back to sponsorship quickly, that’s one of our key areas of identity. We’re the best western team when it comes to sponsorship, because have the best brands. We have Omen. We have Adidas. We have Red Bull. We have Volvic. We have Renault, the carmaker. We’re very successful in that regard. But of course, we think that revenue is about much more than sponsorship.
GamesBeat: You guys mentioned that Europe is behind in some ways. We know China is very strong, South Korea is very strong. The U.S. is becoming stronger. How will Europe build itself as part of the audience for esports?
Maurer: First of all, the level of success around esports in different places has some kind of misconceptions. Esports is huge in South Korea, but the organizations there don’t have a lot of reach outside of South Korea, with the exception of Gen.G, which is partly owned by Americans. The South Korean teams have evolved in their own very big domestic markets, and they haven’t had to reach outside that. It’s a national passion there.
When it comes to global teams, organizations that have established themselves globally, you’re looking mostly at Chinese teams and North American teams. The franchised leagues – Overwatch League, League of Legends – got started there one year before Europe, so we’re trailing in that regard. We can see this now coming in Europe. You have the meeting of Rewired and Vitality, and we’ll probably see similar amounts of investment in Europe in the future.
Focusing on the European market, it’s a bit strange. It’s bigger than the North American market, so the potential is there. But it’s more complicated to operate, because you have various languages and various cultures. We see that as a potential strength, but it’s more complicated. We have to sign local players in different countries if we want to reach different audiences. It takes more effort on our side to reach the whole Europe, as opposed to North America where everyone speaks the same language and watches the same TV channels and so on. But in the end the real potential is huge.