Carlos Rodriguez: Why G2 Esports keeps the faith in a tough industry

The esports industry has a lot of promise, but it has been whipsawed over the years. Physical events were growing fast and the audience became bigger than that for traditional sports. But esports fans didn’t spend as much money, and so it was hard for any companies in the space to make a profit.

G2 Esports has been one of the rare exceptions, as it has been profitable or near breakeven thanks to a combination of supporting winning teams and generating various kinds of sponsorship, merch and other revenue. But the pandemic came along and wiped out physical events for a while. And while digital audiences grew, it remained hard to make money.

I talked to Carlos “ocelote” Rodriguez, CEO of G2 Esports, about the industry and the path forward through projects such as Web3 technology. A legendary League of Legends player, he started G2 Esports in 2015 with investor Jens Hilgers.

And today, G2 Esports announced a new all-female League of Legends team. The new team, Hel, will compete in Riot’s main title League of legends and is one of the first all-female elite League of Legends teams worldwide. The new team is part of G2’s ambition to ultimately get female players competing side by side in mixed teams, as teammates, at the highest level possible — sharing the same stages.

G2’s ultimate goal is to offer equal opportunities and resources that will allow them to reach the same or even higher level of play, regardless of gender but purely focused on talent. Regarding the announcement, Rodriguez said, “We took Valorant by storm with the G2 Gozen team which includes five of the most gifted and entertaining players who happen to be females. You should expect nothing less from G2 Hel. We will dominate competitively, all while having fun the G2 way.”

Here’s an edited transcript of our interview.

GamesBeat: What’s happening with G2 Esports? Can you fill me in on what the pandemic has been like for you?

Carlos Rodriguez: Especially now, with the current situation in the world, we have to do more with less. Specifically for entertainment properties like ours, those that are able to make use of the capital they have, make use of the inventory they have the most creatively, they’ll come out on top. Right now some brands are drying out their marketing budgets. Things are getting tougher. We’re head down, executing, trying to be as creative as we can with the cards we’re given.

On a more macro scale, G2 is one of the three organizations globally that already “own” the world of esports. The audience tends to gravitate toward becoming a G2 fan. If a new player comes into whatever game, there’s a good chance that they’ll gravitate toward becoming a G2 fan. There are maybe one or two other teams globally on that scale. No one in Europe, though.

For us, what comes next is to widen that audience funnel even more. As opposed to just doing esports competitions, video game competitions, which is the bread and butter of companies like ours, how do we open up to different entertainment verticals, like music? How do we make–in our case, for example, we’re looking at animation. We’re creating characters, digital characters, that are perhaps based on a real story that we’ve lived through, but they’re produced digitally.

Things like that require a meaningful amount of resources and a shift in mindset. Not only do you have to create new imagery that you haven’t had before, but you have to know how to sell it. It’s a shift, a change, and I think the top orgs understand this.

GamesBeat: When was the last time you raised money? I saw one in February of 2019.

Rodriguez: Yes, that sounds about right.

GamesBeat: That seems like pretty good timing, to help you get through.

Rodriguez: At the very beginning, years ago, we raised capital for the purpose of surviving. Pretty much every esports organization was the same. But the latest round, the latest raise we had in early 2019, that didn’t happen for the purpose of just continuing to survive. It happened because of the strategic advantages that would come as a result of getting the Brooklyn Nets and the owners of the Nets involved in G2. That’s proven to be very successful for us on many levels. It was less about how much they invested and more about the strategic alignment and added value.

We’re in a position, because we’re profitable–in 2021 we were profitable and this year we’ll be profitable. We’re in a position of power, frankly, where we don’t need to raise money. Everything boils down to the quality of the strategic people we can get on board as investors. If we have excess capital, then we’ll look to expand in those new verticals I talked about before.

GamesBeat: What were the pieces of the strategy that really got you to this strong financial position?

Rodriguez: We’re very good community builders, number one. We’re very good at understanding how to build a brand with consistency. Probably the most important aspect, though, is that we’re very good at building a culture in the company that is replicated throughout all departments. Sometimes a department that’s replicated in is esports and then we win more tournaments.

We became, in the last four years, the most competitively successful organization on earth for titles. At the same time, we’re the most creatively empowering and creatively successful organization in terms of campaign management, videos, everything. Everything we’re doing is pushing the envelope, pushing everyone toward the better. In terms of community interaction, social media for example, we’re number one, bar none. Ultimately, in terms of commercial prowess, we have the most impressive lineup of partners that we continue to renew to this day. They continue on this journey with us. On top of that, in the admin area, everything is taken care of. There are a lot of great things going for us. That’s happened as a result of culture. I have to boil everything down to culture.

GamesBeat: Would you say you’re more focused on profit than pure growth?

Rodriguez: No, not so much. We could be wildly profitable at this point, but we choose to reinvest pretty much all of our profit. When I say we’re profitable I mean we’re breaking even, and by choice. We’d be wildly profitable if we chose to be, but we choose to reinvest in the business. We’re still a growth company. That’s proven by the revenue growth year over year, as well as the growth in community and audience, and our overall market share in the industry, which becomes larger every year. All those aspects prove that we’re a growth company. The fact that we’re breaking even while we continue to grow makes it so we’re not forced to raise just to survive, which is pretty much the game that everyone else is playing.

GamesBeat: Where are you on Web3 at this stage?

Rodriguez: It’s funny, because I’ve been very involved in Web3 for about two years now. I’ve spent a considerable amount of time with the people who have built some of the most successful platforms and companies there. They all tell us that G2 seems to be the most advanced in regards to Web3. Not only in terms of our understanding of how to use Web3 tools and features and the overall community-building toolbox in front of us, but also understanding how to transfer or bring our existing audience to Web3.

That happens, again, as a result of–two years ago we made a conscious effort to have everyone in G2 educated on the topic. We tried to spend a considerable amount of time on understanding what platforms are coming out and how to use those platforms and technologies. How can those positively affect the way we engage with our fans? That, ultimately, is our business. We’re in the business of building fandom, building a community, and then engaging with them. The quality of that engagement, that interaction, has made them stick with us over the years. Our ability to commercialize that interaction allows us to have a business. We’re very good at those three things.

GamesBeat: Have your fans reacted in any way to blockchain, NFTs these Web3 initiatives?

Rodriguez: Oh, yeah. They hate it. Gaming audiences hate Web3 in general. A portion of this is justified. There’s been an immense amount of scams. Coins that become worthless. People have lost a lot of money. The problem is they have a blanket approach in their hatred of everything Web3, when in reality a lot of the toolbox in front of us in Web3 will in fact make gaming and companies like ours better over time. We know that. Eventually they’ll also realize that.

The problem for them is that it’s hard for them to realize, because there’s never yet been a product or a service that they consider a must-have because of some amazing added value that it has. However, one day, a game will come out. That game will happen to be a blockchain game. They’ll create a wallet without even realizing it, and they’ll seamlessly trade their tokens. In existing games those might have been skins. They might have been untradeable, depending on the game. Now they’ll be able to trade and sell their skins directly in real time for real money. Those will appreciate or depreciate. They’ll understand how the economy works, supply versus demand.

It’s going to be an eye-opening moment when that first blockchain game exists, the first one that people like to play because it’s a great game, and they realize the value of Web3. They’ll realize that there are things they can do now that they couldn’t do before. When you give people a taste of the future and they like it, it’s hard to go back. I believe that eventually, when people have that seamless experience–right now there’s nothing seamless about Web3. If you want to create a wallet and go play a blockchain game, you need to buy Ethereum and all these things. It’s a mess! Everything is a mess. A huge mess. But it’s advancing quickly. There will come a time where everyone realizes this will have a positive impact.

GamesBeat: Have you tried one of these experiments? I’ve noticed that a lot of esports companies have experimented with Web3 and then withdrawn them.

Rodriguez: We’ve been at the epicenter of some conversations. We had our partnership with Solana, which was publicly announced. We call it a relative success, but in reality it was very successful, compared to the engagement and feedback from the community with every single other NFT marketplace or NFT partnership we’ve announced. We had pretty good feedback. What we saw is that the community we created as a result of the partnership with Solana–we released our first NFT collection through that partnership. We created a community that’s quite strong. It’s thriving. People do trade NFTs. Some of them are wealthy enthusiasts, but many of them are not. We’ve onboarded many of those people. They’re now Web3 customers of ours, a Web3 audience.

There’s been a lot of good and a lot of negative. As I said, Web3 is surrounded by a lot of negativity. A lot of that is justified. I just have a problem with this blanket approach where everything is garbage. That doesn’t work, because it’s not true.

GamesBeat: Are there more secrets for successful esports projects in Web3? What do you think can be more acceptable?

Rodriguez: The biggest mistake you can make, I think, is to try to squeeze money out of the community right now in Web3. Right now you just have to add value. For example, we sold out our NFT collection in two hours. I bought three myself. We made $600,000 in two hours, and we could have made more. But we didn’t do that, because our intention is not to make money right now with this. It’s to build a community and add verticality to the interactions and engagement with the community, which is why we’re doubling down on adding value into our first NFT collection.

If you own one of those Samurai from the first NFT collection, 20 years from now that shit will continue to give you value. There’s a zero percent chance that the value of that NFT over time will not be growing. Zero percent chance. I’ll make sure of that. What happens as a result of that is we’re building our reputation and credibility in the industry. Yes, we don’t get cash today, but with that reputation and credibility, not only will we build a strong, well-engaged community in the years to come, but we’ll also be able to monetize more eventually. It’s an investment in our future, in the perception the G2 brand has in the blockchain and crypto world.

GamesBeat: We’ve had one company go public recently with FaZe. What do you think is the opportunity for the esports industry when it comes to tapping the public markets?

Rodriguez: I can see two main reasons why an esports company would want to go public. Reason number one, the founders want to make money. Going public allows founders to acquire a lot of liquidity. Eventually the price gets a hit if they pump it too much, but you can get loans against the shares. You know how this works. It allows for easy liquidity.

The second reason why anyone would want to go public as an esports company, an esports team, is because they believe the money they can raise in the markets – in many cases, like the case of FaZe, at a premium valuation – they can use that capital to acquire businesses or invest those resources into things that allow the company to scale faster and get bigger market share faster.

The problem I see with that–I have my finger on the pulse. This is my fucking job. I’ve been doing this for 17 years now. I have a pretty good idea of what’s out there that’s acquirable or investable. I had the opportunity to make our company public. Did I? No. If you gave me $200 million I wouldn’t know how to use it. The money would be sitting in the bank earning negative interest. It’s just never going to work. There’s nothing you can acquire at this point unless you pay a huge premium on it. For that reason, we didn’t go for it.

I think that FaZe Clan–my reaction to it is that maybe they overestimated the amount of things and companies they can acquire with that capital. Otherwise I wouldn’t see a reason to do this, other than if the founders just wanted liquidity. I’m glad they did it, though. Even though they have a failing business, even though the FaZe Clan business makes no sense to anybody with eyeballs, they’re getting a good valuation. It shows that the market holds esports organizations in high esteem. If FaZe Clan is worth, say, $2 billion, then G2 is worth $2.4 billion. I’m glad they’re public. It’s a good benchmark for us, a positive benchmark.

GamesBeat: They seem to have traded upward.

Rodriguez: Absolutely. There was a short squeeze in there I’m sure, but it’s doing well. I’m glad it’s doing well. If they do well, we do well.

GamesBeat: As far as the mix of digital and physical esports events, what is that like now given what we’ve gone through with the pandemic? What are the opportunities and audiences like for digital events and physical events?

Rodriguez: Right now there are a lot of physical events happening, and those events sell out. It’s hard to get tickets for a venue that holds 13,000 people, if it’s a key event. Not only are we getting back on track with physical events, but I think we are now having even more events than before. A lot of positives come with that, because the commercial appeal for brands, to be physically present at events, is definitely good. But esports proved during the pandemic that we don’t need these events to thrive. If the world goes mostly online, we’ll thrive in that world. That’s a fact.

For us, honestly, there are pros and cons involved. Overall we have a pretty good outcome regardless of the situation. It’s great that we can have physical events now. We can have viewing parties. We can have fans waving our flags and have a huge community in the streets screaming “G2! G2!” and waking up the neighbors. If the world were online, we’d probably have even larger numbers. We wouldn’t be able to monetize in person, but we might have much larger numbers watching our team compete and watching our content on YouTube, because people would go out less often. We’re net positive either way.

GamesBeat: Could you explain a bit more about the different pieces of your business? How do all those pieces reinforce each other?

Rodriguez: We look very much like a successful entertainment company with heavy business development dealings that they do in-house. In terms of verticals, obviously we have admin, marketing, commercial, and esports. G2 has different IP. There’s G2 Esports, our esports brand, which is obviously the largest of all. We have other IP like content formats that have a name. That name holds value. We’re in season seven of “Making the Squad,” for example. That has value. We also have a presence in leagues, closed leagues or franchise leagues. That holds value that’s growing over the years. Our biggest asset of all is our creative team, our production team, that is able to put together campaigns and videos and skins and content pieces – media in general – that we can then commercialize and monetize depending on what it is.

Our business is very multilayered. Even though we’re an esports team–most people would look at that and automatically assume, “Oh, it’s like a sports team but with video games.” We’re everything but that, in fact. The differences between Real Madrid, the Los Angeles Lakers, and us are very large. I like to say that G2 is what would have happened if Marvel operated Real Madrid. I think that’s a good way to put it.

Yes, competing and winning is nice. If you win you have more sponsor appeal and more fans hop on the train. But you lose that fast unless you’re able to add verticality to that relationship through the entertainment that you provide to them. You have to create that emotional connection with them. You can’t just win. That’s not something you can stand for. You have to stand for something. That’s what your brand is, what your content is, what your community interactions are. That’s our crown jewel. We’re the best in the world at it.

GamesBeat: What do you see in trends around teams and players themselves, things like player pay?

Rodriguez: Earnings are definitely going up on average. It’s normal. The player base gets bigger, so the viewer base gets bigger as well on average. This isn’t true in all games. Some games go up or down. But the overall audience is going up. That means the commercial value of every game we play goes up. The intrinsic value of each player therefore goes up. Teams like ours are able to monetize better year over year. We haven’t nearly reached critical mass. We’re not remotely close. There are still decades for this to happen, which means that this will continue to grow organically regardless of circumstances.

Now, players are doing very well. But there’s one particular thing in this industry that doesn’t favor players. It’s this. In traditional sports, the career of an athlete–if you look at a super-athlete like Lebron James, this guy can play until he gets bored. Realistically he’ll have to stop at 40-something. He’ll finally get too old and break something. But that means he’ll have, say, 22 years in his career. That’s unheard of in video games. Completely unheard of. It’s not possible. Straight up, not possible at the highest level. Not possible.

Video games, most of them – not all of them, because card games don’t have this, but most of them – require an immense amount of hand-eye coordination, understanding of mechanics, and motor skills. Even chess players, you can’t be champion of the world in chess at 50 years old. You just can’t. When your motor skills start going down in your 30s, you can no longer be number one. Imagine what it’s like for video games. Multiply that by whatever number. A game like League of Legends or a racing game or whatever, you benefit far more from your reflexes, which naturally go down–I think it’s somewhere after 26 or 27.

That’s one end. That’s one of the problems. The second problem is that–take basketball. You don’t train for playing basketball 14 hours a day. It’s counterproductive physically. A top pro player, if he trains five or six hours a day, he’ll be injured after too much of that. You can’t do it. In esports, if you can’t take 12 or 14 hours–I’m not saying you should do that as an employer. But as a player, if you want to be number one, that’s what it will take. I haven’t seen a number one player who just plays four or six hours a day and chills out. Never happened. That eventually takes a toll on you. It’s like a hammer on your head, to train that much every day. You can only do it for so many years. I was a professional gamer for nine years, and that’s one of the longest careers I’ve seen at the highest level.

What happens next is, because there’s such a high amount of churn among the players, that means they collapse. Companies like ours become the biggest common denominators, or the only common denominators, across the legacy of a video game. Therefore, it is very easy for fans not to root for players, but instead root for clubs. Once they become a fan of a player, they become a fan of a club. Then, if the club is able to retain them, which is what we’re very good at, they’ll remain a fan of the club pretty much forever.

That’s the beauty of the position of power that esports teams find themselves in. That’s why our strength has continued to multiply over the years, and that’s why publishers increasingly want to work with us as the years go by. They realize the positive impact on their player base and viewer base as a result of this pact.

GamesBeat: Do you see a good path for retiring players to follow?

Rodriguez: We do our best, but ultimately we’re not doing favors for anyone. What we do is we help them understand what their strengths are and how they can potentially use those strengths in their new life. The same happens in traditional sports. When a football player, for example, ends his career, they have the same problems. Sometimes they become coaches, but to become a coach you need skills and attributes that aren’t necessarily those of a player. It requires a very special mindset to be a leader. Similarly, not everyone can be an entertainer. Somebody who knows how to play a game doesn’t necessarily know how to entertain people as a streamer. These are vastly different skill sets. If you’re very, very good at games, if you’re gifted, then maybe you can be the guy who just plays every game well. But again, that has a cap. Your age will take a toll on you.

Esports and video games–what’s the word I’m looking for? This is one of the least bad spaces for former players as far as high-performing environments. Basketball is significantly more punishing. American football is significantly more punishing. Most people end up having nothing. In esports you have a lot of different paths. But they all involve very different skill sets. When you make the decision to become a professional player, whether it’s American football or anything else–if money is your end goal, you’re probably in the wrong field. Only a very small number of people get there. As a person, though, do you want to be outstanding at something that 100 million people do? If the answer is yes, and you have the willpower to accomplish that, then this could be a career path for you.

GamesBeat: What’s enabled you to stay at this for so long?

Rodriguez: Well, I’m a competitor at heart and an entertainer at heart, both at equal levels. The competitive career was made for me. It’s not just about playing video games, but also building a fanbase. I liked spending time with fans. I liked creating content for them. I liked competing and winning for them. And for me. Those are great attributes to have as a pro player in our industry. I enjoyed it. Eventually, when you do it for that long, it just takes a toll on you.

GamesBeat: If there was a boom in esports a few years back, what do you think helps the industry stay on this upward path and get back to some of those glory days?

Rodriguez: That will probably return. Again, as I said, I’ve been here for 17 years. In 17 years the amount of times the industry has been overhyped, underhyped, overhyped, underhyped–we’ve gone through that many, many times. It’ll happen again. This is how it is. Eventually it’ll stop. The moment it becomes truly mainstream is when we’ll finally stop seeing the industry overhyped or underhyped and settle into something more constant.

Until then, the same pattern will occur. A game comes out that everyone plays. It happened with Fortnite. Everybody pays attention. Everybody plays it. Then COVID happens and it’s overhyped. The world economy goes down. All of a sudden businesses that shouldn’t be alive in the first place die. Leagues that shouldn’t be doing well aren’t doing well and they die. Many people’s money goes down the drain. People ask the wrong questions. “Did we invest in the right industry?” No, the question is, did you invest in the right company?

Then it’s underhyped again. But you have a couple of success stories. You see FaZe Clan going public for this amount of money. It stays there for a year, perhaps. Who knows? You see teams like G2 just continuing to be profitable, continuing to grow their fandom and community, continuing to thrive as companies. Eventually people will say, “Oh, shit, what’s this?” Overhyped again. It’s how it works. It’s a process. Where we are right now, I feel like we’re getting out of the lowest point of the underhype. We’re slowly getting out of there. A lot of this is thanks to FaZe Clan going public