Industry research reports: The importance of diving into the data
Last week, Morgan Stanley published a report that projected revenues for Blizzard’s inaugural year of the Overwatch League. In it’s report, Morgan Stanley provided use cases that ranged in revenue generation from $20 million all the way up to $720 million. This report has been the subject of significant debate within the esports community, as it contains headline catching numbers but was generated by a company without meaningful esports expertise. While the sources of information and underlying assumptions for the report are not yet known, it raises very interesting questions about the role and quality of data surrounding the current state of the esports industry.
Some observers have dismissed this report as merely misguided, but such analysis fails to recognize the role third party reports play in informing purchase decisions from mainstream brands, investors, and sports teams. Whether or not Morgan Stanley understands esports, it is a well known and highly regarded entity in traditional business circles. Such data is highly attractive to any person or company looking to translate esports to an uneducated, mainstream audience. In short, we can expect this report (and others like it) to wind up in the pitch decks of esports teams, startups, and any company looking to garner mainstream interest based upon the growth of the esports industry. This scares me, as it should scare anyone looking to develop long-term, sustainable relationships between esports and traditional sports, media, and entertainment companies. The growth rate for the esports industry is astronomical, but the total market cap for the industry (excluding game sales and betting) is still under $1 billion dollars. The esports industry should certainly focus on its upside, but it also needs to be realistic in its projections so that it doesn’t develop pivotal partnerships based on false pretenses.
We need to challenge any numbers that are used to sell our growth, and this goes well beyond the recent Morgan Stanley report. Think of every news story or presentation that you’ve ever seen comparing traditional sports viewership to esports viewership. How many of them affirmatively pointed out that sports viewership is measured in terms of weighted averages and esports viewership is measured in total uniques? At best, these comparisons are misleading. But they don’t need to be. There is plenty of good data out there that reveals an already flourishing industry that is poised for significant year-over-year growth. Newzoo in particular has done a phenomenal job of characterizing the esports marketplace, though even Newzoo research should not be beyond reproach. Let’s do ourselves a favor and stick to the facts. They tell a compelling story on their own and won’t undercut the important partnerships that are being forged as we speak.
Why the LCS Promotion/Relegation System Needs to End
Over the weekend, the League of Legends Championship Series (“LCS”) Promotion Tournament took place. In the current LCS promotion/relegation system, the bottom two ranked LCS teams (#9 and #10) play in a double elimination playoff with the top two ranked teams from the Challenger Series (“CS”), which put Team Liquid and Team EnVyUs – both marquee esports teams – at risk of losing their extremely valuable LCS slot. The CS has functioned as both a place where up-and-coming teams can fight their way onto the pro scene and as a place to develop young talent that eventually will get signed by an LCS pro team. However, this system has unintended consequences that affect the larger esports community.
The promotion/relegation system in the LCS has stunted the growth of the esport and greater esports community. The risk of a team falling out of the top league is frightening to investors and sponsors that are interested in long-term investments and partnerships. The most recent LCS spot was sold for a reported $1.8M in January. While some sophisticated investors are willing to take the risk, many more are not – the cautionary tales of NRG, FC Shaulke and others remind investors that even well-funded operations are not guaranteed success. Moreover, sponsors that seeking long term partnerships have a hard time justifying a team sponsorship that may be out of the lime light after just a few months. Changes need to be made to create a safe place for new revenue streams and management teams to help build the ecosystem.
Doing away with the promotion/relegation system will allow 1) LCS teams to focus on growth and winning instead of survival; 2) continue to develop talent in the CS and; 3) create a low risk environment for experienced ownership groups and top sponsors to enter the industry at a faster rate. Fostering a competitive environment with top ownership groups and sponsors will drive revenues in LoL which will in turn increase player salaries and encourage deeper partnerships in games outside of League. The downside of promotion/relegation far outweighs the intended benefits. The LCS must explore ways to phase out their current system while retaining the positives league was built on.
Mad Catz declares for Chapter 7 bankruptcy
Mad Catz, the gaming peripheral company that was founded in 1989 and known for producing PC and console controllers and other gaming accessories, has officially filed for Chapter 7 bankruptcy and will liquidate all of its assets.
This comes as no surprise to anyone tracking the company over the past several years. In the 1990s, Mad Catz became known for creating gaming accessories that were available at a lower price point than competitors which helped them carve out a niche market within the growing home console industry.
However as the company’s stock price sunk and they became more highly leveraged, they were forced to downsize their workforce and innovation suffered in a rapidly evolving industry that constantly demands the next big thing.
Their “new” products were often pre-existing technology with a new skin cover and consumers didn’t react positively. While Mad Catz was able to recognize the burgeoning field of esports and had partnerships with ESL One and MLG, it is difficult to remain competitive when the eyeballs these partnerships bring are seeing rehashed products from previous years.
For product companies in the gaming and esports space, Mad Catz’s bankruptcy emphasizes the importance of always talking to your consumers and consistently innovating on new technology.