Business of Esports TV: Teams Trade Hands

(Livestream 138)

In this segment, we discuss instances of esports teams being bought out this week.

The Business Of Esports brings you news, debates, and all the information you need to know about the gaming sector, the world’s fastest-growing market. With Paul “The Profit” Dawalibi leading the charge, and a variety of special guests, BoE TV is the only place to find insider information on the esports industry!

Check out the full livestream here:

Paul Dawalibi 1:07:13
Okay, let’s talk about eSports teams. Yeah, there’s two articles here back to back because two eSports teams have traded hands in the past week. And so we have valuations we have numbers, right? Like there’s there’s now real data around some of these things. And I’m curious to get your guys thoughts on it. And so the first one here very quickly is this is German Football Club. And I’m going to pronounce this really badly, I’m sure shulkie ofour completed the sale of their league of legends European Championship license to Swiss eSports. org team BDS. So they sold just their league spot their European league spot for 26 point 5 million euros. And if someone could do the conversion for me quickly to US dollars. But so that’s one and that was just the license, right? That was just the spot.

Jimmy Baratta 1:08:11
31 point 4 million US dollars. Perfect.

Paul Dawalibi 1:08:14
So over $30 million. The second piece, the second sort of story was game square eSports acquiring complexity and complexity, very well known North American organization, right based in in Dallas. And in this case, game square paid $27 million for complexity. What do you guys think when we compare these two stories, just at face value here, in one case, you have literally just a league license. And the other case you have a whole eSports team going for about the same price? Is there any Is there any sort of insight we can draw in terms of valuations now that we have two more data points, right, because these teams don’t trade hands that often.

Jeff Cohen 1:09:08
I mean, clearly the obvious. You know, I’ll start by belaboring the obvious. I mean, it shows the power of League of Legends and the power of franchise league system. Right? The fact that the franchise league not even that I don’t even think they bought the team, right? They bought these a lot. Just now, they’ll probably end up hiring a lot of the same players and whatnot. I think they’ve mentioned the article, but what they bought was the slot and that cost more money than one of the you know, better known eSports teams out there, you know, backed by Jerry Jones and has been around for a long time. I think they’ve eight eight different teams, not in franchise leagues. So yeah, it’s pretty, pretty shocking just to juxtapose those. I will say that the game sir acquisition I think was a good one and also impressive that they they got the Jones family and the The golf family to buy into, you know, it’s not like, I think this is very important distinction. It’s not like jerry jones is saying, Okay, I’m done with eSports. It’s actually an incredibly important distinction. They not only sold the team, but they also invested another $8 million. So they, it seems like they’re leaning in to eSports, maybe even more so. So that I think was exciting for me to see, the valuation on that wasn’t that crazy. I mean, they put some revenue numbers in press release, it was, I think, eight times trailing revenue, five ish times, if you annualize kind of their q1 revenue. So neither of those is that crazy given, you know, I think we’ve seen private multiples and some of these Forbes list data, stuff be a lot higher. So I think this is a good acquisition for game square. And it’ll be pretty exciting because it’s one of the first I mean, we have Australia’s but one of the first eSports teams to go public will now get a little more transparency, some data around revenue and how they’re doing. And, you know, I think my prediction is if this if if the market responds well, to this, we’re gonna see a number of Esports works in the next, you know, call it six months try to go public.

Paul Dawalibi 1:11:09
Can I add one more stat here, guys, one more number that I didn’t mention at the beginning here, which is shulkie. Oh, four, right. That league slot that Elysee slot, they originally paid 8 million euros for it in 2019. That’s only two years ago. Wow. Yeah,

Jimmy Baratta 1:11:29
I was. I was just looking for data to support I was

Paul Dawalibi 1:11:31
like, I saw both when I saw the I saw the complexity story first. And when I saw that story, I was like, This seems kind of like a bargain, right? Like it was like 30 million like we get these team numbers valuations thrown around in the hundreds of millions complexities, a well known brand. 30 million was like seemed low to me. And then and then I see the shulkie deal. And I’m like, Wait a second, like this entire team and I pulled it up they have Counter Strike FIFA valorant, fortnight Apex Madden, magic, Hearthstone, and a stream team. All of this for the same price essentially, as a league slot, which one is the undervalued asset here and which one is the overvalue asset? Or do we think this is perfectly fair?

Jimmy Baratta 1:12:19
I thought complexity would have gone for higher when I first read about it. But I mean, Jeff made I thought a really compelling points about about the the evaluation based off of q1 revenue. So I’m just I’m just blown away that that the lease slot was only 8,000,002 years ago, honestly, I still can’t get over that.

William Collis 1:12:40
I’m white. I’m

Paul Dawalibi 1:12:42
about a week. Yeah.

William Collis 1:12:47
We’re that cheap. I in my head, I had them at like 40 million. And I was like, I didn’t have the context. Your presidents article. I didn’t realize that that’s the power of League that the slots are appreciated that much. It also suggests an interesting strategy on riots part, which is to probably undervalue the franchises in the sale process, right. What does that say? You know about how they approach the ecosystem and sustainability it’s actually very interesting.

Jimmy Baratta 1:13:17
I’m sorry to interrupt him but like does that change our perspective in our opinion on franchising spots in general right because Activision Blizzard got a lot of flack for that for following Riot and doing that with with Overwatch and call of duty. You know,

William Collis 1:13:31
Blizzard was first Overwatch league was first

Jimmy Baratta 1:13:33
Oh, excuse me, I didn’t write the book on eSports so I appreciate the first

William Collis 1:13:38
Well I would say it was first very very close timing but I think abl AB deserves the credit for

Jimmy Baratta 1:13:44
but but still think

Jeff Cohen 1:13:47
William you wrote the book so you would have a better understanding this but my at least the way I understand it is that the way league did it was they created the league there was interest and it kind of organically was popped and then it was like oh, okay, these let’s franchise these leagues now. Whereas Activision is Miss I guess mistake or what they did was before they really built the league they franchise that and I think maybe that’s

William Collis 1:14:08
you top down versus bought Yeah, I mean, there were different approaches to the formation right? I mean, it is I don’t know I just this one to me is very interesting. You know what

Paul Dawalibi 1:14:21
if I’m if I’m giving Riot all the benefit of the doubt here right, and I think they are the smart I would guess they purposely left money on the table when they sold these franchise slots. And that’s fundamentally the difference between them and the way Activision Blizzard did their franchises where Activision Blizzard figured out what is the maximum we can extract from owners? Before we get just all knows, right? Can we find 10 people sort of who don’t know enough about this to pay just the crazy ridiculous price. And what is that crazy ridiculous price and, and I think Ryan Ryan’s approach it Again, if I’m giving them all the credit, it’s, they knew they were leaving money on the table, they probably knew they could sell the franchise spots. For more. I think fundamentally, what they wanted was this kind of headline, and for owners to make money, right for owners to do well, and and and it creates sort of now a perception, which we’ve all now, which it’s all worked. We’re all going wow, these slots are valuable, right. But all that’s happened is it’s gone from eight to what Activision Blizzard charged for an overwatch league slot,

Jeff Cohen 1:15:32
right? You’re giving the owners an asset that has value and unrealized gains? And you know, what that makes them do probably is they’re willing to invest more in the league, because it’s like, well, I’m already kind of sitting on what I think is probably 10 15 million. It’s not that hard for me to say, Okay, I’m going to invest in lose to 3 million a year or 4 million a year. Whereas with Activision, I mean, they’re, they went to rich guys, so I don’t think any of these guys were like pinching pennies. But, you know, you you put down another 40 million, you might be like, well, I kind of want to start seeing some return. So I think yeah, I think it was incredibly smart that they did that.

Jimmy Baratta 1:16:07
So I just wonder if we see this continuing in this 3x type trend over such a short term. Because that’s, you know, to your point about Activision going to rich guys, they were they went to these people and said, Hey, don’t you want to own the Yankees? 50 years ago, that was the selling point. That was the discussion. And this adds, I think, is this,

William Collis 1:16:27
right? Gotta be tempting because you got to think if if the buy in was really 10 and now you have a market point, that’s 30 and anyone who 3x is their money in two years, you know, even for large investors. That starts to be an interesting moment. We’re like, yeah, maybe we so it is interesting. We’ll see what happens but yeah, this is this was a fun one. I just I still can’t believe it was two years ago.

Paul Dawalibi 1:16:48
Jimmy you’re you’re implying that Activision Blizzard will use this as part in their sales pitch.

Jimmy Baratta 1:16:56
I think every any team any publisher that’s franchising is going to use this in their sales pitch.

Paul Dawalibi 1:17:01
Yeah, yeah. Yeah, it’s, it’s sort of like, it’s not it’s not that it’s disingenuous, it’s real, right? But it’s like, but it they’re not it’s apples, not apples to apples. That’s the problem. It’s like, there’s a course. But but but also like,

Jeff Cohen 1:17:18
there’s gonna be really valuable. So you should pay for it now because look at this other one became really valuable. So you should pay the full value because it could eventually go to that. Yeah, a little bit like, you know,

Jimmy Baratta 1:17:30
certify an overwatch go buy an Overwatch team.