ESPORTS WEEK: Overwatch League - changing the business of esports?

Part two of SportsPro's Esports Week focuses on Blizzard Entertainment’s Overwatch League, which launched amid much hype and anticipation in January, bringing a clutch of major league investors and a familiar franchise-based business model to the burgeoning business of esports.

ESPORTS WEEK: Overwatch League - changing the business of esports?

Every so often a property materialises in a way and at a time that makes complete sense, its creation one of those magic-eye moments when the pixels suddenly crystallise and the bigger picture is revealed in perfect clarity.

In esports, that moment came in January. After many months of widespread industry speculation and anticipation, the launch of the Overwatch League felt like a major leap forward in the long and now-accelerating evolution of competitive video gaming.

What is the Overwatch League?

Owned and operated by Blizzard Entertainment, the creator of popular video games such as World of Warcraft, the Overwatch League is the first major esports competition to feature a city-based structure, and among the first to employ a traditional sports franchising model.

Originally announced in November 2016, the league is comprised of 12 global franchises representing major cities. Just like in a traditional sports league, teams compete in head-to-head fixtures over the course of a season in a bid to be crowned outright champion, except their setting is a virtual one constructed within the realm of Overwatch, a first-person shooter released by Blizzard in May 2016. Players control characters, or ‘heroes’, who each have their own unique skills and attributes, and complete team objectives on a variety of maps whilst engaging in battle with their opponents.

The game is said to already have more than 35 million players worldwide.

Who are the teams?

The Overwatch League consists of nine North American teams and three international teams, who are split equally across two divisions: Atlantic and Pacific. For the inaugural season, teams must have at least six gamers on their roster, up to a maximum of 12.

What is the schedule, format and prize money?

A 20-week regular season began on 10th January and will run until 16th June. The top six teams will then advance to post-season play that includes championship play-offs, ahead of a grand final, held between 26th and 28th July, and a season-ending All-Star Weekend in August.

During a four-stage regular season, each team will play 40 games: 20 within its division and 20 cross-division ties. Games are played every Wednesday, Thursday, Friday and Saturday throughout the regular season, with start times varying each day to cater to different time zones.

On the last Saturday of each stage, the top two teams will compete for bonuses and the title of stage winner.

Total prize money for teams in the first season is US$3.5 million, with a minimum of US$1 million going to the overall champion and second place earning US$400,000. Performance bonuses are also paid depending on match outcomes and regular season placements – coming in first earns US$300,000, for example, all the way down to US$25,000 for 11th and 12th place.

For the inaugural season, every league match-up is held at the newly renovated Blizzard Arena Los Angeles esports facility – essentially a converted TV studio with giant screens, VIP boxes for team owners, and capacity for a live audience of around 400 spectators. According to Blizzard, teams will work to develop their own venues ahead of ‘formal home and away play in future seasons’.

How does the franchise model work?

To the clutch of pro sports financiers who have invested capital so far, the Overwatch League has brought a recognised business model to a gaming world that can otherwise seem nebulous and high-risk.

Blizzard was able to pitch and sign up 12 founding franchise operators in under a year, each of whom has paid the company a reported US$20 million to acquire an operating licence. In return for their investment, every owner is able to keep all local revenues generated in their home territory up to a certain amount each year, with any additional income to be channelled into a central pot once revenue sharing among teams begins in 2021.

Team owners also have the right to operate up to five amateur events in their home territory each year and retain half of any profits generated through sales of league-affiliated fan items bought within Overwatch.

Blizzard has created all team uniforms and licensed merchandise, and the company supports team marketing efforts by generating central advertising, ticketing and broadcast rights revenues, with each team receiving an equal share of all league-wide net income. To date, the company has signed a handful of founding sponsors to multi-year deals, including Intel, HP, Toyota, T-Mobile, and Mondelez International’s Sour Patch Kids confectionery brand.

According to Nate Nanzer, the Overwatch League’s commissioner, Blizzard’s ultimate goal is to broaden out the franchise model by expanding to around 28 teams in the coming years.

What’s in it for the players?

The Overwatch League Player Agreement calls for every gamer to be signed to a one-year employment contract with a one-year option and a minimum guaranteed salary of US$50,000. Most players represent themselves in contract talks and some have commanded much higher salaries - San Francisco Shock have made Jay ‘sinatraa’ Won, 17, the league’s highest-paid player after signing him to a deal worth a reported US$150,000 annually.

According to Korean website Daily Esports, the average salary for the inaugural season is between US$80,000 and US$120,000. All contracts include benefits such as health insurance, a retirement savings plan and a provision for housing during the season. Teams also distribute at least 50 per cent of their performance bonuses to the players, who are free to sign personal endorsement deals and sell brand advertising alongside their individual streams.

Players must, however, sign and adhere to a code of conduct, which Blizzard is planning to finally make public in the next few months. Pressure on the company to do so has mounted since Dallas Fuel player Félix ‘xQc’ Lengyel was suspended for four matches and fined US$2,000 for making a homophobic slur during a live stream in January.

There appears to be some support within the league for the creation of a players’ union similar to that which exists in professional sports leagues in North America.

Where is the action being shown?

Every match-up is being streamed live in all markets globally, with the exception of China, by Twitch, the Amazon-owned gaming service that signed a two-season, US$90 million rights deal – believed to be the largest ever signed in esports – to become the league's exclusive third-party streaming platform on the eve of its launch in January.

Chinese coverage is being provided by a number of streaming partners such as NetEase CC, Panda TV and ZhanQi TV, while action is also available worldwide via Overwatch League digital platforms, whose streams are powered by Blizzard’s Major League Gaming (MLG) broadcast service, the free to watch, ad-supported MLG.tv.

According to Blizzard, a total audience of ten million people tuned in for the league’s opening week matches, with its Dallas Fuel v Seoul Dynasty tie drawing 437,000 peak concurrent viewers on Twitch and MLG alone. All told, an average of 280,000 viewers watched per minute in the opening week, although a drop in viewership was recorded for week two.

This feature forms part of SportsPro's Esports Week series. Click here for the rest of our esports coverage