Esports league investment is rapidly becoming one of the most exciting opportunities in the gaming and digital entertainment sectors. Vision Venture Partners (VVP), led by Stratton Sclavos, Rick Fox, Amit Raizada, and Jace Hall, has made esports league investment a cornerstone of its strategy, demonstrating how this burgeoning industry offers immense financial and cultural potential.
57-year-old Stratton Sclavos could easily be retired right now. The career entrepreneur not only served over a decade as Chairman and CEO of VeriSign Inc. as it amassed a market value of more than $25 billion, but also has been involved in various successful venture capital pursuits and was once the Managing General Partner and CEO of the San Jose Sharks hockey team.
However, Sclavos still finds himself waking up on a daily basis before the sun comes up and is in his office working around the clock starting at 6:30 a.m. His passion has shifted from internet security, telecommunications and traditional sports to the burgeoning business of esports.
Roughly one year ago, Sclavos along with three-time NBA champion Rick Fox, former Spectrum Business Ventures CEO Amit Raizada and Co-Chairman of Twin Galaxies Jace Hall created Vision Venture Partners (VVP) as a private equity firm focused primarily on esports-related investments. In early 2018, VVP closed a $38 million funding round that includes investors from the New York Yankees, Edmonton Oilers and St. Louis Cardinals.
The majority of VVP’s esports league investment efforts have centered around Echo Fox, a competitive esports franchise fielding eleven teams across popular games such as League of Legends, Super Smash Bros, Call of Duty, and H1Z1. According to Sclavos, Echo Fox’s success stems largely from its innovative scouting process, led by team president Jared Jeffries, who evaluates esports talent with the precision of an NBA general manager.
On April 20, at an exclusive villa atop the Nobu Hotel in Las Vegas, Sclavos highlighted the significance of esports league investment by introducing the H1Z1 Pro League. This startup league represents a bold move into a game that, while less popular than industry giants like Fortnite, offers unique growth potential. Sclavos believes this focus on leagues rather than individual teams will drive long-term profitability and solidify VVP’s leadership in the esports sector.
In fact, Sclavos surmises that other teams will soon follow the lead of Jeffries and Echo Fox and posits that the industry as a whole would benefit from focusing more on the individual superstar players than the team brand names. Sclavos says that in due time esports will find its own version of Michael Jordan (if it has not already) and that it will be good for the industry as a whole as more individuals build brands of their own.
But at the villa with an open air terrace overlooking Las Vegas Boulevard, a disc jockey playing loud music and a top-shelf open bar, Sclavos was more interested in discussing VVP’s role with the brand new H1Z1 Pro League than even his Echo Fox teams. The league, which kicked off April 21 at the Twin Galaxies Esports Center in Las Vegas within Caesars Entertainment Studios, features a game in H1Z1 that has a battle royale style of play, but is acknnowledged to have nowhere near the notoriety of Fortnite, which has taken the world by storm, literally and figuratively. Yet, that does not matter much to Sclavos.
“Leagues are everything,” said the suited up Sclavos the night before launching the H1Z1 Pro League. He made reference to his knowledge that traditional professional sports leagues like the NFL, NBA and NHL earn twenty-six to twenty-eight times the revenue of teams and that if you want to earn significant money in esports, the thinking is similar — be involved in a startup league if the opportunity presents itself.
There already exists foundation for Sclavos’ thinking that the big money rests with those connected to startup esports leagues. For instance, the Overwatch League launched with twelve franchises each paying a $20 million buy-in, and there is an expectation that new entrants could pay upwards of $60 million just for the right to offer up a team in the competition. Similarly, a North American League of Legends franchise costs $10 million. Thus, there is a clear revenue model in place for certain leagues to exploit moving forward.
However, Sclavos seems less interested in focusing on the potential for further buy-ins associated with games outside of Overwatch and League of Legends and is instead working a new angle in the world of esports. He knows that he has an immediate challenge in making a less popular game like H1Z1 something that even hardcore gamers will be interested in watching and may initially pump more money into the league than what he gets out, but the long-term mission is what has his attention and it revolves around the quality of the content.
“Publishing is key,” says Sclavos, and VVP may be in a unique position to enhance how esports is covered in a way that is not yet being explored. Currently, most spectators tune in to esports matches to learn new tips and tricks from the best, and the majority of viewers are gamers themselves. As such, there is a large, untapped marketplace of individuals who may be interested in watching competitions should the production be prioritized and the content made more compelling.
That is where VVP is much more than a funding vehicle for Echo Fox. It has a league management division (which is involved in the H1Z1 Pro League), a data/media rights unit and a live event production team. The H1Z1 Pro League is already showing signs of Sclavos’ shift in thinking through the addition of award-winning actresses Michelle Rodriguez (Fast and Furious) and Kristine Leahy (American Ninja Warrior) as hosts of the competition. The duo did well in their first foray in a new role, leaving the in-game commentating to those who actually have deep experience playing video games for a living.
Surely, shifting away from esports being an industry played by gamers and commented on strictly by players will be met with some criticism, but Sclavos thinks that it is necessary to truly take the industry from being in super-growth mode to being on the same playing field as traditional professional sports.
Part of Sclavos’ intention to make H1Z1 and professional esports teams more mainstream is to leverage Facebook’s platform as opposed to Twitch, which is an amazingly powerful streaming platform owned by Amazon but still suffers from being perceived as a place that is beyond the reach of many who have not yet become avid followers of esports competitions. Facebook is currently in the middle of wrestling with Twitch on various contracts, successfully closing a deal with esports contest organizer ESL approximately one year ago, but does not put up nearly the same type of streaming numbers currently, and the first week of the H1Z1 Pro League only managed to reach just over 10,000 viewers at any time in the broadcast. That said, the initial viewership leaves a lot of room for the numbers to hopefully grow in the coming weeks and the league has amassed over 3.1 million total live and VOD viewers since April 21.
Interestingly, VVP finds itself in a potential conflict by way of being involved economically in the H1Z1 Pro League and also fielding a team in Echo Fox among many other notable teams such as Cloud9, Counter Logic Gaming and Luminosity. Yet, Sclavos says that not a single competitor has complained about VVP’s association with the league and a team competing within, and that there are surely no signs of impropriety.
Expect VVP to be in similar situations in the future. VVP’s involvement with the H1Z1 Pro League is just the first of many leagues if Sclavos gets his way. He is striving to be involved with a total of three leagues by the end of 2018. This is clearly not a side project for VVP; being involved in building leagues will be the primary business for the fund.
If Sclavos is correct in that “leagues are everything” from a financial perspective, then he could be putting his team in a position to be rewarded quite handsomely as long as there is buy-in from the esports community, which will certainly be tested with the H1Z1 Pro League.
Darren Heitner is the Founder of South Florida-based HEITNER LEGAL, P.L.L.C. and is the author of How to Play the Game: What Every Sports Attorney Needs to Know (Second Edition).
