The NBA is investing heavily in esports, but will it pay off?

Dylan Walker
Echo Fox AD carry Keith at the NA LCS (Lolesports/Riot Games)
Echo Fox AD carry Keith at the NA LCS (Lolesports/Riot Games)

Over the last year, an unlikely trend has emerged: National Basketball Association team owners and players have taken a vested interest in esports.

Former Los Angeles Lakers forward Rick Fox started Echo Fox, his own sports organization, back in late December after buying Gravity Gaming’s spot in the League of Legends North American LCS. Jonas Jerebko, a forward for the Boston Celtics, purchased what remains of the Renegades organization in late August. NRG Esports received a sizable investment from Shaquille O’Neal; the founders of NRG itself are co-owners of the Sacramento Kings.

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It’s only ramped up from there. In the past two weeks, popular European org Dignitas and North American squad Apex were acquired by the Philadelphia 76ers. Stephen Kaplan, co-owner and vice chairman of the Memphis Grizzlies, became a major shareholder of Immortals, while Mark Cuban, owner of the Dallas Mavericks, also invested in Seattle esports betting startup Unikrn.

Perhaps the biggest influx came from aXiomatic, an investment group made up of owners from the Golden State Warriors, Washington Wizards, and Orlando Magic along with notable athletes like Magic Johnson. Axiomatic bought a majority stake in Team Liquid, the largest organization in esports.

It’s an aggressive move, but according to aXiomatic’s leadership, it’s the right time to get in.

“There is no better time than now,” said Peter Guber, co-owner of the Golden State Warriors, in an interview with Yahoo Esports. “The sport has really established itself over the last decade –  and over the last two years especially – as a force to be reckoned with in the sports entertainment business, location based entertainment business, and the digital business. Audiences have expanded radically and rapidly.“

Guber has tasted success just about everywhere. In addition to the Warriors, he’s also an owner of the Los Angeles Dodgers and MLS team Los Angeles FC and serves as CEO and chairman of Mandalay Entertainment, credited as a producer on films like “I Know What You Did Last Summer”, “Donnie Brasco”, and “Sleepy Hollow.”

Peter Guber and Kanye West (Getty Images)
Peter Guber and Kanye West (Getty Images)

Despite that resume, he seems to understand that you can’t buy your way into this industry.

“This is the place they claim as theirs.” said Guber “This is a unique audience, you have to speak to them with an authentic voice. It is not about getting the baseball audience to turn out for esports. It’s about cultivating the esports audience, which is already huge.”

Guber is absolutely right. According to Newzoo, esports revenue is expected to hit $463 million this year. On the weekend of August 22 alone, over 50 million unique users tuned into Twitch to watch either ESL One Cologne, the EU/NA LCS Finals, or Hearthstone’s OGN Masters — all games in which Team Liquid fields a roster.

With 60 contracted players representing ten different games, the sports mogul feels that Team Liquid was the best opportunity to get in, and shares a vision with TL co-owners Steve Arhancet and Victor Goosen.

“For us the involvement of two of the most respected owners in all of esports was great and we wanted to bring a broad base of co-owners who would bring their intellectual, reputational and experiential capital to it,” he said,

Guber and his group join a wealth of venture capitalists who are striking while the iron is hot. The majority of these funds see the involvement of athletes and celebrities as a way to draw interest and raise value.

“We’re bridging Hollywood, sports and technology,” said Amish Shah, a founding partner of SierraMaya 360, a venture capitalist fund that recently invested heavily into Team EnVyUs. He believes that bringing star power to the table is “…a way for [investors] to reach the millennial demographic and help the team they are investing in.”

However, it’s not all trending up. NRG eSports, the gaming organization owned in part by Shaq and a group of investors that include Sacramento Kings co-owners Andy Miller and Mark Mastrov, were relegated from the NA LCS after just two splits. The spot in the league cost them an estimated seven figures when they purchased it from Coast.

“They lost probably over $2 million. I see a lot of that happening in the future,” said Shah.

Shaquille O’Neal (Getty Images)
Shaquille O’Neal (Getty Images)

While NRG can be considered an “early adopter” from the NBA in esports, Shah feels that the best time to enter passed around six months ago.

“I see a lot of ‘dumb money’ coming into the space just to follow others, with valuations for some teams higher than they should be,” he said. “They have no clue. They have this fear of missing out if it does become like the UFC, which recently sold for over $4 billion but was worth $3-5 million in 2003-2004. Right now, B-rated teams are going at higher valuations than they should.”

That being said, the value of entrenched teams is only expected to increase.

“Esports teams will continue to increase in value,” Shah said. “We will see some carnage, but we will also see some really good bets in the space.”

New money also brings added pressure to staff and owners who are used to traditionally governing themselves.

“The terror comes from now NEEDING to succeed,” said Frank Villarreal, the owner of Rogue, a gaming organization who recently sold partial ownership to world renowned DJ Steve Aoki.

“I’ve been in the industry for seven years,” said Villarreal. “I’ve devoted my entire adult life to esports. When I started, no one understood why I was wasting my future on a hobby. Now, celebrities, athletes, major venture capital funds, and the media are validating my choices. I feel a mix of pride, vindication, validation, and terror.”

One thing is for sure: the landscape is changing drastically. Nearly gone are the days of homegrown grassroots esports, LANs with a prize pool of a couple hundred dollars and a case of beer. From the court to the Rift, the big budget era of esports has arrived.

Dylan Walker is on Twitter @dyluuxx

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