The initial 12 franchises each came with a $20 million fee. That price met some initial resistance. And it was only after the Kraft Group agreed to sponsor a Boston-based team (now known as the Boston Uprising) that further investors come forward.
That large buy-in upset many long-standing esports commentators. They felt the Overwatch League was stripping away the essence of esports gaming as a pastime open to all. They argued it was pandering to the super-wealthy, who would then cherry-pick only the best gamers for their teams. (This is essentially what happened when teams began to fill their rosters ahead of January’s league premiere.)
You would assume that for an investment of $20 million per team team owners would be expecting a decent return on their investments. More on that in a second.
Shanghai Dragons’ fire doused
One team that has endured a real struggle in the Overwatch League in its first season is the Shanghai Dragons. NetEase, a Chinese internet business, owns the franchise. It’s a regional partner of Blizzard, the company that developed Overwatch.
Given that a high proportion of the league’s players hail from Asia — there are 59 professionals in the league from South Korea, plus eight from China, and one from Thailand — it is perhaps surprising to see that Shanghai Dragons sit firmly at the bottom of both the Pacific Division and the league writ large. They’re burdened with a dismal 0-28 record as things stand.
Compare that with the top two teams in the league. That’d be New York Excelsior (25-3) and Boston Uprising (20-8). You can see just how far behind the Dragons are lagging.
But the better question here is, does this horrifyingly bad performance so far mean the value of their owner’s investment is going to fall? Answer: definitely not.
Why participation matters more than standings
The owners of the franchises have taken a long view of their investment. In the first season, a prize pool of $3.5 million is available to win. This is just a tiny fraction of the $240 million paid to Blizzard by the 12 owners.
It’s actually likely that a significant percentage of any winnings would go to the players as salaries and bonuses, especially for the teams performing at the highest levels.
Each professional player is guaranteed a base salary of $50,000 a year, with the chance to negotiate more directly with franchises. With up to 12 players available for each team to contract, that is a significant amount to pay out in salaries alone.
So team performance hardly equates to profits right now. Obviously, the owners know this. So where will the return on the investments come from?
The Overwatch League’s future
Even though teams currently play only in Burbank, California’s Blizzard Arena, franchise owners can develop their own esports arenas in the future. Host cities would ideally house the league contests, just as in professional sports.
This would give franchise owners an opportunity to earn considerable income from all the sundry items that come with owning their own teams and grounds. This includes apparel, programs, souvenirs, food and drink, and much more.
Also, by 2021, revenue sharing is pencilled to kick in. This means all owners may start to gain returns on the overall league profits.
However, where the real benefit may come is in the relative value of a franchise, that is, how that $20 million investment may increase in value over the years. Blizzard has already made it known it wants to expand the tournament to incorporate more teams in more cities around the world.
There are already reports that any franchise wishing to join the current 12 franchises for the second season could have to pay somewhere between $35 and $60 million. That represents a 75 percent increase in value for the 12 existing franchises.
As you can see, the fact that Shanghai Dragons are yet to win a game this season in the Overwatch League is not going to be a source of great concern for their owner. The potential for increasing the value of their initial $20 million outlay, as well as earning pro-rata profits from 2021 onwards, is huge.
It’s good business, certainly. Whether this model is an affront to grass-roots gaming is a discussion for another post.