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Let’s Talk About Investing in eSports (as Explained by the World’s Largest Internet Company)

March 31, 2016 John Paolo "Sandata" Bago

News of Alibaba Sports Group (ASG) and YuuZoo partnering up to create an entire tournament infrastructure for eSports in China has been met with equal parts excitement, anticipation and suspicion.

Rightfully so. For all of the meteoric advancements and the torrential flow of money and capital into the eSports industry, long-time fans and stalwarts have been repeatedly burned by the entrance of big money in the past.

Especially in China, where the first few major investments into eSports were spearheaded by moneyed heirs to business fortunes, the big promises of major companies have often sputtered out before coming into fruition.

In the past year and a half, more and more mainstream media companies have taken notice of eSports. A string of high-profile announcements included respected media brands such as Europe’s MTG and ESPN entering eSports with an eye for providing high-quality content for the die-hard fans of the world’s largest competitive titles such as CSGO, Dota 2, League of Legends and Hearthstone.

Even the once proud internet pioneer company Yahoo entered eSports a little more than a month ago despite being embroiled in over half a year of institutional and financial turmoil. Not even the contractions of a giant company breaking off into smaller pieces can resist the allure of eSports and its precious audience market.

Alibaba entering the mix, however, has the markings of a true game changer. In terms of money, size and reach, ASG and its New York-registered parent company rivals MTG, ESPN and Yahoo.

But what made them pull the trigger on eSports? As it turns out, ASG and YuuZoo’s announcement is the result of a carefully laid out game plan. Far from the idealistic and bombast of past promises, ASG and YuuZoo have the makings of a long-term haul that could very well mean that the two companies could become top players in the industry sooner than later.

A still volatile industry

According to AliSports CEO Zhang Da Zhong, ASG has long since recognized eSports for the volatile market that it is.

Translated company communications from the World Electronic Sports Games (WESG) tournaments provided by Singaporean journalist Chen “Freakofnaytur” Yiji, revealed that the company spent six months longer than their competitors before finally announcing their entry into the industry.

As CEO Zhang explains it, ASG noted that the great fluctuations, spikes and market crashes necessitated that Alibaba lay the groundwork for its plans into eSports. It was only recently, thanks in part to the entry of other large-scale corporations, did eSports establish a relatively stable market ripe for investments.

According to their company report, the initial investment from AliSports for WESG is expected to be over 100 million Yuan. That’s approximately $15,469,580. The prize pool for the WESG events will see an initial investment of $5.5 million, with the largest base prize pools going to CSGO and Dota 2.

In retrospect, ASG’s reversal of their bear position on eSports isn’t surprising. Since the financial market crashes of the mid and late 2000’s, niche gaming hobbies with strong tournament backings have survived recessions.

Magic: the Gathering, for example, brushed off the recessions in 2007 and 2008. Their tournament circuit, the Magic: the Gathering Grand Prix and Pro Tour, doubled in size after the market recovered.

YuuGames
GAMIFYING SOCIAL. YuuZoo’s games division, YuuGames, has been organizing eSports events in China for the past year. Last March 12, the Electronic Sports China Cup (ESCC) event was viewed by over 10 million Chinese gamers online (Source: YuuZoo).

In broad strokes, the same is true for eSports and its own history of crashes. What makes eSports so attractive to companies like ASG and YuuZoo are the audience; the fans of eSports are in that sweet spot of the demographic pie chart. 18-35 year olds, mostly males, middle-class with disposable incomes. One would only need to look at any given twitch chat to see that, apart from the jokes and memes, the eSports audience is incredibly engaging.

This “Attention Economics” is a remarkably resilient source of advertising revenue. Attention Economics is what the eSports audience has in spades. It is what companies are after.

Structuring chaos

In the same communications, AliSports said that the WESG will seek to establish, “a gold standard of rules specific to eSports.”

Ali eSports CEO, Wang Guan, expressed that these rules cross-reference Olympic guidelines and rules, and were set specifically for gamers and the gaming industry.

Yiji’s translation of this statement reads: “The purpose of these guidelines are to protect the rights of eSports athletes, to maintain the standards and ensure fairness in eSports tournaments, thus contributing to the healthy development of the international eSports scene.”

It would not be outside the realm of the possible to find that both ASG and YuuZoo will partner closely with the Chinese government down the line.

In a press release by YuuZoo, chairman Thomas Ziliacus said that YuuGames was selected as ASG’s partner, specifically because of their successful eSports events (ESCC and CIG) organized in partnership with key Chinese government bodies.

A cause for skepticism

Singaporean-firm YuuZoo has been quietly organizing eSports events, but remain largely untested. After the tribulations of the WCA tournament and the Shanghai Major — both organized by more-or-less known entities in eSports — the eSports community is lukewarm towards unknown organizers.

ASG has the capital and the machinery to make quality events and media products. On top of organizing WESG, ASG will also provide an online, networked platform for other eSports tournaments. The AliSports Gaming Platform will link the organization of tournaments into a social media network that can handle, among other things, streaming, registrations, event organizations and sponsorship connections.

Through its formidable foundations as an internet company, ASG can provide some real stability towards the back-end of WESG.

For one thing, the AliSports Gaming Platform will be integrated into the AliGroup ecosystem. Not only will fans have access to their social network, but brands can find and invest advertising dollars directly into events, theoretically growing the eSports industry at an increased rate.

While they certainly have the raw power to grow eSports, ASG and YuuZoo will need the guidance of industry leaders currently embedded in eSports if they want to make a truly global mark that matters to the core audience of eSports.

serbia
GAMING OLYMPICS. At the 7th IeSF World Championships, Serbia took first place as the overall champion of the event. At least 30 countries participated in the almost week-long eSports tournament that covered multiple eSports titles (Source: IeSF).

As the spectator industry of eSports is indeed a global audience, they will need to tap into the culture of eSports to provide great content in the form of tournaments, media and stability.

They can begin the processes of endearing themselves to the eSports audience by providing quality tournaments that pit truly competitive teams against each other, instead of focusing their energies into emulating the Olympics.

The promise of Olympic-type structure is not enough. Other entities with strong backgrounds in eSports have tried to make that happen for years. The International eSports Federation (IeSF), based out of Korea, has been fighting for stronger regulations that mimic traditional sports.

In particular, what is worrying is the statement that WESG will ” …establish a complete and specific set of rules for eSports atheletes, including but not limited to age, nationality, anti-doping regulations, moral etiquette guidelines, with associated penalty and punishment guidelines.”

IeSF has tried this same format for years now and it is a major reason why it hasn’t yet caught up in prominence with the eSports audience. IeSF’s rules and tournaments also closely emulate the Olympic games. Teams and players compete in tournaments as representatives of countries. While a novel idea and one that works for the traditional sports, what defines eSports is the marked trans-nationality of competitors. The best teams are made by the best players regardless of nationality and geography.

The fans want the best teams going up against the best teams. They are not watching for the rule-sets.

READ: IeSF partners with Athletics for a Better World; Sign Anti-Doping Commitment

I will leave with CEO Zhang on the nature and future of eSports: “The essence of eSports is that it is a sport, and it has reconfigured the way we traditionally view sports. eSports thus needs to be protected with a set of unified rules and regulations similar to how other sports are in order to maintain its integrity. Competition, Regulation, Fairness; these concepts are vital to AliSport’s mission.”

While the idea of structuring eSports is ultimately a good ideal to strive toward, the audience-base of esports recognize “realness”; that is, the insistence of an outside force that hasn’t been in the trenches to put order in the delightful chaos of eSports will be met with disapproval. Or worse, it will be met with indifference.

In order for ASG and YuuZoo to truly make a mark in eSports, they will need to put players and fans in front of their actions and bench the desire to become market leader. The eSports community, for all of its cliches and denotations, can be incredibly discerning. Real will recognize real. Counterfeits will be rejected.

Alibaba’s entry to the volatile, yet increasingly growing world of eSports has the seeds to become a real game changer. The community will be best served to watch their entry closely, with a healthy dash of skepticism.