Speaker 1: Zon We're gonna die. Oh Dash set the scene for
Speaker 1: us here. Well, there's about a half dozen guys sitting
Speaker 1: in a dark room just playing video games. They're mostly
Speaker 1: in the early twenties, and it's pretty clear that it's
Speaker 1: a group of guys who's been hanging out with one
Speaker 1: another for quite some time. Similar scenes are probably playing
Speaker 1: out in hundreds of basements and addicts at this very moment,
Speaker 1: but this is a little different. Yeah, that's right. This
Speaker 1: isn't just a group of kids goofing around. It's actually
Speaker 1: a professional sports team practicing. People have been playing video
Speaker 1: games against one another since video games have existed, but
Speaker 1: there's a rapidly growing industry being built around professional video
Speaker 1: game competitions, also known as e sports. The big championship
Speaker 1: matches draw live crowds of over ten thousand people and
Speaker 1: online audiences that hit the tens of millions of viewers.
Speaker 1: What you heard earlier was a team I recently visited
Speaker 1: in Los Angeles. They're called Echo Fox, and they were
Speaker 1: practicing for this year's North American League Championship Series, which
Speaker 1: is a contest for people who play the game League
Speaker 1: of Legends LCS is one of the most prominent e
Speaker 1: sports leagues, and Echo Fox is built on a particularly
Speaker 1: ambitious vision for the future of the sports. Taken together,
Speaker 1: Echo Fox and LCS show us just how big e
Speaker 1: sports might eventually become, and also how much has to
Speaker 1: be figured out along the way. Hi, I'm Akio and
Speaker 1: I'm Joshua Bursting, And this week on Decrypted, we're taking
Speaker 1: you inside this world of video game competitions. We'll be
Speaker 1: showing you how e sports resembles traditional sports and how
Speaker 1: it looks much much different. We'll also introduce you to
Speaker 1: a couple of key characters in this business, starting with
Speaker 1: Rick Fox. Rick is an actor and he also won
Speaker 1: three NBA Championships playing basketball for the Los Angeles Lakers.
Speaker 1: Money is pouring into e sports from professional sports, and
Speaker 1: the sports business is changing fast. We'll look ahead at
Speaker 1: what the industry is trying to build for the coming years.
Speaker 1: So josh to report out this episode, you escape the
Speaker 1: brutal New York winter to spend a couple of days
Speaker 1: in California. That's right, I flew out to l A
Speaker 1: in January to spend some time with the people who
Speaker 1: run Echo Box, the professional sports team we mentioned earlier.
Speaker 1: Bad luck for me. It was actually kind of cold
Speaker 1: and rainy when I got there, so I jumped in
Speaker 1: a cab at the airport and headed to what Echo
Speaker 1: Foxes Pressed people had described to me as the team's
Speaker 1: training facility. Sounds fancy. Thank you, okay, thank you very much.
Speaker 1: Hav a good day. Okay, So here I am. I
Speaker 1: can say that from the looks of this building, professional
Speaker 1: video games have not quite made it to the level
Speaker 1: of the NBA in terms of glamour and glitz. I'm
Speaker 1: standing on pretty drab street right across the street from
Speaker 1: a self storage unit, um, a dentist and a gas station.
Speaker 1: It's like a plane brick building. Um, so you know,
Speaker 1: clearly not quite the big time yet. Okay, so not
Speaker 1: so fancy. Well, the player has had these huge, comfortable
Speaker 1: looking padded chairs. Those were kind of fancy, but otherwise no,
Speaker 1: so I'm trying to picture it here. Would you see.
Speaker 1: There was no stretching or drills or anything. The guys
Speaker 1: pretty much walked in, sat down and started playing video games.
Speaker 1: They all refer to one another by their screen names.
Speaker 1: So the captain is frogging and he's kind of a joker.
Speaker 1: He was messing around. He kept flipping back and forth
Speaker 1: to watch a basketball game when the action slowed down
Speaker 1: and they're big free agent is is a young guy
Speaker 1: named Looper. He didn't say much of anything at all
Speaker 1: because he just came over from Korea and doesn't really
Speaker 1: speak English. While they were playing, I hung out with
Speaker 1: Tim Cho, he's one of the coaches, and he had
Speaker 1: his laptop open on his knees. So I'm just writing
Speaker 1: about why certain players need to work on, specifically learned
Speaker 1: when we notice him the things we need to immediately correct.
Speaker 1: Let do you have a spreadshade open on your computer
Speaker 1: and you just have a column for each player or something.
Speaker 1: That's what I'm gonna right now. And then what I'm
Speaker 1: kind of doing is I'm going to print out a
Speaker 1: sheet because coaching in this game is really arbitrary and
Speaker 1: a lot of it's something that hasn't been figured out
Speaker 1: yet completely. E sports is changing fast. Video game publishers
Speaker 1: are now just starting to treat this as a potentially
Speaker 1: serious part of their business. According to the research firm
Speaker 1: super Data, it was an eight hundred ninety two million
Speaker 1: dollar industry last year. This year's projected to cross the
Speaker 1: billion dollar mark, and people in organizations associated with traditional
Speaker 1: sports have begun investing in the sports organizations or just
Speaker 1: setting up their own teams from scratch. The owners of
Speaker 1: the basketball teams the Philadelphias have Any Sixers, the Miami Heat,
Speaker 1: and the Sacramento Kings have all made recent e sports investments.
Speaker 1: The NBA itself just announced that it was starting its
Speaker 1: own video game league. It's based on NBA two K,
Speaker 1: which is this popular basketball video game tam made by
Speaker 1: the company Take two Interactive. In the league, actual NBA
Speaker 1: teams will field their own digital teams that will compete
Speaker 1: against one another in a video game depicting the actual
Speaker 1: NBA teams. Sounds meta, yeah, very But before all that,
Speaker 1: there was Echo Fox. It was one of the first
Speaker 1: moves from traditional sports to e sports. It's named after
Speaker 1: Rick Fox, the former NBA player and actor Rick Fox.
Speaker 1: Now we're guarding him. He popped three crazy like a Fox.
Speaker 1: He got together a group of investors that started the
Speaker 1: team near the end of Rick is six ft seven
Speaker 1: and I'm not much of a basketball fan, so I
Speaker 1: had to google him. But he's a very handsome guy.
Speaker 1: He's also acting in a bunch of TV shows. Yeah,
Speaker 1: if you walk around l a with him, people hunk
Speaker 1: their horns and wave. He's a real celebrity and when
Speaker 1: he started this e sports team, it was as if
Speaker 1: the popular Jack had walked into the cafeteria one day
Speaker 1: and just suddenly decided to sit down with the nerds.
Speaker 1: So this was a big validation for the people already
Speaker 1: involved in the sports. They were onto something big. Yeah,
Speaker 1: and Ric has served as something of a tour guide
Speaker 1: for other people in traditional sports who want to follow
Speaker 1: him into the business but are a bit confused. He said,
Speaker 1: it's a funny feeling. Um, I feel like someone dropped
Speaker 1: me in a foreign country and I was forced to
Speaker 1: learn the language, you know. So I've I've been able
Speaker 1: to speak it. I would say pretty pretty fluently as
Speaker 1: a Fiday. But still I miss maybe misscongregat a herb
Speaker 1: here and there every once in a while. But I'm
Speaker 1: getting there. Yeah. So, another guy I want to introduce
Speaker 1: you to is Jace Hall. He's the CEO of Echo Fox.
Speaker 1: Jace is a celebrity in the video game world. He's
Speaker 1: made a bunch of his own video games and he
Speaker 1: used to run the video game studio at Warner Brothers.
Speaker 1: Jason is also about six ft seven which makes him
Speaker 1: one of the only people in the industry as tall
Speaker 1: as Rick Fox. The two men met nearly a decade
Speaker 1: ago at a conference. They immediately hit it off, and
Speaker 1: Jason invited Rick over to the film production studio he
Speaker 1: was running at the time. Here's Jason. He eventually came
Speaker 1: over and he saw the world that you know this is.
Speaker 1: You took a look at the office, right, it's like
Speaker 1: a bit of a playground for video games. Yes, and
Speaker 1: uh um, you know, the minute he walked in, it
Speaker 1: was like, you know, the little kid gets unlocked. Next
Speaker 1: thing we know, we're playing video games against each other
Speaker 1: and competing. Jason is unbelievably good at video games, and
Speaker 1: according to Jason, so is Rick. Rick is probably the
Speaker 1: best Miss pac Man player that's ever been in the NBA.
Speaker 1: I can tell you that right now with the higher levels,
Speaker 1: packing is pretty serious. He has not yet been able
Speaker 1: to take me in that game. Um. But serious competition
Speaker 1: evolved out of that. We started live streaming it and
Speaker 1: you know, just and we start building an audience around that. Um.
Speaker 1: And then that's really where some of our competitive rival
Speaker 1: we just started spanning different video games. I will give
Speaker 1: Rick this, there's an arcade game called Galagha or some
Speaker 1: people call it Galaga, which he is just dominates. The
Speaker 1: day after I met Jason, I had breakfast with Rick.
Speaker 1: I told him that jas had mentioned MS pac Man.
Speaker 1: Did he bring up Gallaght? And he did. I don't
Speaker 1: think there's a single person that building would never bring
Speaker 1: up there gallagh because they're all they were all blown away.
Speaker 1: Then it's it's rare that I will sit down and
Speaker 1: and and just prove my authenticity to my friends when
Speaker 1: it comes in his face. But when I do, it's
Speaker 1: always like, what where did this come from? Um? Jason's
Speaker 1: miss MS pac Man stories? Ring ring true? I'm about
Speaker 1: I'm probably like to points behind him in top score,
Speaker 1: So I gotta let him have that one. I can't.
Speaker 1: I can't gotta let him have one. Care So, for
Speaker 1: the first few years of this relationship, Rick was having
Speaker 1: a great time fooling around playing video games. He's always
Speaker 1: been into video games. He plays with his son, Kyle,
Speaker 1: who's working towards becoming a game developer himself. But then
Speaker 1: something changed in Rick and Kyle went to a League
Speaker 1: of Legends tournament at Madison Square Garden. Thousands of people
Speaker 1: showed up to watch with solo bid versus Outer Logic,
Speaker 1: gaving very low lot of for parent City Gaming super megac.
Speaker 1: Within months, Rick and some other investors had paid one
Speaker 1: million dollars for the right to feel the team. The
Speaker 1: whole team lives together in a house in Los Angeles,
Speaker 1: paid for partially by Riot, the video game publisher, and
Speaker 1: partially by Echo Fox, their team. Rick when it talks
Speaker 1: specifically about the money he pays his players, but other
Speaker 1: people involved in lcs tell me that most players make
Speaker 1: six figure salaries. Okay, and tell us a little more
Speaker 1: about these players, who they are, where they come from,
Speaker 1: how they stumbled into this lucrative world of professional video games. Yeah,
Speaker 1: it's really different for each game. There's a whole scene
Speaker 1: around various video games, mostly playing online. When I asked
Speaker 1: most of the players for Echo Fox how they came
Speaker 1: to be pros, they said they pretty much started competing,
Speaker 1: showed they were really good, and began moving up the ranks.
Speaker 1: They also all said that it's much harder to become
Speaker 1: a pro now than it was a few years back.
Speaker 1: Rick is constantly relating the sports to his time playing
Speaker 1: in the NBA. One of the first things he did
Speaker 1: after forming Echo Fox was to take the team on
Speaker 1: a tour of the Lakers practice facility. I wanted them
Speaker 1: to see my world. I wanted to understand where I
Speaker 1: came from. Um, I wanted them to get a sense
Speaker 1: of what a professional franchise, you know, structure looked like,
Speaker 1: because that's what we want to That's what drives us
Speaker 1: right to bring that level of of support and background today.
Speaker 1: So Rick also wants them to work out like athletes.
Speaker 1: When I visited the team, they were preparing for the
Speaker 1: new season, which started in late January. The organization was
Speaker 1: launching into a special e sports training regiment that had
Speaker 1: been set up for them at a gym in Santa
Speaker 1: Monica that's right near the arena that Riot built to
Speaker 1: host the actual games. One of the big purposes of
Speaker 1: today is just here's our starting point, right, so reaction
Speaker 1: time and to get health and fitness. So we're gonna
Speaker 1: also measure like blood pressures that just these kind of
Speaker 1: basic things. Are also going to measure grip strength, which
Speaker 1: is a measure of your brain activation, believe it or not.
Speaker 1: So they tested everyone's memory, measured how high they could jump,
Speaker 1: and had this little machine to see how many times
Speaker 1: they could click on a button in ten seconds. They
Speaker 1: could click on a button a lot. But one surprising
Speaker 1: thing was the fastest person on the team was actually Rick.
Speaker 1: A few guys had spent their offseason working out, but
Speaker 1: this is still a group of guys who spent most
Speaker 1: of their free time sitting at a computer. The gym
Speaker 1: was clearly not their natural habitat. I gotta measure something
Speaker 1: in order to manage it, right, So this is all
Speaker 1: about just seeing kind of where one's at today and
Speaker 1: then giving it. Looks at an old review of some
Speaker 1: of the the exercise stuff and the cycling, so it's gonna
Speaker 1: be funny. The price dragging rights clearly. Speaking of prizes,
Speaker 1: let's talk about how these sports teams are actually making money.
Speaker 1: So there is the prize money from tournaments, but no
Speaker 1: one really wants to rely on that for a business.
Speaker 1: Mostly investors are betting that big opportunities will develop in
Speaker 1: the future. This could happen in a few ways. There's
Speaker 1: the value of the team itself. That is, Rick and
Speaker 1: his co investors bought a slot in LCS, assuming that
Speaker 1: if they want to sell it five or ten years
Speaker 1: from now, it could be worth much more. Then there's
Speaker 1: the media rights deals. Those work a lot like they
Speaker 1: do in professional sports, or at least they hope they
Speaker 1: will at some point. And there's advertising where teams and
Speaker 1: players take on sponsors. That's the big one. A lot
Speaker 1: of this sounds pretty similar to the economics of traditional sports,
Speaker 1: but there's one thing that's very different. The game they're
Speaker 1: playing is the property of a video game publisher. In
Speaker 1: the case of legal lessons, this is Riot Games, but
Speaker 1: it's not just Riot. Pretty much every major video game
Speaker 1: publisher now wants to have the sports leagues built around
Speaker 1: some of their games. Here's what Jas had to say.
Speaker 1: Imagine football. Imagine the stadium and the players and everything
Speaker 1: about it is owned by Wilson, who sells and makes footballs,
Speaker 1: and the whole point of everything is to actually sell
Speaker 1: the football. Well's everybody in the stadium and bout the football.
Speaker 1: Everybody watching needs football. Now, if that's the case, the
Speaker 1: orientation of the entire economic structure how you would manage
Speaker 1: that area fastly different than the way football is today. Right.
Speaker 1: Riot recently signed a deal with bam Tech, which is
Speaker 1: Major League Baseball streaming media unit. Bam Tech is paying
Speaker 1: Riot a minimum of three hundred million dollars to stream
Speaker 1: league competitions through the year three, it'll run its own
Speaker 1: Legal Legends streaming app and handle the technology for streaming
Speaker 1: on platforms like Twitch and if you don't know what twitches,
Speaker 1: it's the most popular live streaming website for video games.
Speaker 1: So the main way that traditional sports teams make money
Speaker 1: now is by sharing in the revenue that comes from
Speaker 1: TV deals. But Riot is keeping all the money from
Speaker 1: its streaming deal to itself, at least for now. Some
Speaker 1: team owners were unhappy about that. You can see these
Speaker 1: tense exchanges on Reddit between Riot executives and team owners. Yeah,
Speaker 1: Jason Rick were not involved in those. They like to
Speaker 1: present themselves as kind of the grown ups in the room,
Speaker 1: something that seems to annoy some of the other owners
Speaker 1: at times. Either way, they say they're fine with what
Speaker 1: Riot's doing, and Ryot's position makes sense. Here. Here's a
Speaker 1: company that made a video game that became popular in
Speaker 1: this brand new way, and now the company's capitalizing on that. Yeah,
Speaker 1: but that's not even its main business. Riot made nearly
Speaker 1: two billion dollars in revenue from League of Legends just
Speaker 1: last year. Most of that was unrelated to the sports,
Speaker 1: and we should also mention there's costs for Riot to
Speaker 1: it put some money towards player salaries and other team costs.
Speaker 1: At the same time, the publisher wouldn't have this new
Speaker 1: opportunity in e sports if these teams didn't come along
Speaker 1: and start competing. So it has to figure out how
Speaker 1: to keep its new business partners happy and financially sustainable.
Speaker 1: To this has both sides a bit on edge. There's
Speaker 1: the promise of all this new money floating around, and
Speaker 1: no one wants to get left out. Soon after Rick
Speaker 1: started Echo Fox, another team called Energy was started by
Speaker 1: two of the owners of the Sacramento Kings. It started
Speaker 1: to look like the new big money teams would come in,
Speaker 1: dominate the league and change everything. The teams with less
Speaker 1: money were worried. It turns out they did not have
Speaker 1: to be. Echo Fox and Energy were both really bad
Speaker 1: at first, so bad that the end of the summer
Speaker 1: season they had to play in a tournament where the
Speaker 1: losers would be sent down to the minor leagues. And
Speaker 1: even though Echo Fox managed to stay in the league,
Speaker 1: Energy lost. Now this is bad for Energy, obviously it
Speaker 1: lost its investment, but it was also bad for Riot.
Speaker 1: Instead of playing in the minor leagues. Energy said it
Speaker 1: was going to stop competing in League of Legends altogether.
Speaker 1: Right now, video game publishers are competing with one another
Speaker 1: for the attention of new investors, and having a big
Speaker 1: name abandoned league was not a great look. Rick sees
Speaker 1: all of this as a sign that everyone in the
Speaker 1: sports is still going through some growing pains right now.
Speaker 1: If we go back in the history of any league,
Speaker 1: any before, any professional sporting league, you'll see that, you know,
Speaker 1: league was formed. Owners come in a group of you know,
Speaker 1: savvy owners come in and they and in some cases
Speaker 1: it's six teams that start a league, right, and then
Speaker 1: he grows to twelve. Then it grows to four, right,
Speaker 1: And that doesn't happen overnight, right, it happens over a
Speaker 1: period of time. It'll get to that. Uh, and we'll
Speaker 1: look back thirty years from now and go, wow, they
Speaker 1: did that really quickly, you know, just we're in the
Speaker 1: middle of it now, so it feels it feels like
Speaker 1: it's taking forever. Riot's been struggling with these really basic questions.
Speaker 1: After all, they're trying to build a sports league from scratch.
Speaker 1: The company did not want to record an interview for
Speaker 1: this show, but an executive told me that it's developing
Speaker 1: new ways to share media rights and what to do
Speaker 1: about teams getting relegated to the minor leagues, which it
Speaker 1: says fans like but team owners hate. The company thinks
Speaker 1: it will have the details ironed out sometime in And
Speaker 1: this is kind of the situation that everyone in the
Speaker 1: sports is in right now. They say, the broad outlines
Speaker 1: of the future are emerging. Echo Foxes LCS team is
Speaker 1: playing okay this year. As of mid February, they were
Speaker 1: right in the middle of the pack. You know, Rik
Speaker 1: and Jason, the coaches you talked to in l A.
Speaker 1: Are they starting to get a feel for what makes
Speaker 1: an e sports team good? And you know what are
Speaker 1: they doing better this year than last year? Well, they
Speaker 1: brought in a bunch of new players. I mentioned Looper,
Speaker 1: that was big. And when they talk about strategy, they'll
Speaker 1: stress that individual players can be talented, but the real
Speaker 1: factor for success is playing together as a team. And
Speaker 1: that sounds a lot like traditional sports. But there's another
Speaker 1: way that the sports is different, and that's that Echo
Speaker 1: fox isn't just a single team, right The organization owns
Speaker 1: eleven teams playing a range of different video games. They
Speaker 1: also sponsor players who compete in video games like Mortal
Speaker 1: Kombat and Street Fighter. Those don't have teams per se.
Speaker 1: It's it's more like the tennis circuit, where there's a
Speaker 1: single player playing taken together. You can think of this
Speaker 1: kind of like if a single company employed everyone who
Speaker 1: worked for the Knicks, the Jets, the Rangers, and the
Speaker 1: guys who box at Madison Square Garden. And this lowers
Speaker 1: the stakes a bit for what happens in any one league.
Speaker 1: So if you're bad at LCS, you might still be
Speaker 1: good at other games like Counterstrike or Overwatch. They're diversifying
Speaker 1: their portfolio. Unlike uh, say, the Lakers, who who just
Speaker 1: played basketball in the NBA. We at Echo Fox get
Speaker 1: to we get to play in Legal Legends, we get
Speaker 1: to play in E League and cs GO. We get
Speaker 1: to play in Call of Duty. You get to play
Speaker 1: and gear the War like. We're in different leagues. So
Speaker 1: most professional sporting organizations just have one expression. We have
Speaker 1: numerous expressions. It's kind of like this conglomerate of video
Speaker 1: game related business ventures. The company just signed its first
Speaker 1: million dollar sponsorship deal with a computer maker. Asis Rick
Speaker 1: and Jason are looking beyond having just a bunch of
Speaker 1: competitive teams. They say they want to dabble in things
Speaker 1: like making scripted comedy videos and maybe running their own tournaments,
Speaker 1: and who knows what else. It's not clear which of
Speaker 1: these ingredients are the most important for a mature e
Speaker 1: sports business. But that's mostly because there's no such thing yet. Yeah,
Speaker 1: of course we have a team and then they play.
Speaker 1: That's just that's like looking at a piano and looking
Speaker 1: at one key, you know, the whole keyboard here. There's
Speaker 1: like a bunch of notes that can be played, not
Speaker 1: just one. And I think the most successful esport ornizations
Speaker 1: are going to be the ones that figure out as
Speaker 1: much of that as possible. But you want to be
Speaker 1: the model. We're not looking at it. There there's no
Speaker 1: one out there right now you can model yourselves after it. No,
Speaker 1: absolutely not. We're we have to be as far as
Speaker 1: I'm concerned personally, we are the ones that are are
Speaker 1: setting the model. There's we have to be. There's no no,
Speaker 1: there's nothing. So, Josh, do you think the traditional sports
Speaker 1: industry is even a good analogy to understand the sports business? Well, yeah, sure,
Speaker 1: I think people like to watch competitions and so if
Speaker 1: you're trying to understand the appeal, there's a lot of
Speaker 1: similarity there. It's easy to dismiss video games as sports.
Speaker 1: Like for me, I love basketball, but I don't get
Speaker 1: anything out of watching League of Legends. Then again, I
Speaker 1: don't find golf airy exciting either. I don't either. So
Speaker 1: what do you think is different here? I think the
Speaker 1: businesses is really different. I think the sports business is
Speaker 1: less straightforward. Advertisers want to access people who watch video
Speaker 1: game related content. They're generally not watching traditional TV. But
Speaker 1: advertisers also don't really understand this population. So what Echo
Speaker 1: Fox or another sports organization does is it gathers all
Speaker 1: these audiences up through a bunch of various sports leagues
Speaker 1: or through its YouTube channels or whatever, and it says, hey,
Speaker 1: big brands, we speak your language, but we also speak
Speaker 1: this other language. Let us be your translator. And that's
Speaker 1: it for this week's episode of Decrypted. Thanks for listening
Speaker 1: tell us. Are you a fan of E sports? Record
Speaker 1: a voice memo and send it to us at Decrypted
Speaker 1: at Bloomberg dot net, or you can write to me
Speaker 1: on Twitter. I'm at Joshua Brewsting and I'm at Aki
Speaker 1: Ito seven. You can subscribe to decrypt it on iTunes
Speaker 1: or wherever you get your podcasts, and leave us a
Speaker 1: rating and review. This helps us make our shows better
Speaker 1: and it also gets our podcasts in front of more listeners.
Speaker 1: This episode was produced by Pierre Getcari, Liz Smith, and
Speaker 1: Magnus Hendrickson. Alec McCabe is head of Bloomberg Podcasts. We'll
Speaker 1: see you next week.