[0:00] there are few industries that have risen
[0:01] and collapsed as quickly as Esports in
[0:04] the 2010s Competitive Gaming had grown
[0:06] Beyond South Korea RTS games Niche
[0:09] forums and land cafes cable was on its
[0:11] way out twitch was taking off and
[0:13] viewership for traditional Sports
[0:14] declined whereas the audience for
[0:16] Esports rapidly increased Esports sold
[0:19] itself as the sport of the future a
[0:20] world where video game tournaments would
[0:22] surpass the NBA and NFL where anyone
[0:25] could Grind from amateur to Superstar
[0:27] where gaming would be a viable
[0:28] profession and stadiums would be packed
[0:30] around the world with thousands of
[0:31] screaming fans marketers had been
[0:33] desperate to reach the younger
[0:35] Generations who shunn traditional media
[0:37] and advertising only Esports boasted
[0:39] such a concentrated and engaged audience
[0:41] of Millennials and Zoomers all this
[0:43] value in theory would be captured by new
[0:45] Esports teams and leagues who could
[0:47] monetize these eyeballs through tickets
[0:49] merchandise and media rights the same
[0:51] way that the NBA NFL and Premier League
[0:54] have eached used viewership to Rak in
[0:55] billions over decades there was so much
[0:58] hype that everyone expected the econom
[1:00] omics to solve itself over Time Around
[1:02] the World Venture capitalists invested
[1:04] Millions into emerging teams game
[1:05] Publishers hosted tournaments in world
[1:07] class venues and broadcasted matches
[1:09] with immense production value colleges
[1:11] rolled out scholarships for promising
[1:13] Pub Stompers prize pools ballooned into
[1:15] millions and pro players were marketed
[1:18] as budding celebrities with the best in
[1:19] the world signing six to S figure
[1:21] contracts as Esports progressed into the
[1:24] 2010s the audience and spectacle reached
[1:26] even greater Heights it was no longer
[1:28] Mountain Dew and Doritos mainstream
[1:30] Fortune 500 Brands jumped into sponsor
[1:32] teams tournaments and players alike even
[1:35] the billionaire owners and millionaire
[1:37] athletes of traditional Sports joined in
[1:39] enticed by the prospect of owning the
[1:41] next Dallas Cowboys or Manchester United
[1:43] with the media and Wall Street
[1:45] collectively proclaiming Esports as the
[1:47] next big thing in media and
[1:48] entertainment this gaming future seems
[1:50] certain fast forward to 2024 and Esports
[1:53] has fallen apart many teams have shut
[1:55] down they've run out of money or have
[1:57] been sold for parts viewership has
[1:59] declined for once dominant titles and
[2:01] questions have been raised on whether or
[2:02] not this audience is even valuable for
[2:04] advertisers when twitch itself still
[2:07] can't turn a profit game Publishers have
[2:09] cut their support and shuttered leagues
[2:11] many Pros have left Esports channeling
[2:13] their star power into more sustainable
[2:15] streaming careers or leaving gaming
[2:17] behind entirely the highest valued teams
[2:19] like TSM and Cloud9 have gone into radio
[2:21] silence Under The Continuous layoffs and
[2:23] roster cuts the few teams that have
[2:25] ipoed are all penny stocks with the
[2:27] majority already delisted from their
[2:29] stock exchanges marketers are moving
[2:31] away and the only supporters of Esports
[2:33] still left are Saudi Arabia online
[2:36] casinos crypto exchanges and fast food
[2:38] chains no team or league has ever
[2:40] managed to turn a profit even at their
[2:42] Peak outside of vague unverifiable PR
[2:45] statements and people are turning back
[2:47] to watch the NFL premier league and the
[2:49] NBA the fall of Esports has never been
[2:51] covered by mainstream media as a result
[2:54] the industry remains Rife with con
[2:55] artists shell companies and charlatans
[2:58] who continue to run the scene out in the
[2:59] open with little scrutiny the pump and
[3:01] dump has continued and the grifters that
[3:03] are running Esports these days make even
[3:05] the most delusional Silicon Valley VCS
[3:07] and Founders look like angels in this
[3:10] episode we'll break down the fraudulent
[3:11] business of Esports and analyze eight
[3:13] teams four Publishers and two middlemen
[3:16] across Na and
[3:20] EU this episode is sponsored by netw
[3:23] sweep by Oracle the leading Cloud
[3:25] Financial system powering companies all
[3:27] around the world what does the future
[3:28] hold in business ask nine experts and
[3:31] you'll get 10 answers hire three
[3:32] consultants and you'll get four
[3:34] different reports read five newspapers
[3:36] and you'll get six different
[3:37] interpretations in one week the media
[3:39] will report that rates are rising and in
[3:41] the next that rates are falling analysts
[3:43] will tell you that we're in a bull
[3:44] market this quarter and then in a bare
[3:46] Market the next could someone please
[3:48] invent a crystal ball until then over
[3:50] 38,000 businesses have future proof
[3:53] their business with netw site by Oracle
[3:55] the number one Cloud Erp bringing
[3:57] accounting financial management
[3:59] inventory HR into one fluid platform
[4:02] with one unified business management
[4:03] Suite there's one source of Truth giving
[4:05] you the visibility and control you need
[4:07] to make quick decisions with real-time
[4:09] insights and forecasting you're peering
[4:11] into the future with actionable data
[4:13] when you're closing the books in days
[4:14] not weeks you're spending less time
[4:16] looking backwards and more time on
[4:18] what's next modern MBA is small at the
[4:20] moment but as soon as we grow in scale
[4:22] within the US and into other countries
[4:24] we will need and use netsuite today
[4:26] we're stitching things manually with our
[4:28] bookkeeper accountant and constant flood
[4:30] of emails in our inbox it's
[4:32] progressively harder to assess Business
[4:33] Health especially as we've expanded to
[4:35] multiple workflows and production
[4:37] pipelines we'll need the ability to
[4:38] track production costs to run payroll
[4:41] that's compliant with states and
[4:42] countries to manage our physical
[4:43] inventory of equipment across borders to
[4:46] evaluate profit and loss by team and
[4:48] project rather than just at the company
[4:49] level and to maintain a proper list of
[4:51] accounts receivable rather than email
[4:53] invoices and calendar reminders as a
[4:55] corporation we have to pay tax
[4:57] throughout the year and it's a nightmare
[4:58] jumping from system to system just to
[5:00] get one clean answer these are all
[5:02] capabilities that only netsuite provides
[5:04] and it's a platform and opportunity that
[5:06] we will take every advantage of for the
[5:08] future speaking of opportunity download
[5:10] the cfo's guide to Ai and machine
[5:12] learning at netsuite.com sodern MBA the
[5:15] guide is free to you at netsuite.com
[5:18] modm netsuite.com sodern
[5:24] MBA before we dive into specific teams
[5:27] we need a baseline understanding of orts
[5:29] as a landscape like in traditional
[5:31] Sports Esports is not a winner take all
[5:33] Market but instead an ecosystem of
[5:35] mutually dependent entities that must
[5:37] work together to achieve Commercial
[5:39] Success the route is multiplayer games
[5:41] the more popular the title the greater
[5:43] the player base the more competitive the
[5:45] game play the better fit for Esports
[5:47] players assemble their own teams or join
[5:49] existing ones these teams then compete
[5:52] in tournaments and leagues where the
[5:53] formats rules rankings and prize pools
[5:56] are administered by Third parties or by
[5:58] the game publishers the competitions are
[6:00] then streamed on Twitch or YouTube to
[6:02] fans developers and Publishers invest
[6:04] their resources to support the
[6:05] competitive scene in exchange for free
[6:07] marketing stronger engagement and player
[6:09] growth teams provide paychecks and
[6:11] coaches so players can focus on winning
[6:14] Brands and advertisers can insert
[6:15] themselves at any stage they can sponsor
[6:17] a team the league the streams or all of
[6:20] the above teams make money through
[6:21] sponsorships and merchandise and League
[6:23] organizers make money off sponsorships
[6:26] tickets concessions and sometimes even
[6:28] team entry fees in the 2010s the goal
[6:30] was maturity if the teams matches
[6:33] tournaments and leagues could each
[6:34] improve in quality and process then
[6:36] Esports would become more attractive and
[6:38] accessible and then viewership in theory
[6:40] would grow in line once viewership
[6:42] reached some critical mass it would be a
[6:44] piece of cake to sell the streaming
[6:45] rights and perpetuity for millions and
[6:47] eventually billions just like how it is
[6:49] for the NFL and the NBA this annual wat
[6:52] of cash could be shared amongst the
[6:53] teams who would each use their cut to
[6:55] finance player salaries and transfers at
[6:58] the beginning publishers team owners
[7:00] League admins tournament organizers and
[7:02] players were all United in pursuit of
[7:04] this payday everyone had to keep doing
[7:06] their part Publishers needed to support
[7:08] the game for competitive play leagues
[7:10] needed to keep upping production value
[7:12] and teams should spare no expense
[7:14] bringing in the best players in the
[7:15] world games had to be easy to watch
[7:18] matches needed to be thrilling and
[7:19] tournaments needed to become spectacles
[7:21] in order for viewership to grow yet
[7:23] payday never materialized broadcast
[7:26] deals in Esports have never been
[7:27] meaningful enough to offset cost or be
[7:29] comparable to that of traditional Sports
[7:32] in this mutually dependent ecosystem all
[7:34] it took was for one entity to quit to
[7:36] bring everything else down for some
[7:38] titles it was the publisher who threw in
[7:40] the towel first and for others it was
[7:42] the teams themselves ultimately as soon
[7:44] as one Domino fell the others would
[7:46] collapse shortly after the complication
[7:48] is that Esports encompasses a vast
[7:50] number of games and no title is the same
[7:53] some games are popular for years and
[7:54] then flame out a small handful endure
[7:56] for decades and some just never get off
[7:58] the ground there's no definitive way to
[8:01] rank Esports titles as viewership
[8:03] fluctuates and prize pools are not
[8:04] reflective of popularity for instance
[8:07] DOTA boasts the biggest prize pools but
[8:09] pulls in less viewership than leading
[8:10] titles in the past decade Esports has
[8:13] been dominated by League of Legends and
[8:14] Counter-Strike these titles are
[8:16] generally regarded as Tier 1 Esports
[8:18] where the viewership is strongest and
[8:20] the leagues are the most mature then in
[8:22] tier two are titles with lesser but
[8:24] respectable followings like Rainbow Six
[8:26] Siege pubg valerin and DOTA then at the
[8:29] bottom are titles with low viewership
[8:31] and Niche competitive scenes like FIFA
[8:33] Madden Call of Duty rocket League Street
[8:36] Fighter and Super Smash BRS while
[8:38] everyone has their role to play teams
[8:41] players and organizers generally all
[8:42] look first towards the Publishers to
[8:44] determine their own Investments
[8:46] Publishers have the deepest pockets and
[8:48] the most to gain from Esports but since
[8:50] they make money off the underlying video
[8:52] game their business is not fundamentally
[8:54] dependent on the competitive scene
[8:56] whereas every other entity in the
[8:58] ecosystem is on one end of the spectrum
[9:00] are Publishers like Riot who
[9:02] meticulously control every aspect of the
[9:04] Esports scene for league and valerant
[9:06] they're the developer publisher
[9:08] broadcaster organizer and League
[9:10] commissioner allinone and they get
[9:12] involved in everything from player
[9:13] salaries and team allowance to owner
[9:15] conduct and sanctions on the other end
[9:17] of the spectrum is Nintendo who has
[9:19] consistently refused to cater to Esports
[9:21] as the biggest tournaments for Smash and
[9:23] Splatoon are generally Grassroots
[9:25] community-run passion projects yet
[9:27] Nintendo has no concerns about investing
[9:29] ing in competitive Pokémon then in the
[9:31] middle of the spectrum is EA Ubisoft and
[9:34] valve who have had one foot in and one
[9:36] foot out over the years the variance in
[9:38] Investments attitude and agendas across
[9:40] titles and Publishers made the goal of
[9:42] turning Esports into a business even
[9:44] more complicated even at the peak of
[9:46] Esports the economic pressures never
[9:49] disappeared instead of a classic pyramid
[9:51] system where teams got relegated and
[9:53] promoted based on Merit tournament
[9:54] organizers began collectively
[9:56] transitioning towards Clos leagues like
[9:58] the NFL ml be an NBA with or without the
[10:01] publisher support that way viewership
[10:03] would not be fragmented across hundreds
[10:05] of teams and multiple levels of
[10:07] competition all the eyeballs could be
[10:08] concentrated on an exclusive few teams
[10:11] would pay millions to secure a permanent
[10:13] spot in these closed leagues and get a
[10:15] guaranteed share of League revenues
[10:17] which on paper would ensure longevity
[10:19] for all the direct emulation of the NFL
[10:22] MLB and NBA the three most lucrative
[10:24] sports leagues in the world into
[10:26] Counterstrike Call of Duty OverWatch and
[10:28] League of Legend Legends renewed hope in
[10:30] the mid-20s that Esports could truly be
[10:36] sustainable Esports is divided by region
[10:40] North American teams were the least
[10:41] competitive but the most well-funded
[10:43] given the concentration of venture
[10:44] capital in the continent their revenue
[10:47] opportunities were also the greatest As
[10:48] Americans are the wealthiest in the
[10:50] world by measure of disposable income
[10:52] and significantly more valuable to
[10:54] advertisers than Asians and Europeans if
[10:57] there was any org that could be
[10:58] profitable it would in theory be an org
[11:00] from na after Cloud Knight and TSM the
[11:03] most famous org in North America was
[11:05] FaZe who ipoed in 2022 since 2011 FaZe
[11:09] has won 32 championships across
[11:10] Counterstrike Cod fortnite pubg valerant
[11:14] and Rocket League their legacy in gaming
[11:17] culture and success in Esports was so
[11:19] strong that they had even earned
[11:20] recognition from traditional media they
[11:22] sold themselves as a generational
[11:24] company where their fans were loyal to
[11:26] faas the brand rather than just FaZe the
[11:28] team they not only showed up to matches
[11:30] and bought merchandise but also watched
[11:32] content and attended meetups Esports
[11:34] Drew people in and phases network of
[11:36] streamers rappers and influencers is
[11:38] what got them hooked the centralization
[11:40] of all these young eyeballs all year
[11:42] round enabled the company to secure
[11:44] brand deals with a Fortune 500 and to
[11:46] launch genre Crossing collabs with
[11:48] Disney Naruto and Porsche yet FaZe was
[11:51] not the high margin media business or
[11:53] the high growth Sports Empire it had
[11:55] portrayed itself to be Esports
[11:57] contributed less than 15% in Reven
[11:59] Revenue while sponsorships made up the
[12:01] majority of the Top Line despite
[12:03] primarily dealing in digital goods and
[12:04] services cost of Revenue actually
[12:06] increased in line with Revenue brand
[12:09] deals and tournament winnings were
[12:10] awarded to phase the company but most of
[12:12] the money passed through to the
[12:14] underlying players and streamers while
[12:16] the players were generally salaried the
[12:18] content creators were all independent
[12:19] contractors despite exclusively
[12:21] representing faas the only way FaZe
[12:24] could convince these content creators to
[12:25] band together under one exclusive brand
[12:28] was to compensate them with a generous
[12:30] cut of every sponsorship deal with cost
[12:32] of Revenue sitting well over 70% every
[12:35] year FaZe was giving away at least 70%
[12:37] of the money to content creators and
[12:39] players and even as the company went
[12:41] underwater the talent began to take even
[12:44] more of the pie for themselves phze the
[12:46] company was capturing the least amount
[12:48] of value and still spending Beyond its
[12:50] means with massive losses with poor
[12:52] fundamentals across media and Esports
[12:54] fa's shares tanked from $20 to 18 in
[12:58] less than 2 years as the losses
[13:00] continued the company found itself out
[13:01] of hype and money in 2023 FaZe was sold
[13:04] to games Square another Esports Oregan
[13:06] na who funded the purchase with Equity
[13:09] ironically games Square's own shares
[13:11] have plummeted to be just as worthless
[13:13] as phases still both companies took the
[13:16] effort to spin a tail in the press that
[13:18] FaZe was the victim of mismanagement and
[13:20] that the founders have been rightfully
[13:21] restored to turn things around they
[13:24] blame fa's former CEO Lee trink a man
[13:27] who allegedly bought diamonds split L on
[13:29] dinners and rented mansions on company
[13:31] dime while wrongly pivoting the brand
[13:33] away from gaming the scrutiny on Lee is
[13:36] fair as he can barely keep his own
[13:37] career straight on some websites he
[13:39] claims to have been the one who turned
[13:40] Katy Perry and Jared Leto into musical
[13:43] Superstars despite only working at
[13:45] Capital Records for 2 years on other
[13:47] websites he downplays his involvement
[13:49] with these artists as routine
[13:50] collaborations Lee also claims that he
[13:52] ran his own Hollywood talent agency by
[13:55] the name of Dar Mighty entertainment
[13:56] where he allegedly managed Kid Rock the
[13:58] back street boys and ice cubes for 8
[14:00] years without any websites or social
[14:03] media the business address that Lee
[14:05] registered for Dar Mighty entertainment
[14:07] is the same exact address that he would
[14:09] later register fazeclan with both point
[14:11] to a random house in Los Angeles as
[14:13] unqualified as Lee was it doesn't
[14:15] absolve the cronyism and the conflicts
[14:17] of interests that still run rampant in
[14:19] Esports today the CEO at games Square
[14:22] who rescued FaZe from bankruptcy was
[14:24] fa's former Chief Financial Officer the
[14:27] same CFO who approved improve the
[14:29] spending set the budgets and Endor the
[14:31] same business model that brought FaZe to
[14:33] both IPO and Penny Stock FaZe continues
[14:36] to compete and to push content the only
[14:39] difference this time being that they're
[14:40] bleeding someone else's Pockets while
[14:42] poor leadership exacerbated phases
[14:44] failures their struggles to make a
[14:46] business out of Esports are not
[14:51] unique by the mid 201010 the Esports
[14:54] rocket ship had taken off and Outsiders
[14:56] were eager for a finger in the pie one
[14:58] of these was Madison Square Garden the
[15:00] multi-billion dollar venue operator and
[15:03] owner of the New York Knicks and New
[15:04] York Rangers they had hosted the soldout
[15:07] LCS finals in the garden the year before
[15:09] and that event single-handedly convinced
[15:11] leadership of the future if MSG could
[15:13] own the next big Esports team that would
[15:16] easily add another billion to their
[15:17] valuation in 2017 they bought a 65%
[15:21] stake in counter logic gaming of all the
[15:23] Esports teams that they could have
[15:24] acquired CLG was the safest CLG was one
[15:27] of the oldest orgs in Competitive Gaming
[15:30] having competed in League of Legends
[15:31] since the very beginning and the team
[15:33] there had just won their second
[15:35] consecutive Championship founded by Pro
[15:37] players rather than trickshotters CLG
[15:39] had always focused on winning Madison
[15:41] Square Garden's plan after acquisition
[15:43] was to help CLG mature its marketing
[15:45] media and merchandise businesses income
[15:48] streams that the org could not properly
[15:50] develop on its own before with smaller
[15:52] Pockets but despite having more than
[15:54] enough cash flow as the owner of an NBA
[15:56] and an NHL team Madison Square Garden
[15:59] gave up on CLG in less than 6 years
[16:01] shuttering the org laying off staff and
[16:03] killing the brand the only worthwhile
[16:06] assets were CG's League team and LCS
[16:08] slot both of which were sold to NRG who
[16:11] like games Square could only pay with
[16:13] Equity while Madison Square Garden
[16:15] intentionally buried clg's financials
[16:18] alongside the Knicks and Rangers during
[16:19] its ownership to avoid scrutiny over its
[16:22] Esports Money Pit we can actually infer
[16:24] clg's bottom line if we extrapolate the
[16:26] net losses for clg's minority share
[16:29] holders which was the 35% that Madison
[16:31] Square Garden didn't buy we can
[16:33] calculate that CLG lost $6 million every
[16:36] year for 6 years straight the absence of
[16:38] bottom line Improvement can be explained
[16:40] with the context that every CLG team
[16:42] dropped off in performance in the Years
[16:44] following its acquisition yet these
[16:46] numbers also reveal that Revenue share
[16:48] from LCS was not actually growing over
[16:50] time as Riot had once promised the
[16:52] entire purpose of having a closed league
[16:54] for League of Legends was so that
[16:56] underperforming teams would still
[16:57] receive enough proceeds from the league
[16:59] to sustain operations but as CLG showed
[17:02] that clearly wasn't the
[17:04] case even newer better funded na teams
[17:07] did not Faire any better Faze CLG and
[17:10] countless other first movers had all
[17:12] demonstrated in their own ways how
[17:13] fragile it was to do Esports first and
[17:16] then content second competitive success
[17:18] was not guaranteed and player salaries
[17:20] were only increasing Enthusiast gaming
[17:22] out in Canada attempted sustainability
[17:25] from the opposite end by doing content
[17:27] first and then Esports it made sense as
[17:30] media was a proven business and Esports
[17:32] was not their idea was to use the
[17:34] established income from mature websites
[17:36] to subsidize their Ventures into
[17:38] Competitive Gaming enthusiasts bought
[17:40] addicting games Escapist wise crack and
[17:43] assortment of gaming channels and
[17:44] websites over the years they expanded
[17:46] their portfolio to include Live Events
[17:49] stat trackers forums and communities all
[17:51] through m&a and all related to gaming
[17:54] these online properties despite
[17:55] generating steady advertising income
[17:57] were not particularly valuable in the
[17:59] first place their Acquisitions had been
[18:01] mostly funded by equity and any cash
[18:03] portions had been deferred into
[18:05] multi-year payments indicating that
[18:06] there weren't many other buyers for
[18:08] these websites in the first place
[18:10] putting these assets together enabled
[18:11] enthusiasts to surpass $10 million in
[18:14] less than 3 years that cash flow was
[18:16] then spent on the purchase of luminosity
[18:18] in 2019 an emerging Toronto Esports team
[18:21] who competed in Siege fortnite Apex and
[18:24] Madden despite their later expansion to
[18:26] OverWatch Pokemon and Rocket League
[18:29] Esports and Luminosity has remained the
[18:31] company's weakest link in 5 years
[18:33] Luminosity has shown the least growth
[18:35] whether measured by percentage or
[18:36] dollars the only way the company has
[18:38] reduced burn for its Esports division
[18:40] has been through eliminating rosters and
[18:42] replacing American talent with lower
[18:44] salaried Latin American players while
[18:47] media has brought in cash flow it hasn't
[18:49] stopped enthusiasts as a whole from
[18:50] losing money there's no profit in
[18:52] assembling a portfolio of Aging cash
[18:54] cows especially when they've already
[18:56] peaked and they were purchased at a
[18:58] premium if anything Esports seems to be
[19:00] an expensive unnecessary diversion as
[19:02] any viewer that Luminosity could reach
[19:04] in Esports is likely someone who the
[19:06] company already hits with its media
[19:09] properties enthusiast's stock has
[19:11] plummeted from $8 to 10 cents a share in
[19:13] 3 years and was just delisted from the
[19:15] NASDAQ like FaZe the original CEO has
[19:18] been blamed for mismanagement yet the
[19:20] new CEO that was brought in to clean up
[19:23] the mess stayed just 10 months before
[19:24] fleeing the sinking ship
[19:30] the new narrative out of Na is that it
[19:32] was the suits who screwed things up and
[19:34] that putting these companies back in the
[19:35] hands of content creators and players
[19:37] who actually understand gamers are what
[19:39] will turn things around we can see as
[19:41] much when we revisit games square games
[19:43] Square's pitch is that video games are
[19:45] the bridge to reaching gen Z and that
[19:47] the collective marketing power of their
[19:49] influencers streamers and Esports teams
[19:51] will bring success to your brand it's
[19:53] the same and Bull business model
[19:55] that FaZe luminosity and CLG had been
[19:58] pedaling for years prior the only
[20:00] difference being that game square is
[20:01] bankrolled by Dallas Cowboys owner Jerry
[20:03] Jones and Texas Lan Tycoon John Goff
[20:06] like FaZe did at IPO games Square boasts
[20:09] about its Blue Chip deals with Denny's
[20:11] Chipotle and Miller Light and its
[20:13] exclusive Talent like Tim the tatman and
[20:15] Nick MKS games purchased complexity in
[20:18] 2021 for $23 million one of Na's longest
[20:21] standing Esports orgs who had won 140
[20:24] championships over its 20-year history
[20:26] and yet another example of conflict of
[20:28] Interest complexity was actually
[20:30] co-owned by Jerry Jones and John Goff
[20:33] yet after picking up phase in 2024 gam
[20:35] Square immediately dumped complexity at
[20:37] a loss selling the org for $10 million
[20:40] with only 8% of the deal paid at signing
[20:43] in cash if Esports was really the key
[20:45] they would have kept both phase and
[20:46] complexity given the legacy of both
[20:48] teams Bank rolling two teams in
[20:50] different races would only generate
[20:52] higher probability of tournament success
[20:54] but game square is clearly moving away
[20:56] from Competitive Gaming and they can't
[20:58] ad admit it the only money is in content
[21:00] creation and there's no need to lose
[21:02] millions of dollars every year Fielding
[21:04] Esports teams when you can reach a
[21:05] comparable audience and viewership
[21:07] through streamers games square is closer
[21:10] to a talent agency than an Esports org
[21:12] and the inmates are now running the
[21:14] Asylum just like FaZe the company pays
[21:16] over 70% of brand deals and prize pools
[21:18] to its content creators and players once
[21:21] again the cost of Revenue is so
[21:22] abnormally High and the gross margins
[21:24] are so bizarrely low for a company that
[21:26] deals a non-physical digital Services
[21:29] the numbers are even stranger when
[21:31] stacked up against traditional media
[21:32] companies what's worth highlighting is
[21:34] that all these streamers and content
[21:36] creators are actually also gamees square
[21:38] co-owners and shareholders they're the
[21:40] only ones getting richer they land huge
[21:42] deals that they never would have gotten
[21:43] individually and they keep all the
[21:45] profit for themselves as the company is
[21:47] the one that's funding all the sales
[21:49] marketing and BD that was needed to
[21:51] secure those deals in the first place
[21:53] with massive losses worthless stock and
[21:55] R&D led by a ninja the fortnite streamer
[21:58] games Square seems destined to run out
[22:00] of cash just like FaZe and Enthusiast it
[22:03] all raises the same questions do these
[22:05] companies exist to profit off the talent
[22:07] or is the talent there to milk money out
[22:09] of the company and how can the
[22:11] individual success of a content creator
[22:13] or streamer whose followings are rooted
[22:15] in parasocial interactions ever
[22:17] translate into a faceless corporate
[22:23] entity when we look at less capitalist
[22:25] regions like the EU the same
[22:27] unsustainability appears heroic is a
[22:29] Norway org that Rose to Global
[22:31] prominence on the heels of its
[22:32] Counter-Strike team many consider their
[22:34] undefeated performance in the 20121 ESL
[22:37] pro league and the 1v4 clutch in the
[22:39] grand finals to be some of the best
[22:41] matches ever played in CS history like
[22:43] traditional sports franchises heroic
[22:45] believe that winning solves everything
[22:47] as long as they continue to perform
[22:49] internationally the brand and business
[22:50] would naturally strengthen over time and
[22:52] the singular competitive Focus did
[22:54] appear to work from the outside even as
[22:56] Counter-Strike transitioned into leagues
[22:59] heroic was rewarded with permanent
[23:01] membership in the pro league and blast
[23:03] Premiere with Revenue share and
[23:04] co-ownership in the two leading CS
[23:06] leagues in the world hero was convinced
[23:08] that it had the financial Foundation to
[23:10] grow they expanded to Rocket league pubg
[23:13] and Siege they landed Red Bull as a
[23:15] jersey sponsor partnered with new
[23:16] balance on merchandise and landed
[23:18] features on Forbes and BBC despite the
[23:21] continuous competitive success heroic
[23:23] was never able to shake off business
[23:25] realities Revenue had grown rapidly for
[23:27] Heroic thanks to sponsorship and
[23:29] tournament winnings but it never came
[23:30] close to offsetting the top-of-the
[23:32] market salaries demanded by the best CS
[23:34] players in the world what was worse was
[23:36] that proleague and blast had charged
[23:38] hero $13 million as entrance fees which
[23:41] hero had to pay if they wanted a
[23:42] guaranteed spot on the biggest stage in
[23:44] Counterstrike as a fixed asset heroic
[23:47] could only write off a quarter of the
[23:48] cost of membership as depreciation
[23:51] membership fees and player salaries
[23:53] combined sink the company to an
[23:54] operating loss of $5 million in business
[23:57] you can only rely on on Equity when your
[23:59] Shares are worth something and you can
[24:00] only ever rely on debt when you get cash
[24:03] flow hero had only $180,000 in the bank
[24:06] they had already borrowed $5 million and
[24:08] half of that needed to be repaid by the
[24:10] end of the year the company drained the
[24:12] last drops of equity for investors in
[24:14] exchange for emergency cash infusions
[24:16] but the writing was on the wall the
[24:18] closed CS leagues were not generating
[24:20] any meaningful revenue and even if
[24:22] heroic had somehow won every CS
[24:24] tournament in 2023 that combined prize
[24:27] pool would still not have been enough to
[24:28] keep the lights on heroic was acquired
[24:31] for 18 cents a share in cash by a
[24:33] mysterious shell company that's
[24:34] registered to a Norwegian Law Firm has
[24:37] no website has a postal address in
[24:39] Cyprus and is linked to a sanctioned
[24:41] Russian gambling
[24:43] company while heroic was hoping to
[24:45] establish itself on a shoestring budget
[24:47] astralis over in Denmark was Esports
[24:49] royalty they had the best CS team in the
[24:51] world with four major championships and
[24:53] secured permanent slots in proleague
[24:55] blast and LDC all of which were paid
[24:58] with Venture Capital like heroic
[25:00] astralis had pegged its commercial hopes
[25:02] on the shift to close leagues despite
[25:04] leading in tier one competitive success
[25:06] Asis still posted loss after loss the
[25:08] only year where astralis has ever posted
[25:10] a profit was in 2023 when they sold
[25:13] their LEC slot for $19 million to a VC
[25:16] backed French team when segmented by
[25:18] title every team in business division at
[25:20] astralis including the physical gaming
[25:22] Cafe has lost money in every year of its
[25:25] existence in four years asus's stock has
[25:27] plummeted to just 17 cents a share
[25:30] despite racing to be the very first
[25:31] Esports team in the world to IPO the
[25:33] company proactively delisted itself from
[25:35] the NASDAQ in 2023 to save the half a
[25:38] million dollars that it was spending
[25:40] every year on compliance the LEC sale is
[25:42] likely the last big capital in Fusion
[25:44] and the only play now is to stretch
[25:46] every dollar to Outlast the current
[25:48] interest rates and its cash starved
[25:50] competition over in UK the Esports hype
[25:53] had reached the ears of celebrity
[25:55] athletes like David Beckham who loaned
[25:57] his face and name to an English
[25:58] organization by the name of Guild
[26:00] Esports while Asis was the first to IPO
[26:03] Guild was the first to IPO on the London
[26:05] Stock Exchange but it's not clear why
[26:07] any of this even matters when they're
[26:08] all penny stocks while Beckham owns just
[26:11] 3% that hasn't stopped Guild from
[26:13] milking every scent from its $20 million
[26:15] deal with the football star Guild spun a
[26:17] story about building the best Esports in
[26:20] the world where they would Scout upand
[26:21] cominging players acquire them for cheap
[26:23] develop them on company dime and then
[26:25] sell them at a premium to other teams
[26:27] like in the premier PR League they
[26:29] continued to pound this drum despite the
[26:30] reality that Esports teams all around
[26:32] the world were already underwater paying
[26:34] the salaries of existing players the
[26:37] notion that they would have the budget
[26:38] to regularly blow Millions more on
[26:40] transfers was Pure Fantasy still thanks
[26:43] to David Beckham Guild spun up teams in
[26:45] FIFA fortnite valerant and Rocket League
[26:48] while also Landing $14 million worth of
[26:50] sponsorships from Subway Coca-Cola and
[26:52] sky in Just 2 years in spite of a
[26:55] non-existent fan base and poor results
[26:57] still the company forged onwards and
[26:59] continued to Shield the academy as the
[27:01] source of future profits Guild was
[27:04] ecstatic on his launch day crowing about
[27:06] having netted over 3,000 signups for its
[27:08] Academy the company was then shocked
[27:10] when all the leads turned out to be
[27:11] unqualified or spam it takes seconds to
[27:14] type an email address into a form and
[27:16] it's a Marvel to see multi-million doll
[27:18] modern companies repeatedly celebrate
[27:20] vanity metrics like signups page views
[27:23] and YouTube subscribers as a sign of
[27:25] business strength Guild Justified its
[27:27] losses as for the course and even
[27:29] pointed the finger at its poor
[27:30] merchandise as the reason for falling
[27:32] behind on Revenue as we've seen
[27:34] merchandise is so minor relative to
[27:36] every other operating expense that
[27:38] selling even a thousand more hoodies
[27:40] would never meaningfully reduce losses
[27:42] Guild's next move was to insert itself
[27:44] into the for-profit UK education system
[27:47] where they would receive ,000 for every
[27:49] student they enrolled in their Esports
[27:51] diploma program what exactly was taught
[27:53] in these classes remain a mystery to
[27:55] this day by 2022 Guild was running out
[27:57] of cash to save a pound the company
[27:59] renegotiated its deal with Beckham who
[28:01] gave up his cash payments for a greater
[28:03] cut on merchandise sales and brand deals
[28:05] after the usual cost cutting and roster
[28:07] consolidation Guild squeaked its way to
[28:09] 2023 pedaling a new vision of content
[28:12] creation over Esports ironically their
[28:15] fan base has remained so small that
[28:16] their main partner a crypto exchange
[28:19] refused to renew its sponsorship deal
[28:21] and Guild is once again on the verge of
[28:26] bankruptcy but looking at just the teams
[28:29] paints an incomplete picture regardless
[28:31] of their intentions and Inc competence
[28:33] Esports can only ever be sustainable
[28:35] when everyone Rose in the same direction
[28:37] and no team could ever be profitable
[28:39] without support from the rest of the
[28:40] ecosystem players could always be
[28:42] replenished as gamers in the 9s had
[28:44] competed out of passion without money or
[28:46] fame on the line and if there were no
[28:48] official leagues or tournaments players
[28:50] would simply host their own thus there
[28:52] would never be a shortage of Talent OR
[28:53] viewers the only other entity in the
[28:55] ecosystem that was as critical as the
[28:57] teams were the Publishers and there was
[28:59] no publisher in the world more
[29:01] aggressive about monetizing Esports than
[29:03] Activision Activision was the first to
[29:06] pickup on the potential of Esports 5
[29:08] years ahead of EA Ubisoft and take 2
[29:11] Activision's merger with blizzard in
[29:13] 2008 gave Bobby cotic a front row seat
[29:16] into the Korean Esports scene having
[29:18] rescued Activision from bankruptcy in
[29:20] the90s Bobby had longlook for ways to
[29:22] inject longevity and monetization into
[29:25] video games post launch trying to create
[29:27] the next hit game was expensive and
[29:29] risking everything on a single launch
[29:31] every few years had killed off many
[29:33] studios yet Gamers were fickle and they
[29:35] demanded new shiny things to keep
[29:37] attention and spend under Bobby
[29:39] Activision's primary business was in
[29:41] ruthlessly milking proven IPS like Tony
[29:43] Hawk Call of Duty and Guitar Hero with
[29:46] annual full price sequels yet when Bobby
[29:48] saw the Grassroots popularity of a
[29:50] 10-year-old RTS out in Korea he couldn't
[29:52] resist building that competitive
[29:54] longevity into its sequel Bobby didn't
[29:56] want just more users and engage
[29:58] engagement he wanted to own the eyeballs
[29:59] and the future monetization
[30:01] opportunities that came with them the
[30:03] only way to accomplish that would be to
[30:04] control everything the Starcraft 2
[30:06] Community could not be allowed to
[30:08] self-organize like the Koreans had done
[30:10] with brood War Activision embedded
[30:12] itself into every aspect of SC2
[30:14] operating tournaments forcing battl net
[30:16] 2.0 onto every player and pushing teams
[30:18] to join the only official Blizzard
[30:20] sanction Championship League the company
[30:22] persisted with the same heavy-handed
[30:24] approach with Heroes of the Storm
[30:26] Hearthstone Call of Duty and OverWatch
[30:28] watch under the belief that if they did
[30:29] it for enough titles they could own
[30:31] Esports in the west by the mid-20s
[30:34] Activision was regularly Fanning the
[30:36] Flames of Esports to shareholders and
[30:38] orgs alike they drew comparisons to the
[30:40] NFL they poached media Executives from
[30:42] the NBA they boasted about blizzards
[30:44] tournaments having already surpassed the
[30:46] MLS and they implied that a 10x increase
[30:48] in future viewership was not only
[30:50] probable but would also solve
[30:52] monetization to demonstrate how serious
[30:54] they were Activision acquired Major
[30:56] League Gaming with the ambition to turn
[30:58] it into the ESPN of Esports and they
[31:00] also started converting existing
[31:02] tournaments into Clos leagues
[31:04] Activision's leadership from the front
[31:06] emboldened Esports orgs to jump in feet
[31:08] first as their own valuations grew off
[31:10] the same hype Activision was the piper
[31:12] and the teams followed right behind
[31:14] never once imagining that the publisher
[31:16] would throw them under the bus
[31:18] Activision channeled their figurative
[31:19] buyin into literal buyin charging teams
[31:21] $20 million each to join the OverWatch
[31:24] league and $25 million to join the Call
[31:26] of Duty League these fees were twice of
[31:29] what Riot was charging teams for entry
[31:31] into LCS or LEC OverWatch at this point
[31:34] had only been out for five months and
[31:35] was completely unproven as a spectator
[31:37] sport whereas League had been around for
[31:39] nearly a decade there was no
[31:41] justification for these rates and the
[31:43] millions of dollars that Activision had
[31:44] invested into Esports was just a drop in
[31:47] the ocean compared to what it was making
[31:48] off microtransactions alone still
[31:51] Activision pocketed these entry fees for
[31:53] itself and they embarked on a global
[31:55] Road Show selling League spots to glal
[31:57] billionaire and VC back teams under the
[31:59] promise of eyeballs and revenue that
[32:01] simply never existed by 2021 Bobby had
[32:04] completely forgotten about Esports
[32:06] free-to-play live Services had taken off
[32:08] and they offered comparable monetization
[32:11] engagement and viewership without the
[32:12] overhead of Esports war zone was the
[32:15] hottest game in town it was bigger than
[32:16] Diablo OverWatch World of Warcraft and
[32:19] Starcraft combined in 2024 Activision
[32:22] shuttered the OverWatch league and paid
[32:23] out $6 million to each team to kick them
[32:26] out the door as fast as possible
[32:28] meanwhile EA in the 2010s was happy to
[32:30] keep Esports as groundup Grassroots
[32:32] community events for FIFA and Madden
[32:35] their focus was mass Market monetization
[32:37] as long as Competitive Gaming was
[32:39] driving players to buy more Ultimate
[32:41] Team packs the publisher was happy to
[32:43] invest in a bit of marketing or
[32:44] contribute to a prize pool every now and
[32:46] then but as sales improved and the
[32:48] relationship between Esports viewers
[32:50] players and microtransactions proved
[32:52] worthwhile EA ramped up its Investments
[32:54] accordingly organizing leagues acquiring
[32:57] sponsors and building their own
[32:58] broadcast Studios for FIFA Madden
[33:01] Battlefield and Apex tournaments but
[33:03] similar to Activision live Services took
[33:05] priority after 2022 and EA has since
[33:08] remained half committed to Competitive
[33:09] Gaming with one foot in and one foot out
[33:11] across all its titles Ubisoft also took
[33:14] a measured approach the competitive
[33:16] scene helped prolong longevity for Siege
[33:18] and the company has been cautious not to
[33:20] rock the boat too much especially as
[33:22] every other major title in recent
[33:24] history has been a dud for the French
[33:26] publisher Ubisoft doesn't charge teams
[33:28] entry fees they have a revenue share
[33:30] program with microtransactions that
[33:32] helps support teams from a distance and
[33:34] they've organized tournaments to
[33:35] maintain the existing player base rather
[33:37] than growing Spectators the only major
[33:40] publisher that's consistently poured
[33:41] cold water on Esports has been take2
[33:44] they've stuck to the same talking point
[33:45] since 2015 that Esports is at most worth
[33:48] only a billion dollars most of the money
[33:50] goes to League of Legends and the
[33:51] competitive scene for NBA 2K will only
[33:54] go as far as basketball itself
[34:00] beyond the orgs and Publishers even
[34:02] companies who built venues for Esports
[34:04] have struggled to turn a profit there
[34:05] was TGs who ipoed on the story that they
[34:08] had constructed a one-of-a-kind Esports
[34:10] stadium in Vancouver that would host all
[34:12] Gamers and tournaments up north they
[34:14] sold concessions ran boot camps hosted
[34:16] contests and rented space despite being
[34:19] a venue operator TGs made more money off
[34:21] sponsorships than it did hosting events
[34:24] unsurprisingly there's not enough
[34:25] Esports in Canada to ever sustain such
[34:27] such a specialized venue and when
[34:29] there's not enough events you just have
[34:30] to manufacture your own the company
[34:32] spent twice its revenue on Advertising
[34:34] just to get gamers in the door and was
[34:36] running out of cash despite being months
[34:39] away from bankruptcy with a share price
[34:41] of 5 Canadian cents a mysterious
[34:43] Illinois company by the name of midnight
[34:45] gaming bought the failing TGs for three
[34:48] times its Market valuation at $18
[34:50] million midnight gaming claims to be a
[34:53] conglomerate run by two employees with
[34:55] no revenue and no assets its website is
[34:58] a stock WordPress template with
[35:00] lingering typos and formatting issues
[35:02] the CEO claims to have raised millions
[35:04] of dollars but the S1 shows that they
[35:06] have just $11,000 in their bank account
[35:08] against $400,000 of debt the other
[35:10] employee is the chief gaming officer and
[35:13] appears to be a family member he ran an
[35:15] amateur team for a year before branching
[35:17] out into a supposedly quote high demand
[35:19] Esports consulting firm their contact
[35:22] form leads to an anonymous catchall
[35:24] address and the staff page is filled
[35:26] with people who report zero Association
[35:28] to the company on their own LinkedIn
[35:30] profiles where these two employees found
[35:33] $18 million to buy TGs how they deem TGs
[35:36] to be worth that amount and what
[35:38] midnight gaming is really a front for
[35:40] are questions that no one has been able
[35:42] to answer then there's Allied
[35:44] entertainment who spent $9 million in
[35:47] 2018 building an Esports Arena at the
[35:49] luxer hotel in Las Vegas and has hosted
[35:52] events like ninja versus Mr Beast the
[35:54] MLB awards show and the world poker
[35:56] tournament like TGs the vision was
[35:58] simple as Esports grew the facility
[36:00] would naturally just be in Greater
[36:02] demand to leagues and Publishers Allied
[36:04] monetized the space as much as they
[36:06] could when they weren't hosting events
[36:07] they collected admission and they
[36:09] produced content but as Esports began to
[36:11] collapse with Publishers and teams
[36:12] pulling back the board saw the writing
[36:14] on the wall and they pushed for a fast
[36:16] sale rather than a slow death in 3 years
[36:19] the company has turned through three
[36:20] different CEOs each brought on
[36:22] specifically to drw up interest from
[36:24] Saudi Arabia and China as there was no
[36:26] appetite left in na for Esports no
[36:29] buyers have materialized and Allied has
[36:31] since decided to diversify away from
[36:33] Esports they're now banking on Chinese
[36:35] mobile gambling apps to get the business
[36:37] Back in Black and just like the orts
[36:39] teams we covered before Allied is just
[36:41] months away from being delisted from the
[36:44] NASDAQ with the Publishers teams and
[36:47] venues all on their way out the only
[36:48] folks left in Esports are Saudi Arabia
[36:51] online casinos crypto exchanges and
[36:53] shell companies because no one's talking
[36:55] about any of this the grifters are still
[36:57] coming in each worse than before just
[37:00] last month a Swedish org called ninjas
[37:02] and pajamas and a Chinese org named
[37:04] Victory 5 merged together to IPO on the
[37:06] NASDAQ to confetti and Applause is Nip
[37:09] group making money no did winning Cs and
[37:12] LPL championships improve their losses
[37:14] no how does nip group intend to become
[37:17] profitable one day beyond selling
[37:18] merchandise and winning tournaments by
[37:20] repeating what every company has
[37:22] attempted to pull off in the past decade
[37:24] all at the same time Esports education
[37:26] like Guild Talent man management like
[37:28] FaZe venue rental like TGs event
[37:30] production like Allied and content
[37:32] creation like games Square nip group is
[37:35] led by Mario hoe the 29-year-old son of
[37:38] a billionaire maau Casino Tycoon and
[37:40] with a Victoria Secret supermodel for a
[37:43] wife Mario claims to have been a math
[37:45] prodigy and the youngest graduate in
[37:47] finance at MIT both of which cannot be
[37:49] verified Mario ho does not appear
[37:51] anywhere in the UK's International
[37:53] mathematical Olympiad or the British
[37:55] mathematical Olympiad the former which
[37:57] lists out every winner starting from
[37:59] 1967 and the latter which lists out
[38:01] every winner from 2003 onwards there's
[38:04] no one with the first name Mario or even
[38:06] just the last name ho in either of these
[38:08] lists on his Instagram Mario brags about
[38:10] hacking the lights on the MIT Green
[38:12] Building to play Tetris despite
[38:14] overwhelming documentation that this was
[38:16] a multi-year long stunt that had been
[38:18] accomplished by students 5 years before
[38:20] Mario even attended MIT it had become
[38:23] just a regular campus exhibit and all
[38:25] Mario had done was just taking a photo
[38:27] with with it on another Instagram post
[38:29] he brags about winning a Ferrari over a
[38:31] game of rock paper scissors his bio has
[38:34] been updated to just one line the
[38:36] youngest ever Asian founder of a
[38:38] us-listed company with connections to
[38:40] Chinese Elite and Saudi royalty it's not
[38:43] a mystery as to how nip group got to
[38:45] where it is and who NASDAQ as the stock
[38:47] exchange is ultimately pandering to the
[38:49] Esports industry has been dominated with
[38:51] these kinds of characters from the
[38:53] get-go and Mario just happens to be the
[38:55] latest
[38:59] Esports was built on two theories one is
[39:02] that viewership would one day reach
[39:03] critical mass and two is that these
[39:05] viewers would be worth just as much to
[39:07] advertisers as viewers of the NFL or NBA
[39:11] but how much are gen Z eyeballs really
[39:13] worth to Brands when they're broadly
[39:14] speaking too young to have disposable
[39:16] income but also immature enough to still
[39:19] be impressionable to online gambling
[39:21] energy drinks fast food crypto and
[39:23] streamers when twitch can't even turn a
[39:26] profit themselves monetizing these same
[39:27] eyeballs it's hard to imagine how anyone
[39:30] else in a segmented mutually dependent
[39:32] landscape like Esports could fare any
[39:34] better the other variable is that people
[39:36] get older the Millennials that grew up
[39:38] watching LCS and playing League after
[39:40] school have moved on to other games or
[39:42] other Hobbies as every generation does
[39:44] in life it's a mistake to believe that
[39:46] people will stick to playing or watching
[39:48] one video game for the rest of their
[39:49] life and building a billion dooll
[39:51] business on that assumption is like
[39:53] drawing blood from a stone if we look
[39:55] back at the roots of Competitive Gaming
[39:57] play players never really needed huge
[39:59] prize pools and six-figure salaries to
[40:01] compete they didn't need stadiums or
[40:03] coaches they did it out of passion and
[40:05] pride in run-of-the-mill auditoriums and
[40:07] plastic chairs it was about glory and
[40:09] not money and it was about proving that
[40:11] a kid from Kansas could match a top tier
[40:13] Korean Starcraft Pro that a Japanese
[40:15] player could perfectly Parry every
[40:17] attack at 1 HP to clutch a winning
[40:19] Street Fighter that a band of Americans
[40:21] could upset the top Korean seat Against
[40:23] All Odds in league and that two
[40:25] teenagers from California could pull off
[40:27] a move that no one had ever seen before
[40:29] in Smash gaming is a skill but as the
[40:32] past decade of Esports has shown it's
[40:34] not a talent that the world is ready to
[40:36] put a dollar on