As the esports winter sets in, another esports organization – Version1 – is beginning to explore alternative avenues, including a merger with another company in the space.
The deepening recession threatens many growing industries, but esports is particularly struggling due to the industry’s overreliance on brand partnership dollars to stay afloat. As brands like BMW sever their ties with esports teams in favor of more targeted partnerships with individual influencers, beleaguered esports organizations are starting to realize that the entire industry could use some be rebuilt from scratch.
More dominoes began to fall last week, when prominent esports organization CLG laid off most of its staff before announcing a merger with North American counterpart NRG. (The companies declined to share specific terms of the deal, but said CLG owner Madison Square Garden Sports would become a “major shareholder” of NRG going forward.)
For beleaguered organizations like CLG, mergers and acquisitions are simply a logical path, allowing some of the company’s most valuable assets – namely, its “League of Legends” roster and large social following – to continue. NRG has already absorbed (and renamed) CLG’s Twitter account, adding nearly 400,000 new followers to its own social numbers for inclusion in potential pitch decks or partner activations. Prior to the merger, NRG had around 8 million subscribers and CLG around 800,000, according to gaming and esports data platform GEEIQ. Now these numbers have been combined.
Recent news makes it clear that CLG will be far from the last esports organization to pursue such a merger. As of today, esports company Version1, which operates competitive teams in titles such as “Call of Duty” and “Rocket League”, is also exploring alternative options for its future, considering a merger with another organization as its primary objective.
Other major esports organizations whose potential buying power could rival that of NRG include 100 Thieves, Team Liquid, and Cloud9; any organizations looking to acquire Version 1 would likely be organizations that are not already in Activision Blizzard’s “Call of Duty” league.
To learn more about the reasoning behind the company’s strategic shift, Digiday reached out to Version1 COO Brett Diamond for a Q&A. Diamond told Digiday that Version1 has already “had several productive conversations” with potential acquisition partners over the past few weeks, but declined to share specific details about pending deals.
This interview has been lightly edited and condensed for clarity.
What’s going on with version 1?
We have begun the process of exploring options for the future of the organization. The focus right now is on pursuing a merger with another organization that we believe aligns with our and our ownership group’s views on the esports industry. We believe this is the appropriate measure, given what is happening in the industry as a whole. But it’s important to our ownership group that they see a bright future for esports and want to be part of it and build towards that future.
So you are considering a merger similar to the acquisition of CLG by NRG?
Today, there are esports organizations that have the scale and audience reach of NFL teams, and those organizations are in a very different position than organizations that have started in recent years. So we are clearly seeing consolidation across the industry; I think it’s just having a realistic view of it. It’s not about 2023 or 2024. It’s about what the industry will look like in 2030 and 2035 and beyond, and what that path will look like for an organization of the size and scale that we currently know.
What exactly is going on in the esports industry right now?
There was really nothing. It’s all about industry and broader economic conditions.
We’ve met our financial projections every year since the organization has been in existence, so we’re in good shape, from that perspective. But as we project the next 10 years, the belief is that we’re going to continue to see consolidation, and that’s not unique to esports. We recognize that this is the environment we find ourselves in and we felt it was a good time to continue in this direction.
What are the alternative paths to follow, if not a merger or an acquisition?
I would say all options are on the table. We look for anything that helps strengthen the organization for the future. Our main focus is the merger scenario; that’s why we talk about it more. But we really haven’t ruled out other things, whether it’s undertaking an investment or looking at different ways to pivot the business.
What structural changes are needed for the esports industry to become more sustainable in the long term?
Coming from traditional sports, once you have multiple bidders, more competition for media rights, that’s where you start to grow. The challenge with esports is that you really only have two viable platforms, in Twitch and YouTube, and the audience for live esports content on Twitch is far greater than YouTube. The current state of affairs therefore does not lend itself to competitive bidding for media rights.
It’s hard to imagine the status quo changing in the short term, but in the long term, it’s inevitable, isn’t it? There will be natural changes over time. Once you have multiple equal platforms with equal reach bidding on media rights, that’s when you start to see real revenue coming in.
As the industry navigates this period of consolidation, publishers who prioritize esports, truly invest in esports, and form partnerships with the organizations and teams that are part of their ecosystems, will continue to grow and succeed. Because the industry is so young, it sometimes takes time to figure out what the right business model is around it.
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