Today, every NBA team is worth over $1B (USD) and we believe that esports organizations could be worth the same, or more, in the near future. History is repeating itself, but much faster this time.
After noticing the deals taking place with esports teams like Cloud9 raising $50M, TSM raising $37M, Team Liquid raising $25M, and the lucrative expansion fees for OWL franchises, it reminded us of what happened in the NBA in the 1980s. The investments in these esports teams and franchises are very similar to the prices paid for NBA franchises in the 1980s.
The path to a $1B valuation will happen faster for esports organizations than it did for the NBA.
Main Takeaways:
- Team transaction values are similar
- Expansion fees are similar
- Global viewership for esports will drive higher valuations than NBA franchises
- Asset value appreciation timeline will be much faster than NBA valuations
1) Transaction Values: NBA ($38M), Esports ($37M)
In the 1980s, 15 NBA teams were purchased in whole or in part for transactions values ranging from $9.8M (Houston Rockets in 1982) to $120M (Boston Celtics in 1986). Compared to the major fundraises lately in esports, this is quite similar to the $37M average for top esports organizations:
Obviously, you’ll notice two significant outliers in the NBA with Portland and Boston. They alone increase the average by almost 50%. What is really interesting, though, is when you adjust for inflation and remove those two from the table, the average NBA franchise investments were within 5% of the 3 most notable & recent investments into esports organizations.
The one notable difference between the purchases of NBA franchises and the investments into esports teams/organizations is the structure of the deals. When these NBA franchise deals were made, they were typically for full ownership of a team whereas the esports deals are typically priced round venture capital deals for partial ownership of these organizations. However, this doesn’t dissipate the fact that the transaction value is extremely similar across the board. Conclusion: esports organizations are much more valuable today than NBA teams in the 1980s.
The path to a $1B valuation will happen faster for esports organizations than for the NBA
When these NBA transactions were completed, teams were valued anywhere from $10M to $120M, and today every NBA team is worth more than $1B. The majority of this value appreciation can be attributed to technological advances that have allowed a much wider viewership which in turn has created lucrative media rights deals for the NBA and their teams. This is important because esports franchises already have the viewership, and with viewership comes media deals.
The digital age we live in today has the potential to speed up the franchise appreciation process exponentially…
2) Expansion Fees: NBA ($69M), OWL ($30–60M)
In 1988 and 1989 we saw an expansion of the NBA with four new teams: Miami Heat, Minnesota Timberwolves, Charlotte Hornets, and Orlando Magic. Each of these teams paid an expansion fee in 1989 of $32.5M ($69M when adjusted for inflation).
According to ESPN, the OWL expansion fees are ranging anywhere from $30M-$60M. What is interesting is that the NBA required a similar fee ($69M) and only expanded by 4 teams, while the OWL added 8 teams.
It’s also worth noting that the NBA was founded in the 1940s, and the Overwatch game launched on May 24th, 2016. It took 4 decades for the NBA to reach these numbers & valuations whereas it only took 24 months for esports to create this same demand & value for the OWL. (wow) — whether or not you’re a fan of the OWL, the game itself, or believe in its longevity as a title, this is truly an impressive accomplishment that speaks to the inherent value behind esports, its audience, and the evolving landscape in competitive entertainment around the world.
A key difference between the NBA and the OWL is that in the NBA, all four expansion teams were in the US, but in the OWL, expansion teams are in North America (Toronto, Vancouver, D.C., Atlanta), Europe (Paris), and Asia (Hangzhou, Chengdu and Guangzhou).
It’s worth noting that an investment into an esports organization is also a diversified bet across multiple game titles & leagues, instead of just one. This allows for esports organizations to be worth considerably more.
Investing in an esports organization could potentially have similar returns to owning the Patriots, Cavaliers, and Yankees… all under one franchise.
3) The Audience: Esports / OWL (global), NBA (U.S.)
What makes these OWL franchises inherently more lucrative is that their audience is a global digital audience, and is not centered around the U.S. (like the NBA was in the 1980s).
This allows a much wider fan base to be engaged in the content that is produced, and allows for more widespread, loyal fan bases to be developed. This should, in theory, allow these franchises to appreciate in value faster than the NBA franchises from the 1980s, even while starting at roughly the same price point.
Viewership Comparison: OWL (10.8M), NBA (13.2M)
Another point to notice when trying to value the future worth of an esports organization is to look at what the viewership is now compared to the viewership of the NBA All-Star game in 1990 (the farthest back you can go to find any viewer data):
Esports viewership already beats the viewership of the NBA in 1990 when the transaction & expansion values were comparable to esports organizations and the OWL.
Today, NBA franchises are all worth north of $1B, giving them a CAGR of roughly 12% since 1985 and the NBA had nowhere near the technological advances that we are seeing today in 2018.
Imagine if in the 80s and 90s NBA fans from all over the world could tune in to watch any game they wanted and what that could have done to the valuation of these franchises.
Another reason for esports teams to drastically appreciate in value is the age of their fans. The average NBA viewer is 42 years old, but according to Nielsen, the average age of esports viewers are 31 and 61% of viewers are millennials:
Average Age of Esports Viewers (Credit: Nielsen)
This should drive the appreciation of valuations because these viewers have grown up not only watching esports, but also continue playing as they get older. With traditional sports, a lot viewers are just fans, and if they played when they were younger, they probably don’t anymore.
Millennials (and upcoming generations) have a lasting affinity for the video games they grew up playing (and still play today) as they are able to enjoy the exact same game at a high level of competitiveness. This dynamic is going to keep them engaged for years (similar to golf, which you can play for a long time). About 450 professional NBA athletes in the world can enjoy the competitiveness of the NBA, but millions have the ability to play at a similar level of competition as professional esports athletes.
Conclusion: history is repeating itself… but faster
The comparison of the NBA and Esports / OWL is oddly similar. With the rise of the digital age, a vastly larger demographic for esports than basketball, the younger age groups, and the still under-monetized esports fanbases around the world, we believe we could see comparable valuations of esports organizations to NBA franchises of today…
… The key difference: esports could do in 5–10 years what took the NBA over 30 years to achieve.
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