Investment in esports smart play for ESPN

Last Thanksgiving, Dan Kaufman was having one of the many routine family discussions that tend to fill up a holiday weekend. This one was with his 17-year-old nephew, who was discussing a topic familiar to many male teenagers -- his love of video games.

"He was saying, ‘I wish I could go pro, but I’m not good enough,'" said Kaufman, senior deputy editor for content development for ESPN.com.

The response of many adults to that lament would likely have been some combination of discouragement and eye rolling. Kaufman’s reply was different. He discussed the explosion of esports and the professional opportunities that have come from that rise.

When he was done, Kaufman paused, looked at his nephew, and said, "I bet this is the first time you’ve talked to someone over the age of 30 who didn’t just say, 'Why are you wasting your time on this?'"

"Yes," was the sheepish reply.

Kaufman’s nephew isn’t alone in his desire. In the past few years, while parents around the world have continued telling their kids to put down the joysticks and go outside, esports has become a mega-business, one projected by games research firm Newzoo to surpass $1 billion in revenues by 2019 and heavily engaged with the prized 25- to 34-year-old male demographic.

Why was Kaufman more sage than most his age about its potential? He is heading up the ESPN digital content team’s aggressive push into esports.

The network’s embrace of esports has not come without critics, internal and external. Then ESPN radio host Colin Cowherd, now with Fox Sports, trashed the network’s coverage of esports on his show in April 2015. Some readers have complained to me that because it happens on a screen and not a field, esports falls outside what ESPN should be covering.

But esports is merely one example of the network’s investment into coverage areas it had historically neglected. In the past year, ESPN also has increased its coverage of gambling, drone racing and WWE, among other topics. Each has generated some dissension among the ranks of ESPN consumers. According to some readers, these new coverage areas are either not really sports (esports and drone racing), immoral (gambling) or about a fake sport (WWE).

But each is an attempt by ESPN to engage new audiences against the backdrop of an ever-fragmenting sports landscape that has created business challenges for the network. (Of the new areas, only the WWE raises red flags for me, to be addressed in a separate column).

Specific to esports, here are a few numbers to digest as you consider ESPN’s approach.

  • According to Newzoo, professional gaming is projected to generate $463 million in revenue in 2016 and will surpass a billion dollars in revenue by 2019.

  • According to SuperDataResearch, another gaming research firm, the worldwide market for esports includes 134 million participants annually.

  • The esports audience is made up primarily of young men. Nearly half are men between the ages of 21 and 35 -- a coveted marketing demographic -- according to a 2014 joint report from SuperData and Newzoo.

  • A January article in VentureBeat cites a Newzoo report that predicts esports audiences could reach NFL viewership levels by 2017.

  • That same VentureBeat article also reported that the League Championship Series had an average concurrent viewership of 4.2 million through its final event. That usage peaked at 14 million. “These are massive numbers that compare favorably to the playoffs for traditional sports like NCAA basketball, Major League Baseball, and the National Basketball Association,” the story said.

Although the demographics and business opportunities for esports are crucial, ESPN’s ability to televise esports might be the most important element, as it looks to lock up as many live events as it can to maintain its position in an ever time-shifted world.

So while ESPN’s esports investment seems to make business sense, that doesn’t mean it came easily. It was a process, one that required persistence from business executives and evolution from the newsroom. And along the way, there was no shortage of skeptics, including a very important one: the guy who runs the company.

"It’s not a sport -- it’s a competition," ESPN President John Skipper famously said of esports at a 2014 conference. “Chess is a competition. Checkers is a competition. Mostly, I’m interested in doing real sports."

But to ESPN’s credit, that statement didn’t stop some from continuing to advocate for a focus on esports. Internally, John Kosner, ESPN’s executive vice president of digital and print media, and Cliff Shoemaker, the network’s senior manager of interactive games and partnerships, were among those who kept pushing Skipper on the value of the business opportunity.

Meanwhile, momentum was starting to build within ESPN’s news operation. While the network had been dabbling in esports -- it broadcast the 2014 League of Legends World Championship and Blizzard’s collegiate Heroes of the Storm tournament, called Heroes of the Dorm -- there was little to no editorial coverage of esports on its platforms. That started to change at a brainstorming meeting held at ESPN The Magazine in June 2014. Among the ideas pitched to Chad Millman -- then editor-in-chief of the magazine and now vice president and editorial director of domestic digital content -- was a dedicated esports issue of the magazine.

After some discussion, Millman gave the idea a green light, saying later "It just seemed like esports was having its moment."

Even with that decision, the key moment for Millman came when he started reading the stories filed for the esports issue. Said Millman, "They were so good. As I was reading Mina Kimes' article [on South Korean esports prodigy Faker], I was getting butterflies. It told the story of this business through one particular person and explained the scope of the opportunity."

Before that issue even hit the stands last June, Millman had already scribbled down “esports” on his whiteboard as a subject to tackle more aggressively. Which leads us back to Kaufman.

"I was spending time with Chad looking at his whiteboard, and I saw one line: ‘Daily fantasy, Gambling and esports," Kaufman recalls. "I said, 'I have daily fantasy and gambling [as part of his editorial oversight]. Who’s doing e-sports?'"

Two weeks later, Kaufman was asked whether he wanted to do it. His reply?

"'I don’t know anything about [esports], but yes,'" he said. "I have always liked the experience of starting with a white sheet of paper."

The investment in coverage on the digital and print sides led to the event that turned an increasing editorial interest into a full-blown, networkwide push. Attending the League of Legends North American Championships at Madison Square Garden this past August, Skipper and a large group of ESPN executives were overwhelmed by the energy of the event and the response of the audience.

"It was a wow event," Skipper said. "I saw that it mattered to lots of fans. Fans drive what we do, and these events matter to them. And we like trying new things."

"They understood the relationship of the fan to what they were watching," Kaufman said. "We have come to understand the relationship of esports fans to their events. It may not be a stick-and-ball sport, but the fans root just as passionately. And the numbers are just gigantic."

And don’t overlook ESPN executives’ constant use of the word “fans” because it comes up almost any time you talk to anyone at the network. Based on six months of meetings with various ESPN employees, it is clear that the company’s focus is not on those who cover ESPN but on those who consume the network’s content across various platforms. This is why the inevitable question -- are esports really sports -- is met more with a sigh than anything else.

"I don’t think it matters," Millman said. "Esports are interesting to a huge group of people who are highly competitive. ... If we keep trying to get caught up in defining what a ‘sport’ is, we get in our own way. ... It’s our job to serve fans the best we can."

Adds Kaufman: "When you get past the idea you’re looking at a screen, it’s like sports. You are looking at a live experience."

Once ESPN made the decision to invest in esports coverage, the next question became how Millman and Kaufman -- admittedly, two esports neophytes -- would be able to build something relevant to the deeply committed. Business and demographic opportunities mean little if the eventual product doesn’t resonate. So, once the commitment was made this past fall to launch an esports vertical, they went in search of experts.

"Ten percent of the audience is incredibly knowledgeable about what you are covering, and you have to get the nuance right," Millman said of the challenge of being authentic. "If they trash what you’re doing, the next level of readers will not buy into it."

Among those who had noticed ESPN’s new esports commitment was Darin Kwilinski, then managing editor at esports site Azubu. Despite being worried he was underqualified, Kwilinski applied and soon got a call from Kaufman. He received the offer to edit the new esports vertical on his way home on the same Thanksgiving weekend in which Kaufman would be impressing his nephew with his knowledge of esports.

Skipper's earlier public dismissal of esports made no difference in Kwilinski's decision. "That specific comment never really bothered me. Brands change strategies and goals," he said.

That said, Kwilinski is glad ESPN saw the light, saying, "The industry -- with or without ESPN -- was going to move forward. The pressure finally became big enough, and they turned their head, saw how big it was and jumped in."

Kwilinski also makes a point that many have forgotten -- or maybe never knew: The "E" in "ESPN" originally stood for "entertainment," and the network has a long history of covering events that might fall closer to that category than sports. Those have included poker, strongest-man competitions, Scrabble tournaments, spelling bees, bass fishing and plenty more.

But, in fairness, only a few of those subject areas ever led to a standalone vertical within ESPN’s digital properties, which makes ESPN’s commitment to esports more significant.

Since launching that vertical on Jan. 14, ESPN has added resources, and will soon have a staff of five. Though he didn’t provide the raw numbers, Kaufman says April was the vertical’s best month ever, with a 58 percent increase in traffic over March. Nearly 70 percent of that traffic was referred via social media.

And if you’re looking for another reason ESPN had made such a commitment to esports, process this paragraph from VentureBeat's article:

Traditional sports are losing interest, and it doesn’t look like that’s going to turn around. Fewer high school-aged kids are participating in sports. Starting in 2008 and continuing through 2012, football saw a 5.4 percent drop in players from 3.26 million to 3.08 million. And they aren’t going to soccer, baseball, or basketball — those sports saw declines of 7.1 percent, 7.2 percent, and 8.3 percent, respectively. Only lacrosse is growing, but it isn’t making up the difference for what the other sports are losing.

This is why I think the esports move makes sense for ESPN. Big media companies generally have lousy track records when it comes to looking around the bend, but the network is trying to do just that by investing here. Esports is already a huge business, and it’s getting larger by the day. With the decline in participation in traditional stick-and-ball sports, ESPN needs to place some chips elsewhere.

Does that guarantee success? No. The drop in participation levels among traditional sports doesn’t necessarily mean the number of fans of those sports will decline. And yes, esports could be having, as Millman says, its moment, and it could be fleeting. That, though, seems unlikely.

Either way, it’s a smart play. In a world in which ESPN’s business model is being significantly affected by the fragmentation of media, the network isn’t wasting time trying to change consumer behavior. Instead, it’s going where a new generation of consumers awaits.