Guber and Leonsis on the risk and potential of esports investment

Team Liquid takes on Immortals at the Mandalay Bay Events Center in Las Vegas. Provided by Riot Games

On Tuesday morning, a day after the Philadelphia 76ers announced that they were buying two esports teams, Golden State Warriors co-owner Peter Guber and Washington Wizards and Capitals owner Ted Leonsis announced they were forming aXiomatic and would be the new owners of esports franchise Team Liquid, which employs more than 50 players on teams in 10 esports disciplines.

Investors in the deal include big names in sports, entertainment and business including Magic Johnson and Lon Rosen, Tony Robbins and Steve Case.

We sat down with Guber and Leonsis hours after the announcement to talk about their deal, and why they made the leap.

Darren: When did you guys start to understand that you wanted to get into the esports space?

Guber: Ted and I are in the audience business, and what we saw was a huge audience in the amount of people that were watching esports, playing esports and buying the accoutrements. It wasn't too difficult to realize that this was a real opportunity. Ted had already invested in these types of things, and so we got together at the NBA Tech Summit to aggressively pursue this.

Leonsis: AOL was actually founded as Quantum Computer Corporation, and its mission was to connect power Atari users. I'm not joking. So when I sold my company to AOL in 1992, 1993, what they had was the biggest network of power Atari users. Over the years, I starting investing in this area. I bought a company called World Play from AT&T and a company called Ubique that could put graphics and sponsorships in games. And then I'm a dad of a son who is heavy into gaming. On a recent vacation, my wife was reading magazines, I was reading a book, my son's fiancée was reading business reports and my 28-year-old son was destroying aliens.

Darren: It seems like there are people who are into esports and then there are people who don't get it and don't care to get it.

Leonsis: I've come to understand that esports can reach a large swath of people from 7 to 35 years old. But it also can be a generational thing. When I was a kid, I would go upstairs, and my parents were watching "The Lawrence Welk Show." I would watch that for two minutes and then go listen to the Beatles, and my mom would want to know who this "Mickey" Jagger I was listening to.

Darren: There seems to be a bit of a risk in investing in this space, in that it's just not well established at this point, and the rules aren't completely fleshed out. Why did you decide it was right to get in?

Guber: The biggest risk is taking no risk. The bottom line is these are not the cord cutters we are dealing with. They are the cord neverers. And the opportunity this presents for us in the enterprise business and the sports entertainment business is to use this space to interact with these people. So maybe there's some anxiety about the Wild-West nature of it, but then there's some comfort in knowing you have experience in owning venues and teams in various leagues, that we have the knowledge of best practices and that language still works in this world. It's just impossible to impossible this space.

Leonsis: There's that famous line, "No one knows nothing about everything." So the idea was to get going and get a really eclectic group of smart people together and for us to put our light touch on this with people who have a lot of influence. And hopefully with that, help to uplift the game, which then could lead to a better revenue model, which leads to players get paid more. The business is still so untapped from a merchandising and licensing standpoint, even from a training standpoint. At least with this, we get a seat at the table early on in a world where kids are getting their first iPads at three and their first iPhones at 6 and 7.

Darren: When I tweet out esports news, I get tons of responses slamming esports: how it's not real, it's a joke, it's for losers. I can go on and on. Why do you feel like those who aren't engaged in it express such negativity about it?

Guber: It's called FEAR -- False Evidence Appearing Real. They are doing it because instead of being curious, they are being critical. Why wouldn't a guy like Ted Leonsis take a shot at something like this? The truth is, it's not even that early in the life cycle. Not only is the horse out of the barn here, esports is running in the Kentucky Derby.

Darren: What does it do that all these people from mainstream sports are coming over to esports?

Leonsis: I think it gives esports more of a mainstream legitimacy. There are talented people in this industry, and we will learn from them, and they will learn from us. We understand how to negotiate a CBA and naming rights, and how to sell media content to major networks. So we all add value, but so many people in this industry built this from scratch without us.