Overwatch League expansion will face serious stumbling blocks overseas

League of Legends vs. Overwatch League (5:15)

Clutch Gaming's Sebastian Park, the director of esports development for the Houston Rockets, and Tyler Erzberger compare and contrast Overwatch League and the North American League Championship Series. (5:15)

In March, Overwatch League executives will return to the road.

A year after they began their initial roadshow that convinced 12 teams across the U.S., Europe and Asia to pay $20 million each to join the league for its inaugural season, the league now will search for expansion teams. The biggest difference this time: The execs have a proven product to sell, and that means more interested buyers.

Throughout 2017, the Overwatch League had more naysayers than those interested, with many of the former citing its lack of proof of concept and a game without a rich esports history. The steep price, the chance of low viewership and, as a result, the potential for little to no revenue drove some of the most wealthy and famous buyers in the esports industry away. It was impressive that the league recruited 12 in the first place.

In the past three months, though, the Overwatch League has exceeded its revenue expectations, and several league sources said that the league is at almost four times its original projection. The league got a reported $90 million, two-year Twitch deal, and its two-year deals with HP Omen and Intel are worth $17 million and $10 million, respectively, sources said. That doesn't even include its sponsors since its launch, which include the likes of T-Mobile, Toyota and Sour Patch Kids, and those its teams have sold for jersey patches and placements.

The teams that put a collective $240 million on the table in franchise fees to become Overwatch League owners might have their faith rewarded ahead of schedule. The Overwatch League is en route to making big returns, too.

Its next challenge lies in incentivizing international buyers. Of its 12 teams, only one, the Shanghai Dragons, is owned by a foreign corporation. Its other two teams abroad, the Seoul Dynasty and the London Spitfire, are both owned by American-based organizations. While the league has said that it hopes to target expansion in the European and Asian markets, recruiting buyers there is much more difficult than domestically.

The Overwatch League will get more buyers in North America. It had a 13th team right before the Season 1 deadline that it did not close in on Wesley Edens, the co-owner of the Milwaukee Bucks and esports team FlyQuest, league sources said. Edens is expected to be back at the negotiating table for 2019, sources said. But if it can get another in mainland Europe -- whether that be in Germany, France or Denmark -- and two more in Asia, that would be sufficient. Finding those buyers, however, will be difficult.

The franchise fee for Season 2 expansion is not set yet, but Activision Blizzard confirmed in an earnings call on Thursday that it will be higher than Season 1; league sources expressed that they expect it will be in the $35 million to $60 million range, at least $15 million more than for the inaugural season. The league had trouble convincing European and Asian entrepreneurs and corporations to bite at $20 million; $35 million to $60 million will be even harder.

The core of that issue lies in how international investors look at these opportunities. American capitalists, in particular, are very venture-heavy; they are willing to spend and commit a significant amount of dollars in many fields and see how it goes. If they lose, that's OK -- on to the next one. But abroad, that is not the case, and it's been reflected that way in other esports, such as the European League of Legends Championship Series. European buyers want more security, assurance and history -- in other words, they want traits that the Overwatch League does not have, even after Year 1.

The Overwatch League's most interested buyers in Europe could be American investors who own international soccer teams. Those with previous interest in esports include Fulham's Shad Khan, Crystal Palace's Harris Blitzer & Entertainment and Liverpool's Fenway Sports Group. Although all of those have soccer holdings in the U.K., there's doubt that the Overwatch player base is dense enough to meet the market requirements for more than a single team in that country. That presents yet another challenge as the league enters expansion.

The Overwatch League is a big ask, something non-American-owned soccer teams in Europe and big-business investors stuck their nose up at ahead of Season 1, sources said. Has the reported revenue and the above-average viewership and engagement changed that? Or will the European backers still be a struggle for Activision Blizzard as it tries to spread its product across the world? There's no firm answer, even as the buy-in at the Overwatch League table rises.

The traditional esports investors in Asia are not incentivized to participate, either.

In South Korea, many are product and service companies -- such as SK Telecom, CJ Entus and KT Rolster -- that do not sell their byproducts outside of their home region. A global league does not help business for those companies, particularly given that they would need to create a completely separate brand for the team unrelated to their brands, like OpTic Gaming needed to for the Houston Outlaws per Blizzard's rules for the league.

Even though those companies have spent big in League of Legends, it's not close to comparable to the operating cost per year that a geolocated Overwatch League would require. And several have a sour taste in their mouths after Activision Blizzard put an end to APEX, the premier Overwatch tournament in South Korea, sources said.

China, where Overwatch has a massive player and fan base, poses a different problem. Many of the likely buyers there present potential conflicts of interest or do not have above-board histories in operations in other esports. The Spitfire's parent, Cloud9, has an investment from FunPlus Ventures, one of the new owners in the League of Legends Pro League. Others, like LGD Gaming and Royal Never Give Up, have had scandal after scandal that stem from their ownership groups.

All that is to say that each of the regions that Overwatch League hopes to expand to and needs in order to make itself a true worldwide commodity has a different set of hurdles that are only exacerbated by a rising cost to ownership. No matter where executives go for a sales pitch, they will have to account for those difficulties and sell not just Year 1 success but solutions to those problems that will assuage doubt from potential buyers.

The Overwatch League, successful in Stage 1 or not, will need to find a new model to sell itself if it wants to build international franchises. The pitch that got its American buyers in the door, with or without proof of concept, is not enough.