Pro Video Gaming Is Exploding in Popularity, and Activision Created an Overwatch League to Cash In

Overwatch is part of a $1.5 billion esports industry, per research firm SuperData, and with its new Overwatch League, Activision is looking to increase its chunk of that pie in three ways, according to Laura Martin, managing director and media analyst at Needham & Co. “It’s selling team [Overwatch] franchise fees at $20 million each. Secondly, there will be a live event revenue stream, and third, it will improve engagement and enthusiasm.”

By professionalizing Overwatch, which is based on an existing game that has more than 35 million players worldwide, Activision is making it easier for traditional advertisers to spend on esports. “It’s been largely small scale [to date]. Now the shows are more spectacular. The production values are going up. The audience is increasing,” explained Joost van Dreunen, CEO of SuperData.

Brands have made use of video game opportunities in the past,“but they haven’t been able to integrate themselves really well,” van Dreunen added.

“One of the things that plagued esports in its organic development, especially from the standpoint of brands and advertisers, was that it was continually shifting. There was no long-term stability, largely because there were independent leagues and teams, and neither owned the underlying rights to the games,” said Mike Sepso,  svp at Activision Blizzard.

Sepso is a founder of Major League Gaming, which Activision purchased last year as it ratcheted up its esports ambitions. Sepso runs Activision’s network unit with Steve Bornstein.

Ads and sponsorships will be one of Overwatch’s most significant revenue streams as the league develops, Sepso expects, and it has already inked deals with its first two sponsors, Hewlett-Packard and Intel.

“We’re really going to invest a lot into organically telling the story of how the two brands are supporting the league, the players, the teams and the fan base,” Sepso explained.

“All the professional competitions will take place on HP Omen PCs. And the teams will practice on them. So it’s directly integrated into the sport itself,” Sepso said. “HP’s also able to use Overwatch League intellectual property, branding and content to help tell a story in an authentic way to gamers around the world who are fans of the Overwatch League.” HP will produce Overwatch-themed content, which it may also interweave into some of the league’s storylines as branded content.

Activision CEO Bobby Kotick has said that he intends to create the ESPN of esports. Little wonder that a former ESPN president and CEO, Bornstein, is one of the esports division’s key executives. And some owners of the Overwatch teams are key players in established sports leagues. For instance, New England Patriots owner Robert Kraft is behind the Boston Uprising, and New York Mets COO Jeff Wilpon owns the New York Excelsior.

The company apparently has no interest in going the traditional cable network route with MLG.tv. It’s sticking with an over-the-top distribution approach—involving access to the network online, via platforms like Roku and on gaming consoles. That fits the viewing habits of its young demo, which averages in the low 20s, Sepso said.

Activision plans to take a city-based approach to some of its other franchise games, like Call of Duty, in the future. It’s unclear whether its rivals will follow suit. Executives from Turner, Electronic Arts and Take-Two Interactive declined to be interviewed for this story.

Regardless, the Overwatch League is likely to be complementary, rather than eroding competitors’ audience bases, van Dreunen said. In speaking specifically of Overwatch and Turner’s ELeague, he added, “Sure, they’ll be competitive. But the level of pervasiveness and ubiquity is going to make both of them more money in the long run.”