The impact of COVID-19 on the esports organization ESL Gaming GmbH
Interview with Ralf Reichert, CEO of ESL Gaming, about the development of esports, the Louvre Agreement and effects of COVID-19.
This interview provides insights into the changes that the COVID-19 pandemic has brought to esports organisations. ESL is well positioned to shed light on this topic from the perspective of a league operator. We interviewed Ralf Reichert, CEO of the Electronic Sports League (ESL), one of the most important league and tournament organizers in esports. In the past, he also founded the world-famous clan "SK Gaming" with his brothers and friends, worked as their manager during his master studies of economics, and is founder of the Turtle Entertainment GmbH.
Mr. Reichert, how do you evaluate the overall development of esports in Europe with respect to monetisation, popularity growth and public recognition in 2019?
Last year was a worthy successor to 2018 in that many non-endemic sponsors entered the market and viewership recognition was good. In the media, we achieved our first real successes in linear television. I would particularly like to highlight Germany, where Sport 1 and ProSieben have given esports a prominent position in their programming. Altogether, we broke several viewership records.
From a political perspective, there is still a need for improvement. Unfortunately, we did not make the progress we had hoped for in 2019. Recognition from institutions is incredibly important for the development of esports. This is not about profit or non-profit, but about whether it is worthwhile for the sports club around the corner to create an exciting esports offering for members of the public interested in participating. Esports and gaming are part of the culture and, like traditional sports, depend on the existence of a suitable infrastructure to reach and involve people. Traditional sports receive institutional support in building this infrastructure, gaming and esports do not have this yet.
How do you assess the trend toward more franchise concepts in the leagues, especially since ESL itself announced a step in this direction this year with the so-called "Louvre Agreement"?
At this point it gets philosophical as this question would be answered differently from the perspective of the various stakeholders. For example, the franchise or partnership concept can certainly be an enormous advantage for participating teams as they do not have to constantly re-qualify and therefore have financial security. I would say that participation in a franchise model is the desired outcome for them. The player community is probably split. It depends on which side of the system you are on. The established players have financial security and a stage to present themselves on, while for new talents the franchise mode makes it harder to reach the top. So, for the latter group an open ecosystem would be better. Publishers have diverse views because for them it is also largely a question of attitude. Commercially they can go either way, so overall there is no clear preference.
We at ESL believe in open competition and are not fans of closed systems without relegation, which I think is the opinion of many in the esports ecosystem. But as a company, we must also pursue business objectives as we have the responsibility to provide teams and players with a platform where they can earn money. With the Louvre Agreement, we have created a structure that offers this perspective to those teams with a fixed starting right, but in which there is still a chance for any team to qualify in a meaningful way.
The teams must meet high standards. They can fall out of the system if they do not perform over a certain period and there is a great degree of peer pressure. Originally, we planned 10 permanent slots for the competition. Currently there are 13. However, this number is not fixed, teams may well enter or leave. We expect that the number of fixed teams will settle around 50% of the total available starting places in the long term.
Everything in esports is an experiment and we have decided to go down the road with a hybrid model. So far, this decision has proven to be the right one and we have had good experiences with the Louvre Agreement even in times of COVID-19.
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In your opinion, what other trends and drivers need to be addressed by an esports organization regarding sustainable competitiveness?
I think a crucial factor for esports organizations will be the extent to which they can foster fan engagement. Today we are much closer to the fans than before thanks to digital technologies. It is a lot easier to engage with them directly, which leads to a very immediate feedback culture. Therefore, you must be extremely honest and authentic in what you present and how you present it. It can be an advantage that the industry is not yet fully structured, because there are no limits to thinking. Everything is innovation driven. League structures can be changed from one year to the next one. It is not so much about building a strong brand as it is about creating real relationships with your supporters.
In the wake of the COVID-19 pandemic, people are involving themselves much more with esports. At the same time, the absence of physical events means a loss of revenue. How do you assess the development of the esports market since the outbreak?
In principle, the outbreak of the pandemic is bad for everyone. This is why I disagree with those who present esports as the winner of the crisis. The essential question in my opinion is how resilient your business model is to the effects of the virus and what you may have done better to overcome the challenges than other organizations that did worse. Of course, the decisive advantage for esports would have to be that, unlike other segments of the sports and entertainment industry, we were able to continue our operations. The show was never interrupted.
However, a few months after the outbreak of the virus you almost forget how fast the situation developed. Our priority was to ensure the safety of everyone involved. Next, it was important to us that the players still had a chance to play and the fans had something to watch. We achieved all this by shifting to online-only formats. From a purely commercial perspective, the two to three times higher digital viewership was remarkable. Also, the merchandise revenues went up between 30-100% from April on. At the same time, sponsorship and ticketing were negatively affected. We have great and loyal partners, but the lack of physical live tournaments was of course strongly felt.
No sponsors have left, and those who had already planned to enter the market before the outbreak have stayed the course. So, in relative terms, it was probably neither a win nor a loss for esports since the increase in sales in some areas probably offset the losses in other areas. In absolute terms, of course, I wish for many reasons that the virus had never broken out and that would also have been the better scenario for esports.
Which short-term measures have you taken to cope with the effects of the pandemic?
The first thing we did was to let all our employees continue their work from their homes and cancel all physical events. Since nobody knew how the situation would develop, we then came up with a few scenarios as to how things could continue. Now I would say that we are experiencing the course of a medium scenario, that is neither good nor particularly bad.
We also had to adjust our monetisation strategy. We usually have 10 or more stadium size competitions and over 1.000 smaller competitions a year, plus hours of produced material. That was basically all cancelled. We then started to have players broadcast individually from their own homes. The result is good and fan reactions are positive. Now it is up to us to keep the entertainment factor up and continue to provide the fans with the content they desire.
Do you feel that there are titles that perform better than others during the crisis?
Yes and no. Basically the titles are suited differently for cross games between different platforms, countries, etc. But as viewership interest went up across the board, I would say that the trend was quite comparable.
I think Counter-Strike is an example that, in my opinion, did very well. One reason for this could be that 30-40 year olds, the generation that grew up with the game, currently has much more time to spend on esports and gaming.
What specific opportunities and threats for esports arise from the current crisis?
If there is a good thing to be drawn from the crisis, I think it is the pressure on digitalisation that has built up as a result. We have seen how quickly people can adapt. This is a great opportunity to embrace progress instead of just seeing threats. This applies to people but also to state institutions as well as organisations in sports and in esports.
After several months, traditional sports are now slowly resuming activity. Do you expect this to result in decreasing attention for esports?
No, first I am excited to watch soccer again. Traditional sports were missed during the lockdown. Second, there can never be enough good and quality content. The question is whether you just want the biggest piece of the existing cake or if you want to make the cake bigger. ESL's job is to create content that is so high in quality that the fans are convinced to watch our shows, no matter what the alternatives are. That is the philosophy we are operating under and it is what esports should continue to strive for. Traditional sports have only limited impact in this regard.