Why ESL FaceIt is still bullish on esports for the long term | The DeanBeat

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A year and a half ago, Savvy Gaming Group formed and acquired esports platforms ESL and FaceIt in hopes of creating an esports powerhouse. Then Savvy, owned by Saudi Arabia’s Public Investment Fund, also picked up a part of Vindex focused esports data and production.

At Gamescom, I met with Ralf Reichert, chairman of ESL FaceIt Group (EFG), and Michele Attisani, head of business development.

They’re still bullish on esports even though it has had a hard time living up to the hype of five years ago when many assumed it would be a short time before esports surpassed traditional sports on all levels. But the economy hit the brakes and the esports industry has adjusted to a new reality, with the media rights part of esports “stuttering,” Reichert said.

Since that time, the appetite for livestreaming gaming content fallen from the peaks during the pandemic. Ad budgets were slashed during the global economic downturn. The esports organizations and creators in the space faced headwinds, as our writer Jordan Fragen pointed out. While FaZe Clan prepared to go public in October 2021, the markets for such deals fell apart and media rights deals fell by the wayside.

There are additional headwinds on the political front, as Savvy and ESL FaceIt are owned by the Saudi Arabia Public Investment Fund, headed by Saudi Crown Prince Mohammed Bin Salman, who was accused of orchestrating the murder of Washington Post writer Jamal Khashoggi in 2018. After an outcry from gamers in 2020, both Riot Games and Blast Premier pulled out of a Saudi project, as the Saudis have been accused, as they were with golf and soccer, of “sportwashing” human rights abuses.

And yet the Saudis and companies like ESL FaceIt are moving on with the vision of turning esports into the world’s largest sport. It’s all in the name of weaning the country from oil and diversifying the population into new kinds of work like entertainment, video games and esports. The crown prince, dubbed MBS, is a 37-year-old gamer and he’s driving it all forward. Earlier this year, Savvy also expanded into mobile games with the $4.9 billion acquisition of Scopely. Overall, Saudi Arabia plans to invest $37 billion into the global games industry, putting it beyond major companies like China’s Tencent or Sweden’s Embracer Group when it comes to pouring capital into games.

The Saudis are also bullish on the popularity of esports in the Middle East and the fact that 70% of the Saudi population is under 30. The country just wrapped up the Gamers8 event in Riyadh — an event at a purpose-built venue in Riyadh, accompanied by an astounding $45 million prize pool.

Here’s an edited transcript of our interview.

Michele Attisani (left) and Ralf Reichert of ESL FaceIt.
Michele Attisani (left) and Ralf Reichert of ESL FaceIt at Gamescom.

GamesBeat: How have ESL and FaceIt been doing under the new ownership? It was about a year ago.

Michele Attisani: A year, year and a half, yes. We focused on the integration process and how we could combine the assets we have in ESL and FaceIt to create a very unique proposition for players and fans, for publishers, and for other commercial partners we have. We wanted to really unlock the full potential and value of esports ecosystems and communities, and do it in a sustainable way, which is particularly relevant today in our industry. It’s obviously been a complicated process, but we feel good about it now. We’re functioning as one organization with a common mission and vision, with shared values. That gives us the opportunity to start integrating additional businesses as well, expanding in the space. Obviously, we’ve done that with the Vindex acquisition. It’s been very positive so far.

Ralf Reichert: To add, from a different perspective, I think our vision was always to make this the largest sport in the world. To do that you need the right setup on any level of the company, and the market as well, the consumer. With the ownership change that was the promise. The long-term vision is the focus. That’s what we’re evolving around. With all the investments from Saudi entities in the space, you can see it’s a serious thing. It’s enabled the team to do everything that makes sense, but not only think about the present. Integrating all the operational stuff, but continuing to work on the vision of making this the largest sport.

GamesBeat: The early enthusiasm was about the observation that this could be just like traditional sports. You replicate the models they’ve succeeded with over time. All the investors came in at that time. Now they’ve realized that it’s a longer haul to do that kind of thing. That success didn’t happen overnight for traditional sports. Where are the expectations now? Have people adjusted to reality?

Reichert: I think most people have adjusted. We’ve always been transparent around that. The funny thing is, you see an opposite trend as well. The relevance is there. This is not a relevance question. It’s super large in the young demographic. The younger you go, the more relevant it is. The future outlook is as intact as it’s ever been. But commercialization has been challenging at least.

That’s not so much in sponsorship and merchandise and all that. That’s all going well. It’s about media rights. That’s the big driver of traditional sports and how they monetize, in unprecedented ways. If we look at trends in many markets, that model is decaying as well. In a lot of sports — you can see this in European soccer — there are down cycles right in front of us. The media rights are not growing. U.S. sports are a bit more healthy, but let’s see. Everyone knows that ESPN needs to cut for the next cycle as well. The traditional model of media rights monetization is at least stuttering.

Esports has never even joined that cycle, in a way. The monetization of the content is different with internet distribution. That’s a challenge and an opportunity that esports faces. We’ve never lived in a world that’s different. The structure around it is built based on the model they serve right now. We never went in with the expectation that it would be exactly like traditional sports. To be prudent and continue to build as it is, with a little bit more scarce resources than some of the traditional sports are used to, that’s an advantage going forward.

ESL FaceIt is owned by Saudi Arabia’s Savvy Gaming Group.

GamesBeat: What else is different?

Attisani: To add on that, what happened with esports is quite similar to what happened in a lot of other industries as we went through macroeconomic cycles with zero interest rates and an excess of capital flowing into a lot of new growth areas. That obviously fueled overinvestment, some inflation, in costs and prices across the board in the industry. That’s gone away now. But as Ralf said, the fundamentals of the industry, the fans and the players, are healthy. They keep growing. The businesses today can grow in sustainable ways relying on real fan engagement and B-to-B and B-to-C revenues. Ultimately it can be very successful. An excess of investment capital led to, let’s say, some overhype and over-expectation in a lot of areas of the industry.

GamesBeat: What structures in the industry do you like? The NFL has a very different structure compared to the NBA, even if they’re both successful. You started out with a structure where game companies make games and often own their own leagues. That’s one kind of structure. Others are very different. What do you think can be more successful, and why do you like it?

Reichert: I think there are two answers to that. From an ecosystem perspective, if you look at EFG, it’s a serial entrepreneur in building sports ecosystems. That’s what we’ve done for 25 years. We made every mistake you can make. If you look at that, to some extent, we’re system-agnostic. We work in every type of ecosystem. We always look at how we can add value to that ecosystem. The publisher is obviously the ultimate decision-maker. Therefore it’s up to them a bit as far as how to decide this.

The other answer is, if you don’t come from the question of who decides, but who is your ultimate customer, that’s the players and the fans. We started this as players and fans, not as business people. Thinking about that angle, it’s very clear that we prefer open ecosystems that give the highest chance for players to get to the top. I love the story of five kids from Morocco being able to build a team and rise to the top. Or from Poland, or from Ukraine. They become the best players in the world, become stars, and make more than a living out of it. That’s why we started this. That’s what I like. An open ecosystem gives much more opportunity to players than a closed one. There are less barriers to entry for the player. That’s what I personally prefer. But from a business perspective it’s up to the partners in that game ecosystem.

Attisani: Our interests and the publishers’ and developers’ interests are aligned. We want to create experiences that the players will enjoy, that they’ll come back to, that they want to be a part of. That’s why having ecosystems that are more open and provide this ability to engage for a larger number of players — that’s usually the most successful way to build a community around games.

GamesBeat: Are there some interesting opportunities you see with particular games?

Reichert: We love them all, right? But what we’ve historically looked at is that anything that can create more than 100,000 concurrent viewers has the scale to become a sustainable sport. We’re excited about every game that hits that scale, because that’s when you can start to build a proper monetization mechanism. The fans are there to directly and indirectly monetize so the sport can be sustainable.

Counter-Strike 2 is almost the origin of everything we’re talking about. If you think back 20 years, even more than that, there were two things in the industry. Number one, PC gaming was dead. Number two, games come and go. Now, 23 years later or whatever, that’s all been proven very wrong. Counter-Strike is the heart of the industry. But as well, League of Legends five years ago seemed to be in not such great shape. It’s totally rebounded. It’s doing fantastic.

ESL FaceIt stages esports events.
ESL FaceIt stages esports events.

GamesBeat: Valorant is giving Counter-Strike a good run.

Reichert: It’s enlarged the market. A lot of people thought that Valorant would have a negative impact on the Counter-Strike ecosystem, but it’s the opposite. It’s made the pie larger. It hasn’t taken anything away. The other game that I believe we’ll see in 20 years is Rocket League. It’s still very underrated. It’s a game that both my mom and my son can watch together. There aren’t many of those.

GamesBeat: How much do you need to focus in the way of resources on the Middle East and North Africa compared to the whole world? It seems like there’s a special opportunity there.

Attisani: Yeah, we see a great opportunity. In the Middle East there’s a very young population. They’re gamers at heart. They’re very engaged with gaming. For a long time, they’ve been an underserved market, both from the game publishers and also from organizations like ourselves. These markets have been overlooked. With the Savvy Games Group acquisition, that opened the door for us to engage with that audience. So far it’s been great. It’s exceeded all our expectations in terms of the level of passion and engagement from fans in the region. That opened a lot of eyes with the publishers as well. They’re putting more and more focus on understanding how they can better serve the audience in the region.

We see it as still early days. We’re just getting started. But certainly it’s a great opportunity to expand the global community in gaming.

GamesBeat: Are the teams a weaker part of the industry right now? They don’t seem as financially healthy as they could be. FaZe went public, but they don’t have the most spectacular numbers. Individual esports participants and creators have good opportunities. Your company has good opportunities. The game makers are very successful. But what needs to happen to make the teams healthier?

Reichert: As you said, a lot of it’s about setting expectations. The team market has been hyped. It’s now underhyped. My personal opinion is that revenue follows relevance. Do the teams add value to the ecosystem? I’m a strong believer in that. I started as a team owner. I founded SK Gaming 26 years ago, before there was the word “esports.” I did it out of passion. We did a lot of new things back then. If I hadn’t started trying to build the infrastructure for the ecosystem, I’m sure I would still run a team.

I’m a strong believer that there is a right model. It’s obviously in fan monetization. Direct to consumer, microtransactions, that’s a key driver of this industry. Not so much in the traditional ones. But that needs to build. That needs an effort from the whole ecosystem, including the publishers, to build the right platforms for those teams to succeed. Until then the only thing we can tell the teams is, don’t overcommit. It’s a journey and we’re still early. We’ll laugh about this when we talk in 20 years.

GamesBeat: What about blockchain? Is that a good way to go, or a wrong turn?

Reichert: I think that’s simple. It’s a technology. Technology enables a product. The products — I’m a strong believer in digital assets and digital ownership. My nine-year-old daughter has a high interest in digital ownership of different things, like in Roblox or Star Stable. My 12-year-old son as well in Fortnite and Rocket League. The idea of persistent digital ownership — if you think about it, most of the digital ownership is only a loan right now. It’s lending. But persistent digital ownership is going to happen. It’s happening. It’s there. There just aren’t the right product offerings yet, for my kids or me, to do this. I’m a big believer that that’s a fundamental change in the industry. It’s right ahead of us.

GamesBeat: And what do you think about AI?

Attisani: AI is a super interesting tool in a lot of aspects. We’ve already started adopting it for a few years already when it comes to our digital products. We’re leveraging the power of AI and machine learning to provide a better experience to consumers, players and fans, with our products. But now we think there’s a new wave that can also democratize the creation of new experiences within gameplay as well. That’s exciting.

We all know that the most successful competitive games, a large part of that came from the community. It’s user-generated. It came from mods. Leveraging AI as a tool to put power in the hands of creators so they can experiment and make new experiences and build new worlds, we think that’s going to be a great boost for the growth of the game industry as a whole.

ESL entertains

GamesBeat: What else would you add?

Reichert: Maybe there are two things to add. Number one, it’s inevitable that AI is going to make content creation free in terms of price. The competition for content will dramatically go up. That’s how technology always works. I’m a big believer that live sports and esports have a special role in this, because they can’t be easily replicated. That’s good for us in a way.

Point number two is more of a social aspect. One of the greatest things that could ever happen to society — basically, everyone’s IQ over time with the progress of AI will go up. Problems that you couldn’t solve by yourself — before there were calculators, solving a math problem was much more complex. Now that’s at your fingertips. You can look at the skill level in chess before there was machine learning and so on. The opportunity for everyone to access things, to get good at things, and get things done is dramatically going up. That’s a good thing across the board for humanity.

GamesBeat: I do think that AI is going to eliminate the need for a lot of work. People say it might eliminate a third of all jobs. The interesting question is, why do we need to work? And if our jobs are eliminated, why work? If you don’t work, then what do you do? Why don’t you play? Why doesn’t someone pay you to play, since you’re giving them your attention? If you get paid to play games–

Reichert: Aren’t you working, right?

ESL event

GamesBeat: In esports only the tiniest top percentage has that opportunity. With creators there’s more opportunity. But I think that opportunity should exist for many more people. We should all one day get paid to play games. It might be the stupidest idea you could ever hear compared to what our society actually is right now, but what do you think? What is your vision of where this is all going to go?

Reichert: It’s multiple things. Number one, universal income is a thing — a little bit around what you said, it’s something AI will enable. The minute that most things can run on their own, people don’t have to work. Historically it was needed for survival. Then for vanity or entertainment and so forth. That’s point number one. I think you’re correct about that.

Point number two, what always happens with these types of progress, with these disruptions, is a certain amount of work goes away. People think everyone is going to lose their job and society is going to go down. What always actually happens is that the work that gets freed up now, that you had to pay for before, that money — productivity goes up through this, so there’s more money available to spend somewhere else. Go back 500 years and there was no Disneyland. That’s a version of progress. The resources that are freed up through productivity growth get allocated somewhere else and create new jobs. Every time in history it’s been a net positive.

The combination of those things might lead to your question. What do you get paid for in the future? But unfortunately, I’m no futurist. I’m just a video game enthusiast.

Attisani: If work goes away — for a lot of people work is linked to purpose, along with a lot of other things like family, friends, and so on. We see with gaming communities and esports that this is becoming, for a lot of young people, a way to express themselves and create a sense of purpose and fulfillment. As society evolves we believe that it’s going to become even more relevant for young game players.

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