‘All options are on the table’: Why Version1 is seeking a merger with another esports company

As esports winter sets in, another esports organization – Version1 – is beginning to explore alternative paths forward, including a merger with another company in the space. 

The mounting recession threatens many growing industries, but esports is in particular trouble due to the industry’s overreliance on brand partnership dollars to stay afloat. As brands like BMW sever their ties with esports teams in favor of a focus on more targeted partnerships with individual influencers, beleaguered esports orgs are starting to realize that the entire industry might need to be rebuilt from the ground up.

More dominoes began to fall last week, when prominent esports org CLG laid off the bulk of its staff before announcing a merger with its fellow North American esports organization NRG. (The companies declined to share specific terms about the deal, but announced that CLG owner Madison Square Garden Sports would become a “major shareholder” in NRG moving forward.)

For embattled orgs like CLG, M&A is simply a logical path forward, allowing some of the company’s most valuable assets — namely, its “League of Legends” roster and its large social following — to continue on. NRG has already absorbed (and renamed) CLG’s Twitter account, adding nearly 400,000 new followers to its own social numbers for inclusion in potential pitch decks or partner activations. Prior to the merger, NRG boasted a total follower count of about 8 million, and CLG of roughly 800,000, according to the gaming and esports data platform GEEIQ. Now, those numbers have been combined.

Recent news makes it clear that CLG will be far from the last esports organization to pursue such a merger. As of today, the esports company Version1, which operates competitive teams in titles such as “Call of Duty” and “Rocket League,” is also exploring alternative options for its future, viewing a merger with another org as its primary target.

Other large esports organizations whose potential buying power could rival NRG’s include 100 Thieves, Team Liquid and Cloud9; any organizations that look to acquire Version1 would likely be organizations that don’t already have a presence in Activision Blizzard’s “Call of Duty” League.

To learn more about the reasoning behind the company’s strategic shift, Digiday reached out to Version1 COO Brett Diamond for a Q&A. Diamond told Digiday that Version1 has already “had several productive conversations” with potential acquisition partners over the past few weeks, but declined to share specific details about the deals in the works. 

This interview has been lightly edited and condensed for clarity.

What’s happening with Version1?

We’ve started the process to explore options for the future of the organization. The focus currently is on pursuing a merger with another org that we feel aligns with our view and our ownership group’s view of the esports industry. We think that’s the appropriate step, given what’s going on in the industry as a whole. But it is important to our ownership group that they see a bright future for esports and want to be a part of that and build towards that future.

So you’re looking to pursue a merger similar to NRG’s acquisition of CLG?

Today, there are esports organizations that have the scale and audience reach of NFL teams, and those organizations are in a much different position than organizations that started in the last few years. So we’re clearly seeing consolidation across the industry; I think that’s just having a realistic view of it. This is not about 2023 or 2024. This is about what the industry looks like in 2030 and 2035 and beyond, and what that path looks like for an organization of the size and scale that we’re at currently.

What exactly is going on with the esports industry right now?

There really wasn’t any one thing. It’s all of the things that are happening in the industry, and the broader economic conditions. 

We’ve met our financial projections every year that the organization has existed, and so we’re healthy, from that standpoint. But as we project out the next 10 years, the belief is that we’re going to continue to see consolidation, and that’s not unique to esports. We’re recognizing that that’s the environment that we’re in and we felt like now was the right time to pursue this path.

What are the alternative pathways forward, if not a merger or acquisition?

I would say all options are on the table. We’re looking for anything that helps strengthen the organization for the future. Our primary focus is on the merger scenario; that’s why we’re talking more about that. But we really haven’t ruled out other things, whether it’s taking on an investment or looking at different ways to pivot the business.

What structural changes are necessary for the esports industry to become more sustainable in the long run?

Coming from traditional sports, once you have multiple bidders, more competition for media rights, that’s when you start to grow. The challenge that esports has is that you only really have two viable platforms, in Twitch and YouTube, and the viewership for live esports content on Twitch is far superior to YouTube. So the current state of play there doesn’t lend itself to competitive media rights bidding. 

It’s hard to imagine that status quo changing in the short term, but long term, it’s inevitable, right? There will be natural changes over time. Once you have multiple equal platforms with equal reach bidding on media rights, that’s when you start to see real revenue coming in.

As the industry goes through this period of consolidation, publishers that prioritize esports, and truly invest in esports and form partnerships with the orgs and the teams that are in their ecosystems, will continue to grow and have success. Because the industry is so young, it sometimes just takes time to figure out what the right business model around it is.

https://digiday.com/?p=499359

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