Can This Man Make His Video Gaming Team a $1 Billion Business?
(Bloomberg) -- Jack Etienne had reinvented himself. He’d gone from an eager photocopier salesman with an obsessive evening-and-weekends video game habit to the chief executive officer at a professional video-game-playing company that generates millions of dollars a year in sponsorships. In 2017, he committed more than $30 million in investment funds buying a spot in two of the world’s top esports leagues, where pro video gamers compete in front of huge audiences. Now those Silicon Valley investors expect him to turn his team, Cloud9, into a global entertainment business. So, this April, searching for clues as to how he might do that, Etienne flew to New Orleans to experience WrestleMania 34.
He watched the wrestling, but he also wanted to see how the executives guided advertisers through this strange world. One afternoon, Etienne took his seat at the WWE’s Business Partner Summit. There, a wrestler named Elias strummed a guitar and performed an ode to brands. In fewer than two minutes, Elias name-checked KFC, Snickers, YouTube, Snapchat, Mattel, Old Spice, NBC, Sony and China’s PPTV. It was a sales master class. Etienne saw that the WWE knew how to hold advertisers’ hands, inculcating them in the appeal of their crazy characters under the guise of a business update. The WWE had figured out how to turn fake wrestling into a business worth $6.1 billion.
Like the WWE did with professional wrestling decades ago, Etienne is fighting to convince major companies that his oddball fan base has just as much money to spend as other sports lovers. If the WWE could persuade rich guys that young men watching other men perform dramatized violence was a good investment, so could Etienne.
There are early signs of Cloud9’s promise. Last year, Etienne convinced the WWE, along with some of the technology world’s top investors, that video game competitions were worth their money. Peter Thiel’s venture capital firm, Founders Fund, and Craft Ventures wrote him the biggest checks, with more funds coming in from former Facebook Inc. executive Chamath Palihapitiya and Reddit Inc. co-founder Alexis Ohanian. Altogether they poured $28 million into Cloud9, the team Etienne founded in 2013 by buying a group of League of Legends players out of their contracts for less than $20,000.
Cloud9, C9 for short, is the most popular esports team in North America, according to Nielsen Esports, a market research group. The team, based in Santa Monica, California, has hundreds of wins playing more than a dozen video games. Cloud9 has a roster of more than 70 players, many of them living in team-owned dormitory-style housing, earning anywhere from a few thousand dollars a week to hundreds of thousands a year playing video games professionally.
Can Etienne be the first person to turn his team into a $1 billion business? “There is no founder like Jack in all of esports,” said Brian Singerman, who led Founders Fund’s investment in Cloud9. “He’s the type of person people like to work for and play for. And he just works like crazy and loves what he does.”
But there are many hurdles ahead for Etienne. For one, there’s the money: He spent millions to buy his way into a select group of teams that can compete in the top gaming tournaments, and there’s no guarantee it’ll recoup that cost. Cloud9 and other teams are working together with game developers to secure lucrative distribution rights for online streaming and television. Cloud9 is also working to land valuable marketing deals. There’s also the pressing challenge of making esports easier to watch so people besides hardcore gamers can understand what’s going on. In addition to all that, Etienne couldn’t stop worrying about Sneaky.
People have been playing video games competitively since the invention of the arcade in the early 1970s. In the late 1990s, the strategy game StarCraft and the shooter Counter-Strike were mainstays at neighborhood LAN (local area network) parties. Friends lugged their desktop computers over to whoever’s parents had the nicest house and battled it out in the early morning hours. As the internet sped up, video games moved online. In 2004, the science-fiction shooting game Halo 2 and the fantasy game World of Warcraft revolutionized what it looked like to play video games online with friends. In those halcyon days, people who took their games seriously trekked to small tournaments to compete for bragging rights and token prize money.
Today, the best players in the world play 14 hours a day and can make decent to spectacular money. Sneaky, a moppy-haired gamer whose real name is Zachary Scuderi, is one of them. He’s among Etienne’s star players. Cloud9 pays him well above $100,000 a year, though it won’t say exactly how much, and he makes many tens of thousands on his own from people paying to watch his stream on Twitch, Amazon.com Inc.’s video game streaming network. Sneaky has earned more than 85 million views on Twitch by making gaming look easy, but Etienne was starting to worry that his star had lost his focus.
While Sneaky coasts through life on his extraordinary ability to click quickly, earning fans with his slacker, every-man charm, Etienne buzzes with energy, having muscled his way to the top of the gaming industry with the sheer force of his personality. At Xerox Corp., Etienne, a burly, bearded, friendly-faced man, sold large printers, photocopiers and other services to law firms and insurance companies. Despite the tedium, he excelled. His experience selling that most corporate of items—a few years after the characters in Office Space took a baseball bat to the printer/copier—taught him how to pitch just about anything.
But it was the time he spent outside of work in the mid-2000s that would be the guiding force in his life. Every night, Etienne obsessed over World of Warcraft, and he eventually began recruiting players for his top-ranked guild—a group of dozens of players who worked together to slay monsters and harvest precious weapons. “I was always out there looking at current talent,” Etienne said. He signed copy machine deals during the day and secured elite dragon slayers by night. “There was no money involved. It was competitive, and it mattered a lot to me,” he said.
Growing tired of his day job, Etienne spent a lot of time on Curse, a gamer tip site. After seeing a posting for a sales position there, Etienne landed the job. A year later, he jumped ship to Crunchyroll, an anime streaming site, to build a sales team. (One of his friends on World of Warcraft introduced him to the CEO.) He generated $16 million in sales during his last year at the company, he said. A couple years into that job, one of the people who bought advertising space from Etienne told him that he should help out a then 17-year-old kid named Andy Dinh. Etienne and Dinh would go on to become powerbrokers in the esports world—and rivals. But at first, they were friends.
Dinh had created a website called SoloMid that had guides on how to play League of Legends’ dozens of different characters. The site was growing more popular than he knew what to do with. Etienne started giving him advice and then helping him sell ads on the side. SoloMid’s advertising quickly climbed from $3,000 a month to $80,000 and kept growing from there, Etienne said. "Jack helped sign some of our very first partners," Dinh said. "Jack listens, he's smart, he's emotionally intelligent and I learned a lot from him.”
Etienne signed on to manage Dinh’s team, called Team SoloMid, in 2011. Eventually, Etienne’s boss told him to quit the side gig. Etienne did but soon regretted it. Within months, he decided to quit his day job instead and form his own team.
In 2013, he spent $23,000 on a five-player team of professional League of Legends players with a small following. Soon, he had a mutiny on his hands. The players had wanted one of their friends to buy them, and so instead of fighting, Etienne arranged a sale and then bought the contracts of another group of players. The team chose a new name: Cloud9.
Sneaky was 19 years old and had just moved to Los Angeles from Boca Raton, Florida, to try making it as a professional. He shared a room with three other gamers and was making $500 a month. After buying the team, Etienne took on a parental role for some of the players, especially younger ones like Sneaky. When he moved the team to San Jose, California, Etienne picked up Sneaky from the airport. The owner rented an apartment for the team to live in and kept the fridge stocked. When the players clogged the toilet, Etienne brought them a plunger.
That summer, in 2013, Sneaky and his teammates went on a surprise run and made it to the League of Legends championships. Etienne got more than his money’s worth. A winning team made signing sponsors much easier. The culmination of the following season, in 2014, was bittersweet. Cloud9 lost 3-to-2 to Dinh’s Team SoloMid.
League of Legends is a war between two teams of five players each. The winner is decided by which team’s archer, mage, monster, warrior and healer can work together to murder their enemies and destroy their opponents’ base. To be a dominant force in League of Legends, you need to be really good at clicking and typing quickly and precisely, while predicting your opponent’s movements and coordinating with your team. It requires incessant practice.
To watch Sneaky play League of Legends is to watch someone transform the game’s most vulnerable characters into powerful opponent-destroyers. It’s satisfying to watch someone do it so effortlessly.
Millions of people watch Sneaky play for hours on Twitch while he delivers a dour running monologue. “The main reason I started streaming more was because I talked to Jack with the team, and we were actually wanting higher salaries,” Sneaky said. Etienne suggested they make extra cash on Twitch, where spectators could pay him for advice on in-game weapons and characters, Sneaky said. He’s required to plug Cloud9’s sponsors from time to time, and that’s why his legions of fans are so important to the team. When the U.S. Air Force Reserve ran ads during his Twitch stream last year, Sneaky would stand up and salute, earning many lulz from his fans.
Under Etienne, Sneaky quickly became the cornerstone of Cloud9. While Sneaky won game after game, Etienne recruited top players around him—and he secured investors to buy their way into the top League of Legend competition. Over the years, other players came and went. But Sneaky remained, and that was good for business.
For months, Etienne grew convinced that Sneaky was taking an increasingly lackadaisical approach while playing with his teammates. And in June, Etienne had had enough, announcing he was benching Sneaky along with two other top players. “We’re looking for players to always be hungry,” Etienne said.
Sneaky’s public reaction was muted. He began playing on Cloud9’s second-tier team with the promise that he could try to earn his way back onto the main team. On Twitter, the team posted this message: “No one said it was easy being a C9 fan. We appreciate everyone who sticks with us regardless of what changes are made.” The message: Cloud9 is bigger than any one player.
The same month that Etienne demoted Sneaky, he announced a major business deal with Red Bull, and soon its logo was plastered all over the team’s jerseys. A national advertiser was betting on Cloud9.
In June, Etienne held a meeting with his investors modeled after the WWE. Thirty top executives showed up to one of his team houses in Burbank, California, to get an update on the business. They eagerly boarded a bus to the Blizzard Arena nestled between Warner Bros. and Walt Disney studios to watch a Cloud9 team play Overwatch, a game where friendly-faced, gun-wielding avatars blast each other to bits over a small plot of land. Cloud9 won and a month later, won the national tournament broadcast on ESPN.
Meanwhile, with Sneaky off the premier League of Legends team, Cloud9 lost four out of five games at the start of the season. Etienne relented and put Sneaky back on the main roster.
For more on the rise of esports, check out the Decrypted podcast:
©2018 Bloomberg L.P.