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Video gamers turn accidental profit into a business plan

Windsor-based eSport Gaming hosts competitive events around Ontario, but the guys running the company are not sure how to give their part-time venture a boost. From left are co-founders Shaun Byrne and Sten Dragoti, interns Trieu Lai and Chris Laliberte, and chief communications officer Shane Perron.

Galit Rodan/The Globe and Mail

Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.

Shaun Byrne is a young entrepreneur in a nascent industry – competitive video gaming, also known as e-sports. A few years ago, Mr. Byrne and some friends began hosting gaming events as a hobby. They started a small e-sports club at the University of Windsor, where he recently earned his MBA.

"We started by accident turning a profit on our events," Mr. Byrne recalls. "We realized there was potential for a business to sprout out of what we had done, and we decided to try and expand it provincewide in Ontario."

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Mr. Byrne is now co-founder and chief executive officer of Windsor-based eSport Gaming Events, which he and his partners, Sten Dragoti, William Girard and Shane Perron, run as a part-time venture. eSport Gaming has held about 30 events in Southwestern Ontario.

These gatherings fall into two categories. The first: tournaments in which PC and console gamers compete for cash and hardware prizes provided by sponsors. eSport Gaming's LAN (local area network) tourneys might attract 250 players and upward of 50 spectators onsite, plus several hundred more watching via popular online streaming platform Twitch.

The second category: satellite viewings of tournaments held elsewhere. In late July, eSport Gaming drew more than 300 spectators to a Toronto movie theatre to watch top players of the hit game Defense of the Ancients (DoTA) 2 battle it out in Seattle for a $10.5-million (U.S.) prize pool.

Those winnings signal that e-sports – which promises sponsors and advertisers access to the coveted 18- to 24-year-old male demographic – is going mainstream. To build a sustainable business, eSport Gaming wants to better monetize its offerings and create a series of events with a big game developer such as Microsoft Corp., Mr. Byrne says.

A typical 200-player LAN tournament will bring in revenue of about $5,000, whereas a 300-spectator viewing event will yield closer to $10,000, he notes. Nearly all of the money comes from ticket sales to players and audience members.

Mostly because of a lack of funding, eSport Gaming hasn't fully capitalized on merchandising, online streaming, advertising and sponsorships, Mr. Byrne says.

Another challenge in the rapidly changing world of e-sports: Players are a fickle bunch. Today's biggest title, League of Legends, has been going strong since its 2009 launch, Mr. Byrne points out. "But we'll also see games that have a very big boom for a short period of time."

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Despite their efforts, Mr. Byrne and his partners have gotten nowhere with major game developers. "We'll think we have a lead, someone to speak to," he explains. "It'll turn out to be a dead end."

Mr. Byrne doesn't see Microsoft holding e-sports tournaments in a market such as Windsor or Kitchener-Waterloo. "But they could definitely partner up with someone like us and we could go in there and do it for them," he says. "Trying to get them to realize that the potential is there will be key to growing our business."

The Challenge: How can eSport Gaming build a sustainable business in a fast-moving, fickle industry?

THE EXPERTS WEIGH IN

Warren Currell, president of the interactive-entertainment business development and consulting firm Sherpa Games Inc., Toronto

I know they want to work with Microsoft or whoever, but to do that, you have to get a lot more visibility and have a lot more impact on the marketplace. So it's a cart-before-the-horse type thing: You need to be a lot bigger to get anybody to take notice.

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Maybe they want to start putting up some big money for tournament prizes and getting a lot of people. Maybe they've got to think bigger, like doing it at a hockey rink and setting up massive amounts of tables. They could do destination events where you're staying at a hotel overnight – like it's two-day event and you get money from hotel room bookings. But again, that's got to be bigger.

The games they choose are really important, too. League of Legends and DotA 2, it seems like they're the standards these days. You've just got to stay on top of that. Maybe on the side they could have little tiny different games, and again, those could be promoted by the publishers at the events. Sometimes those companies have big marketing budgets.

There's the marketing side of Microsoft and the PR side. The PR side, they kind of throw away money, and the marketing side, they're spending money to make money. If you're trying to go after the marketing side, you've got to show that these events will drive revenue. You've got to have the empirical data.

I think it's a leap of faith. If they really believe in it, they're going to borrow money from their friends and family.

Kevin Lin, chief operating officer of the gaming video platform and community Twitch Interactive Inc., San Francisco

A developer who thinks about the e-sports ecosystem in the right way recognizes that not every title is immediately susceptible to big, splashy events. In fact, a lot of titles have built themselves on the backs of smaller events and smaller, more passionate community organizers.

Pitching developers on your growth plan from a few smaller events a year to one, two, three years from now, where you're getting thousands or tens of thousands of people – as long as you have a convincing path and a team that will help you get there – I think any smart developer will listen to that pitch. Not every developer expects you to walk in with, "Hey, I'm going to put you at Staples Center with 10,000 people."

Creating a digital content strategy around your event strategy is absolutely critical if you're trying to grow into a large organization. Streaming events is good for a couple of reasons – you can build a baseline of subscribers on Twitch, and you can earn advertising revenue.

The additional benefit of viewership is you have reach extension beyond those who can physically attend. Over time, that translates to millions of unique viewers a month. When you approach a sponsor like a Red Bull or an Intel, they want to know that you're not just reaching local people.

If you're capable of bootstrapping and can grow at the rate that you want, you should absolutely continue. If not, and it makes sense to have a larger cash injection to move faster, there are lot of great angel investors out there, especially people who are interested in digital content.

You've got to be smart about the games you pick, and sometimes games that aren't obvious work. And a lot of that is conversing with the game developers to understand whether e-sports is something they care about and will support and help promote and potentially provide monetary support for.

Trying to turn a game that's not already got a lot of audience and players into an e-sport is tough if you don't have the support of a game company.

Thierry St-Jacques-Gagnon, co-founder and president of the recreational and competitive video-game event organizer Cyber Entertainment Agency, Ottawa

The problem is that right now in Canada, gaming is mainstream, but it's seen as a casual activity more than a sport. Because of that, we can't attract a lot of players, so we have a hard time attracting visitors.

One of the biggest challenges that companies face when they organize gaming events in Canada is that they don't know what attendance will be like. Canada is a very big country, and population density is low compared to the U.S. and Asia. You have to take a big guess on the amount of space and Internet bandwidth, et cetera, that you will need.

Partnering with tournament organizers on the international level with strong branding usually helps. It attracts people from all over the country or even the United States. This is one way of getting the word out more easily in terms of reaching top players who not only are willing to compete in high-calibre events but also have a chance of going to international events in the longer run.

Having more spectators enables organizations to use those numbers to promote their events and then get some funds from companies. You're getting revenue from spectators and competitors and you're spending less in a way, because you don't need as much space, equipment and Internet for them, you don't need giveaway prizes of the same magnitude as you need to attract good players. Probably the biggest event in the world right now is at most 80 players but probably 25,000 spectators onsite.

THREE THINGS THE COMPANY COULD DO NOW

Play to your strengths

Pitch developers on smaller events. Convince them that you have a long-term plan to go big.

Approach an angel investor or venture capitalist

Cash from these sources could help you to expand faster.

Focus on spectators

Besides lowering your costs per participant, a bigger live audience will help attract partners.

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Interviews have been edited and condensed.

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