By TrueBridge Capital, Contributor

Esports has been called the “wild west” of the sports industry because of its perceived lack of organization and abundance of opportunity. But as Goldman Sachs examined in a recent report, esports has come a long way since the days of basement LAN parties. Total esports monetization is expected to reach $3.0 billion by 2022, thanks to several factors that have created a more structured (and lucrative) industry. Chief among those are the players and the franchises that support those players.

TrueBridge Capital Partners

In 2017 and 2018 respectively, Riot Games (majority owned by Tencent) and Blizzard (a subsidiary of Activision) created structured leagues around their globally popular games League of Legends and Overwatch. While somewhat controversial in the esports community, the franchise system – as Goldman Sachs argues – has been critical to making esports a lasting industry, because it’s made it easily monetizable. The franchise system has enticed pro-sports owners, such as the NY Mets’ Jeff Wilpon, to transfer some of their knowledge and expertise to esports. It has guaranteed teams a regional home to generate local fan interest and local revenue streams. It’s given players stability in the form of substantial salaries and benefits, and it’s created new, global revenue streams in the form of massive media distribution deals, sponsorship deals, and in-game monetization.

Franchises have transformed the esports experience for players, fans, and everyone in between, and the best franchises have the financial results to show it. Professional esports companies like Team SoloMid (TSM), Team Liquid, and Fnatic field and sponsor teams that compete across multiple popular gaming titles. They’re worth hundreds of millions of dollars thanks to sponsorships, advertising, ticket sales, robust merchandizing, media rights fees, and tournament winnings.

Inevitably, in any discussion about the growth of esports franchises and their importance to the industry, conversation turns to Cloud9.

Cloud9, founded in 2013 by Jack and Paullie Etienne, is among the most valuable esports franchises in part because of its success across a wide variety of games. The company has an investor base that includes the highly regarded venture capital firms Craft Ventures and Founders Fund. Last fall, Cloud9 closed on a $50 million Series B round to help build a 20,000-to-30,000 square foot training facility and home base for its Los Angeles operations, and to help facilitate the launch of a youth-focused esports “Little League.”

What’s made a company like Cloud9 so successful? Among other reasons, Cloud9 is a good example of how franchises have cracked the code on marketing and monetizing an esports business:

They develop their own content and drive engagement. Unlike traditional sports, esports occurs in the same space where people consume content – online. Successful esports franchises like Cloud9 take advantage of the extra layer of engagement that this creates for its fans. For example, Cloud9 actively creates content and engages directly with fans across social platforms (Reddit, Twitch, Twitter, YouTube, etc.), through tweets/posts, live streams and chats, podcasts, photos, Q&As, and more. Cloud9’s individual players also maintain massive followings of their own. Cloud9 League of Legends player Zach “Sneaky” Scuderi has earned more than 90 million views on Twitch and reportedly makes many tens of thousands of dollars through his streams. They sell offline merchandise and create opportunities for in-game revenue. Cloud9 fans can buy a range of branded gear through the company’s online shop, including holiday sweaters, stickers, t-shirts, jerseys, and mousepads. A strong franchise brand also creates opportunities for game publishers to sell in-game merchandise, while continuing to drive fan engagement in the brand. A fan of Cloud9’s CounterStrike: Global Offensive team recently paid over $61,000 for an in-game sniper rifle decoration (“skin”) that features an autograph by Cloud9 player Tyler “Skadoodle” Latham. They bring on sponsors. Emblazoned on the shoulder of Cloud9’s blue-and-black player jerseys is the red logo of Red Bull. Other Cloud9 sponsors include AT&T, BMW, HP OMEN PCs, HyperX, Twitch, and the U.S. Air Force. PUMA recently signed a deal with Cloud9 to become its official apparel and game-day pants and shoes provider in PUMA’s largest esports deal. And, as expected, they win. Cloud9 was the first North American team to make it to the quarterfinals of the League of Legends World Championship since 2011. Its London Spitfire team became the first-ever champion of the Overwatch League, and its Counter-Strike: Global Offensive team took top honors at a major tournament, the first for a North American squad.

Even with the growth of franchise systems and the success of Cloud9 and other businesses, there is still a road ahead for the industry. At the forefront of every investor’s mind are the many more opportunities to close the monetization gap in esports and continue to professionalize a massive, global community.

But at a time when State Farm is sponsoring the captain of a Fortnite team, and esports productions are a spitting image of the smooth and polished productions of traditional sports, it’s hard not to marvel at how far esports has come.