At the tail-end of last year, Schalke 04 Esports became the first traditional sports club-run esports team to walk on the stage of a European League of Legends final. While the grand-prize and potential World Championship appearance eluded them, this competitive achievement played a part in the German club’s investing long-term into the League of Legends European Championship (LEC) .

Tim Reichert, Chief Gaming Officer for Schalke 04 Esports, told The Esports Observer that many in the club’s top management attended the finals in Madrid. The scale of the event, and the passion from the Spanish home crowd, helped with Schalke 04’s decision to pursue an LEC partnership. Now Schalke 04 intends to remain a part in Europe’s biggest esports league, a prospect which offers a lot of advantages and risks in the years ahead.

“The most important thing for us was building a business model that has to turn out profitable,” said Reichert. “We were quite sure what revenues we can expect, what revenues we already do, what costs we have, and what costs will also be added in the future. We are very optimistic with the business model, the franchise value in itself.”

Schalke 04 was required to pay Riot Games a league entry fee of €8M ($9M USD). As a longterm partner, the club is entitled to revenue sharing, with extra incentives based on competitive and engagement metrics. “We paid a lot of money for the franchise, but we still think the value of the slot will increase a lot in maybe the next one or two years, but for sure the next five to ten years.”

[perfectpullquote align=”left” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]“If you take a look also at our social media accounts, there is so much engagement we could achieve.”[/perfectpullquote]

Schalke 04 is predominantly an association-football club, founded in 1904, though today it competes in a variety of sports, including basketball and table tennis. The esports outfit began in 2016, and while it saw ups and downs in League’s old relegation-promotion system, it stands as the only traditional sports club in the LEC. The only comparable examples are the Miami Heat backed Misfits , and SK Gaming , which recently sold ownership stakes to F.C. Koln.

Reichert, who is actually a co-founder of SK Gaming, noted that while sports clubs can provide some additional infrastructure compared to outside investors, Schalke 04’s League of Legends team competes out of Berlin. Far from its home city of Gelsenkirchen in western Germany, this necessitated additional infrastructure anyway. Nevertheless, Reichert believes the brand’s value and growing list of partners helped retain a fanbase within the younger gaming audience.

“If you take a look also at our social media accounts, there is so much engagement we could achieve, especially in the last eight to twelve months,” said Reichert. “You can finally see how much a sports brand can have in the sector, if the community really accepts you as part of that.”

[perfectpullquote align=”right” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]“The academy team is the shining star of the German competition and German targeting.”[/perfectpullquote]

Schalke 04’s premium partners are starting to tap into the stable position of its esports teams. For example, when insurance company R+V Versicherung re-upped its deal for the next four years, it also took the front jersey position for Schalke 04 Esports players. “They are struggling with connecting to that target group a lot,” said Reichert. “We put a lot of time and brainstorming, especially with our esports department, how that company can get earlier into the mindset of those people.” Even though R+V is active only in Germany, putting the brand in front of over a million people every game day introduces it to young people who may be visiting Germany, or relocating for work.

One of the major changes that arrived with the LEC was the introduction of academy teams, scattered throughout Europe. The newly formed “Schalke 04 Evolution” competes in the national ESL Meisterschaft competition, as well as the Riot-sanctioned Premier Tour, however, competition victories are not the primary goal with these youngsters.

“The academy team is the shining star of the German competition and German targeting,” explained Reichert. “For sure, the team always has the ambition to compete at the highest level, to qualify for the EU Masters, or win the ESL Meisterschaft or Premier Tour, but for us as a club this is secondary. The most important thing is to develop players to LEC players.”

Grassroots development is an evolving process in esports. If done right, teams can avoid the heavy costs of acquiring top stars or experienced veterans. “This is the way we want to go and the way, for example, that Cloud9 went last year,” said Reichert.

Related Article: Stefan Zant and 7Sports on Building Esports ‘Edutainment’ Content for TV

Spiraling player salaries remain a problem throughout top esports, but even more so in franchised games like League of Legends or Overwatch, which have become lightning rods for investors. In the off-season, Schalke 04 ended up losing one of its star players, Eirend “Nukeduck” Våtevik Holm. As Reichert explained, it’s not as if the club couldn’t match the offers Nukeduck received, but would rather stay close to profitable.

“Honestly, I don’t expect salaries to increase in the next one to three years,” said Reichert, adding that the overspending from North American organizations in 2018 has dropped in the current season. He uses the German word “mäzen,” referring to investors who throw money in for their ego, or for the fun of it. “I don’t see any esports organizations with an investor like that. Anyone of them has to realize at some point overspending on player salaries is maybe not the smartest.”

Schalke 04 is currently in the midst of a €95M ($107.7M) expansion of its home grounds—partly debt-financed, and likely to be completed over the next three to four years. While esports has no set place in this infrastructure, for now, Reichert says the club has discussed with Riot the possibility of hosting roadshow or international events at its Ventins-Arena. “I can bet that this will happen at some point, for sure,” said Reichert, cautioning that a home game won’t be in the cards in 2019. “Everyone also needs to realize that our stadium is huge. League of Legends sold out in Europe with a 20,000 capacity. Our stadium is 63,000.”

Want to hear more about the relationship between esports and traditional sports? Tim Reichert will be a speaker at the HIVE esports business conference in Berlin on April 11, 2019. The first international esports business conference in Europe’s capital of esports. An unprecedented conference format featuring thought leaders of industries adjacent to esports sharing their insights. Click here to reserve your seat!