July 29, 2019

A New Kind of Arena Is Developing: Esports

This article appeared in the Summer issue of Urban Land on page 52.

Real estate developers are constantly searching for the next trend that is just taking off or on the verge of exploding. Now some executives think they have found a good one: arena-like venues for professional video gamers.

These arenas are part of a burgeoning industry called esports—for electronic sports, a.k.a. video games—whose leagues, tournaments, and other professional-level competitions already attract hundreds of millions of online viewers across the globe. But the industry needs more places where competitors can play and watch competitions, and where companies can hold events.

Dedicated esports arenas already are sprouting up in Asia. Several Chinese cities are even planning expansive esports-related complexes that include business parks for esports vendors, training facilities, and themed apartments, among other projects. In the United States, though, facility developers are just beginning to tap into the esports phenomenon.

In March, a partnership involving the Cordish Companies and Comcast Spectacor announced plans for a 60,000-square-foot (5,600 sq m), $50 million esports-only arena next to Philadelphia’s downtown Xfinity Live entertainment district. In May, Full Sail University, a for-profit college in Winter Park, Florida, was expected to complete an 11,000-square-foot (1,000 sq m) esports arena, believed to be the largest on a U.S. college campus. And Arlington, Texas, redeveloped about half its convention center to serve as a 100,000-square-foot (9,300 sq m) esports stadium, which became the largest esports facility in North America when it opened last November.

Dedicated esports event facilities have only been around for four years in the United States, and fewer than 10 are in operation (excluding on-campus facilities), most of them in California. But a number of U.S. sports and entertainment developers are considering ways to add some space for esports, build stand-alone facilities for esports, or design future accommodations for them.

“If we look out five years from now, there will be an esports facility in every major city,” says Adam Ducker, managing director of RCLCO Real Estate Advisors in Washington, D.C., and vice chair of ULI’s Redevelopment and Reuse Council. “The real estate industry is very focused on what are the next destination anchors. It’s not a very long list, but there are some reasons to be enthusiastic about esports being one.”

Sit-Down Battles

Esports is competitive video gaming in organized leagues or tournaments, playing popular games such as Riot Games’ fantasy battle game League of Legends, Valve Corporation’s arena battle game Dota 2, and PlayerUnknown’s survival game Battlegrounds. The games involve players, usually in teams of one to six, selecting fantasy characters to battle other characters with the aim of protecting their team’s bases, destroying those of their opponents, and generally out-strategizing the other team.

An esports arena is set up like a combination movie theater and concert hall. There is a stage in front where the teams sit at desktop computer stations, an oversized screen behind them that displays the game action, and spectator seating fanning out from the stage.

However, the nature of esports games and events requires several facility design modifications and fan-friendly hospitality features that differentiate esports arenas from theaters or even traditional pro sports venues. These include the following:

The seating area is not fixed. The staging and seating sizes have built-in flexibility, such as movable bleachers and modular spaces so they can accommodate events of different sizes, ranging from a few hundred spectators to several thousand.

The screen is the “field.” In other pro sports, spectators’ eyes are glued to the field or court. In esports, the video screen is the dominant showcase of action, so it is massive and has ultra-high resolution. Because of that, esports fans tend to prefer viewing the screen from seats that are farther back in the arena rather than toward the front.

There are play areas for fans. Esports tournaments can sometimes take a whole day or a series of days, so spectators tend to roam around and socialize during or between games. To accommodate this, esports arenas typically offer different rooms and spaces for congregating, such as lounges to meet and greet players, or even include separate gaming centers available for playing. It is as if NBA arenas had miniature basketball courts available for pick-up games while the professional game was underway.

The next generation of facilities—like the one in Philadelphia—is likely to take these features in new directions. But plenty of questions remain about the viability of esports as a destination attraction.

What are the best building type and location for esports venues? And will fans, who are accustomed to watching esports online, consistently come out to physical facilities?

The Cordish Companies, for one, is a believer. “Esports really represents the fifth or sixth major professional sport,” says Blake Cordish, company principal and a member of ULI’s Entertainment Development Council. “In the coming years, it will evolve to a stature that puts it on par with the other pro sports.”

New Varsity Sport

One U.S. hotbed of esports is colleges—mostly Division I and II schools; more than 130 have varsity teams, according to the Kansas City, Missouri–based National Association of Collegiate Esports (NACE). “The whole collegiate scene is one area that’s exploding,” says Seth Jenny, an esports consultant and professor at Slippery Rock University in Slippery Rock, Pennsylvania.

One spring Saturday earlier this year, small Columbia College in Missouri hosted the Midwest Campus Clash, with four small-college League of Legends teams competing for a $25,000 prize pool.

It took place in a multiple-court basketball gym. The only overhead lights were temporary theater-like strobes with colored filters, which pivoted while shining beams of yellow and red onto the court. On one end of the gym was a raised stage, each side occupied by a team behind a row of five computer consoles. An oversized video screen was behind them.

Fanning out from the stage were rows of folding chairs and tables, then a cluster of retro arcade games ranging from Guitar Hero to Sega Daytona USA. Around the sides of the gym were sponsor banners and tables—Chick-fil-A, desktop gaming company iBuyPower, and gaming laptop manufacturer Alienware, among others.

Throughout the daylong event, several hundred spectators sat and watched the video screen or milled around the gym while thousands of other fans followed the games online. Two broadcasters, dressed in suits and sitting just off the stage, breathlessly called the action over a sound system as players tried to control the “map”—the field of play—by attacking opponents with virtual swords, fireballs, bombs, and other weapons.

At the college and pro levels, esports is taken seriously. Teams practice regularly, have coaches, and can be supported by sponsorships, prize money, even traditional team owners. The games are broadcast simultaneously over multiple channels, including game publisher websites, live video streaming platforms such as Twitch and YouTube, and occasionally even on Turner Sports and now ESPN.

According to gaming industry market research firm Newzoo, the global audience for esports, primarily online, reached nearly 400 million spectators last year and is forecast to grow another 60 percent by 2022, reaching 645 million. It primarily draws the millennial generation, with more than half the current audience between the ages of 21 and 35.

Global esports revenues, primarily through sponsorships, advertising, and broadcast media rights, have basically doubled about every two years, reaching $865 million last year. Newzoo now forecasts esports revenues to more than double to $1.8 billion by 2022; investment bank Goldman Sachs is even more bullish, foreseeing industry revenues of $2.96 billion by then. “The golden age of esports is well underway,” Newzoo declared in its 2019 Global Esports Market Report.

The dramatic rise of esports as a business is also attracting some big names as investors. Brands such as Nike, Toyota, Mastercard, Intel, and Red Bull are already involved as sponsors. Iconic sports names such as the New York Yankees, Houston Rockets, New England Patriots owner Robert Kraft, and basketball legend Magic Johnson have bought stakes in esports companies or teams. Total annual global esports prize money now exceeds $150 million.

Physical Infrastructure for Virtual Games

“We’ve reached a point in time where we need the physical infrastructure to support the growth,” says Brian Mirakian, senior principal at architecture firm Populous and lead designer of the Philadelphia arena.

The most popular U.S. esports league, the Overwatch League, has 20 teams affiliated with cities all over the world, but those teams all play their regular-season games in Los Angeles. The league has announced it will require teams to have a home base in their geographic region in the early 2020s, just as traditional pro sports do.

Philadelphia’s planned arena is for that city’s Overwatch team, the Fusion—thus the facility’s name, the Fusion Arena. But other venues will be needed in New York City, Boston, Atlanta, Houston, and Toronto, among other cities.

Currently, though, the types of facilities hosting esports events are divided between small rentals—gyms, ballrooms, internet cafés—and big pro sports palaces. The Overwatch League’s Grand Finals sold out Brooklyn’s 19,000-seat Barclays Center last summer, and the Dota 2 championship, the International, has sold out Seattle’s 17,450-seat KeyArena for several years. Dedicated esports arenas have tried to fill a middle ground.

Allied Esports, the most active developer of esports arenas in the United States, has two arenas in California and one in Las Vegas that range in size from 15,000 to 30,000 square feet (1,400 to 2,800 sq m) and seating capacities from 1,000 to 2,500. But the publicly financed Arlington Esports Stadium and Philadelphia’s arena, which is scheduled to open in 2021, are significantly larger than those.

“Everyone is sort of fascinated by esports, but no one has figured out the development model yet,” says Jack Illes, managing partner at Urban Strategies Real Estate Advisors in Los Angeles and a member of ULI’s Entertainment Development Council, who is working on an esports facility design.

One unresolved issue is optimal building type. The esports facility development market appears split between those favoring adaptive-use buildings in urban or suburban locales and those favoring urban greenfield new construction aligned with other downtown destinations.

So far, adaptive use has been the preferred form of U.S. esports facilities. Colleges have typically carved out spaces within existing buildings. For example, Akron University in Akron, Ohio, last year remodeled parts of both its football stadium and student union building for esports. Likewise, Allied Esports’ U.S. arenas are all building conversions, and Blizzard Arena, home of the Overwatch League, includes the former soundstage of The Tonight Show in Burbank, California. Framed photos of hosts Johnny Carson and Jay Leno still hang on a wall.

“Adaptive reuse is the ideal format for us,” says Jud Hannigan, chief executive officer of Allied, which is involved in esports facility development in North America, Europe, Asia, and Australia.

Some esports facility designers believe the decline of traditional retail could create the potential for esports in repurposed suburban mall space or big-box stores. However, esports requirements make such renovations difficult. Esports arenas must have an expansive open space with a high ceiling, plus multiple additional rooms for a production studio, data center for servers, control room, team practice rooms, food concessions, and other facilities.

Therefore, other real estate experts believe built-from-scratch venues will be a significant part of esports’ future. One option will be spaces created within new sports or entertainment facilities.

“Right now, there’s a flurry of activity with any new facility to make it esports-compatible,” says Craig Janssen, managing director of Dallas-based theater design consulting group Idibri and a former member of ULI’s Entertainment Development Council.

Another option will be more newly built, stand-alone esports venues like the one planned in Philadelphia. Built-from-scratch developments offer more freedom to design features tailored to the esports event experience and fan hospitality. This is important because esports arenas must create engaging environments that hold more appeal for fans than watching games at home.

Designers of the Philadelphia arena intend to bridge that gulf by incorporating features specifically aimed at esports’ youthful, digitally connected audience. Seating options will include balcony bars, club seats with USB ports, as well as opera box–like “pods” where six to eight fans can gather around a separate computer screen to watch the action from different camera shots, tweet about it, or play their own games.

The urban locale next to Xfinity Live, the entertainment district within Philadelphia’s sports complex where its major pro teams play, offers additional attractions. The esports arena’s developers hope fans will be drawn not just by the district’s restaurants and bars, but also to the district’s outdoor plaza as extra spillover space and for event watch parties. “What esports fans want is to come together,” Mirakian says.

Ducker in April 2018 published an esports market brief, “E-Sports Arenas,” with its subtitle asking, “Are video games the next great urban entertainment anchor in real estate?” His answer: yes. Cordish certainly agrees. “The highest and best location for esports will be districts like we have in Philadelphia, with the synergies already there,” he says. “It’s simply a better experience for fans, and it’s smart land use planning.”

China’s Lead

China, as the largest esports audience market, offers a glimpse of future esports development possibilities beyond an arena. Several big Chinese cities are vying to outdo each other as hubs of esports activity and business.

In Shanghai, esports-related tech companies such as Tencent, NetEase, and PandaTV have signed partnership deals with the government focused on esports tournaments, academies, and facility development, including an international industrial park for companies involved in esports.

Hangzhou, China’s 10th-largest city, opened its first facilities last November in what is being called an “esports town” concept. The “town” involves the city’s $2.2 billion investment in a series of 14 projects, including a 10,000-seat esports arena, an esports education academy, an esports-themed hotel, a business center for esports vendors, and even a health center focused on rehabilitation for esports player injuries.

Some U.S. esports facility designers and developers believe that “town” concept eventually will come to the United States, too.

“What we see in the future is these esports venues will be the center of a new style of entertainment district,” Mirakian says, citing possible tenants such as software laboratories, sports betting houses, and millennial-focused apartments or hotels. “We foresee a concentrated esports village.”

However, questions remain before esports arenas fulfill their promise:

Can esports venues draw visitors consistently? Even esports executives are not sure. “There is a consistent demand to draw people, but we don’t know how much that can scale night in and night out,” says Chris Hopper, head of esports North America for League of Legends publisher Riot Games.

Can esports venues work financially? Esports events typically have low ticket prices, and concessions are more apt to sell Red Bull than beer, a staple at most professional sports arenas. Other facility revenue streams include rental fees from events, sponsorship, and advertising. Facility managers also book non-esports events such as comedy shows and concerts. “You can’t fund a cool esports space by esports alone,” says Janssen.

The esports facility landscape is still in its infancy, and it is likely to shift and expand as new facilities adopt different sizes and amenities. “Esports is going to look entirely different than in five or six years,” Mirakian predicts.

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