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Category: wealth

Notes – Complete Family Wealth

“Our family has always been rich, and we’ve sometimes had money.”

Introduction

It’s easy for people to focus on money as the most important or most obvious sign of wealth for an individual or family. But because families are multi-generational enterprises, they require several other forms of wealth to be developed and grown over time to sustain or enhance financial wealth; more importantly, even without significant financial wealth, a family that builds the other four forms of capital will feel quite “rich” regardless, as the quote at the top of these notes suggest.

Therefore, to consider complete family wealth, there are really five forms of capital, four qualitative and one quantitative:

  1. Qualitative capital
    1. Human
      1. Genetics
      2. Physical well-being
      3. Emotional well-being
      4. Individuality
    2. Intellectual
      1. Knowledge
      2. Wisdom
      3. Education
      4. Experience
    3. Social
      1. Reputation
      2. Relationships
      3. Network
      4. Community
    4. Spiritual
      1. Purpose
      2. Meaning
      3. Legacy
  2. Quantitative capital
    1. Financial
      1. Property
      2. Resources
      3. Cash flow
      4. Equity

Exploring family wealth

Wealth preservation is a dynamic process. Each generation of the family must adopt a wealth-creating mindset. Any family whose complete wealth is simply maintaining value rather than growing is either in or in danger of entering into a state of decay or entropy. (The biological truism of “You’re either growing, or dying” applied to the family wealth.)

An important principle of human capital is the connection between meaningful work and an individual’s sense of self-worth, a concept explored deeply in the child development theories of Maria Montessori. There is a difference between well-paid, highly-compensated or financially remunerative work and MEANINGFUL work. The former may or may not build human capital while supplying financial resources to the individual or family, but the latter most definitely is necessary for an individual to fully exercise and express their self through a positive impact on the world around them. Healthy families are characterized by all able-bodied, adult members having some kind of meaningful work that they apply themselves to, whether it is in the family business enterprise or outside of it. And one thing a wealthy family can do for its members is to support each person finding and achieving meaningful work.

Thinking of intellectual capital, families are able to leverage the experience and know-how of other members when they provide a means for the collection and dissemination of the accumulated knowledge of family members. Much of this happens over time in an informal sense via family story-telling, a series of parables and life lessons the family has gained through trial and experience. But it can also happen formally through mentoring, tutoring or developing a “Wisdom Book” within the family, where the most important proprietary knowledge and know-how is gathered and documented in one place.

Becoming myopically focused on financial capital is risky for families because it’s unlikely that most family members can make equal financial contributions, particularly with regard to a founding, risk-taking/entrepreneur generation that created the family’s financial capital initially. Defining success in financial terms can create a sense of not being good enough. This leads to a lack of motivation and ultimately becomes a problem for the family’s long-term financial stability. Long-term success depends upon helping family members talk productively about money with each other.

Many families develop budgets for administering the preservation and growth of their financial capital. But if complete wealth is about four other forms of capital that are not financial in nature, wouldn’t it be an interesting exercise to develop a budget for the preservation and growth of non-financial family capital? If you had a budget and could compare spending across capital categories, what would that comparison say about the relative importance of the five forms of capital in your family’s life?

The family enterprise

Families who flourish over time understand themselves as families of affinity. A family of affinity does not limit its sense of identity to blood or genetic lineage. It sees itself as linked by a common mission and sense of “differentness” from other people who don’t share affinities for the family values.

Based upon extensive research and experience, there appear to be seven key aspects to long-term flourishing for family enterprises (ie, the business and the family as an enterprise):

  1. Early on the fundamental intention is set to build a great family, not just a great business
  2. These families articulate and share their core values amongst themselves and with others, through example, education and discussion
  3. These families respect and encourage individual differences and encourage and support each member in achieving their unique dreams
  4. They keep their collective focus on their strengths, even when facing challenges
  5. They share history with story-telling that is told and re-told through the generations, creating a reputation and tradition for each person to live up to and contribute to
  6. Parents see themselves as teachers AND learners
  7. These families understand the importance of individual stages of development and integrate that into their understanding of parenting

The Three Circle Model

The three main parts of any family enterprise are family, owners and management. Family is the family of affinity. Owners include all those who own title to family capital. Management can include the managers of family-controlled businesses but also advisors and administrators of the larger family enterprise.

Each circle has its own priority. For family, the priority is inclusion. For owners, it is preservation. For managers it is performance. Trouble arises when when circle dominates the others in terms of priority. That being said, for long-term success, the family circle should be larger than the other two, not smaller, in terms of importance and priority of resources and effort.

The ownership circle is about taking ownership in the sense of taking responsibility. Passive ownership leads to paternalism. Managing risk is a complex discipline that all owners must undertake.  It’s important that all family owners, whether they’re actively involved in a family business or not, learn how to manage risk to avoid becoming paralyzed by overestimating risk to avoid making mistakes.

Family owners must possess a basic understanding of systems theory, leadership science, the process of leadership transitions and methods for assessing the health of the enterprise and the performance of management. Family owners must communicate with each other and truly listen to each other, to develop their dreams for the enterprise as it evolves beyond the dream of the founder or creator generation.

A family enterprise faces just a few, critical transitions to manage in each generation, and no short-term transactions are likely to make a comparable difference in the enterprises’s success or failure. Thus, it is key to develop an understanding of what is truly critical as far as the strategy of the enterprise and what is merely ancillary or operational in nature. Family owners’ prime responsibility is to keep their focus, with a beginner’s mind, on the strategic level and not succumb to tactical thinking appropriate to short-term problems. The strategic question is not just how to preserve the family’s complete wealth but how to grow it.

Time should be measured by the generation. Short-term for a family is 20 years, intermediate-term is 50 years and long-term is 100 years or more. Abandoning a process too soon, because it seems too hard, is the most common reason that endeavors fail. Successful families over the long-term must decide to continue the process of strategically developing the family’s complete wealth literally for all generations to come.

It takes courage to plant a tree that takes 150 years to mature, like the Copper Beech Tree. No one who does so will ever see it full grown. Does that mean they’re not worth planting?

A Summary of Principles

Summarizing some of the information above, here are 6 key principles of growing complete family wealth:

  1. Preservation of complete family wealth is a question of human behavior– what does each family member choose to do, in relation to the family, and why?
  2. The most fundamental assets of a family are not its financial resources but its individual members and their health and capabilities.
  3. The complete wealth of a family includes the human, intellectual, social and spiritual capitals of its members. The family’s financial capital is a tool to support the growth of its human, intellectual, social and spiritual capitals.
  4. To preserve its complete wealth successfully, a family must form a social compact amongst its members that reflects its shared values, and each generation must reaffirm and readopt that social compact.
  5. To preserve its complete wealth successfully, a family must agree to create a system of representative governance through which it actively practices its values. Each generation must reaffirm its participation in that system of governance.
  6. The mission of family governance must be the enhancement of the pursuit of happiness of each individual family member. This pursuit will enhance the whole family and further the long-term preservation of the family’s complete wealth.

The Rising Generation

If you are a member of the rising generation in a family, you hold the keys to the family’s true wealth.

Individuation occurs over time through a multi-stage life development process:

  • Infant, trust vs. mistrust
  • Toddler, autonomy vs. shame and doubt
  • Preschooler, initiative vs. guilty
  • School-Age Child, industry vs. inferiority
  • Adolescent, identity vs. role confusion
  • Young Adult, intimacy vs. isolation
  • Middle-Age Adult, generativity vs. stagnation
  • Older Adult, integrity vs. despair

The real cause of entitlement is failure of the rising generation to individuate. The core of entitlement is failing to see yourself as a capable, independent person.

Rising is a life’s work.

The Four Cs:

  • Control, vs. powerlessness
  • Commitment, vs. alienation
  • Challenge, vs. threat
  • Community, vs. isolation

Parents

Every true gift carries spirit. True gifts promote the growth and freedom of both giver and recipient. Transfers lack spirit and tend to breed resentment in both parties. That spirit of the gift requires communication to give it voice.

Trustees and Beneficiaries

The combination of the trust wave (generation skipping) and this feeling of burdensomeness accelerates families’ entropy, dissolving their human and financial capital with great speed. The factors behind this decline are emotional and relational, not legal or financial. The response must be similar.

Trust creators find ways to make sure that the trust documents reflect the spirit of their gifts. These may include writing a letter of wishes to the trustee, including a preface to the trust, composing an “ethical will” to accompany the trust, or writing a personal summary or other precatory language. It may mean something as simple as thinking seriously about the name of the trust, rather than simply affixing a family name along with some legalese.

The ultimate purpose of a trust is to make distributions to the beneficiary. If there is any way by which trusts are going to become blessings rather than burdens, it is going to be through a thoughtful and proactive distribution function. It must be the primary intention from the beginning of the trust.

The human trustscape achieves “control without ownership.”

Friends

There are three types of friends:

  1. Friends of utility
  2. Friends of pleasure
  3. Friends of virtue

Character

What law and custom truly shape is character, the character of individuals and family.

Work

Meaningful work involves serving something larger than yourself through the application of your signature strengths and virtues. Doing meaningful work requires identifying your signature strengths and virtues.

Play might just be the most serious thing in human life.

The Family Executive Summary

The most important activity to begin with is reflection: intentions, culture and the development of your family enterprise. Reflection requires some sort of translation to result in action.

Family Meetings
Every family that succeeds over multiple generations makes some use of family meetings.

Family Stories and Rituals

A family that hopes to preserve its complete family wealth over time must learn to keep its stories alive. That is the only way the family itself will continue.

Some prompts for thinking about family stories:

  • Who is someone that played a significant role in your life? How did this person shape your life, perspectives and values?
  • What are some of the important lessons you have learned in your life?
  • Reflecting on your past, which of your accomplishments do you find the most gratifying and are you most proud of?
  • What has been your greatest challenge thus far? What did you learn from this experience?
  • Which of your stories, values and beliefs would you most like to maintain and pass on to future generations?

Many families preserve stories of failures, crises or disasters. These stories teach themes of resilience and perseverance.

Quotes – It’s Lonely At The Top

Most captains have trouble with their ship’s people from time to time – on occasion it is a continual sullen covert war – and unless they make cronies of their first lieutenants, as some do, they have to chew it over alone. I do not wonder that so many of them grow strange or bloody-minded; or run melancholy mad, for that matter.

~Capt. Jack Aubrey, Patrick O’Brian

An Annotated Reading of Good Strategy/Bad Strategy

Strategy: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.

Role of leadership: identifying the biggest challenges to forward progress; devising a coherent approach to overcoming them.

A good strategy honestly acknowledges the challenges being faced and provides and approach to overcoming them.

A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.

Guiding policy is a signpost in reference to the diagnosis, shows the directional way forward.

Coherent actions are feasible coordinated policies, resource commitments and actions designed to carry out the guiding policy.

Can you identify what your competition is doing strategically that is valuable? From there can you devise a counter-strategic move that would increase your competitive position?

Most complex organizations spread rather than concentrate resources.

Good strategy itself is unexpected.

Having conflicting goals, dedicating resources to unconnected targets, and accommodating incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy.

Good strategy requires leaders who are wiling and able to say no to a wide variety of actions and interests.

Consider the competition even when no one tells you to do it in advance.

Whenever an organization succeeds greatly, there is also, at the same time, either blocked or failed competition.

Integrated design: each part of the design is shaped and specialized to the others. The pieces are not interchangeable parts.

When analyzing and developing strategy, consider what is the “basic unit of management”, such as the Wal-Mart example where the network is the basic unit of management.

The oft-forgotten cost of decentralization is lost coordination across units.

Where are you strong? How do you apply this to your competitors’ weakness?

Strategy: what stands in the way of your goals?

Strategic objectives should address a specific process or accomplishment, such as halving the time it takes to respond to a customer, or getting work from several Fortune 500 corporations.

Motivation in context: The job of the leader is also to create the conditions that will make that [one last] push effective.

Discover the most promising opportunities for the business: internal, fixing bottlenecks or constraints in the way people work; external, look very closely at what is changing in your business.

Business competition is not just a battle of strength and wills; it is also a competition over insights and competencies.

To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them.

The cutting edge of any strategy is the set of strategic objectives (subgoals) it lays out.

Use the word “goal” to express overall values and desires and use the word “objective” to denote specific operational targets.

Strategize in steps: pick a “way forward” and then, as you make progress, new opportunities and challenges will present themselves.

If the leader’s strategic objectives are just as difficult to accomplish as the original challenge, there has been little value added by the strategy.

1.) Define the challenge; 2.) Explain why it exists.

Bad strategy is the active avoidance of the hard work of crafting a good strategy.

The value of debating a strategic thesis: disciplined conflict calls forth stronger evidence and reasoning.

Group irrationality is a central property of democratic voting; do not make decisions by democratic consensus.

The essential difficulty in creating strategy is not logical; it is choice itself. Strategy does not eliminate scarcity.

Universal buy-in usually signals the absence of choice.

Leadership inspires and motives self-sacrifice.

Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.

Ascribing the success of Ford and Apple to a vision, shared at all levels, rather than pockets of outstanding competence mixed with luck, is a radical distortion of history.

All strategic analysis starts with the consideration of what may happen, including unwelcome events.

A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.

A guiding policy is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

Coherent actions are steps that are coordinated with one another to work together in accomplishing the guiding policy.

In business, the challenge is usually dealing with change and competition. Before naming performance goals, diagnose the specific structure of the challenge. Then select a guiding policy that builds on or creates some type of leverage or advantage. Finally, design a configuration of actions and resource allocations that implement the guiding policy.

A strategic question of first importance: “What’s going on here?”

Defining the problem restricts the domain of the potential solution sets.

Diagnosis is a judgment about the meaning of facts.

Good guiding polices define a method of grappling with the situation and ruling out a vast array of possible actions.

A good guiding policy tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage.

A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and by creating policies and actions that are coherent, each building on the other rather than cancelling one another out.

Seek simplicity for a strategic breakthrough.

Absent a good guiding policy, there is no principle of action to follow.

It is the hard craft of strategy to decide which priority shall take precedence; it requires letting go of optionality, perceived or otherwise.

Sometimes strategic solutions arrive in the form of shifting incentives to achieve cooperative goals.

A strategy coordinates action to address a specific challenge; unrelated operational actions may be good ideas but they’re not, therefore, “strategic”.

Strategic coordination is coherence imposed on a system by policy and design.

A powerful way to coordinate actions is by the specification of a proximate objective.

Decentralized decision-making cannot do everything. In particular, it may fail when either the costs or benefits of actions are not borne by the decentralized actors. The split may occur across organizational units or between the present and the future.

Coordinate in a few select, high leverage areas, otherwise decentralize.

Most strategic anticipation draws on the predictable “downstream” results of events that have already happened, from trends already at work, from predictable economic or social dynamics, or from the routines other agents follow that make aspects of their behavior predictable.

When there are threshold effects, it is prudent to limit objectives to those that can be affected by the resources at the strategist’s disposal.

The more dynamic the situation, the poorer your foresight will be. The more uncertain and dynamic the situation, the more proximate a strategic objective must be.

To concentrate on an objective — to make it a priority — necessarily assumes that many other important things will be taken care of.

When there is a weak link, a chain is not made stronger by strengthening other links.

Resources and tight coordination are partial substitutes for each other.

Unless you can buy companies for less than they are worth, or unless you are specially positioned to add more value to the target than anyone else can, no value is created by acquisition.

Corporate leaders seek growth for many reasons. They may (erroneously) believe that administrative costs will fall with size. Also, leaders of larger firms tend to be paid more.

Healthy growth is not engineered. It normally shows up as a gain in market share that is simultaneous with a superior rate of profit.

Advantage is rooted in differences. No one has advantage in everything.

Think about where you don’t have an advantage; and where you are actively disadvantaged.

Most advantages will only extend so far.

An investment or a strategic position is “interesting” when there is a way to deepen the advantages it possesses.

Standardization and efficiency are not the same as innovativeness. One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone knows what they are doing.

You can often benefit from putting corporate resources to use in other products or markets, but beware vaporous generalities such as believing that competitive strength lies in “transportation”, “branded consumer products” or “management.”

A brand’s value comes from guaranteeing certain characteristics of the product.

One way to grab the high ground is to exploit a wave of change.

You exploit a wave of change by understanding the likely evolution of the landscape and then channeling resources and innovation toward positions that will become high ground — become valuable and defensible — as the dynamics play out.

Most industries, most of the time, are fairly stable.

Historical perspective helps you make judgments about importance and significance.

The challenge is not forecasting but understanding the past and present.

When change occurs, most people focus on the main effects; you must dig beneath this surface reality to understand the forces underlying the main effect and develop a point of view about the second-order and derivative changes that have been set into motion.

To make good bets on how a wave of change will play out you must acquire enough expertise to question the experts.

To glimpse the future, consider what “area of excitement” currently exist in research-oriented institutions.

Sometimes restating a general question in specific terms can help clarify confusion and drive insight.

Increases in fixed costs often force industries to consolidate.

Regulated prices are almost always arranged to subsidize some buyers at the expense of sellers. Highly regulated companies do not know their own costs. When deregulation arrives, such companies can be expected to wind down some product lines that are actually profitable and continue to invest in some products and activities that offer no real returns.

Predictable biases in forecasting often exist. In durable products, there is an initial rapid expansion of sales when the product is first offered, but after a period of time everyone who is interested has acquired one, and sales can suffer a sharp drop. After that, sales track population growth and replacement demand.

Faced with a wave of change, the standard forecast will be for a “battle of the titans” however often it is a disruptive or new entrant who ends up taking the field.

In a time of transition, the standard advice offered by consultants and other analysts will be to adopt the strategies of those competitors that are currently the largest, the most profitable, or showing the largest rates of stock price appreciation. They predict that the future winners will be, or will look like, the current apparent winners. This is naive extrapolation of trend.

We expect incumbent firms to resist a transition that threatens to undermine the complex skills and valuable positions they have accumulated over time.

Attractor state: how the industry “should” work in the light of technological forces and the structure of demand; an evolution in the direction of efficiency.

The critical distinction between an attractor state and many corporate “visions” is that the attractor state is based on overall efficiency rather than a single company’s desire to capture most of the pie. In effect, ask yourself, “What will eliminate cost and margin?”

An accelerant toward this state is the demonstration effect, the impact of in-your-face evidence on buyer perceptions and behavior.

Ways to overcome organizational inertia: hiring managers from firms using better methods, acquiring a firm with superior methods, using consultants, or simply redesigning the firm’s routines; it will probably be necessary to replace people and reorganize business units around new patterns of information flow.

Inertia by proxy: when streams of profit exist because of their customers’ inertia. Many “disruptive” businesses grow rapidly until their example excites the incumbent’s customers enough that the incumbent is forced to change their behavior to retain them, at which point the disruptor’s growth stops or reverses and the incumbent arises from its slumber.

Use a hump chart to figure out at what point your cumulative gain to operating begins to trail off.

Entropy: Each quarter, each year, each decade, corporate leadership must work to maintain the coherence of the design. Without constant attention, the design decays.

If the design becomes obsolete, management’s job is to create a new way of coordinating efforts so that the competitive energy is directed outward instead of inward.

Growth is the outcome of a successful strategy.

Make a list of “things to do, now” rather than “things to worry about” forces us to resolve concerns into actions.

Being strategic is being less myopic.

In estimating the likelihood of an event, even experienced professionals exhibit predictable biases.

What the kernel does is remind us that a strategy is more than a localized insight; it leads from the facts on the ground to diagnosis, thence to an overall directive, thence to action.

Shift your attention from what is being done to why it is being done.

Don’t just go with your first strategic idea. Create a number of alternatives. A new alternative should flow from a reconsideration of the facts of the situation, and it should also address the weaknesses of any already developed alternatives. Try hard to “destroy” any existing alternatives, exposing their fault lines and internal contradictions.

Invoke a virtual panel of experts to judge and criticize your strategic ideas.

Good strategies are usually “corner solutions”, they emphasize focus over compromise, focusing on just one aspect of the situation that’s really critical.

Commit your judgments in writing to keep yourself honest and to have a record of your thought process and assumptions for later adjustment.

Choices, not products, have costs.

Notes on the Emergent eSports Industry

The eSports industry has been around for decades. Once thought of derisively as a feel-good appellation for fat nerds with repetitive-use wrist injuries hanging around in their parents’ basements, the competitive aspect of video gaming is developing clout as a wildly popular, professionally organized and truly skilled arena for yet another form of human excellence. And it’s beginning to attract serious athletes and serious money: Michael Jordan and the family office of David Rubenstein announced a $26M investment in aXiomatic in late 2018, and Mike Tyson announced an investment partnership with eSports organization Fade2Karma in May 2019.

With this as background, I recently attended the InvenGlobal eSports Conference 2019 at the University of California, Irvine, hoping to better understand the history, structure, trends and business and investment opportunities of this emergent and rapidly growing industry.

Keynote, Chris Hopper, RIOT Games, Head of ESports North America

The conference kicked off with an informative keynote address by Chris Hopper. Hopper is an integral part of Riot Games’s League of Legends (LoL) tournament organization. LoL is the largest competitive eSports game, going from a rather modest world championship event in 2011 to last year’s championship event which filled a World Cup-sized soccer stadium in South Korea with cheering spectators. The finals competition overall received over 100 million unique global viewers. Based near Los Angeles, Riot Games operates 20 global offices with over 3,000 people supporting regional LoL leagues and the global championship tournament.

One of the critical challenges for the industry according to Hopper is designing a “multi-decade game” ecosystem. The video game industry is notoriously faddish and driven by constant change in underlying computer hardware technology– each year brings upgraded computer capability which drives new design and graphical capabilities which in turn means that even a game with a solid core gameplay mechanic can be superseded by new releases that better utilize emergent technology. In Hopper’s mind, creating a multi-decade franchise means that industry participants can build eSports, media, community and merchandising infrastructure around a single IP, justifying long-term investment commitment.

Another significant challenge is how to harness traditional professional sports dynamics and fandom phenomena with eSports. In this regard, LoL and other popular eSports games have borrowed a lot from the “ESPN playbook”, adapting broadcast production strategies and even professional broadcasting talent from the physical sports world into the eSports broadcasting universe. This developing broadcast strategy unlocks the potential for advertising sponsorships and marketing partnerships with global corporate consumer product brands. For example, LoL partnered with Mastercard to allow fans to receive special game benefits by using a Mastercard to purchase tickets and other broadcast access to LoL events.

ESports organizers are also studying how to create a sustainable team and talent ecosystem. The institution of minimum salaries for LoL players allowed eSports athletes interested in participating as a full-time career to achieve economic security while committing to playing their favorite games for a living. As more players “go pro” and spend more hours playing games, there is also a need for applying sports medicine principles in the areas of sleep, psychology, nutrition and exercise to ensure that athletes do not suffer from burnout.

How to Embrace the Next Gen of eSports Pros

After the keynote I attended a panel about different parts of the player development infrastructure in eSports. One piece of player development revolves around creating an amateur, minor and collegiate league systems to better organize non-professional eSports. The impetus behind league development is not only to create a farm system that can train, identify and procure future professional athletes, but also to create more fans familiar with the competitive nature of eSports. Just like a person who played basketball in high school might become a fan of the NBA even if they don’t play in the NBA, the belief is that creating organized systems for competing at various skill or other demographic levels with video games will lead to more people interested in spectating and following eSports competitions.

Another area getting a lot of attention in player management is professional discipline and sports medicine. Many current eSports pros are young (high school and college age) and have not held professional 9-5 careers prior to their sudden emergence into professional eSports. The novelty of this responsibility combined with the unique physical demands of eSports which lack normal sports body feedback (ie, unsustainable heart rate) but still involve fatigue and overuse can result in the phenomenon known as “burnout”. Many eSports pros emerge onto the scene in a flash of blinding light and just as quickly disappear after a season or two finding the routine too hard to keep up with while living an imbalanced lifestyle.

To address this, sports medicine consultants in cooperation with eSports coaches and team managers have begun recommending specific guidelines for sustainable player development. These include things like daily playtime caps, weight training and other vigorous physical exercises outside or in purpose-built gyms, diet and nutritional standards and even mental health counseling and mindset training. As many eSports athletes are also students, some teams and organizations have taken to providing daily scholastic tutoring to support the players’ intellectual development and to ensure they have a safety net should their eSports ambitions fail to develop successfully.

Interestingly, while most major competitive sports have a farm system in place that necessarily passes through a collegiate competition phase with recognized school teams and pro drafting after school, eSports lacks this. The NCAA recently decided to delay further research into developing an official support structure for eSports, so it’s possible such a system never develops. This may be a unique feature of eSports in which emerging talent can go “straight to the pros”. Regardless, the industry currently lacks rigorous recruitment databases and centralized, authenticated play statistics for players across time and games.

What do eSports Casters Do All Day?

With many interesting panels on offer timed simultaneously, I had trouble picking a follow-up to the eSports development panel but ended up settling on a discussion offering background to the life and career of professional eSports broadcasters. One thing I noticed about the panel was that they were all young, mostly-single men in their early thirties. Not because I was concerned with sexual diversity in the industry (a known point of controversy for social activism panderers) but because it seems that the unique demands of this career track cater to young men who do not need to support other family members.

While eSports broadcasters may only be on air, video or audio podcast, a few hours a day, they all reported spending many hours offline reviewing older video game footage for ideas and inspirations on their broadcasts, taking notes on players and competitive details and even playing the games in question themselves to understand the mechanics and gameplay possibilities to better inform their narration.

As many eSports broadcasters are current or former pro or semi-pro players themselves, another interesting phenomena was the “always on” nature of their work. After turning in an 8 or 10 hour official day, they might stay up another 2-3 hours running their personal Twitch stream, playing the game for and bantering with their personal fans. This not only builds their market value for their “daytime” career but is a source of added revenue and passion.

Most of the panelists reported that the tournament scene is currently fragmented, with numerous operators of varying skill and organizational capabilities hiring broadcasters to help cover their events. The result is a need for a dynamic personality who can go with the flow and maintain professionalism in the face of limited or uncertain information and changing broadcast schedules and needs. It’s also an international scene, with many broadcasters flying all over the world in the course of a month to cover various events. Some broadcast partners with fixed or stationary league environments and infrastructures end up being the best to partner with because they also tend to have more talented production teams which leads to a better coordinated broadcast strategy for the announcer.

That being said, all broadcasters mentioned the dichotomy of knowledge gamer-broadcasters versus non-gamer producers which often creates mismatched knowledge sets and broadcast production hangups. Meanwhile, the unique nature of eSports as a “digitally native” and interactive medium and fan-base means that all broadcasters struggle with finding the right mix between providing knowledge analytics of gameplay developments and catering to the crowds incessant love for silly internet memes. 

Intersection of Traditional and eSports

A panel convened with representatives from the traditional professional sports world who are establishing footholds in eSports was especially informative. There is a lot of best practice sharing going on between the industries which are, at the moment, almost entirely separate. On the one hand, eSports is adopting a lot of ideas from traditional sports in the areas of team formation and management, brand development, sponsorship and engagement strategies, fan base dynamics, broadcast production and league and tournament structure. On the other hand, eSports is characterized by being made up of young players and fans, being online and international natively, whereas traditional sports have more mature players and fan bases, are based upon regional identities and are just now trying to develop strategies for international awareness and digital marketing and support. As a result, established pro leagues like the NBA are keen to learn what they can from eSports and even make integrations where possible.

One example is the Milwaukee Bucks, which sponsor an NBA2K video game franchise online league and team. The strategic vision for these kinds of partnerships is that a physical team like the Bucks will be able to cultivate younger fans, including those outside of the normal regional Bucks fan market, who like the NBA2K video game series but might be unfamiliar with spectating and supporting the physical Milwaukee Bucks franchise.

There are also some noteworthy dissimilarities between the physical and eSports variants of each sport. When it comes to borrowing production talent from live action sports, most experienced people are used to producing one type of event for one game or sport in the course of a day. In eSports, a single tournament or event day might feature numerous types of games and teams, which places a unique demand on the time and talent of production teams to support the nuances between games and their fan bases.

Another dissimilarity is rate and severity of change in game “meta”. In eSports, the “meta” or underlying rule set or programming rules of a video game can change rapidly and severly. Bug patches, new content and gameplay balance changes might be released weekly or monthly. In some cases these changes are so dramatic that previously dominant players lose their edge and new players adapt to the point of overcoming the previous pros. In live action sports, changes in rules and gameplay features happen at a glacial pace and are motivated by governing body decision-making rather than by game publisher or tournament organizers. Each respective industry has things to learn from the other here– for eSports, how to make competitive game environments stable and durable, and for live action sports, how to adopt iterative improvements to their game more quickly over time.

Cross-pollination is also occurring with regard to interaction with the fan base. Live action sports franchises purposefully cultivate the sense of “you can never get as close as you’d like” in their fans, whereas eSports fans are used to being able to engage directly with their favorite players, typically through their live Twitch feeds or message board postings.

As I listened to these examples of similarities and differences, I wondered about a technology like VR and what it promises for the eventual merging of these two industries. Besides being a small fraction of the overall video game industry, VR as of the present seems to have no real presence in the world of competitive eSports. Will there be a day where physically-fit live action athletes are competing online in VR-enabled eSports environments and having an advantage as a result?

The discussion related to the ways in which live action sports franchises are dipping their toes into eSports also led me to wonder about pro sports franchises developing eSports variants of their teams. This is already happening in limited ways (see this recent Bloomberg story on the Philadelphia Fusion) but as of right now it is not common for, say, the Boston Red Sox to also have an eSports baseball franchise. And will they also be the Boston Red Sox, or will they come up with a different team name and identity while being owned and operated by the live action team? Will an eSports franchise one day disrupt live action sports by buying out a struggling live action franchise team?

I missed a panel on the relationship between the Olympics and eSports but it’s easy enough to see the opportunity for integration there as well. We’re probably not too many years away from eSports, an all-weather, year-round competitive arena, taking up an event space in the physical Olympic celebrations. But where and when and what game will be the breakthrough?

One of the toughest questions for the long-term health of eSports is what is a long-term investment in the industry? The “shelf-life” of the average eSports game due to changing technology and faddish fans is 2-3 years, whereas the average career for professional athletes is ten years or more. This relative longevity means the brand value of players and teams can be developed over longer periods of time and thus support more sophisticated investment dollars and strategies.

Conclusion

The eSports industry is increasingly a serious business. Like the major live action sports franchises, the organization and structure of the sport is being developed to support the marketing platform business model. As much as the teams and leagues exist to develop and support the players and fans, they aim to create a valuable audience which can attract advertising and marketing sponsorship dollars. This is where the “real money” is and creating a sustainable ecosystem is key to winning the investment dollars necessary to then grab the marketing credibility. With the role of hype and fads in a technology-driven space creating short-termism, one valuable question to answer might be how one can sell “pickaxes and tents to miners” in this space. Until the industry fully matures, this might be the most lucrative, scalable and repeatable model.