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PSG and Schalke 04: The football clubs imagining a future without football

  • PSG and Schalke pioneer football club involvement in esports
  • PSG targeting Asian youth, Schalke broadening European brand
  • Both clubs believe gaming is the future of entertainment

During the 15th minute of a Swiss Super League match between Young Boys Bern and FC Basel, a PlayStation controller was hurled onto the pitch. It bounced off the turf and landed among the tennis balls that had been thrown a few seconds earlier.

Host broadcaster SRF, innocently seeking to provide its audience with some context for the delay, zoomed in on the controller. A pithy message, written in English, was daubed upon it in silver marker pen: “FUCK E-SPORTS”.

The fans were angry about a report claiming the Swiss Super League was going to deny Super League licences to clubs that didn’t have an affiliated esports team. The SSL wants to follow the English Premier League and the German Bundesliga in creating a virtual version of its own league on Fifa 19, the world’s most popular football game.

In a statement explaining their actions, the Ostkurve Bern fan group responsible for the protest complained that: “In today’s society, children often sit at home in front of their consoles instead of playing sports with friends.”

Fabien Allègre, director of merchandising and diversification at Paris Saint-Germain, and Tim Reichert, Schalke 04’s head of esports, probably wouldn’t agree with Ostkurve Bern on much. But they all have very similar visions of where the entertainment world is going.

“The young generation, are they going to watch a real soccer game for an hour and a half? Or are they going to play games during it?” says Allègre who, alongside PSG Esports’ chief gaming officer Yassine Jaada, has turned PSG into the most aggressive esports investor in football.

“Modern football fans are driving a shift away from the old ways of doing things, and esports fans are a part of that, too,” he says.

Reichert, himself a former professional footballer, agrees: “I expect young people, and the younger generation in general, to be less interested in traditional football. I still expect them to love playing football, here and there. But a football match? For 90 minutes? Young people, somehow, do not have that kind of mindset.”

For Reichert, Allègre, and just about any other executive at a top-level football club, the debate over whether esports and football can mix is over. Convergence has already happened and is gathering speed. The question that interests Reichert and Allègre is: ‘how far can we push it?’

Stuck on Fifa

Whether Ostkurve Bern like it or not, we now live in a world where every major European football club now has its own Fifa 19 team.

The Premier League and the Bundesliga have their own Fifa leagues, with every constituent club represented. Bundesliga club Hertha Berlin went a step further, opening their own Fifa academy in January 2018. And Italian Serie A club Roma has its own ‘FIFA house’, a three-storey gamer’s paradise in North London, in which the members of its competitive Fifa team reside.

PSG’s Fifa team boasts one of the best players in the world, Lucas ‘DaXe’ Cuillerier, and Allègre believes being active in Fifa esports is an excellent marketing exercise. “Fifa is the most famous game in France, Europe, perhaps even the world,” Allègre says. “Even if I didn’t want to go only into Fifa when we launched the esports team, the objective was also to make esports connected to the soccer team, and the superstars of PSG. Neymar is a Fifa ambassador, so it’s very easy to make the link between esports and the soccer team.”

“I expect Fifa to get bigger,” Reichert says. “It’s already much bigger than I thought it would be in 2016. I underrated Fifa as an esport a lot. A lot.”

Regardless of its growth, Fifa is small fry in the grand scheme of esports. Its high watermark in the all-time prize money rankings is 6th. This was achieved back in 2003, by which time Fifa tournament participants had taken home a whopping $165,000 (€147,000) – a figure considered serious money during esports’ equivalent of the Jurassic period.

Times have changed. Fifa publisher EA handed out just over $2.2m in prize money to professional Fifa players last season, but this was still $400,000 less than Dota 2 team Evil Geniuses earned for a week’s work at The International 2018, where they finished third overall.

Fifa is not an esport that gives football clubs a direct return on investment, but it does provide them with an invaluable marketing platform on which they can engage with young fans – many of whom would rather play for 10 minutes than watch for 90.

“Maybe in five or 10 years, it’s more interesting for young people to just watch the Fifa games,” says Reichert. “There’s a target group of people who love Fifa, playing Fifa and watching content around Fifa, but don’t watch football too much anymore. If you go into a football stadium, you will see most of the people are older than 35.”

Fifa prize money will almost certainly increase over the next five years, but the amounts will still be a small fraction of what’s available to teams competing in Dota 2 and other popular esports. Dota 2 teams have earned $210m in prize money since professional play began in 2013.

Yet there are few football clubs venturing outside of the virtual recreation of their core product. In terms of top-level, professional, non-football esports competition, just three football clubs have invested in a serious manner: PSG, Schalke 04, and Danish Superliga club FC København, which co-owns Counter-Strike: Global Offensive (CS:GO) team North.

If multi-sport clubs in Spain, Greece and Turkey lose millions of euro each season operating basketball teams – all for the sake of tradition and reaching a slightly younger audience – why are so few clubs investing in esports?

Taking the plunge

Josh Watson, head of esports at game developer Psyonix, says: “I wouldn’t say it’s surprising, given the nature of the business. Esports enthusiasts in traditional football clubs have the sometimes-difficult task of educating other members of these organisations about the benefits and reach of esports, as well as the economics of this emerging industry.”

Psyonix created Rocket League in 2015, a 3-on-3 football game that replaced players and pitches with rocket-powered cars and futuristic low-gravity arenas. On paper, the game’s similarity to football, non-violent nature and the relatively low cost of running a team make it a perfect starting point for clubs branching out of Fifa.

Thus far, PSG is the only football club competing in Rocket League’s esports scene. It is thought several other top European clubs have held discussions with Psyonix but ultimately chose not to enter. Schalke was one of the clubs that kicked the tyres.

“Yes, you can attract a new and different audience, but it’s not all about just reaching out to new audiences,” Reichert says. “It needs to be a business case. We don’t see it as a business case that works for us right now. There will be the time where we enter Rocket League, maybe when it’s a bit more advanced, or the publisher develops the esports scene a bit better.”

Most esports operate on a prize money system where there is no guaranteed revenue. In Rocket League’s case, a total of $4.3m in prize money has been awarded to teams since the inaugural tournament in 2015. Most clubs believe the potential gains are simply too small to risk an investment.

Schalke’s cautious approach to Rocket League isn’t symptomatic of its wider esports strategy, as the club began its esports operations in May 2016 with the boldest of moves. Reichert, who was originally hired by Schalke to explore the potential of hosting esports events at the club’s Veltins Arena, managed to convince the club to enter a team in the European League of Legends Championship Series (EU LCS), the top-tier of European competition. At this point, Schalke was yet to establish a Fifa team.

The club paid what Reichert describes as a “small, six-digit number” to join the EU LCS. At that time, the EU LCS had a promotion-relegation in place, and the prize pool for each 10-week season was just $100,000. “Back in the day, you just bought a slot,” Reichert says. “You could get relegated. And we did.”

Steep learning curve

Schalke were promoted the next year, and as an existing participant in the league, paid the discount price of €8m ($9m) for a franchise in the newly-formed League of Legends European Championship (LEC), which began in January 2019. New teams looking to enter the single-tier franchise league were charged €10.5m. For Reichert, the investment is already paying off.

“Within the League of Legends community, we’re recognised as an esports organisation,” he says. “A lot of young people do not even know that we’re a soccer club because they’re just not interested. That’s super important for attracting young people throughout our brand.”

He continued: “That’s the big difference with Fifa. Fifa fans, we consider them to be football fans. It’s likely almost all of them have a preferred football club, and we don’t expect too many of those kids to convert to Schalke. They are anyway, or they won’t be.”

Reichert knows what it’s like to get in on something at ground level. His personal interest in esports began 22 years ago, when he co-founded the Schroet Kommando gaming clan with brothers Ralf [now chief executive of tournament organiser ESL] and Benjamin. The clan has since grown into professional esports organisation SK Gaming, which has earned $5.6m in prize money to date, largely thanks to its dominance of the professional CS:GO scene in 2017.

PSG was also an early adopter of League of Legends, paying $70,000 to enter a team into the 2017 EU League of Legends Challenger Series. Like Schalke, PSG made business-critical errors in its first season. Unlike Schalke, PSG’s error turned out to be irreparable.

Sensing that the winds of change were blowing, PSG initiated conversations with Riot in the summer of 2017 over the future of professional League of Legends competition in Europe. The club deduced that instead of a franchise system – in which PSG would have clear revenue streams and pan-regional exposure – League of Legends would localise in a similar fashion to football, with domestic leagues and a Champions League-style competition with merit-based qualification.

“The fact that Riot wanted to be more oriented on the local – a French, English and German league, et cetera – didn’t match with us, really,” Allègre told The Score Esports in October 2017. “Even if it’s not official from their side. It’s just a discussion we had. They want to move from a European competition to a European-plus-local, but the focus will be much more local-oriented.”

Based on that assumption, PSG dissolved its League of Legends team on October 7, 2017. After Riot announced the creation of a franchise league for 2019 – complete with a transparent revenue-sharing system – PSG partnered with existing team H2K, who applied for a franchise in the new league. The application was rejected. The consensus opinion across the esports community is that PSG’s reading of the market cost it a golden opportunity.

In the present day, Allègre somewhat sticks by the decision: “One of the reasons we moved from the game was because of the revenue split. Two years ago, it was not really clear for us what percentage of the incomes each team would earn. We did not have specific rules for that. And that’s very important.”

Reichert, on the other hand, is glad Schalke took the opportunity while it was there. “We had a big, big opportunity when we made that investment as we already knew all about the business model, the costs and the revenues. Building up that business case for us was not that hard compared to a football club that’s new to it.”

He continued: “Nowadays, if you want to go into esports, how many opportunities or options do you have? There is CS:GO… but most football clubs cannot do that,” he says of the first-person shooter esport, in which a team of terrorists must successfully plant and detonate a bomb in order to win.

“There is Overwatch, which asks for an absolutely insane amount of money, and is still a shooter. You have Dota 2, which is almost unknown in Europe – interesting for internationalisation in Asia but operating a Dota team in Asia as your first step would be very hard. And then, there is League of Legends.”

Look and learn

With their League of Legends opportunity gone, Allègre has decided to take, in Reichert’s words, the “interesting” route. In February, PSG Esports expanded their investment to mobile games. It invested in Rex Regum Qeon, an Indonesian esports team that competes in the Mobile Legends: Bang Bang Indonesia Professional League, renaming it PSG.RRQ.

Mobile Legends is remarkably similar to League of Legends. So similar, in fact, that the chief executive of Mobile Legends developer Montoon was ordered to pay $2.9m to Riot Games for copyright infringement. However, Allègre’s decision to invest wasn’t due to its similarity, but its popularity – particularly in Indonesia, where there are 22 million active players.

Dota 2 – like League of Legends, a multiplayer online battle arena (MOBA) game – is by the far most popular and lucrative esport in Asia, and China in particular. With limited experience of direct marketing in the region, Allègre convinced the club to invest in an existing team based in China, LGD Gaming, and create a new joint venture team named PSG.LGD.

While some esports executives have their doubts about PSG’s joint venture strategy in Asia, the results for PSG.LGD have been instant. The team has earned well over $5m in prize money since its formation in May 2018, and its grand final appearance at The International 2018 immediately made PSG a recognised esports brand in the region.

It has also enabled the club to work alongside experienced Chinese and Southeast Asian marketing teams well-versed in communicating with young audiences across the region. This feeds into the football club’s bank of knowledge, which in turn helps PSG’s head of business development in Asia, Gerald Heng, who works closely with PSG’s esports operation to both guide and learn from its activities.

For Allègre, these partnerships are an essential first step toward learning about the esoteric ways in which Asian youth and esports communities communicate, without having to make all-or-nothing investments that could severely tarnish the brand.

“We go into each project step by step, and we certainly believe that if you want to talk to this community of esports fans, you need to have a specific language or communication style,” Allègre says. “It’s quite early for us to say ‘oh, now we know’. We learn month after month how to manage the communication.

“As soon as we can make a bridge between esports and the main pillar, football, we will do it. But you need to respect the way the esports community communicates, especially in Asia. You’re talking to people who don’t have exactly the same cultures, and also have their own specific ways of communicating about esports. You need to know a little bit more about each game, and how the audience accepts each kind of message. It’s a good way to learn, month after month, and increase our credibility in the esports world.”

Speculative investment

PSG Esports either partly or wholly owns six esports teams. As well as PSG.RRQ and PSG.LGD, it operates its own Fifa and Rocket League teams. In China, PSG again partnered with LGD to create a Fifa Online esports team.

Fifa Online is a browser-based version of Fifa popular in China due to the country’s historic ban on console gaming. The ban was lifted in 2015, but there are still very few console games available compared to the rest of the world. Fifa Online is also massively popular in South Korea, due to the country’s high internet speeds and gaming café culture, where gamers play socially on PCs, not consoles.

PSG’s latest venture is a wholly-owned team competing in Brawl Stars, a mobile-only game reminiscent of Nintendo’s blockbuster ‘melée’ game Super Smash Bros. PSG is one of the only esports teams competing in it so far, as Brawl Stars was only released in December 2018. It is the most popular mobile game in the world but still has a very limited esports scene.

PSG’s decision to aggressively enter the Brawl Stars esports space is a direct result of the lessons it learned from its League of Legends experience: if you have the chance to be an early adopter in a massively-popular game, take it, and hang on for dear life.

Allègre’s job is, for now, one of largely speculative investment. He is tasked with driving esports fans into PSG’s ‘ecosystem’ – one that now spans football, fashion and entertainment – while also establishing PSG as an authentic esports brand for the current and next generations of competitive gaming fans.

“We need to talk to everyone, not necessarily only to the soccer fan,” Allègre said. “The objective was not to go only into Fifa, because our vision of esports is not only linked to soccer. It’s a separate, real sport division.”

What’s stopping other football clubs following in PSG and Schalke’s footsteps?

“The biggest risk is not to have enough insight and knowledge to build up successful teams. I mean, even we weren’t prepared well enough,” says Reichert, calling back to Schalke winning just three matches out of 18 in its first League of Legends season. “The risk of failing at the beginning is always there, but any new business requires risk and investment, so this isn’t the biggest problem.

“To be absolutely honest and fair here, most football clubs don’t have the proper kind of consulting or employees who to develop that vertical and bring it into the club. I still think there are not too many really good businesspeople in esports. This is the problem.”

Long-term vision

For Allègre, the primary problem is a lack of immediate profitability, with little visibility over whether the investment will pay off in the end.

“We can’t only be a big window of exposure for the publishers,” he says, referencing the fact that most publishers use esports as a marketing exercise and make significant losses on their tournaments. “Who is paying the salary at the end of the month? The club. But I think some of the publishers are starting to understand that now. I think many of them have started sharing our vision.”

Centralised revenue sharing is the new phenomenon in top-level esports – offering traditional sports-style revenue sharing among franchises guaranteed a place in any given league. But opportunities for teams to drive sponsorship income remain few and far between. Asked whether PSG Esports’ sponsorship is comparable to the prize money it earns, Allègre laughed.

“We have the chance to win The International tournament and win $11m. Yeah, that’s it. You have the answer! And usually, the majority of this prize money will go into the players’ pocket.”

So why do it at all?

“At the beginning, no one cared about soccer in Asia,” Allègre says. “But Manchester United and Arsenal invested in a long-term vision. And now we know all about their presence in Asia. We are in the beginning, and we’re one of the first to go into esports in a professional way.

“In the coming years, who knows what kind of consummation will take place between soccer and esports? I don’t know. We don’t know. But what I do know for sure is that esports will be a part of it.”

Allègre dreams of a day when PSG Esports can attract global partners across all of its esports teams, but concedes that this may be a long way away. “The sponsorship market is not yet a mature market, and I don’t know if you spoke to the guy from Schalke… but I think he has a similar vision. It will take a long time.”

“I’m talking and talking about working business models and working business cases…” Reichert laughs. “But the most important thing is that we are convinced that gaming and esports will most likely be the biggest entertainment business in the world. In fact, it really already is. But it’s going to get even bigger with a new demographic that’s growing up. This is a long-term vision.”

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