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The Theta Newsletter

100 Thieves, ProjectX & The Long War Over IP

100 Thieves is attempting to resolve the conflict at the heart of every esports organization: control of revenue-generating intellectual property.

On May 18th, 2022, 100 Thieves released this video about what they're calling ProjectX:

The ProjectX announcement video

The TLDW of the video is that 100 Thieves is now in the video game production business. Details are sparse - they didn't even discuss what genre the game will be - but they did say they're going to leverage their community of esports professionals and content creators to build it.

On the surface, this decision was made because Nadeshot, the founder of 100T, loves games and it's been a lifelong dream to create one of his own. And hey, they have a massive network of players to get feedback from, so it makes sense that they'd tap into that during the design process.

I don't doubt that Nadeshot loves games and wants to make one for that reason. But he's also running a business that continues to take on investor money, and esports organizations have a long-running conflict with publishers that he's now attempting to resolve head-on.

The War in Broad Strokes

Who plays games, who pays for games, and who controls games

For as long as esports have existed, there's been a war waged between publishers and esports teams/organizations: control of intellectual property.

Publishers may have a similar love of games that long-time players like Nadeshot exhibit, but they are for-profit enterprises and their incentives align with whatever makes them the most money. Some companies don't go to EA-level lootbox lunacy, but in general the companies that make games focus on whatever roads are paved with the densest concentrations of gold.

In broad strokes, the war can be broken down into three key groups of people:

  1. Who plays games
  2. Who pays for games
  3. Who controls games

Most gamers don't want to become professionals, and instead treat games as an enjoyable pastime. By and large, they play games that aren't competitive, and when they do play games with a competitive element, they don't take it that seriously. Maybe they sign up for some tournaments to test themselves or have a good time with a group of friends, but in general they don't care too deeply about it.

Casual players are therefore destined to be the primary demographic of interest to whoever made the game. This is even more important with games that operate on a more traditional, pay-to-play model: if your entire business depends on one-time purchases without any kind of backend revenue, then you should focus on increasing the number of one-time purchases you get.

Now consider the demographics and economics of an esport. Even with a scene as deep as League of Legends, the players who actively compete are a small fraction of the total player base. Those who are full-time professionals are an even smaller subset of this marginal slice of the overall pie.

Features of the game that are objectively bad for the competitive scene exist in every esport, and this sets up a difficult dynamic between the publisher and the esports scene built around their game. It often looks like this:

  1. Publisher implements feature geared towards improving the game for casual players.
  2. Competitors get angry about it and complain in counter-productive ways.
  3. Publisher ignores them (or implements a minor change to placate) because competitors are not their target audience.
  4. Competitors either accept the change or leave.
  5. Go back to step 1.

What drives all of this is the fact that, unlike a traditional sport, an esport is controlled entirely by whoever made it. The games they revolve around are diffuse - even if the NBA or NFL disappeared tomorrow, people could still play pickup games of basketball or football. Likewise, if a league decides to make an arbitrary rule change, casual players are in no way obligated to follow that new ruleset.

None of this is true in esports. When a publisher pushes out a new patch, it could have zero effect, or it could dramatically alter the entire experience of playing it. And once that patch is live, there's nothing players can do about it - they're stuck with that version of the game until another patch is released.

From the publisher's perspective, that patch may resolve a long-standing issue casual players (their bread and butter) have had with the game, or it might be part of an internal initiative to move the game in a new direction. There are a myriad of reasons why changes are made to games, and esports is not usually factored into the equation.

The elephant in the room when it comes to IP, though, is licensing. Since the creator of the game owns the rights to the game, they can, without any reason whatsoever, pull the plug on anyone playing their game. This means an esports organization could, in theory, have an entire segment of their business taken offline at the whim of a hostile third party.

Esports organizations have therefore always been, to some degree, held hostage by the publishers. Whoever makes the game owns the IP, and whoever owns the IP dominates the conversation about the direction the game goes. While publishers need to take some feedback into account if they want to keep people playing, they are under no obligation to care about what small minorities (such as the esports community) have to say.

If anything, the publishers are incentivized to keep competitive players just happy enough that they'll continue to play in public. This is free marketing for them, and they're happy to save themselves some time and money keeping their games relevant in minds of a nebulous gaming public.

To summarize:

  1. Casual and hardcore (this includes esports) players play the game.
  2. Casual players pay for the game.
  3. Publishers control the game.

Major publishers are now often the owners and gatekeepers of their esports scenes, charging large fees to participate and keeping tight control over who gets to play under their brand banner. This translates into even more fees and friction for esports orgs who feel pressure to keep the most popular games in their stable.

You could therefore say that esports orgs do, in some sense, pay for the game through franchise fees and the marketing hype they generate, but not in a significant way.

Regardless, the real winners so far are the casual players (whose tastes tend to win out over the hardcore players), and the publishers (who have total control over the game's IP). Esports players and orgs are mere footnotes in this equation.

Now that you know the who, it's worth understanding that the war itself is split into two key battlefields where these groups fight: creative control and economics. Let's walk through both in detail.

Battlefield #1: Creative Control

What happens when the hardcore players attempt to take over the conversation?

There's always a push-pull tension between those who take the game seriously (which often means the competitive scene, but as you'll see it can mean just hardcore players), and those who play for fun.

Publishers can't afford to completely ignore the playerbase, otherwise people will stop buying and playing their games. Yet it can be difficult to figure out where the best feedback comes from - should you listen to the most dedicated players, who are bound to have strong opinions based on experience, or should you focus on new players, whose first impressions matter so much to your business?

An example of this that I have quite a bit of experience with (and not many people outside of VR have heard of) is the VR FPS game Onward, which has been at the center of a heated debate between competitive players and the publisher, Downpour Interactive (also known as DPI).

DPI was started by one person, Dante Buckley, and he just wanted a realistic tactical shooter that could be experienced in VR. At the time he made Onward (2016), this type of game didn't exist.

It's a remarkable story, and I have a gigantic amount of respect for what he accomplished: he dropped out of college, and over the course of a year put together a successful game (without any kind of formal dev experience).

Dante's first dev blog video for Onward, which shows how far the game has come

What was no doubt a surprise to him was the small, but hardcore, esports scene that sprung up around the game. Onward was not designed as an esport from the start. Instead, PvP players congregated on their own and bolted an esports scene on top of existing elements in the game.

Even back when the whole esports crowd was hovering around 100 people (it's now in the thousands), those people were vocal about what they didn't like in the game. Tensions reached a point where neither side wanted much to do with the other, which set the stage for an acrimonious long-term relationship.

Basically, the competitive scene attempted to kick off a Grognard Capture situation. In a nutshell, Grognard Capture is when the most hardcore players take over a game, which in turn generates a death spiral for the publisher since it scares away newcomers. It's a stange sort of tribalism that is common in niche games, and VR (until recently, at least) has historically been the definition of niche.

I first came across this term randomly in an old forum post (don't ask how, I'm not sure myself), which linked a page that is sadly 404'd into oblivion. Here's how it was originally described by game designer Greg Costikyan:

All game styles run the risk of what I term "grognard capture."

"Grognard" was a slang term for members of Napoleon's Old Guard. Hardcore board wargamers adopted it as a term for themselves. By extension, "grognard capture" means capture of a game style by the hardest-core and most experienced players--to the ultimate exclusion of others.

The author continues with an example of real-world Grognard Capture:

The most extreme example I can think of is what happened to the Squad Leader series. Originally a relatively simple, accessible game of infantry combat in World War II, the publishers released supplement after supplement, each with new rules adding to the complexity of the game. Finally, they revamped it as "Advanced Squad Leader," publishing it in a loose-leaf binder so you could insert new rules as they were published, with systems as obscure and silly as the "Sewer Emergence Table" and the "Kindling Availability Table."

The original Squad Leader sold more than 200,000 copies, an astonishing figure for a board wargame at the time. Advanced Squad Leader sold a few tens of thousands of copies. Advanced Squad Leader is, I believe, still in print...It has a fanatical following--tiny, but fanatical.
...
You see the same process at work in a lot of other game styles; real-time strategy games layer more and more complexities onto the system over time. Fighting games have taken special moves to a ridiculous extreme, requiring you to memorize chords as complicated as anything a concert pianist uses. And so on.

Developers move in this direction because their market demands it; the hard core, who are also the opinion setters, want new features and games that reward their hard-won skills. And if that ultimately means cutting off a game genre from a wider audience, that's not their concern--though perhaps it should be of the developer's.

This is basically what the most dedicated competitors in Onward wanted (and some still push for): a game that caters to their tastes, without considering the vastly larger crowd that plays for fun and keeps DPI's lights on.

Onward is a difficult game, with a low-TTK, ambush-driven playstyle that's punishing for new players. I've been in quite a few lobbies where new players tell everyone they're getting a refund after getting smoked a few times, never to be seen again. The Grognards of Onward see this as a good thing, as it's a sort of "herd thinning" dynamic for the comp scene - but it's terrible for DPI as a business.

It's awful for DPI because Onward depends on new players for revenue. There aren't any in-game purchases or other revenue sources beyond the initial purchase, which means they must bring new players into the game and give them a good enough experience that they don't refund it. When hardcore players scare off new players and trigger refunds, it directly conflicts with DPI's ability to make money.

How does DPI keep new people coming in? By adding features that appeal first and foremost to a more casual audience. For example, whenever new guns have been added, they are (with a couple of minor exceptions), not competitively viable. But having a large selection of weapons to play with is important to casual players, who just want to be have a cool, tactical experience with their friends.

They aren't interested in the pros and cons of different loadouts, they just want to have a silencer, laser and flashlight strapped onto their AS VAL so they can feel like a Navy SEAL for a couple of hours. What's hard to swallow for competitors is that these people are the ones who pay the bills for DPI, and that means DPI has much more of an obligation to casuals than them.

Fast forward to 2020, and the release of the Quest created a goldrush for VR developers who previously had struggled to make a living off of their PCVR games. The Quest made VR accessible to millions of people, but at the cost of fidelity: the Quest series doesn't have the hardware onboard to compete with the raw horsepower of a PC with a quality GPU and processor.

DPI saw an opportunity and rightfully decided to make a Quest version of Onward. Although there are arguments about whether the PR was handled correctly for the release, it was an unambiguous success for them. They made millions of dollars on the Quest version right away, and Facebook/Meta eventually bought them out on the heels of that success.

Onward's competitive scene exploded as a result of all this, making it a success from the esports side as well. But the Quest port meant compromises had to be made, particularly in terms of graphics and net code, and that created a firestorm of controversy amongst veteran players. There are still major tensions between the most hardcore crowd in the scene and DPI, as DPI continues to focus on the people who matter most to their long-term viability (as they should).

Side note: I made a video about this situation back when it first happened, which you can view below.

A video I made about the Quest release back in 2020

This example highlights the creative tensions between IP holders and esports, where one side desperately wants a game catered to their tastes, and the other makes pragmatic decisions that benefit their business.

It's not a stretch to say that professional esports players are often high-level Grognards, since they're the players who care first and foremost about capitalizing on their skills and experience. Keeping people out of the game means a less difficult pool of competitors, and they're so obsessed with winning that they forget their entire profession is only possible because of the very people they ignore.

For example, in Onward, there's a small minority of competitors who actively protest getting their matches streamed. This might (and should) sound crazy to anyone from other esports, where every match is streamed, especially games like CSGO where multi-perspective replays are built into the game itself.

But these players are so focused on competition that all they can think about is the fact that their top secret strats might see the light of day. This is an Ultra Grognard move, because not only are they obsessed with winning to the detriment of everything else, but they're saying they don't want spectators - even though audiences of spectators are required for players to turn professional.

Imagine how absurd this would be in any other type of spectator sport that's supported by audience eyeballs. It'd be like Steph Curry or Tom Brady saying they refuse to play in games as long as cameras are present, because they don't want the rest of the league to see their best plays. Given that their multi-million dollar salaries exist because of advertising revenue, it would be professional suicide.

This is the kind of lunacy that publishers have to deal with, and the sad truth is that this kind of irrational behavior often drowns out more reasonable discourse just because it comes from such a loud minority.

Esports orgs therefore have a problem on their hands: they may have legitimate complaints about the state of the game, but the crazy people yell louder. Publishers then turn cynical and stop listening, because they get sick of opinions that are so obviously biased and hostile towards the rest of the player base. There may be changes made to the game that cater to competitive tastes, but they're rarely made exclusively with those in mind.

Either way, publishers like DPI tend to win Grognard Capture scenarios. They have total creative control over the IP in question - regardless of how legitimate a complaint is or who it comes from, they can say "no" whenever they want. As I mentioned in the beginning, they will optimize for whoever keeps them afloat.

This is good for companies like DPI and good for the growth of their genre of games, but it means the esports crowd (including esports orgs) are forced to either accept the games they play for what they are, or abandon potentially lucrative opportunities. Esports orgs have zero leverage and they know it, which means they must concede this battle to the publishers in all but the most unusual of cases.

Battlefield #2: Economics

How do mainstream esports orgs make money when they can't control IP?

That covers the creative side of the conflict, but Onward is a poor example when it comes to making money on the esports side of the equation. There aren't any major orgs that participate in this scene, since there isn't enough money on the table (at least not at the moment) to generate interest.

To understand the second, and most crucial battlefield of this war, we need to go back to mainstream esports. This is the battle over cash flows, where once again esports orgs must play second fiddle to publishers.

Big esports like League of Legends and CSGO are now so competitive that relying on tournament winnings and sponsorships is difficult and unpredictable. Victory in such competitive fields depends on small, fragile edges (and a whole lot of luck), and that isn't a recipe for a viable business.

Speaking of edges...

Since organizations like 100 Thieves aren't in a position to make money from the game itself, and are always wary of the fact that they don't control the IP they lean on, they've had to generate revenue adjacent to the games themselves.

There are a few dominant business models in esports that involve making money "around" the game, often by treating the esports scene as a top-of-funnel acquisition point for generating interest in related, revenue-generating enterprises. Most orgs run a mix of the following examples:

(Note: I'm leaving out sponsorships and tournament winnings since they're obviously part of the equation and have been since the beginning.)

  • Software: TSM owns Blitz, an analytics app that offers a paid Pro tier and utilizes paid advertising for free users.
  • Hardware: Fnatic sells Gear, a line of gaming peripherals.
  • Merchandise (or "Merch" as the kids say): 100 Thieves has historically focused on streetwear, selling out their exclusive drops in minutes.
  • Content: Orgs are now signing content creators with major followings in as many major games as possible, including traditional games like chess.

Diversification de-risks these organizations to some degree. They don't have to lean so much on the games they play, and they can funnel their audiences into IP they have creative control over.

While these can, and do, generate revenue, they pale in comparison to what major game publishers make. To get an idea of the contrast between the two, consider these two valuations:

  • The most successful esports org on the planet (as of this writing, at least) is TSM, which is valued at $540m.
  • Riot Games, which is massive but not the largest game publisher in the world, is valued at around $21bn.

In other words, the single most successful esports org ever has a valuation that's about 2.5% of just one successful game publisher.

At the core of all this is, again, ownership of intellectual property. No matter how many tournaments you win or customers you grab for your merch line as a result of your competitive success, there's no way to compete with the rivers of money that can be made with a valuable piece of gaming IP. It's a win to build a successful, adjacent business, but it just doesn't compare to what could be made if they owned the games they play in.

When you combine the zero-marginal cost of distribution with dynamics like in-game purchases, the revenue graph can go hockey stick in a hurry. Esports orgs don't have access to those economics, although they're clearly aware of this problem and are trying to solve it through aggressive M&A and software sales.

This is a gap that everyone in esports wants to cross, and 100 Thieves' ProjectX is an attempt to do so.

Can 100T Win the War?

How will 100 Thieves manage the risks of making a game?

If they can pull it off, 100 Thieves will single-handedly win both of the major battles within esports: they'll have total creative control over a game they participate in, and they'll have the lucrative economics of game publishing on their side.

This is the dream of every esports organization on the planet, and 100 Thieves is now in position to make that dream a reality. However, nobody has done this yet for a reason: it's insanely hard.

First of all, major titles that can compete with the stable of mainstream games are expensive. Not "a few million dollars" expensive, but "hundreds of millions of dollars" expensive. 100T raised a $60m Series C round recently, which places them at a $460m valuation (even though they aren't profitable yet).

Do they have the capital to make a decent game? Apparently they believe so, and time will tell if that's true. Independent developers (including Dante at Downpour) have made successful games on a shoestring budget, but in many cases (like DPI's), it was on a new frontier - not in direct competition with multi-billion dollar franchises. Likewise, many big-budget games have melted down into total failure - money is no guarantee of success even when you have it in spades.

Secondly, if they're planning on making a multiplayer game (and there's no reason to believe they'd make anything else), there are substantial ongoing costs related to maintaining that infrastructure. Most companies don't release data about things like server costs, but it's easily in the millions for big games like League of Legends, CSGO, etc. This includes not just servers, but entire support divisions, security, and many other pieces that add to the complexity of the situation.

Third, they're going to have to deal with the same Grognard-style problems other publishers have dealt with in the past. Although the ProjectX release video talks about how they're going to leverage their network of creators and competitive players during the design process, that's a difficult path to walk down for reasons outlined above.

Will they cater most to the esports crowd? Then chances are they're going to dramatically limit their growth. And if they go the other direction, then their most dedicated fans may feel they aren't delivering on a brand promise somehow.

Lastly, if their goal is to make an esport, they need to think long and hard about how they're going to manage the scene around it. It's worth noting that Riot's esports division has yet to turn a profit, but they can live with that because the dominant non-esports side of the house is such a money maker. 100T doesn't have those economics to work with right off the bat, so they might end up doing what most publishers do and cater to the non-competitive side as a pragmatic business decision.

Maybe 100T isn't even going to make a competitive game at all, and instead ProjectX will be revealed as a Candy Crush/Animal Crossing/Roblox hybrid geared towards soccer moms. It's anyone's guess, as they haven't said what kind of game it's going to be.

The competitor in me hopes 100 Thieves wants to build a real esport from the ground up and manages to pull it off. It would completely transform the esports industry and open up a new wave of opportunity for competition-focused gaming that players like me will love.

There are some hopeful stories out there if they decide to go the esports route. Valorant was pretty much built as "CSGO but with an esports focus and a fantasy wrapper," and it's now a household name for gamers worldwide. In VR, VAIL is a new FPS that also has a strong esports focus, even going as far as launching a summer launch tournament with the IVRL as a way of creating the first real professional VR esports scene.

Maybe esports is finally hitting that point where it's big enough to exist on its own, and 100T is going to set that standard. Perhaps the global audience is large enough that there's a massive, untapped opportunity for publishers who are willing to make games that are laser-focused on competition. If that's the case, and 100T is going in that direction, then they're in position to hit a real homerun.

For now, I remain cautiously optimistic and will keep an eye out for updates as they come out. It sounds like they plan to take a few years on this, so I'm sure there will be plenty to discuss as time goes on. Either way, I'm confident it's going to be fun to watch Nadeshot and his crew navigate the game development process.

-Theta

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