Competitive esports is booming and achieving impressive revenue growth globally. As esports leagues and their constituent franchises have professionalized, they have attracted global players, including Disney, Comcast and the owners of the New England Patriots, Los Angeles Rams and Dallas Mavericks.

In addition to the millions streaming esports competitions online, attendance at live competitions has attracted thousands of rabid fans increasing the demand for properly equipped and configured facilities, including the redevelopment of existing facilities. Recent examples of redevelopment and reuse include the conversion of the Burbank, California, studios of The Tonight Show to a custom competition, broadcasting, retail and training facility for esports; the Blizzard Arena; and using the complex that houses the world famous Chinese Theater in Hollywood for esports events. At the Luxor and Casino on the Las Vegas Strip, a former 30,000-foot nightclub will be converted to a competitive esports destination. The developer of the Luxor facility, Allied Esports, anticipates building ten-to-fifteen additional locations in North America over the next few years.

Since 2014, esports venues—arenas for competition, spectating and broadcasting, as well as training facilities—have also launched or are launching throughout the country. We expect the demand for esports-friendly venues to continue to grow in coming years, with esports leagues, franchises, municipalities and other stakeholders developing creative financing structures to meet their unique needs. One study estimates revenue from esports ticket sales to increase at a compound annual growth rate of 21.1%.

Features of Esports-Friendly Venues

While some entertainment venues have successfully hosted major esports competitions, due to the unique nature of esports, most are not well suited to hosting esports competitions because of the long form-nature of esports events. Sitting in a plastic chair or on a metal bench for over six-to-twelve hours will detract from the experience and sour fans on attending live events. Therefore, the best solution for communities seeking to attract the live esports industry is to build a new facility or repurpose a standing facility tailored for the unique needs of esports competitions.

Properly configured esports venues require state-of-the-art audio and visual equipment, including multiple large viewing screens, and a distraction-free area for competition with booths and other accommodations. Every seat should be comfortable and have line-of-sight to a viewing screen to observe the competition. Extensive power and network connections, as well as powerful and secure Wi-Fi access, are needed for full fan participation and enjoyment. As competitions are broadcast on television or streamed globally to millions of spectators, venues require a broadcast platform for live commentators and infrastructure for television production and internet streaming. Esports venues also have features common to all competitive sports arenas—warm up areas for players, food and beverages service and retail shops for merchandise sales.

Esports venues vary in size, with smaller venues focusing on broadcasting audiences with only 250-to-500 seats for spectators. The arena planned for Washington, D.C., will be significantly larger with 4,200 seats, while an arena planned in China will hold 17,000 seats. This variation in size and scope of potential venues means that communities of virtually any size can develop and finance an esports facility tailored to meet their specific needs and budgetary constraints.

Benefits and Financing Opportunities

Similar to benefits realized by communities hosting other major professional sports franchises and facilities, esports facilities could offer significant community-gluing and economic benefits to their host communities. Revenue opportunities include sales of media rights, sponsorships, merchandising, food and beverage sales, ticket sales and benefits to surrounding areas from increased tourism and related economic activity. For example, the video gaming league owned by Turner Broadcasting and its ELeague Arena in Atlanta recently sold naming rights to the league and arena to an energy drink maker for $2 million. In addition, stadiums/arenas have also been the catalyst leading to the redevelopment of blighted areas and the first breath of new life into a re-born city. There is no better example than the Staples Center as being the primary spark for the fire that re-lit Downtown Los Angeles.

Given the significant economic activity generated by hosting esports franchises and competitions, communities and developers should evaluate long-term financing opportunities to build new facilities or retrofit existing facilities within budgetary constraints. Thanks in large part to high profile potential stadiums requiring elusive restructuring if tax-exempt stadium financing died, stadium/arena financing miraculously survived Congress's recent tax reform overhaul. As a result, tax-exempt financing options are still available to municipalities that retain ownership interest in the real estate underlying the facility. However, with the many use and other restrictions that accompany financing on a tax-exempt basis and the controversial subsidy that is provided to sports teams when tax-exempt financing occurs, utilizing a public/private partnership would be the best approach for municipalities interested in building such facilities to attract an esports franchise.

In most stadium financing structures, various revenue sources (e.g., ticket sales, PSLs (personal seat licenses) and luxury box rentals) are “securitized” and packaged into bonds that are sold to bondholders that demand a healthy return. Creating “esports bonds” may be a new way to attract fans interested in financial participation with their favorite teams, but will require the same vetting necessary for professional stadium financings.

The views expressed in this commentary are the author's own.

Rudy Salo is a Los Angeles-based partner at Nixon Peabody, a global law firm with offices in the U.S., Europe and Asia. He works with lenders, borrowers and underwriters on a broad range of public projects financed by tax-exempt and taxable debt. He advises clients on public offerings and direct lending/privately placed debt serving as lender's/bank, bond, disclosure, underwriter's or borrower's counsel.

Noah Lebowitz is a Washington, D.C.-based associate, representing issuers, underwriters and borrowers on a variety of public finance transactions.