Activision Blizzard Inc. (NASDAQ: ATVI) is going to be cashing some large checks in the third quarter after announcing six more expansion teams for Overwatch League. In 2019, the league will grow from 12 teams to 20 and will include franchises in Chengdu and Hangzhou in China, Paris, Toronto and Vancouver in Canada, and Washington.
The expansion could prove the potential for esports as an international business. For Activision Blizzard, it isn't bad for the balance sheet, either.
Image source: Getty Images.
The cash grab
Earlier this year, ESPN reported that Activision Blizzard expected to charge $30 million to $60 million per new Overwatch League franchise, depending on the location. Based on this estimate, Activision Blizzard could generate between $240 million and $480 million in expansion fees this off-season.
This money will go directly into Activision Blizzard's coffers, which differs from revenue that franchises might share, like tickets and advertising. Long term, Activision will also benefit from these league revenue streams, and it often lines up the deals. But this week's news is more about the short-term benefit of franchise fees.
An international business
Nine of the 20 Overwatch League teams will be outside the U.S., unlike the case with traditional sports leagues, which are generally limited to one country or region.
For Activision Blizzard, the appeal is easy to understand. It's selling advertising for Overwatch League all around the world, and international markets make for a bigger audience and more revenue opportunities.
The player dynamic shouldn't be overlooked, either. The more exposure Overwatch gets around the world, the more people are going to play the game. That's how Activision Blizzard makes most of its money, and the awareness and engagement that Overwatch League brings can only be positive for the company.
The esports boom
Esports could be the future of gaming given the money involved, and video game companies are certainly taking notice. Call of Duty, League of Legends, and Halo are a few of the games that have made a play at esports, but Overwatch has had the most success and is showing how to make this into a business built to last.
What I'm intrigued to watch is the advertising and content deals Overwatch League can sign with more teams and an even wider international audience. Twitch signed a $90 million two-year deal to be the exclusive streaming home of the league last year, and given the league's success, we could see those numbers get larger. HP, T-Mobile, and Sour Patch Kids also signed advertising deals that reached into the tens of millions of dollars, a level that could rise.
Given the young age of Overwatch League, it's possible we're only seeing the beginning of the esports industry. And that bodes well for Activision Blizzard long term.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard and Amazon. The Motley Fool recommends Electronic Arts and T-Mobile US. The Motley Fool has a disclosure policy.