By Jonathan Moed
May 16, 2019
Esports company Fnatic is riding high, announcing US$19 million in Series A funding this past month and placing founder Sam Mathews back at the helm as CEO. With all of the company’s recent milestones, it’s possible now more than ever to appreciate Fnatic’s journey from small team to global brand, and Mathews’ journey from Esports athlete to the leader of a business and brand worth a reported US$120 million. Here’s the story of how Sam Mathews and Fnatic are winning the game of Esports, both on the screen and in the boardroom, and why other entrepreneurs should take note.
Level 1: The Launch
When Sam Mathews started Fnatic in July 2004 in London at age 19, Esports looked much different than it does today. In 2019, the global Esports market is expected to exceed US$1 billion in revenue for the first time. But fifteen years ago, Esports could barely be considered an industry. In the words of Mathews, it was more of a “scene.”
As Mathews described, online gamers sourced parts to build their own gaming computers, installed a game, and connected to an IRC (Internet Relay Chat) gaming channel (a precursor to today’s instant messenger programs) to find others interested in playing. Gaming tournaments existed on a smaller scale--hundreds of viewers versus millions--and in most cases, only the finals were broadcasted as bandwidth was too expensive to stream regularly. It was also incredibly hard to understand how many people viewed a given event.
It was in this setting that Mathews foresaw the potential of what Esports could represent, despite its technical shortcomings: “the ability to compete on a level playing field and get the same thrill from competing in a physical sport, but at anytime, and from anywhere with an internet connection and computer.” In Mathews’ eyes, even in these early days, the success of Esports was inevitable and he wanted to be a part of it. He started by joining a team, followed quickly by founding his own despite no prior experience starting or running a business. His goal was simply to “be representative of the space and how we felt about it as fanatics” (hence the team name Fnatic).
Level 2: The Break
Mathews’ passion and vision quickly paid dividends for Fnatic within the competitive gaming space, and by 2008, with Mathews leading team development, Fnatic had won more than 100 medals across 9 game titles. At the same time, Esports as an industry was still nascent, in large part because the technology involved had yet to catch up with the promise of Esports. As Mathews explained, realizing the potential of Esports and engaging a broader audience required more and better than what existed at the time: better internet, cheaper broadband, more and better streaming platforms, more devices, and finally better games.
Mathews wanted to continue effecting change and advancing Esports, but to do so in a scalable way that didn’t rely on being part of a gaming team. He made the decision to leave his CEO post and stay on as Chairman of Fnatic, while embarking on the next phase of his entrepreneurial journey: a 7-year stint launching companies from the ground up to further develop his product management, marketing, and leadership skills. Mathews first created UGAME, a gaming social network that grew to 300,000 users but ultimately was unsuccessful. In 2009, he turned his attention to Neverbland, a digital product studio and startup incubator. Mathews subsequently launched several companies out of the incubator over the next few years, one of which, Slateapp.com, was acquired by AdTech platform Extreme Reach.
From his experiences building startups, Mathews realized that the business opportunity for Fnatic was far larger than he originally believed. During the years he spent building UGAME and Neverbland, Fnatic continued to grow its gaming operations, expanding to around 15 games including League of Legends, Dota, and Counter Strike: Global Offensive, and rising to be the world number one in multiple games. But Mathews started to think about Fnatic not just as a gaming team, but as a brand and platform spanning events, experiences, content, merchandise and more. As Mathews put it, “more Red Bull than Manchester United.” In his mind, the marketing potential for Fnatic as an Esports brand far exceeded its potential as an Esports team.
Also during this time, the Esports industry began to mature as streaming technology improved. This culminated in the acquisition of video game streaming platform Twitch by Amazon in August 2014 for US$1 billion, an event that served as a key inflection point for the industry according to Mathews, and signaled the arrival of Esports on a global stage.
These factors converged in 2015, when Mathews capitalized on an opportunity to come back to Fnatic in a more active role as Executive Chairman and Head of Product overseeing gear and apparel. His mission: help CEO Wouter Sleijffers develop Fnatic into a vertically integrated lifestyle brand.
Level 3: The Brand
On the heels of Mathews’ return, Fnatic supercharged its growth plans in line with this mission, all while maintaining focus on the talent development of its core Esports team. A few key examples: under Mathews’ direction, in 2015, Fnatic acquired hardware company ‘FUNC’and launched Fnatic Gear, its branded Esports hardware/equipment line. Since then, it has made a concerted effort to bring as much of the product development process in-house as possible. The following year in 2016, Fnatic opened a retail concept store, BUNKR, and in 2018, Fnatic Gear launched in 400 Best Buy stores in the U.S.
Most other gaming organizations view their team as their dominant asset and concentrate on sponsorships and licensing. It’s therefore common for these companies to own multiple brand names in order to maximize sponsorship and licensing revenue. But Mathews pushed his “Red Bull” centralized brand strategy. Utilizing this approach, Fnatic grew its revenues not only though Esports (league participation revenues like media rights), but also through commercial endeavors (brand partnerships and marketing campaigns with the likes of OnePlus, AMD, and Monster Energy), and the aforementioned product development (mostly direct-to-consumer and through Amazon.com).
The company’s diversified yet integrated approach enabled it to scale its reach and business as it has. Fnatic was the most watched Western team in 2018 based on viewing hours, and according to Mathews, its 2018 total reach (not unique) was an estimated 1.5 billion people between those who viewed live game content of Fnatic or its players, and those who follow Fnatic or its players on social media. To manage this, Fnatic employs a team of content, marketing, and player support staff beyond the 60 players on its roster. And in terms of the business, Mathews noted that Fnatic is projected to grow revenues 50-60% in 2019, highlighted by its Product revenue area, currently growing at a rate of 100% year-over-year.
Level 4: What’s Ahead
In anticipation of Fnatic’s next challenge--global expansion--Mathews recently re-assumed the CEO role, surrounded by a new management team including Chairman Nick Fry, formerly the CEO of Mercedes AMG F1, and COO Glen Calvert, formerly the Founder of Affectv. It’s fitting that Mathews--the man who started Fnatic and came back to help build its brand--has been tasked with maintaining a “cohesive brand” as it expands geographically.
With the US$19 million in new capital, Mathews and team plan to set up regional hubs to manage the core business locally. Right now, Europe is Fnatic’s strongest foothold, followed by Southeast Asia. The organization is headquartered in London with additional offices and gaming houses in Berlin, Belgrade, Los Angeles and Kuala Lumpur. The team aims to start planting seeds in China and expanding in the U.S., where other organizations like Cloud9 and Team SoloMid have a significant presence. Consequently, much of the capital in this latest round came from strategic investors in these target countries. Fnatic’s business model should facilitate this expansion, as its content and products can be easily localized. Other priorities include developing a centralized performance function for all Fnatic teams to drive innovation through sports psychology, nutrition, training, and scouting, as well as launching a new audio product line.
When speaking of what’s next, Mathews anchored the Fnatic roadmap in the original vision he had for the company: to be “representative of Esports.” To this end, Mathews hopes through Fnatic’s expansion to “lead Esports in every household.” He’s encouraged by what he views as the “limitless potential for Esports” factoring in the constant improvements in games, the incorporation of augmented and virtual reality into viewing experiences, and a general trend toward the democratization of entertainment.
Whether or not he is successful in leading Fnatic through its most ambitious growth phase yet to become a brand name synonymous with Esports globally, Mathews continues to be an industry trailblazer who has instilled a similar ethos in the DNA of the Fnatic organization. His open mindedness as an entrepreneur, combined with the nascency of Esports back in 2004, allowed Mathews and Fnatic to not be constrained with ideas or assumptions of what the Esports industry should be, and enabled Fnatic to push traditional notions of what the industry could be. It’s no coincidence that Fnatic was the first Esports organization to venture into apparel, to launch a hardware line, and to create a retail apparel store. The company is at the forefront of its industry, and is playing a large part in charting Esports’ future course. Not bad for a business started by a 19 year-old gamer and first-time entrepreneur.
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