Ready To Get in the Game? 3 Top Uses for Esports

Soon hockey fans in Washington D.C. will be able to catch a game in the nation’s capital, then watch top-flight competitive gamers pick up their own (joy) sticks next door.

Monumental Sports & Entertainment (MSE), which owns the NBA’s Washington Wizards and NHL’s Washington Capitals, is opening a “first-of-its-kind” 14,000-square-foot competitive gaming studio adjacent to the Wizards’ and Capitals’ Capital One Arena in downtown Washington D.C.

Named District E, the studio will serve as the home for the NBA 2K League’s Wizards District Gaming team, which is also owned by MSE and boasts back-to-back 2K League championships. District E will also host MSE-owned Caps Gaming, a competitive team playing EA Sports’ NHL video game series, and will serve as the East Coast satellite office for global Esports organization Team Liquid.

In addition to the competition studio and practice facility, District E will include a restaurant and bar for spectators.

Zach Leonsis, president of Media & New Enterprises at MSE, said District E will be the first dedicated Esports facility run by an NBA or NHL team. The venue is filling space vacated by two restaurants that closed in 2020 within the Gallery Place shopping center next to Capital One Arena.

“There's a thriving gaming community here in Washington, D.C., and they don't have a great place to gather, to run grassroots tournaments, to watch Esports, to host in-real-life professional Esports opportunities,” Leonsis said. “We think District E can be that home.”

The District E deal illustrates that Esports operators are emerging as viable tenants for commercial real estate, and that the industry’s evolving real estate needs stretch well beyond the arcade at your local mall. CRE brokerage firm JLL has identified three Esports real estate categories for investors, each of which is described below. They include retail locations, team facilities and venues for competition. Most facilities range between 1,000 and 5,000 square feet, while one venue: Esports Stadium Arlington in Texas, comprises 100,000 square feet, accommodating up to 2,500 fans.

Esports activities may do well in retail spaces, but these locations depend on foot traffic like any brick-and-mortar store.

JLL identified three emerging gaming retail configurations:

• Gaming centers. These locations have setups for individual players often consisting of a desk, a chair and a computer. These setups are usually rentable by the hour. These gaming centers are like arcades or internet cafés, but with more expensive high-end technology. Retail gaming centers are most common in shopping centers and strip malls.

• Esports-themed bars. Like sports bars or bars with live music, these venues often include gaming setups for patrons in addition to a stage for competitions and streaming. Meltdown is one such franchise model with locations in Europe, Montreal and Panama.

• Store within a store. Often pop-up in nature, these “stores within a store” are add-ons to existing retail space that can include both individual gaming setups and stages to watch and cheer for Esports competitions. These add-ons are meant to draw new customers, primarily younger people, to an existing destination. Common locations for Esports add-ons include casinos, department stores and other traditional retail locations.

There’s also the opportunity to build out brand-new facilities for amateur and professional Esports teams. These facilities, akin to office space, are meant to support gamers and teams, but unlike retail, they do not generate any on-site revenue. These locations are either supported by a parent organization like a school, or they collect income from sponsorships or other revenue streams.

• High school facilities. As Esports gain popularity, schools are looking to convert classrooms or multipurpose rooms into dedicated gaming facilities, with base-level gaming setups including shared chairs, desks and computers.

• University-level facilities. These may have dedicated, higher-end gaming setups, as well as extra amenities like lounges and meeting rooms.

• Professional Esports team headquarters. These include a mix of high-end office space and locker room amenities for gamers, top-of-the-line gaming setups and a streaming studio. JLL said in its report that there’s an amenities arms race for anything to attract players, from fitness equipment to massage rooms and sleeping spaces. Studies show that many Esports players do not get adequate nightly sleep.

The biggest, and boldest, use of Esports real estate? Professional venues meant to host competitions and entertain fans.

• Small to midsize venues. There are small to midsize venues that are converted or built within an existing space. These venues can accommodate anywhere from 50 to 1,000 spectators. Converted properties include warehouses, conference centers, soundstages and theaters. The cost and complexity of these conversions vary widely based on the existing structural conditions, as well as if the degree of technology and infrastructure is already in place.

• Large capacity venues. Most large venues have the capacity for up to 10,000 spectators. Like other ground-up developments, these projects are the most complex and expensive, but also offer the most upside with regard to ticket sales and sponsorship opportunities.

As the Esports community keeps growing, there’s good reason for investors like Leonsis to be optimistic. A report by JLL estimated the number of global Esports enthusiasts in 2021 at 240 million, up 50% from five years earlier. The total Esports audience, including occasional viewers, is estimated at 474 million.

The same review estimated global Esports revenue at $1.08 billion in 2021, up more than double the $493 million reported five years earlier. Sponsorships made up 59% of last year’s Esports revenue, while tickets and merchandise only made up 6%, somewhat insulating the industry from the pandemic.

Once open, the 150-seat District E will join the likes of The Fortress, an Esports arena at Full Sail University in Florida, and the 2,500-person Esports Stadium Arlington in Texas. Envy Gaming, an Esports organization, acquired Esports Stadium Arlington last month. It’s a former convention center that’s been converted to an Esports facility in 2018.

“Esports is just getting started from a real estate perspective,” said Zach Boroson, a senior managing director in JLL’s D.C. office who represented MSE in the District E lease.

While Esports is a growing industry, it’s not without its challenges when it comes to real estate.

MSE began its search for an Esports venue a year ago, and Boroson said the company considered a variety of locations before choosing the vacant retail space next door to Capital One Arena. For District E, proximity to the arena is a bonus.

“We thought it would be foolish for us to not tack on complimentary events that would complement the core properties that we have with the Capitals and Wizards, and concerts as well,” Leonsis said. “We always thought there was a great opportunity to create a brick-and-mortar in-person experience around Esports.”

But not every Esports operator will be able to open next to a big, downtown arena. There are technical and operational challenges to dedicated gaming spaces. Boroson said good ceiling heights and abundant electrical and internet capacity are obvious needs.

Many video games may not be popular forever, so building out an adaptable and flexible space is a must. And of course, so is knowledge of the industry and the ability to deliver compelling Esports programming. Like traditional sports teams more than a century ago, the Esports industry is trending toward home city-based teams that develop a loyal, local following. The global, 20-city Overwatch League is a prominent example.

“Just because you open it doesn't mean you'll be successful,” Boroson said. “You have to make an investment in the industry itself.”