Mike Sepso and Sundance DiGiovanni were ahead of their time when they started the esports tournament company Major League Gaming in 2002. They persevered through a long winter and sold MLG to Activision Blizzard in 2015. There, Sepso helped design the Overwatch League.
Now they’re on to a second act with Vindex, an esports investment holding company that got off the ground last year. Last week, they acquired the Belong Gaming Arenas brand from U.K. retailer Game, and they hired Game Digital CEO Martyn Gibbs to manage a larger rollout of the Belong Gaming Arenas.
New York-based Vindex will invest more than $300 million into building esports centers for amateur and casual players in the U.S. and other countries. Vindex’s other business, Esports Engine, will provide operations services for the arenas, which are like PC gaming centers with an esports focus. Vindex has set up partnerships with a couple of team owners, Dallas-based Envy Gaming, and New York’s Andbox to open multiple locations in their territories.
“What we’re trying to do is bring top-quality esports to your hometown,” Sepso said in an interview with GamesBeat.
Of course, the tough part is that most people can’t travel right now because of the pandemic. But Sepso is betting that the locations will eventually open, and he believes now is a good time to lay the groundwork. I spoke with Sepso about plans to keep esports moving forward.
Here’s an edited transcript of our interview.
GamesBeat: That’s quite a deal. It must have been time-consuming.
Mike Sepso: Yes, it was. It was time-consuming and it took a lot longer than planned. We had to do most of it over Zoom.
GamesBeat: Can you go back to the motivation for it, what your thinking was in approaching the deal?
Sepso: I’ll start with the vision for Vindex, which is to try to take on some of the bigger infrastructure-level challenges that esports and gaming content have in order to keep growing. We started by putting together a big global solutions provider, primarily for publishers, but also for streaming platforms. We’re progressing quickly along that. We acquired NGE and Esports Engine last fall when we launched the business.
The second strategy for us has always been, after we felt good about our solutions business, to move into this. If you think of esports as a pyramid, what we started doing with MLG and the ESL guys were doing with the bottom of the pyramid, gamers organizing themselves and professionalizing a bit more. At Activision Blizzard, obviously we created the super-professional model. That’s what most publishers are now pursuing. If you relate it to a typical sport, it went from grassroots organizations to the NFL right away. There’s no middle.
It’s been part of the plan since we launched and funded Vindex to take on this–what’s the localized esports solution for amateur and casual players? The LAN center, PC bang model has been around a long time, but it never scaled, because the value proposition for most consumers is no longer about equipment. It’s about community and programming.
GamesBeat: How are you doing this?
Sepso: Martyn Gibbs, who was CEO of Game — I’ve known him a long time. We got a bit closer when I was at Activision, because he was one of their biggest customers. He was telling me about — long after I left Activision — I spent some time helping him work through that model. They were already on to something. About a year ago now, we started talking about how that model might scale out internationally, and how we could bring it to the U.S.
It fit as an interesting part of the Vindex strategy, because if you think about what we’re doing, we’re trying to take on the bigger challenges that are usually pretty capital-intensive. We bring some kind of special sauce. We have a lot of connection with the publishers and esports, but also we understand deeply how to develop league structures and tournaments and effectively program these things.
For the last six months, we’ve been working on this deal to partner with Game to be our operating partners in the territories where they’re strong, and then bring Martin over to help us roll this out on an international basis with an initial focus to bring Belong centers and the professional esports experience to hometowns across America.
GamesBeat: How many locations do they have, and what kind of places did they put them?
Sepso: There are 23 locations now in the U.K. They’re in a mix of shopping centers and malls. The newest one that opened, which is kind of their flagship, is right on Oxford Street. It’s like the Union Square or Fifth Avenue of London. It’s a high-profile city center location. [Game will continue to operate those centers.]
GamesBeat: You were considering one at an airport. Is that unique in some way? Or is that more like the kind of place where you want them to be?
Sepso: Where we think the most demand is in underserved suburbs. In major cities now, especially with the Activision Blizzard games, there are teams and events going on periodically. But in suburbs around the country, there’s a lot of esports fans and aspirational players, people who just love to play, but would rather play with friends. That’s the value proposition. That’s why our focus is on places like shopping centers and malls primarily, as far as the rollout strategy. There’s infrastructure there.
We’re less focused on what kind of property to put them in versus where to put them. We’re certainly going to have locations in places like New York City and Dallas, big cities, but the important part is all of the places around them. I grew up outside of New York. There’s a lot of suburbs where parents commute in and out of the city for jobs, but their kids are stuck in the suburb. Aside from sports games and things like that, or another big event, they don’t really go there.
Meanwhile, if you think about sports, every suburb, every school system, has a soccer field, a baseball diamond, things like that. But there’s no esports center, no place to go play. That’s what we’re trying to do here, to effectively create the Little League Baseball diamonds.
GamesBeat: When you think of all the places where people play games, there’s a wide range of quality. Where are you going to focus on that spectrum? You have things like The Void, the big VR centers, and then you have a tiny place with a bunch of computers in a room.
Sepso: What we’re trying to do is bring that top-quality esports experience to your hometown. We’re trying to localize that. The same equipment you would have, the same competitive environment you’d have in a professional esports environment, that’s what we want to replicate in these locations. There’s some photographs and video that we can send you of what they look like in the U.K. right now. They’ll be identical.
A huge part of this is I don’t care if you’re in Manchester, England, or Dallas over here. You’re going to have the same experience when you walk into a Belong center. A critical part of this, too, that gets lost sometimes — each location of the 23 locations across the U.K., each one is in a neighborhood or a small city or town. Each one has a team brand. If you go to the new one on Oxford Street, it’s right in the middle of London. It’s the London Land Mines. There’s the Stratford Raiders, the Brighton Pirates. That’s important, because it’s about building a gaming community locally in the physical space.
If you think about it, one of the things that’s always been crazy to me is you could play online for years with the same person over and over again, and they might live 10 miles away from you, but you’d never know it. The reality is, how much more fun would it be if there was a real place in your community to go and meet them? To build teams and build some of your fan identity around it. That’s part of the youth sports, casual sports model we want to bring to this. All of these locations will play in tournaments and leagues and ladders against each other.
For instance, the Stratford location, right outside of London, [they’re the] Overwatch champs for two years running. They have a trophy case in the store when you go in. People wear the T-shirts. It’s what we used to have with MLG years ago, that local pride. It becomes an interesting thing. That’s what we’re trying to replicate. That means the experience has to be up to that quality level. What we’re not going to do is the more experiential entertainment stuff, like the Void. We’re not trying to build a demo experience for new gaming art or anything like that. This is meant to be a super top-end esports facility, but local.
One thing we’ll be doing that will be a little bit different–as you know, gaming culture and esports culture is not just about competition. It’s also about content creation, being a content creator, building an audience, streaming what you’re doing, things like that. In many ways, a lot of great esports players have moved on to become huge influencers and content creators on their own. That’s another piece. A number of the stations will also have high-end content creation capability. That’ll be another track of what you can do in these locations.
GamesBeat: Where is the competition now? There were different chains getting going, but I don’t know where everyone has wound up since the pandemic.
Sepso: The hard part for most of the others that have been announced over the past few years is they’re not people from the industry. Most of the management and money behind these things was trying to ride the esports wave of a few years ago. It didn’t come from the industry. When we looked at developing the Belong platform, Martin did it originally because he was running one of the biggest specialty retailers in the world. He was looking at it as, “How do I extend a new offering to my existing customers, but also create something of value for the publishers that supply me?”
We look at how we can grow the Belong platform so that it provides value to everyone who’s involved with what we’re doing in the industry. The most important thing is that gamers are happy with the experience and build communities and feel safe and happy, that there’s something to do all the time. But there’s a whole other constituency in the publishers. This has to be valuable to publishers. We’ve created a very valuable platform for them. Even content distribution platforms like Twitch need to be part of the mix here. We’re trying to solve for a number of different things.
Finally, it’s also the companies that own these shopping centers and other real estate that we’re moving into. We’re bringing something unique and experiential, something that attracts a demographic that doesn’t usually go to these properties. We’re trying to create something that has a lot of value to each one of the constituents in the mix.
GamesBeat: Are some of these folks still around, like Nerd Street Gamers or GG eSports?
Sepso: The GG guys are interesting in that they have a software product that independent LAN centers use to operate their locations. We haven’t seen much activity out of any of the others. But again, I think we’re already the biggest with the 23 locations we have in the U.K. The key here is that Martin’s been a video game retail executive for 25 years. Obviously you know some of my background, even if we don’t get to meet at conferences anymore.
We come from the industry. We come from not just esports, but I spent a lot of years at Activision too. We understand how the industry works, and we understand what the esports gamer wants. And not just the core esports player, but the casual ones too, the fans, and people our age who just want to go somewhere and play in a more social environment, instead of sitting at home by ourselves. We come at it from a unique, inside-the-industry approach.
GamesBeat: One publication wrote that they think you spent $50 million on this. Are you giving any kind of ballpark?
Sepso: No. We didn’t disclose any transaction details, and I don’t know whether we will.
GamesBeat: You had raised the $60 million last year, right?
Sepso: We actually closed around $80 million. We’re also a profitable business. We’ve designed Vindex to be able to continue to launch new businesses like this, primarily through acquisitions to start. When we announced the business, we were also announcing the first major acquisition, NGE. We also supply Esports Engine and finance that. This is our next major business unit. We’re launching it with, in my opinion, the best video game retail executive in the industry as our CEO, with the backing of everything we bring to the table. Vindex has a strong partnership with Game.
GamesBeat: So this is a division of Vindex, but Vindex will have other businesses?
GamesBeat: Where did the $300 million figure come from? Are you raising more money in order to make that happen?
Sepso: That will come through. We’re using some of the money we already raised to get started. The rest of the $300 million will come from operations and initial equity rounds.
GamesBeat: How are you able to do some of these things during the pandemic? There are probably some areas that can’t open right now.
Sepso: The good thing is we just completed the transaction. A number of the locations in the U.K. have started to reopen already. It’s really geography-driven. We’re in constant talks with shopping center owners and other retail real estate partners here about what’s happening in their particular environments, and then we’ll deal with local health officials as we think about where to roll out. But we don’t have to rush into it. The No. 1 thing here is we’re trying to build safe community centers for gamers. That’s piece number one. If we have to wait a few extra months to open, that’s not a big deal for us.
GamesBeat: Do you view that as a risk right now, as far as uncertainty goes? Or is it somewhat helpful in that a lot of locations might be cheaper as a result?
Sepso: If you look at what a Belong center really is, it’s a place where people from your local community get together in groups of 10, 20, 30 people at a time. We’re not talking about big esports events with thousands of people in an arena or a conference center. The reality is, Game has already started to reopen their locations in the U.K. They’ve done some redesigning of the spaces to be health code and social-distancing compliant. That’s a real possibility.
I’ve been in Manhattan this whole time, and I can’t wait to go out and go play some games and see a Yankees game at some point. But the reality is, it’s evident that I’ll be able to go to a Belong and play games with friends way before I’m going to go to a concert or a Yankees game or a Knicks game. In a way, we might be the first place that gamers get to go and hang out with other people in a social environment that’s also safe.
GamesBeat: Do you think there’s a period of time where you’re not encumbered by the pandemic at all? Are you looking at 2022 or something like that as a likely period?
Sepso: I can’t wait to go have us be producing gigantic arena competitions for big professional esports. I can’t wait to hit the gas and start rolling out a lot of Belong centers quickly, without having to think about slowing it down and redesigning for COVID. But we’re mindful of it. Inevitably — I hope medical science will win this battle at some point for all of us. In the meantime, we have a viable and very safe solution. But certainly we’ll be much more aggressive about our growth strategy in an environment that’s post-pandemic.
Hopefully in the not too distant future, as we start to get past the pandemic issues, I think we’re going to have a content pipeline problem. People are burning through games a lot quicker. Esports and experiential things — there’s a lot of demand building. You can’t go to events. You can’t even go to your friend’s house to play in a lot of places. All of that together is going to be pretty interesting. It’s been interesting to see the industry already do so well in such a bad time.
GamesBeat: What region are you focusing on first? Are you building out the U.K. first, or are you spreading further?
Sepso: The way that our structure works, you can think about it almost like a franchise system. We own the brand and programming and design. Then we have local partners who operate for us. We’ll be operating the locations in the U.S., while Game will continue to roll out new locations across the U.K. and Spain, which are their two strongest regions. That’s all going to be timed according to COVID restrictions and other things, but we’re going to grow in both places as quickly as we’re able to.
From a U.S. point of view, we did partnerships with Andbox in New York and Envy in Dallas. We think those are two critical markets where there’s a lot of esports fans and gamers. We can be very successful there. We’ve created partnerships with those teams, because they have deep roots in those markets. We always liked Columbus. We have a big production office. Esports Engine is based in Columbus, Ohio. Columbus also happens to be the retail industry’s test market for new products and retail concepts. We’re likely to have one of our earliest locations there, which will act as a kind of innovation lab. The end result we want is to have as much geographic spread across the U.S. as possible and reach as many gamers as we can.
GamesBeat: On the digital side, what is the opportunity? What are you going to pursue there?
Sepso: There are two angles to it. There are the physical places you go to, but really, 50% of the value proposition is the digital experience. That’s everything from how you interact with the PCs and consoles in the store to the app that you book your time on, how you meet other gamers and form teams, how you track your own results and progress, how you find out when you need to get to competitions or schedule practice sessions. All of that stuff happens through the digital platform we’ve been building. That’s a critical part of the offering. This is a physical space for gamers to meet and build communities, but it’s a digital space to do that as well.
GamesBeat: How many people do you have at Vindex now, and across the whole Belong operation?
Sepso: Currently we have about 180 employees at Vindex. Our five-year plan for Belong is to have 500 locations, and that will be about 4,000 new jobs.
GamesBeat: That’s pretty ambitious. You’re not thinking small.
Sepso: No. I don’t know if we ever have. We just didn’t have as many esports as before.
GamesBeat: Are there already some special things happening in conjunction with the game publishers?
Sepso: We’re not announcing any of those partnerships yet, but obviously for the past four years the Belong locations in the U.K. have been working closely with a number of publishers to create special programming. A big part of the strategy is to build amateur systems and casual leagues and things like that, allowing people to compete, so it’s important we work closely with our publishing partners on those.
But also, as we get bigger — our 23 locations give us pretty solid coverage in the U.K., and we’re looking at expanding here too. It’s an interesting opportunity. We think one of the value propositions for our publishing partners will be — members of Belong will effectively all be core gamers, people who are voracious game consumers. It’ll be a great way to market to that group of people, a great way to test new game concepts, a great way to continue to interact and keep connectivity with core gamers across every different genre.
If you think about it, our era of gaming, going to the mall and buying a game, is over. It doesn’t exist anymore. What replaces that community that you built by going and hanging out at your local game shop back in the day? That retail experience doesn’t exist anymore. There’s a component of that in a more modern format that we can create through the Belong network.
GamesBeat: It’s a new kind of institution, a new kind of hangout.
Sepso: That’s really the point here. You and I know how prevalent gaming culture is. Everything that we’ve done, my partners and I, in this space, it’s always stuff that we wish that we had back when we were kids. I would have loved to have MLG when I was 14, because I would have absolutely spent a lot of time trying to be a pro gamer. Now, when we think about it — what would have been an amazing place to have in our hometowns where we grew up? That’s how we’re designing Belong.
Obviously it’s for kids and young adults and adults today. I’m going to hang out at my local Belong. It’s more fun to game with friends. That’s the type of space, the approach we’re taking. It really is an extension. It goes all the way back to 2002 for us, when we started MLG. The idea was, can we create something where 100 people can be professional gamers and find a career doing that? Obviously that’s happened. It’s bigger than we thought it would be. The next big challenge is now, how do we bring that, at a core infrastructure level, to everybody’s hometown? How do we create an experience that we would want to hang out in?
GamesBeat: As far as the financing goes, do you have plans for a big transaction in the future that will secure all that at once, or do you think you will have smaller events happening?
Sepso: Our initial Series A round was $80 million. We’re not really doing anything that small on a relative basis. But we’re planning to be a bit more iterative about additional financings. We have a profitable business today. The unit economics of each Belong location are profitable. Obviously, it takes a little while for new locations to reach profitability, but as an all-in business this is meant to be something that can self-finance too. We’ll certainly be raising more capital, but we’ll also be launching new businesses as part of that mix. We’re doing additional transactions as well. We’re still doing acquisitions in other parts of our business.
There’s a bunch of big, complex, fairly capital-intensive problems that we’re trying to solve, and that will help the whole ecosystem grow. But we don’t want to get there by organically growing the solutions. We want to find a strategy we believe in and then find some businesses that exist, that have great operators behind them, that we can invest in and build.
GamesBeat: We talked about the Electronic Sports Group a couple of years ago. Is this what you had in mind as far as how things turned out, or do you think you changed a lot along the way?
Sepso: I had this type of strategy in mind, at least at the high level — the industry is now pioneering and maturing the professional league business around esports. There’s a lot of technologies and services and infrastructure that publishers need in order to do that effectively. There’s also a big consumer infrastructure need, like we’re talking about now. Then there’s a bunch of other B-to-B opportunities. All of these things are driven by pain points that we’ve experienced personally, in some instances, throughout our careers. It’s hard to do some of these things. It’s not a mature business. There aren’t a lot of other businesses out there supporting that stuff.
The third major business strategy that we’ll move into is trying to help with more transparent data and different things we can do to help drive the commercial aspects of esports, drive that forward. But this is a big undertaking. We have the best team in the world lined up to do it. Nobody in games retail has more experience and success than Martin.
The one thing that changed for me was, Sundance DiGiovanni and I met our two other partners. There are four founders at Vindex. Jason Garmise and Bryan Binder are the other two. They’re also entrepreneurs, but previously were private equity and hedge fund executives who were very successful. In 2012 they launched a data business and sold that. Similar to Sundance and me, they worked at big companies, helped operate that business for a while. We happened to meet them about a year and a half ago as we were developing that strategy. The formation of the four of us was a sort of Justice League of what we needed to get done.
The combination of Sundance and I’s background in gaming and esports, our different and unique capabilities, matched with what Bryan and Jason bring to the table in terms of operating capabilities and closeness to capital markets, and very strong, sophisticated financial backgrounds, it’s a really good team. It allowed us to do a lot more, a lot more quickly.