Interview: Ali Moiz, CEO, Vulcun
Published 6th August 2015
What was your background prior to starting up Vulcun, and how did the business come about?
I’ve been an entrepreneur for 16 years now, starting in high school. I built and sold a couple of VC-funded companies before this. My last company was Peanut Labs, that was also based out of San Francisco in the video gaming business, so we worked with a lot of game publishers and platforms, everyone from Electronic Arts to Ubisoft to Facebook, to Zynga, and most of the social gaming industry. That company was acquired, I stayed on for a while, they are still doing really well. I’ve been a gamer all my life, starting with the Commodore 64 back in the days where you had to take an audio tape and put it into a computer to load up a programme. I got hooked on the eSports, six, seven, eight years ago, and when Twitch and Starcraft II started to get big a few years ago, the two came together and created the first large audience for eSports in the west. Around the same time, I put together a League of Legends eSports team, also called Vulcun, so that’s where the name comes from. I was the owner, we had five players, a coach, a manager, we were the No 2 team in North America in 2013, so a really good team which had a great season. At the end of the season, I sold the team to one of our sponsors. I was always looking for interesting ways to get involved in eSports, because I’m really passionate about it and very bullish on eSports long term, because I think this is a real sport, and every year there are more and more things happening that turn this into a more of a sport. Viewership has been doubling every year, there’s teams, professional leagues, pro players, sponsorships, central contracts, collective bargaining rights, and the broadcasting is becoming more mature and improving every year, except the broadcasting is not on TV, it’s just all online. So right now, it resembles a sport.
While FanDuel and DraftKings are attracting huge levels of investment, combining eSports with fantasy is a new concept. What makes you believe this will succeed as a business model?
The question is not really whether the DraftKings and FanDuel model works, because it does, those companies have clearly been doing well. The questions people have are, is this a real sport, is this market big enough to be interesting, is it reliable, is it consistent, does it look and behave like a real sport? To most peopleon the outside, it’s just a small, niche thing, just a bunch of gamers. But I was in the middle of it, I ran a team, I watched the system grow up, and the only regret I have is not being involved sooner. I think this is absolutely a real sport, and every single year there’s more and more people in the mainstream media that accept it, so the dynamics of the business are very similar to traditional fantasy sports. Like FanDuel, it is a proven model being applied to a new industry.
Where has the financial backing/ investment for Vulcun come from?
It’s all VC. There’s no private equity. We have raised a total of about $13.5 million, about $1 million in about seed money when we started, and the most recent round was $12 million led by Sequioa, the world’s leading VC firm. It’s a really great group. As well as Sequoia, there’s Matrix Partners, the partner there being the cofounder of Betfair, Josh Hannah. There’s partners from Google Ventures in there, Joe Kraus. The CEO of Zynga, Mark Pincus, is invested. Personally, there’s the CEO of Kabam, another large mobile gaming company, Kevin Chou, who is part of the round. If you look at the website, there’s some other great names in there. These people really believe in the industry, and they’re supporting us.
What are the main complexities involved in pricing (i.e. setting player salary costs) and scoring the fantasy contests and leagues?
I think eSports is a lot harder to do than traditional sports, because for football, baseball or basketball, there’s mature leagues and data sources. In the US, there’s a company called Stats.com, which collects and syndicates data for all sports leagues for anyone who wants to buy them, so it is very easy to get the data, populate fantasy contests, set player salaries, award points. In eSports, there are two issues, a) there is no such company, and b) outside of one game, the tournament structure is very unstable. eSports is dozens of games, and if you decide to support the Top 10, we have an entire team dedicated to getting data, managing data, inputting data, making sure the data is correct. We don’t always get it right. We try to, but it’s pretty chaotic.
How many tournaments do you cover on an average day/week, and how do you plan to expand this coverage over the next 12 months?
Right now we are supporting five games, League of Legends, Dota 2, Hearthstone, CS: GO and Call of Duty, and on any given week, there’s somewhere between 12-15 tournaments running at the same time. Some of them are just weekend events, Friday to Sunday, others are longer-form leagues, which might run for three months, with maybe two days of games every week.
To date, how do the various eSports rank in terms of activity and volumes, and are you seeing any significant shifts here?
I think the No 1 eSport in the world right now is League of Legends, but Counter Strike (CS: GO) is catching up fast, and Dota is probably No 3. Dota actually has the largest prize pool out of all the eSports. The main event for Dota 2 is about to happen next month, August 3rd to August 9th, and that’s expected to have a prize pool of – wait for it - $20 million. It’s already $18 million right now and they keep bumping it up, and in the next two weeks, I expect that to get to $20 million. Fantasy contests in the US benefit from a skill gaming carve-out from the UIGEA. What is your view of the moves by several US states to directly regulate fantasy sports? Do you see this as an opportunity or threat? I think it makes things more complicated, but at the same time, it makes things more stable. Legislators likely want to regulate it and tax it, which obviously creates more burden for any business operating there, if they are accepting players from that state. But then you don’t have the risk of one state staying, “You know what, we’re going to stop this.” Because if they are regulating and taxing the activity, they are more likely to support it.
How easy to navigate is the international legal terrain for a real-money fantasy-based product such as yours?
Most European countries require a license. We are in discussions and are working on that. In the meantime, we restrict our paid users to North America, or to countries that have not regulated this and do not require a license. For the UK and other European countries, most of our activity is coming from free users. This is really one of the things we have really innovated on and what sets us apart from the traditional DFS model, is in traditional DFS, you play with money or you don’t play much at all. There’s nothing else to do on those sites, it’s fantasy, it’s one format, and you play with money. But we saw that 90% of the people who come to our sites, not just our site, but other DFS sites - Fan Duel, DraftKings and others - register but don’t play with money. So as a business it’s pretty stupid to bring 100 people to your door, and then turn away 90 of them right? So, our solution was to provide a lot of free stuff, so you can play all sorts of mini games for free on the site in virtual currencies, and win virtual prizes.
So how do these virtual currency games operate alongside the realmoney fantasy product? Do you eventually see these working as an acquisition stream for the daily fantasy games?
The interesting thing is because these are gamers, they care a lot about virtual, in-game items, so if they are playing a particular game, and they want a virtual badge, they want a new gun in their game, or they want a new skin for their character, these are all virtual items. They don’t have any real-money value, but you can come to Vulcun, play for free, win some of these items in your game. So, there no cash involved, but it creates a lot of engagement, and gives the other 90% something to do, so that is where most of the activity in Europe is focused on. As for it being a potential acquisition stream, it’s too early to know for sure, as we only just started doing it this month, and we are a pretty young company, only six months old. However, I believe it will. On the internet, time is always money, and if you can get people to spend time with your product, really have fun and be engaged, whether it’s for money or without money, they will be a customer for years, they will refer friends, they will talk about you, it’s always a good thing.
The holy grail for companies such as yours is obviously converting the huge and growing numbers of eSports players and fans into fantasy league players. How will you be going about more widely popularising the concept and business?
I think the fantasy market is always a subset of the broader sports market, so even in the US, you find the DFS market becoming pretty mature with FanDuel and DraftKings, and Yahoo getting into it, launching a DFS mobile app this year. Overall, fantasy is about a third of the overall market for, say, American football. It’s a smaller market, because this doesn’t appeal to everyone. For eSports, the same trends are going to apply. It’s going to be smaller than the overall eSports market by a significant margin, say 10-30% of the overall eSports fan base. Search is not an effective way to reach these people. There is almost no search volume around these terms. So we’ve partnered with a bunch of professional teams and done a lot of organic grass roots marketing, reaching out to these people in places where they hang out, which is typically Twitch. There’s not too many other places, there’s YouTube, there’s Azubu, there’s Hitbox, so you can probably count on one hand the places you can watch eSports. They are like the new age TV channels. Instead of being on air, they are just online, so you open up a web browser, you punch in an address, and you can watch the game from either a computer or a phone. It makes a lot of sense for people interested in eSports, whatever product and service you are selling, to be involved there.
How do the demographics of your average player compare with other online gaming verticals, such as traditional DFS/fantasy sports and iGaming?
The average age for eSports is pretty young, I think the median age is 20, 21, so it is a relatively young audience compared to the general population for traditional sports. They are predominantly male, north of 80%, maybe 85%, and tend to skew young, younger than their sports, and they just watch online, so rarely switch on the TV. They are also pretty sophisticated, being gamers themselves, playing some kind of game for a significant number of hours a week, or following the eSports scene for a number of hours a week. One of those two things is typically required for you to be involved in fantasy sports, because if you are not following the scene, you are just not going to be interested in drafting a team.
On your website it says that $10m of the $13m VC funding is offered in prizes. Does this place you under pressure to start funding prize pools from sustainable revenue streams within a certain time frame, or are your investors taking the long view as they are with DraftKings and FanDuel?
The investors are here for the long term, and the prize money doesn’t really come from the investment per se, it comes from the entry fees that people deposit in order to play games. For example, say there’s a tournament happening and people put in $10,000 in entry fees, we keep a small commission on that and the rest is returned in prizes to players, so that counts towards the prize pool. The investor money just helps us be able to make that commitment, and guarantee that.
At present, team selections are locked and no substitutions are allowed once contests are underway. Can we expect to see you introduce elements of inplay to the model, i.e. with player values changing during the game in line with their performance, allowing customers to draft in response to injuries etc?
When we started off, we were essentially just using the DraftKings, FanDuel model, so it’s daily, and everything is locked at the start of the day, and you can’t do anything till the end of the day. And it’s very hard to improve upon that model, because daily fantasy, at least the money part of it, is highly regulated. You can’t do betting, you can’t do results from just one match, they have to be a set of matches, and there are all these other provisions in the UIGEA that are specific to fantasy. So it’s been hard to change that model for real-money. So what we’ve done is to have in-game betting today, using virtual points, so not cash. So, say you draft your real-money roster, and you are watching the game, and in between you have all these chances to win virtual prizes by correctly picking the next event that’s about to happen, i.e. which player is going to get the first kill, A or B?, or who is about to hit a certain objective in the game, that is three minutes away. So, there’s as lot of in-game stuff we do, and it’s very instant, and as far as I know, we are the only site doing that. But I don’t think you can do that with real-money due to restrictions under UIGEA, so that is why we are not touching that, and have firewalled the system, so that all the new, innovative stuff is being done with virtual currencies, and all the traditional DFS stuff is done with real-money.
I’ve read that the favourites win less often in eSports than traditional sports, making for more volatility. Is this actually true, and what issues does this present you with?
This is true. It’s built into the model, so the salaries adjust based on performance. It does make things more interesting, as it gives less skilled players more of a chance to win, whereas in traditional sports, if you do your research, it’s easier to continue winning as a fantasy sports player, because these things are very skill-based. You will see the same people winning again and again, week after week, and accrue larger and larger balances, unlike games of chance like roulette, where anyone can win on any roll. I think more volatility is actually good thing, as it gives less skilled players better chances and odds. And it makes the sport more interesting, as people love drama, they love upsets, they love interesting storylines.
Can you give a sense of how the business has grown since you launched the platform around six months ago?
We are a private company, so we don’t share all our numbers, but we are the most transparent out there when it comes to sharing numbers. To give you a sense of the growth, in January, we estimated a $250k prize pool for the entire year, in February that turned into $1m, in March that turned into $4m, and in May or June, we bumped that up to $10m for the year, so the growth has been a lot faster than expected. The response from the community has been super strong, we have already paid out more than half of the $10m to date, so maybe the prize pool will get bumped up again before the end of the year. We were also the first eSports DFS site to have a player that won $100,000 in their first year, so we have a player, Yjingtong, who netted $100k in the first five months of eSports DFS. I think Playboy magazine is trying to do a story on him, but he’s really hard to get hold of!
“Viewership has been doubling every year, there’s teams, pro leagues, pro players, sponsorships, central contracts, collective bargaining rights, and the broadcasting is becoming more mature, except it’s online, instead of on TV. So right now, it resembles a sport.”
“eSports is a lot harder to do than traditional sports, because there’s no mature leagues and data sources.”
“We’ve done a lot of organic grass roots marketing, reaching out to these people in places where they hang out, which is typically Twitch.”
“I think more volatility is actually good thing, as it gives less skilled players better chances and odds.”