For the last few years, I’ve been interested in the intersection of virtual reality, esports, and location-based entertainment. There’s been much hype around esports and LBE. Hundreds of millions of dollars have been invested into esports arenas. Several chains have emerged, and some disappeared, trying to make esports the central focus of their business.

GameWorks tried and failed (though the pandemic had a hand in their demise). Belong Gaming Arenas is trying a hyper-local approach to become the little league field of esports in each town.

But the problem with esports as a location-based entertainment play is that it’s a computer rental business at its core. Players can play the same games at home for free, chatting with friends and even live streaming. There’s a hard cap on what you can charge for an hour on a gaming computer. And the per-capita spending on food and beverage is proving limited. As far as I can tell, it seems impossible to make it a profitable business. And so far, nobody has even tried to prove me wrong.

Case in point, Ignite Gaming Lounge in Skokie, IL. I met its cofounder, Sam Oanta last year. He had just relocated his esports lounge from downtown Chicago to a larger suburban building. It covered 14,000 square feet, half as an esports center with more than 100 gaming PCs, a couple of Rock Band rooms, and some virtual reality games. The other half was an event center for large groups. In between were a full kitchen and two well-stocked bars.

The pandemic made it impossible to utilize the event center. And Sam had given up trying to make the esports business work independently. He admitted that the business would never make money without the food and beverage component. So now he’s in the process of turning his event center into a full-blown arcade.

This is a recurring theme in the location-based entertainment business. Quality food and alcohol are anchor attractions like laser tag was 20 years ago. Gone are the days when a snack bar with hot dogs, nachos, and lousy pizza sufficed.

Time will tell if Ignite’s combination of esports and arcade games will pan out. Esports is about community-building, and arcades are about casual, impulsive entertainment. It will be interesting to see if those two concepts support each other or potentially clash.

Virtual reality is the key to building a location-based esports business for several reasons. Unlike PC games, most people don’t have VR at home, so we can still charge a premium price. And even when VR becomes more ubiquitous at home, arcade-based VR esports can feature a physical component, which is hard to do in most people’s limited space at home.

One of the best examples of this is EVA from France. Esports Virtual Arena was founded by Jean Marriotte. I’ve followed EVA since I interviewed Jean on a panel at VR Days in Amsterdam in 2018. At the time, they had several multiplayer free-roam VR games and had just started experimenting with esports. After the opening, I caught up with Jean to check in and see how their attempt to build a location-based esport was going. The following interview is edited for clarity.

Bob Cooney: Jean, thanks for taking the time to chat. Congratulations on your growth and the opening in Texas. It’s quite a facility.

Jean Mariotte: Thanks, Bob.

BC: At VR Days, we talked about how you can’t just stick your toe in the water and be successful with esports. You must go all in. You seem to have fully committed. How many locations do you have now?

JM: We currently have 20 locations in France. Most sites have two arenas of 500 square meters each (5000 square feet). And we’ve just opened our first US franchise location in Dallas.

BC: OK, you know I’m all about business models. How are the locations doing?

JM: We must run about 30% capacity utilization in France to break even. The average location is about 58%. It costs around $600K to build out a facility in France. That includes everything, fees, renovations, salaries for training and startup, marketing budget, etc. But in the US, it’s about double that.

BC: Really? Why do you think the investment in the US is double?

JM: Everything costs double, so you charge double, and the US employees’ salaries are also double. It’s pretty simple.

BC: And you feel the revenue will be double also? Are you confident about that?

JM: It is based on what we’ve seen so far.

BC: How long does it take to go from opening to a 58% run rate in France?

JM: It depends on the city and the population. The utilization grows in small increments. Getting to 60% takes about six months, more or less.

BC: Once you get to that point, the seasonality of the business comes into play.

JM: Yes, it depends on when you open. Opening during the slow time is essential.

BC: Same with a restaurant.

JM: Yes, you need to ease into it. If you open in the middle of vacation and it’s a rush, you won’t be happy because you must get used to running everything.

BC: You’ve got a restaurant in each location. The food quality in Dallas looks impressive. What percentage of revenue is food and beverage versus VR typically?

JM: In France, it is 30%, but it will be more in the US because we have an authentic restaurant there. People come to the restaurant and then try to play VR.

BC: If you got to 60% capacity and invested $600K to $1.2 million for the location, how long does it take to get that investment back in months or years?

JM: It’s between two and three years, but the metrics could change next year. There’s a human element, a location selection element, and a market competition element.

BC: In the early days with Zero Latency, there was no way to get your money back fast enough because you had to keep upgrading the tech every few years. How much of the $1.2 million is pure technology that might have to be replaced in three years?

JM: I’m unsure, but it’s a small investment component now.

BC: I see you’re running a membership model.

JM: Yes, we just launched it in France. We’ve reworked our Battle Pass and launched the same model in the US one week ago.

BC: Can you tell me more about it?

JM: You can check it out on our website. We have three essential plus packages that allow players to commit to playing more, with 50% discounts compared to classical pricing. Additionally, we offer exclusive skins and a 10% discount at the bar.

BC: What’s the price during peak and off-peak hours?

JM: Off-peak hours are priced at $10-29, and peak hours are at $39.

BC: Once a player subscribes, does it automatically renew every 30 days until they terminate it?

JM: Yes, that’s correct.

BC: What percentage of revenue is returned?

JM: We’re still testing this since we just made changes before it was unlimited. We had to change the model to keep the franchisees and players happy. We’re moving towards esports hours in this new Battle Pass.

BC: What are esports hours?

JM: It’s a period where players can play unlimited games. It’s a great way to unite the community and encourage synchronous contact and socialization. When we changed our model, we had a tough time with our community in France. We held workshops and did a Twitch to understand their frustrations and needs. Ultimately, we found a model that works, and dedicated esports hours are a part of it.

BC: Will you make players earn their way into the esports hours, or do they have to buy their way in?

JM: No, you must earn it if you want to play unlimited on the esports hours.

BC: Do you have the rules for how players can earn their way into the esports hours?

JM: It’s a work in progress. We want to revisit it before the end of April.

BC: That’s fascinating, Jean. It’s an ingenious system. What do you have in terms of statistics on retention rates and the percentage of players at different levels? Was the old plan unlimited?

JM: The old system was 90 euros a month for unlimited play, but you could only book two sessions at a time on the website. Then you had to play and book again. To play during the esport hours, you need to bring your team. It means you can’t play alone with no training.

“It’s a period where players can play unlimited games. It’s a great way to unite the community and encourage synchronous contact and socialization.“

BC: So, no casual play?

JM: It could be casual, but at least you need to be organized, not just to play for free like this. So you need to participate in competitive tournaments and subscribe to this to have these benefits.

BC: What percentage of your business was subscription revenue and play?

JM: 15% of the revenue came from memberships before this model.

BC: But probably 30% of the sessions or something like that, right?

JM: Yes, and the exciting thing is that these guys are ambassadors. They buy a lot of drinks and food and bring in friends. One Battle Pass brings more or less four or five people into the location. These guys are such fans of the concept and the game. Some of them play every day.

BC: The challenge I’ve seen with this model is that people must play frequently, be passionate about it, and increase their skill levels. At $50 a game, it’s just not going to happen. The price has to come down.

JM: Exactly. If you try to copy the esports model precisely, people need to play 10 hours daily to be competitive. But if you take some classical sports like Formula 1, these guys only drive a little. They use training and simulators. So we will release games on Steam for free and help the competitive teams find sponsors. We have a good ecosystem and now have the E League, the French Cup, and sponsorships. We will be on broadcast TV in France this year, not just on Twitch.

BC: I’ve always believed this was possible, but the business model has been elusive. You’re close to figuring it out.

JM: We still have work to do, but we opened the first location in June 2019, and we’ve been working on it since then.

BC: It’s well-documented how to build a game, but the business model is the hardest part. Not to diminish the importance of the game. Without a great game, you can’t have an esport, but without a great business model, you can’t make it viable. You’ve done a great job with all the esport requirements: leaderboards, skins, lots of weapons customizations, and fit-outs. There’s a real strategy required to play and win. That’s critical to a game where there’s progression. My protégé David Lugo, the VR Guy with the Fro, came for your grand opening. He’s an ex-Army infantryman and an expert marksman with qualifications in various weapons.

JM: It was so interesting because he played at the opening casually and liked it. But we had a meeting the day after to talk about everything. We played for an hour with the staff in a competitive way. And he loved it.

BC: He was taking charge and speaking like military infantry on the frontline in combat.

JM: It was crazy good. When he removed the headset, he told me he understood the game’s potential when you play competitively.

BC: It’s interesting to see how a competitive experience can bring out the potential in a game. It’s a real challenge to bring new players to that level of engagement.

JM: That is a real challenge. They play for the first time. How can we bring them to the second step, which is your best experience?

EVA – Esports Virtual Arena operates in Flower Mound, outside Dallas, Texas.