In fantasy e-sports, everything is virtual except the money – SFGate

TheRealAZMan says he’s won more than $91,000 so far in a fantasy sports league — not because he picked people like Stephen Curry, Buster Posey or Tom Brady, but because of players like Faker, General Hao and fOrest.

He made his money because a new crop of fantasy league startups doesn’t rely on real-world athletes, but on professionals who play video games like “Dota2” and “League of Legends.” Often teens or young adults, they square off in daily competitions around the globe.

But while the games are virtual, the cash is real: Startups Vulcun of San Francisco and AlphaDraft of Los Angeles both say they have players who have won $100,000 since they began offering league play early this year. Unikrn, a Seattle e-sports betting site, says its players are wagering as much as $40,000 a month.

TheRealAZMan said he’s won by picking AlphaDraft lineups of pro “League of Legends” competitors since January. He didn’t know a lot about e-sports when he started, but quickly found that predicting player statistics was easier than for some regular sports.

“It’s lot of fun,” said the New York area resident, who declined to give his real name. “There are games happening at times when traditional sports aren’t played, like late at night or on weekday afternoons. If you do your research and make smart picks, there’s a lot of room to make money.”

Vulcun co-founder Ali Moiz hopes to cash in on the growing audience of e-sports fans, especially those far younger than TheRealAZMan, who is in his 40s.

“I don’t think it’s ever going to get as big as (fantasy) football,” Moiz said. “But we’re at the beginning of a large wave. For a lot of 13- and 14-year-olds, video games are their primary sport.”

To casual or non-sports fans who don’t understand the lure of regular fantasy sports leagues, fantasy e-sports will be even more of a puzzler. But to fans of fantasy leagues or video games, they will make complete sense.

Both are based on the dream of becoming a team owner or manager, assembling teams of players whose success or failure during games translate into fantasy points.

But instead of winning with athletes who record the most touchdowns, home runs or free throws, fantasy e-sports players score with video game pros who get the most kills, head shots or captured flags.

“I’ve had debates with people about e-sports, people who don’t believe this is a real sport,” said Unikrn CEO Rahul Sood, best known for founding VoodooPC, the luxury gaming computer company that Hewlett-Packard bought in 2006.

But Sood tells skeptics to look at the video games their kids are playing. “There is no debate, and if they’re on the wrong side of the issue, they’re probably on the way to obsolescence,” Sood said.

Indeed, recent research shows a groundswell of support for fantasy sports and e-sports. Game industry research firm SuperData Research estimates that there are 134 million e-sports fans worldwide, with an e-sports market worth about $612 million globally, including $143 million in North America and $374 million in Asia.

Meanwhile, the long-established fantasy sports market is also growing, with 56.8 million players in the U.S. and Canada this year, up from 27 million in 2009, according to the Fantasy Sports Trade Association. Those players spend an average of $465 on leagues annually.

Thriving industry

Fantasy e-sports begins with a small slice of the much larger fantasy sports pie, which, according to some estimates, is expected to generate $18 billion in revenue by 2020. Fantasy sports are already big business for companies like ESPN and Yahoo.

This month Yahoo, which has long counted fantasy sports as a business pillar, started daily fantasy sports games to directly compete with DraftKings, which had landed a key marketing deal with ESPN, and FanDuel, which last week raised $275 million in funding.

Fantasy e-sports has a chance to succeed especially in the U.S., where sports statistics are “a cultural phenomenon,” said Joost Van Dreunen, SuperData Research’s CEO.

“In the U.S., it’s fascinating for me to see how obsessed people are with stats about sports,” said the Netherlands native. “So, fundamentally, there’s a component of any kind of sports or competitive activity that presents itself on a mathematical level.”

And math is the foundation of video games themselves.

“It’s not you and I kicking a ball around, it’s you and I manipulating an algorithm,” Van Dreunen said. So with fantasy e-sports, he said, “whoever does that best has repercussions in some very real sense on someone making real money.”

E-sports startups have also attracted real money from big-name investors. In April, Menlo Park venture capital firm Sequoia Capital led a $12 million round of investment in Vulcun, allowing the company to offer the largest e-sports fantasy prize pool of $10 million.

In May, AlphaDraft closed a $4.2 million round of funding.

“We really believe in it as the next big thing,” said Josh Nussbaum of Metamorphic Ventures, a New York venture capital firm that led the funding round, which included former NBA Commissioner David Stern.

And last month, Unikrn landed a $7 million funding round that included billionaire, TV star and Dallas Mavericks owner Mark Cuban. Other investors include media executives Shari Redstone and Elizabeth Murdoch.

Unlike the other sites, Unikrn is not legal in the U.S. because it is a gambling site that lets players bet on the outcomes of games or the achievements of individual players, much like gamblers in Las Vegas wager on the outcomes of a Super Bowl. The company operates in Australia and the United Kingdom, but plans to tailor a version for the U.S. market next month.

AlphaDraft and Vulcun, like DraftKings and FanDuel, rely on state laws that allow its players to wager on games of skill, not chance.

“We block players in any states where that is illegal: Washington, Iowa, Louisiana, Arizona and Montana,” said AlphaDraft CEO Todd Peterson.

The company, which offers $5 million in payouts by the end of the year, also had to convince users it wasn’t running a scam. Fantasy e-sports is new, he said, and AlphaDraft has hired well known “League of Legends” players or broadcasters as “brand ambassadors” to assure players the company is real.

“People are starting to believe and trust that we are a brand they can trust,” he said.

Vulcun’s Moiz said he believes the industry can grow 30 to 50 percent year over year “but it’s going to take some time for this to really get as big as other sports.”

Still, SuperData’s Van Dreunen wonders whether that will be fast enough to satisfy investors, or before bigger players like Yahoo step in.

“What a lot of the money today is about is fueling a land grab,” he said. “The big question is time. Will the current group of investors have the patience to wait for this market to reach critical mass if that moment proves to be another three to five years out?”

While Yahoo, DraftKings and FanDuel have drawn attention this year to daily fantasy sports that could help the e-sports startups, Alan Wolk, senior analyst with the research firm Diffusion Group, said it’s too soon to tell whether the momentum will last.

“For a while, every trend has a life span, until something else comes along,” he said.

Finding stars

For now, fantasy e-sports adds a little extra zing for players like Fortune_Faded, a 24-year-old Los Angeles man who said he has parlayed a $250 initial wager into winnings worth about “five figures” playing on AlphaDraft.

Rooting for Gravity, his favorite “League of Legends” team, or South Korean superstar Lee “Faker” Sang-hyeok is “already a big emotional investment and it gets even more if you put in your own money,” said Fortune_Faded, who did not give his real name.

“I used to watch the games anyway, and now this has come along and it’s really increased the excitement,” he said.

Benny Evangelista is a San Francisco Chronicle staff writer. E-mail: bevangelista@sfchronicle.com Twitter: @ChronicleBenny