April 3, 2019

Steve Arhancet: The Little Engine That Could

Steve Arhancet, a co-CEO of Team Liquid, is one of few hardcore gamers who managed to balance out their passion for gaming and real life, and stay extremely successful at both. At one point during the interview I caught myself thinking how much Arhancet resembles Steve Jobs. The famous “think different“ campaign, used by Apple and birthed by Jobs, defined the dreamy mindset of a leader poised to change the world. In a similar way how Jobs reinvented the world of technology with groundbreaking products, Arhancet’s personal ”think big“ ethos is elevating esports to a whole new level. This is his story.

Arhancet was born into a family of a computer consultant and a homeowner. His mother, initially a candle maker, had the last of her career when she was eighteen, he says, when she decided to dedicate herself to raising her two sons, while his father provided for the family.

“He worked in the accounting world for a company named Deltek. Then he set up his own computer consulting firm that deployed new accounting software and consulted companies on the integration and adoption of new software. That is why there were always computers at our house. And when I say computers, I mean the ones that worked on MS-DOS”, said Steve.

His gaming interest sprouted at an early age. He was one of those kids, anxiously waiting to spring into a computer lab to play Oregon Trail. Arhancet even grew fond of typing class at school. He spent his evenings behind the screen playing early classics like Civilization, and, as a true gamer, he took to consoles like Atari, Nintendo, Super Nintendo, Sega.

His father did not approve of his son’s passion for gaming. Parents generally oppose their kids’ desire to spend time in front of computers, and it was especially true in the 80s. But instead of prohibiting Steve to play games, hiding his consoles and computer wires, his parents did something much smarter.

”Looking back on it now I understand that when I was young my parents raised me with this kind of philosophy where they would keep me as busy as possible. Basically, they would exhaust me to the point when I couldn’t spend much time doing one thing“, he said.

Steven’s ordinary day back then involved waking up at 3 AM to deliver The Washington Post newspaper, highly circulated at that time. He would proceed to make multiple deliveries until roughly 5 AM, after which he would return home, get ready and go to marching band practice at school, where he played a trumpet, followed by a switch to mellophone on his fifth year.

”Most of the people would say like “what the f* is a mellophone?“ joked Arhancet. ”It is kind of a French horn that is built just for marches. So, I played that. I loved playing in a marching band, it was like band geek or a dork and it was my life at school, the extracurricular I did all through the mid school and high school.“

A full day of school followed the music class, after which Arhancet would be picked up by his parents and taken to Applebee’s. He would host and help prep at the kitchen — the limited tasks that were available to him due to his young age. Only with all of that behind, he could come home and play video games, although not before homework was done. When it was time for bed, Arhancet would not fall asleep right away — opting to read some adventure books, Garfield or Marvel comics instead.

“I did that for basically my entire childhood, so I think my parents always knew that I didn’t spend too much time playing video games. My parents kind of worked me to the bone, before they probably legally could. But despite being really busy and tired, I was always anxious about getting home and being able to play”, Arhancet shared.

Since it was the 90s when the Internet was still in its infancy, most of his gaming experience can be called ”PvE“. Steve assessed that the first time it became more of a social activity as opposed to something he would do alone at home was when he started to go to blockbuster tournaments hosted nearby. For him it was all about generating the highest score at specific games available at the time. He was on a mission and he did well.

”I ended up qualifying through that to Major League Gaming (MLG) events. They were pretty much the only larger third-party organizers in gaming in the USA that would put together LAN events that were held in big warehouses. I remember I would go to that NBA Jam tournaments. I didn’t win but I made it there, stood the first couple of rounds. So, I kind of grew up around gaming. I loved it and I was pretty good at it. Most games I ended up playing I was highly ranked in. My brother hated that, by the way, but that was a lot of fun“, remembered Steve.

Online games came into his life as soon as he hit college. Those included Starcraft, Warcraft III and Age of Empires.

“I played a hell of a lot of that,” admitted Steve. “To me, it was the first time when it all became an online experience with other people. Yes, most games would lag and you would disconnect, because of an unreliable connection. It was really frustrating, but it was a lot of fun.”

But let’s get back to Arhancet’s school days for a minute. As a kid who was really into gaming during school years, Steve admits he was no child prodigy, academically speaking. Nevertheless, it did not stop him from dreaming big. His ambition dictated his will to try to get into one of the Ivy League schools, fully realizing he would probably have some trouble pulling that off. So, Arhancet made a shortlist of schools he could and wanted to enter. He first applied to Texas A&M and a couple of Ivy League schools, none of which worked out. A number of state schools followed, James Madison University being one that accepted his early application.

“What that meant is that I would start a semester early during the summer before the regular school year started. So I ended up graduating earlier as well. I think that was the first time when I started to take my studies seriously. I was able to do things that I wanted to work on. I majored in business management with an emphasis on technology, entrepreneurship and innovation, and then I worked on a minor in creative writing”, Steve said.

As Arhancet’s parents would say, ”business is the absolutely one thing he should have wanted“. Business was something very natural for Arhancet. He was an entrepreneur long before he realized he was one himself. At the young age he would discover many clever ways of making money. At one time Arhancet was selling custom music CDs to his peers. This was before you could get CDs with various songs on them, so young Arhancet would scout the internet, download tracks and burn them on CDs for his friends at school.

”I would sell these custom CDs for 25 dollars to kids at school. In my backpack, I had the binder with all the music. I would go home and burn custom CDs for all the kids, and I made some OK money doing that. Then I set up a small business making advertising banners for different companies on the internet. Basically, I was that kid with a lemonade stand who would find a way to make some money. I really enjoyed what I was doing. It made sense for me. I loved it“, he continued.

As for writing, for Arhancet it was just a way to express and develop his creativity. He noted he particularly fancied the short form, which would really help him later in life. Arhancet even wrote a few stories and books, despite zero intent to ever publish them.

“I wrote and I enjoyed writing, though I never followed that. But it allowed me to tap into my creative mindset and apply it in the marketing side of what I do. I guess that’s the value of it today”, he admitted.

“Despite what anyone might tell you, words and ideas can change the world.“
Dead Poets Society

His natural abilities and passion for business, as well as his creative mind led him to a successful career of a financial consultant in Washington D. C., where by the end of the 2000s he ran a financial planning practice with a good, as he claims, amount of assets under his supervision and a customer base of between 300 to 400 clients.

”For me what I had as a goal when I graduated from college was making a lot of money. Achieving some level of financial independence and wealth was important to me. That was what I defined success to be. I just never turned off, I was in the office, but when I had a chance to play I would game. Instead of going to bars I would go and play some video games. That was my version of ”work hard, play hard“, said Arhancet.

At the time of League of Legends beta release, Steve was playing a lot of Civilization IV, spending evenings playing a game or two. He shined at League of Legends fairly quickly after the move, climbing up the ladder and ending up competing on a pro level from 2009 to 2011. However, competition was lacking back then (being in a top of the ladder back then and today are hardly similar), so relying on his cognitive ability, reflexes and instincts was sufficient for him to get to the top. In spite of that, even at that time you had to invest considerable playtime in a game if you wanted to be good at it. And Arhancet could afford it: by that time, he had managed to achieve a degree of financial independence that made him comfortable enough to lean towards one thing he enjoyed the most — gaming.

”I loved playing and I loved competing because I was good at it, and because by nature I’m a pretty competitive person, I enjoyed it. Then once I got involved more intimately with the competitive scene, climbing a ladder, going to gaming events I fell in love with the potential future of it becoming real sports," said Arhancet. “When Riot, I think more than any developer at the time, took tenacity to that it could be like any other professional sport. I saw a potential future when people enjoy watching video games like they are enjoying watching football or basketball.”

But breaking into the pro scene is not easy nowadays and neither was it back then. At that time there was no LCS and Worlds, but there was the ESL Pro League for League of Legends. It was a tricky situation for Steve, a personal catch 22 because to get into that league he had to have a skilled team, which he did not. Yet to make one he had to be in that league, and he was not.

“For me, the question was how do I get in the league without a good team? So in order to solve that I wrote an essay on why my team deserves to be in an ESL Pro League (Note: back then you could apply for a slot by writing an essay — Wallhack Journal). I wrote one without actually naming the roster of the team, relying only on my writing ability. It must have been an awesome essay because I got the slot. I’d love to actually go back and find it if I still have it. So, as soon as I got accepted, I ended up calling the players asking them to join my team. I formed the roster that night or maybe in the next 24 hours. It’s just what I had to do in order to get in. That was the path“, he said.

Arhancet wasn’t afraid of risk taking back then. While working in finance, balance transfers and zero percent interests was all the rage. Simultaneously they were doing loans for homes, interest only loans, etc. Arhancet ended up calling a few credit card companies to do balance transfers. The catch was that one did not actually have to call to move money from one credit card to another; the companies would send money to one’s account and the other balance could be covered separately. By doing balance transfers, Arhancet got his hands on a significant amount of cash which he put out on the stock market, a financially irresponsible act by all accounts.

In late 2011, Steve decided to drop his career, his six-figure salary in Washington D. C. and fully immerse himself in esports. It was a bold step, brave enough to catch the attention of Forbes magazine.

Arhancet shared: ”I remember the guy who was doing the interview asked me ‘Why are you doing this?’ And I just wanted to have an impact on the industry even if it was a small one. If I personally could change the way that gaming is perceived, if I can help contribute to the esports ecosystem to make it more professional, to have it be a professional sport, that would be... wow, that would be awesome!”

But that was not the only reason why Steve Arhancet ventured into esports. At that time there were a few stigmas associated with gaming that he wanted to break for all gamers like him who felt like they could not grow up and be proud to be a gamer, and talk about it. They hated being mocked. One of such stigmas is that gamers are unhealthy introverted dorks who eat pizza and do not see the sun days at a time. Another stigma is that gaming is violent and it leads to violent actions. According to Steve, there was almost a political agenda associated with using it as a reason for tragedies like school shootings.

“I think my desire was probably born out of insecurity associated with not being able to be proud to be a gamer in real life. I just remember how in middle school or high school I did not have a single friend in real life whom I could talk to about gaming. Not even one.. At the same time, I loved the gaming community and how rich my interaction with friends I had online was. I remember meeting Andy, the founder of TSM online. We never met in person, but we played all the time. I just had these very deep and real authentic relationships with people that I knew online, and I thought that was awesome. I think part of it was fixing some of the issues, but the other part was celebrating the kind of enjoyment you could have through this gaming online world. That was the most motivating thing about moving into the industry at the time”, Steve admitted.

Despite all the motivation, it was a tough step to make. To abandon your comfortable life and open up to new adventures might be a scary thing to do. Arhancet was not an exception. For him the fear of something new was an interesting emotion that he still remembers vividly. He found himself at a crossroads: either he continues with the status quo, professionally-speaking, or he takes a leap into the unknown. By that time Steve Arhancet had accumulated some wealth (though most of his liquid wealth was tied up in properties), so if he were to choose esports and fail, he would have some money to lean back on, but not for long. Not being married and not having many personal belongings certainly factored in favor of a new professional direction. Therefore, the consequences of failure would fall on his shoulders and his alone.

“I didn’t have much baggage, quite literally. When I moved out to Los Angeles I had one checked bag, I just sold everything I had, including the life I had built in Washington. I had my carry-on and a suitcase. I had the ability to be nimble. Yeah, I was afraid, but it was calculated,“ explained Arhancet. ”I was reasonable about the pros and cons, I spoke to my friends and family. I didn’t rush into it. I knew that I could lean into the decades of gaming experience that I had and it felt like I was a type of a person who can be good at whatever I put my mind to. I chose that to be gaming, not finance and stocks, trading and all that stuff.“

It took Arhancet six months to make that decision; there was an overlap period when he would pursue esports on the side and weekends while working full time. It was not until late 2011 when he finally abandoned his life in Washington. He also quit the career of a pro player to become a manager of Team Curse, dedicating himself to esports and the development of the organization.

However, he found himself at a crossroads once again in 2015 when he parted ways with Curse and dropped the naming rights sponsorship. This time the decision was between merging with another esports organization, or creating his own. After weighing the options, he felt like he could increase the relevance of what he wanted to build in a shorter amount of time through a merge.

A new shortlist, this time of organizations to merge with, was put together. Arhancet was looking for a team with a powerful brand, but that was not in League of Legends. After the choice was narrowed to just two organizations — OpTic Gaming and Team Liquid — he realized that Team Liquid was the better fit. Steve reached out and sat down with Victor “Nazgul” Goossens at BlizzCon for the first time, followed by a call that Steve still remembers vividly.

”I think he was taking a backseat at first, to be honest. He probably was like ‘What the f*? Who is this guy? Why does he want to merge his company with mine?’ But we had a long call to talk about why. My sell to him was: here is Team Liquid’s brand that has been around since the 2000s, players first, never an issue. And for him this was an opportunity to widen the team’s horizons, to get in League of Legends — one of the biggest growing games and largest esports at the time. It was kind of a marriage of what was more contemporary and newer with what had been relevant in the past. For Victor, I am sure, that was really appealing“, said Steve.

Everything about the deal made sense: the sponsor fit, the ability to represent both Europe and North America. What is more, Steve and Victor complemented each other as personalities, which in a merge like this is just as important as in a marriage. As business partners they would work closely together. Arhancet said: ”We knew we would have to argue through things, debate, challenge each other. Victor is highly organized, methodical and diligent about the execution of things. He is a quality-first type of guy who believes in distinguishing yourself through doing something the very best that you could. He comes to decisions through sensory information and data. As for me, I am more about marketing, creativity, and strategy. It was kind of like a good marriage. We were not the same, we were complements to one another.“

There is even a picture taken during one of the League of Legends events in Los Angeles with Steve jumping and screaming in excitement after an important Team Liquid’s match win, while Victor is sitting quietly with a slight head tilt.

When it came to closing the deal, neither of them had attorneys to fall back on. Instead, Goossens and Arhancet decided to go the casual way: write it, sign it and name it their intent. While it was not comprehensive or fully fleshed out, it was telling of their mutual trust. They were able to go through all the undefined aspects of the agreement and it worked out well.

“Looking back, it was a good test of how we could work together by not having this structured and formal process that we, of course, went through when we did our deal with Peter Guber and Ted Leonsis”, said Steve.

“There’s a time for daring and there’s a time for caution, and a wise man understands which is called for.“ Dead Poets Society

What Arhancet refers to is the sale of the controlling interest in Team Liquid to a diversified and accomplished ownership group aXiomatic in 2016, led by two renowned professional sports team owners, media and technology entrepreneurs — Peter Guber and Ted Leonsis. The deal that made a plethora of headlines at the time.

According to Steve Arhancet, when Riot had announced that they were going to create a franchised system, the franchise fees would come along for the ride. Team Liquid had the desire to buy in, but without knowing the exact price of the ticket, they estimated it might cost between $10 and $20 million, a level of profits Team Liquid did not run at the time.

”We knew that we wanted to continue to invest into the brand equity of the enterprise while being able to pay for franchise fees,” explained Arhancet. “We realized that we had to attract investment to take such a large capital cost and anchor that to the business without impeding day-to-day operations or changing our strategies. So, it’s all started with that capital need.”

Having compared pros and cons of different type of investors they might attract, Team Liquid’s co-CEOs knew that they wanted to find an investor who would care about winning, brand equity and fandom more than about the ROI that they might expect in a year, three or five years. It quickly became evident that they had to pass on venture type of investors.

“Venture capital firms are making promises to people who give them money about returns in some sort of period, and then they would try to get that from us. F* that! We did not want to be involved in that kind of relationship,“ said Steve.

Going with private investors that believed in the generational change that was happening with millennials was the only logical way forward. More importantly, the generation C audience was gravitating towards gaming. More people were playing video games than they were watching movies or TV, and it was becoming a routine; which is why Team Liquid’s primary goal was to gain a position of premium prominence as a gaming organization.

After they knew what they wanted, Arhancet and Goossens opened talks with several potential investors. Esports has become a very attractive industry by that time, so there was an abundance of investors who wanted to get in early. Many tried to go out of their way to impress Liquid’s owners, using private jets in some instances.

But the one who really stood out was Peter Guber.

”Why do you want to invest in Team Liquid?“ Steve asked him during their first meeting, a question he asked every potential investor.

“Well, I’m winning in basketball, winning in baseball. I’d like to win here, too,” Peter replied. And that, according to Steve, was the perfect answer.

”That’s exactly what I wanted to hear!" acknowledged Steve without delay.

Peter Guber had the winning culture Arhancet was looking for.

Ted Leonsis came across shortly after. Steve flew out to meet him, his team and his son Zach in D. C. and was left amazed by all the questions Ted asked him. They were so to-the-point that Steve knew Ted was thinking really big about the industry — precisely the way Team Liquid was viewing it.

Since the deal took place, Team Liquid saw its growth skyrocket. In 2018 aXiomatic raised more than $50 million in disclosed funding and brought an investment of Michael Jordan. In addition, Team Liquid landed Honda and SAP as their sponsors.

But not only did they manage to attract some big sponsors and raise an incredible amount of money, they performed very well in rosters, too. Their Dota 2 team became the winner of the International 2017. Their League of Legends roster won the 2018 NA LCS Spring and Summer Splits finals. CS: GO team made it to 7 finals in 2018.

Today, Team Liquid has 16 rosters including League of Legends, Dota 2, Counter-Strike, Fortnite, PUBG, and others. No other organization has this many teams. According to Steve Arhancet, there are a handful of factors Team Liquid looks at when they decide whether to get involved with a discipline, first one being the game itself: what kind of game it is, how it is played, what kind of potential it may have in esports (with esports being defined as having a community of players and enjoying watching the game as much as playing it). The second rests on the developer: how motivated they are to support the ecosystem, will they license to tournament organizers to run the event, will they potentially run their own events, will they spend the money to fund an esports ecosystem and what their overall position on it is. The third and final factor is whether Team Liquid can provide value to the community.

For instance, recently Team Liquid acquired a Call of Duty IV Blackout roster. Arhancet admits that the organization was aware that it was very early because the trajectory of the game is still unknown. But they think it is a great game, which is why they set up a custom discord server and run weekly tournaments. In other words, they provide value and the ecosystem.

“Yes, it may not be big today, but we are building it from the ground up. As the community grows, we grow with it. It’s the same model we had with Fortnite. Prior to the announcement of a $100 million that Epic decided to spend on support, from the esports perspective, we had signed players who at that time had around a thousand followers on Twitter each. We decided that we would help run some events, we would support our guys, we would bring them in for a bootcamp, so they could be the best and they could have all the Team Liquid’s resources. We have to weave the TL brand and the value that we provide based on each complex ecosystem“, Steve said.

Team Liquid is known for its attitude and care towards their athletes. They provide them with full infrastructure: technology, equipment, gaming houses, transportation, gym memberships, food, the very best training coaches, analysts, sports psychologists, physical therapist, management and offices. While the organization provides a lot, they expect their talent to return the investment in terms of performance.

”When some players don’t live up to the degree of excellence expected of them, it weighs on their teammates, coach, organization and themselves,“ stressed Arhancet. “We support them, we are trying to work on the issues, but at certain points when they may not choose to want it as much as everyone around them, then sometimes we will look to make player trade or a change. In a team game, we owe it to each team member that we built the very best roster. When it is not working out, we own responsibility to resolve that.”

One of the key issues of modern esports, as Steve pointed out, is that often the game developers do not provide any guarantee on the future of the game. That makes it almost impossible to make a substantial investment into the game. It is the same reason why Arhancet prefers the franchise model, where membership in the league is a permanent commitment from the developer of a game to a team.

”Once a developer gives us guarantees, confirms that we can participate in their league, we invest more in players’ contracts by signing two or three year deals, building a gaming office, doing more to support the league and the health of that league. For example, PUBG Corp has outsourced their tournament series to third-party organizers for each respective region, and they’ve already announced a share in in-game items with teams. A permanent franchised system may be not be guaranteed, but they are on the path to it. Just like Riot was on a path to it“, he added.

Arhancet believes that a healthy ecosystem that sustains itself and creates an esports league around a particular game is one in which a developer is taking a share of in-game items, sponsorships, and media rights revenue, and then giving it back to either the tournament organizer, teams or individual players.

”There need to be teams to in-house, manage and develop the players. There need to be league operators and tournament organizers that will produce events. And then there need to be developers. All those parties are in the ecosystem and they need to work together around each respective game to make it flourish“, he added.

Esports is hungry for innovative ideas and people are wrong to think that all the cool things that could have been developed, have already been created. Steve Arhancet makes it very clear that there is space to do much more. For one, he thinks there is a growing demand for a place where esports enthusiasts can have a close and personal community to watch matches with other fans. Although there is no full understanding of what it may look like exactly.

Arhancet said: “I think there are two sides to it. What is the experience in watching an esports event online? What does that digital experience feel like today? Can that be challenged? Can you have a more immersive and rich viewing experience with other people? There is still some work to be done there in terms of how that becomes more defined for the industry at large. Personally, I feel like watching LoL on Twitch is good. It is nice that I am able to do it, but it was nice five years ago, right? What’s different about it? Can I have a digital but immersive experience? I think we still have to figure this out.”

Despite the challenges that still need to be overcome to further development of esports, the industry has already made a massive leap forward. If in the 1990s and early 2000s gamers were considered nerds, with gaming itself being considered a guilty pleasure for outcasts, today it is a huge industry that has already eclipsed TV consumption.

“Today kids are getting home from school and jumping on Fortnite. They are having the time of their life. The next day they see each other in a cafeteria, they are flossing, dancing and talking about the game they played last night. To me it’s just mind-boggling. Yes, I had a vision of a future where that would be the case, but to see it and to hear about it, and to have some of my friends with kids talking about it right now is something unbelievable“, reflects Arhancet.

To some degree, Steve Arhancet has achieved his goals by helping Team Liquid become an exemplary organization and by influencing change in the perception of a gamer. He is a role model not only for other team owners and managers, but also for kids who are making it their life mission to professionally dedicate themselves to esports in one way or another.

As for Arhancet himself, while we do not know what his next big play will be, one thing we know for certain is that there will be millions of people watching, as he continues to impact, influence and shape the industry that gave him a life and a fundamental belief that anything is possible.

”We must constantly look at things in a different way. Just when you think you know something, you must look at it in a different way. Even though it may seem silly or wrong, you must try. Dare to strike out and find new ground.”
Dead Poets Society