eSports: Riot restructures its League

Right after we published our eSports report last week, there was some big news out of eSports leader Riot Games. At D2D, our plan is to cover longer term trends in eSports. There is already lots of great time-sensitive coverage of the industry, and we want to focus on the building of eSports businesses. So we are not planning to write about every news item that comes out.

That being said, the news from Riot is pretty important so we want to touch on it here.

In short, Riot announced a new league structure for their League of Legends Championship Series (LCS) in North America. The announcement covered a lot of topics, but the main thrust is that participation in the League Championship Series will be limited to ten teams. Riot is accepting applications for that pool and plans to announce the ten winners in November. The cost of membership is a flat $10 million. That is not a small amount, but is less than the $20 million Activision is reportedly asking for their Overwatch League, a game which is far less proven in driving audiences than League of Legends.

Crucially, Riot was also transparent about many of the terms of joining LCS. Specifically, they announced a revenue sharing formula. This works out to 32.5% of LCS revenue goes to the teams, 35% goes to the players, with Riot keeping the final 32.5% of revenue.

Riot also went out of its way to talk about supporting players. They raised minimum salaries for LCS players to $75,000 from $55,000 previously. The revenue share formula also allows for player performance bonuses (that 35% above). Since we do not know how much money Riot makes from the League, there is a real possibility that they may have to top up player salaries out of their share if LCS revenue fails to cover the 35% owed players. Overall, this deal looks fairly player friendly.

Riot even went further and announced the establishment of a Union for players. Riot is going to fund that in the beginning, but appears to be serious about moving the Union fully under the control of the players over time. Of course, the devil is going to be in the details of contracts and deal terms, but overall Riot seems to be making some sincere, serious moves to shore up professional players.

Beyond the specifics of the deal, there is the broader question of what this move will do the industry.

We think it will meaningfully de-risk the business of owning a team. Previously, the lowest ranking teams in any season of LCS were relegated, or demoted, to the junior league which carries far lower viewership and thus revenue potential. This raised the emotional stakes in the games, but it also wreaked havoc on business models. As we pointed out in our report last week, building an eSports team carries significant upfront costs. Over the years many teams have spent a lot of money only to see them relegated after a season or two of play. By having a stable membership roster for LCS, teams can start to make longer-term plans, and take on more risks to build real businesses.

For us, the most interesting part of Riot’s announcement was their tone. They seem to be genuinely concerned about building a more stable, long term eSports franchise. The risk that teams face is that the game publishers will assert too much control and divert too much of eSports revenue to their own bottom line. It is too early to say what will happen with Riot’s new LCS structure, but Riot is saying many of the right things. Given their history, it really looks like they are making the smart choice to forsake near-term profits for long-term business building.

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