Riot Games and the Future of Esports: Lots of Work Ahead

Riot Games has responded to the recent criticisms of their Esports department, but is it enough?

League of Legends wasn’t supposed to be this popular. This big. You could not have predicted that in an industry dominated by multi-billion dollar conglomerates, a small upstart company making a free game would become the biggest in the world (by active players). But against all odds, Riot has done it, succeeding on a massive scale.

That success has transcended to the professional gaming scene. Viewership of the Riot-sponsored League Championships Series averages in the millions. Viewership for the Finals of the upcoming World Championships, based on last year’s numbers and growth figures, could be up to 20 million.

But despite crazy numbers, glitzy productions, exciting games and flashy plays, friction has built behind the scenes. Players, owners and Riot personnel have grown increasingly frustrated with themselves and with each other. That frustration came to a boil during the North American League Championship Series (NA LCS) playoffs this summer. Legendary team owner Andy “Reginald” Dinh traded barbs with Riot co-founder Mark “Tryndamere” Merrill over the basic structure and economics of professional LoL.

Riot has promised a response to the rancor, and today they took the first step in publishing their view on the future of LoL Esports. Let’s take a dive into what they said and what the future holds.

Involving teams and players in the future of LoL Esports

Much of the criticism leveled at Riot has been focused on the economic underpinnings of the LCS. For years, Riot has claimed that they lose money on LCS — but without clarifying what data supports that statement or exactly how they are out-spending revenue. Not sharing this information, even with the owners and teams, creates a climate of distrust — especially when team economics are so tenuous.

From Riot, LCS teams receive a stipend for retaining their LCS spot (or making it into the LCS from the Challenger series). They also compete for Riot-sponsored prize pools for playoff and international competitions (MSI and Worlds). But they are required to raise a huge portion of their own revenue through sponsor deals negotiated by individual owners.

This is very dissimilar from traditional sports leagues where teams share revenue from league ticket sales and broadcasts. Combined with semiannual relegations, this creates an volatile economic environment in a nascent sport with inherent volatility due to its exposure to rapidly-changing technology.

Riot made a step in the right direction by promising the following:

"We’ll share LoL esports revenue streams and collaborate with our partners to develop new business models and actively shape the league"

They also indicated their realization that their current revenue streams are insufficient:

"To continue to attract the type of healthy, long-term investment that has helped mature the scene to date and will support the long-term evolution of the sport, we need to unlock new revenue streams. We need to grow the pie so that there’s more for teams and pros."

So what does all this mean?

Where the money will come from

Riot broke out revenue streams into three major buckets:

Media/sponsorships
Merchandise
In-game content

The richest of those buckets is the first; that’s what drives the majority of revenues at major sports leagues. That’s how you go from millions to billions. That trickles down to owners, players and the entire infrastructure.

Unfortunately, that was the one bucket Riot declined to address in their release. And they may have good cause to do so: negotiations of this type are usually done under wraps and earlier this year both Riot and ESPN were quick to deny allegations of a $500 million broadcast deal between the two parties.

I hope Riot is communicating with the owners their plans in this regard since it will have by far the largest impact on LCS economics.

Next: #LCSForever - What Started the Fuss About Riot and LCS

They did announce plans to work more closely with teams on merchandise, but let’s be honest: that’s the shortest pole in the tent. Most teams already have a robust team store, and aligning design, sourcing and supply chains should be a task, even if it’s done apart from Riot. Incorporating their merchandise into Riot-sponsored platforms is also low-hanging fruit.

Riot also announced detailed plans to share revenue from in-game purchases with teams, starting with this year’s Worlds. That’s good news. They’ve hinted at more team-branded in-game items in the past and it’s a good idea since it synergizes so well with their existing revenue streams. As part of this, they also subtly increased the stipend paid to LCS teams, with half of the increase earmarked for players.

Beyond economics: what they didn’t get to.

While we welcome Riot’s efforts to stabilize the economic environment for LCS teams, this does not address the larger structural issues that exist in LoL Esports. Much criticism has been leveled at Riot for their authoritarian approach to Esports. From their treatment of popular caster/team owner Christopher “Montecristo” Mykles to asinine patch timings that have left competing teams in a lurch, there isn’t much transparency into how Riot functions deals with teams and players.

Teams, players and journalists have become increasingly frustrated with this lack of transparency and Riot’s heavy-handed approach to governance. Fortunately, there are templates of how other sports leagues have dealt with these issues as they’ve grown. It’s hard to imagine professional basketball as a regional operation, not dissimilar to the way League is now.

Structural features of successful sports leagues

The players need an association, if not a union, to deal with salaries and contracts. All issues between any parties (such as Riot vs. Monte) should automatically be sent to trusted independent arbitrators with evidence and findings published. Rulings from arbitration should be based on precedent. This increase transparency and helps avoid the inevitable conflicts between Riot (the game publisher/promoter) and Riot (the Esports producer). The question of relegation will eventually have to be settled, one way or another. And Riot have yet to respond, or at least oppose, allegations that their management of Esports is insufficient.

It’s encouraging that Riot is reacting, even in small form, to the realities of professional Esports. They have been behind many other leagues in the way they’ve done business, but have done incredible things as well. Riot’s production value is best-in-class and the viewership experience is excellent. We hope that Riot, working with its partners, can continue to build LoL Esports into a thriving, long-lasting ecosystem.

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