On Aug. 23, 2016, TSM CEO Andy “Reginald” Dinh wrote an open TwitLonger post addressing Riot Games co-founder Marc “Tryndamere” Merrill. The post was an answer to Merril’s claim that professional League of Legends organizations are making millions and millions of dollars only to throw it all way by investing in other, less successful esports.
Dihn had a different opinion. According to him, TSM—one of the biggest names in LoL esports—was actually losing money on League of Legends. Dinh pointed to the rigid sponsorship rules, increasing operating costs, and the promotion/relegation system in the North American League of Legends Championship Series (NA LCS) as the main culprits. It was simply too difficult to make money in esports, he opined. His comments prompted other NA LCS team owners to band together and make a push for the now-familiar franchising system.
This was three years ago, but most esports organizations still face the same problems.
What’s behind rumors of the esports bubble?
To begin with, player salaries are bigger than ever, esports investments have hit eight-digit figures, and team valuations have soared way past that. By all means, this should be indicative of the healthy state of competitive gaming. After all, if the scene is thriving, doesn’t it make sense for more investors and sponsors to jump on the esports train? Unfortunately, the situation isn’t as black and white as it seems.
It’s something of an open secret that most esports organizations are operating at a loss. Their reach might be great, their teams might be competitive, and their players might be widely appreciated by their respective communities. Yet the revenue streams just aren’t there to justify the increasing investments. And murmurs of the impending esports bubble burst are growing louder with every passing week.
This isn’t just about the teams, either.
The Overwatch League (OWL) is asking from $30 to $60 million per expansion slot, meaning every team looking to join the competition will have to invest some serious money. Meanwhile, the OWL viewership has been declining since the beginning of 2019, and Activision Blizzard has been reportedly working on the second iteration of its class shooter—a worrying rumor for someone contemplating investing eight figures into a game that might not be around in a few of years.
And Overwatch isn’t even the worst offender. The upcoming city-based Call of Duty league is supposedly asking teams to pay $25 million per slot—all the while the CoD franchise ranks 12th among the most-watched games on Twitch.
Combine that with Comcast Corp. investing a whopping $50 million into a 3,500-seat esports arena in Philadelphia—a region that’s historically been very underwhelming for competitive gaming—and it’s clear sponsors and businesses are willing to put a lot of money into the scene. What’s not clear is how (and when) are they going to get a return on their investment.
The longevity issue
Now, sites like Newzoo paint a very attractive picture of the industry at present. They predict the global esports industry to generate as much as $1.1 billion in revenue in 2019. However, there’s no guarantee current game titles will be part of that future. Competitive games are notoriously fickle. So much of their success hinges on an active player base. Yet graphics become dated, gameplay grows dull, and competing titles appear on the horizon. That’s all to say: players move on.
It’s tempting to view Counter-Strike—a game that has successfully grown its competitive scene organically since 2000—as the spitting image of a successful esport. However, Counter-Strike is an abnormality. So far, there’s no evidence to suggest other games can follow its example.
Finally, it’s important to remember the esports bubble isn’t mere doomsday talk. Remember the attempt to create a franchised esports league back in 2007? The league in question—Championship Gaming Series—lasted only a year and four months because “profitability was way too far in the future.”
Of course, the circumstances are different now. The level of investment is much higher, and the people putting their faith into esports are major decision-makers with years of experience in venture capitalism. On top of that, there are many successful games on the market. And even if one falls victim to the esports bubble, others can still push toward a radiant future.
Perhaps “future” is the key word here.
There’s no denying that esports is getting a lot of traction. However, businesses and game developers are trying to force growth. They’re betting on esports to become the next NFL or NBA without accounting for the fact that gaming doesn’t have the necessary revenue streams and viewership figures to sustain this vision. In short, they’re betting on the future. And if that future doesn’t come within the next 5-10 years, the esports bubble will go from a troubling talking point to a very concerning reality.
Images courtesy of Riot Games.