Counter Logic Gaming is dead. Team SoloMid is pausing its Esports endeavors after suffering massive losses from the fall of disgraced cryptocurrency exchange FTX, which had brokered a lucrative $210 million naming partnership. Activision-Blizzard’s Overwatch League is continuing its freefall into a full-fledged fiasco. Riot Games’ League Championship Series is experiencing a significant decline in viewership in North America. FaZe Clan went public and immediately bottomed out, its future on the Nasdaq and as a company in doubt. 100 Thieves sacked 15% of its workplace amidst questions about the org’s shaky valuations.
It certainly does seem to be raining shit on the great Esports experiment, at least here in North America. The bill has come due, and the reality is slowly settling in – the bubble appears near to bursting. As Frank Fields, former Corsair sponsorship manager and current Associate Director of Talent for RTS, the company that co-owns the Evolution tournament, put it: “I feel like esports is almost running a Ponzi scheme at this point…[Esports’ true value], as of now, is optimistic at best and fraudulent at worst.”
In chasing the traditional sports model, Esports has become a swamp, where nothing can grow. Publishers are king, and they still hold the keys to the war chest, including precious resources like media rights and revenue streams like in-game item drops. While Riot has pivoted with the establishment of their franchised Valorant Champions Tour, both they and Activision-Blizzard, in wanting to mimic the glitzy world of professional sports, demanded the world for entry into their circuits, to the tune of tens of millions of dollars. With such high demands for entry, these organizations, which were less fully functioning businesses than talent agencies for high-dollar players, were forced to seek outside investment to hopefully get a crumb of the massive revenue that, theoretically, these circuits were to generate.
Lost in the rush to emulate the pro sports leagues was the path to sustainability, never mind profit. These orgs, now flush with investor money that demanded year-over-year growth, sought out the best players to build their teams, no pesky collective bargaining agreements or salary caps to stop them from shelling out top dollar. In 2020, TeamSoloMid gave a jaw-dropping 2 year, $6 million contract to Hu “SwordArt” Shuo-Chieh, a salary seen as “a really small investment a decade down the road” by TSM founder Andy Dinh, who also believed TSM was going to be “the Dallas Cowboys, Real Madrid, and F.C. Barcelona ‘combined’”. When he wasn’t being fined almost a million dollars for being a bullying, small-dick-energy boss, Mr. Dinh probably could have joined Stringer Bell in some economics classes.
Massively inflated player salaries, the housing and travel costs associated with them, as well as some orgs having multi-million dollar training facilities with full administration and coaching staff, contribute to operating expenses that are astronomical. But a team in a league like the NFL can live with those sky-high costs because they’re part of a league that negotiates broadcasting, licensing, and merchandising rights deals and distributes that massive revenue amongst the teams, regardless of performance. These Esports teams receive no such help from the publishers, receiving a pittance to be in the league that doesn’t cover close to what it takes to pay the players’ salaries, let alone the org’s other costs.
Forget beeswax – this is like if Icarus was flying with soda pop holding his wings together.
The only hope for these teams to build up some big dollars would be the power of their brand to come through in sponsorship opportunities. But herein lies another crucial issue – these organizations simply aren’t great investments for sponsors precisely because their brand power is in question. Here’s a look at a FlyQuest tweet, a franchised team in the LoL League Championship Series:
For a vlog of one of their Super Smash Bros. Melee players who won a major tournament and has new merchandise to sell, they get almost no real impressions or engagement. One could say that that’s just Twitter, where despite their near-100k followers, there isn’t much engagement to be had, or that Melee doesn’t get views. But one could also check their YouTube, Facebook, their tweets about League of Legends, and whatever else – the story is the same across the board. When you have five players who are making a league-average of $40 thousand a month, with content creators and coaches who are making almost $100k a year, the advertiser money needed to cover that spread is titanic. And I don’t know if major brands (Mastercard is a partner of FlyQuest) are going to invest much when the brand is getting single retweets for their content.
It should come as a surprise to no one that this model was, and is, untenable. In the midst of a looming recession, nothing looks worse on the portfolio than a $20 million investment that has less concurrent eyeballs on it than people watching a guy watch Master Chef on Twitch. Shockingly, the claim that Esports was doing similar viewership numbers to The Super Bowl may have been a bit of snake oil. Like cryptocurrency before it, Esports is suffering from a credibility crisis, and in a world where targeted advertising is the name of the game, this current model flunked the test. Between that and the chokehold publishers have on monetization, things have taken a real rough turn.
But wait! On the horizon! What’s that!? It’s a bird! It’s a plane! It’s streamers!
Charles “MoistCr1TiKaL” White and Ludwig Ahgren co-own Moist Esports, which has picked up players across Valorant, Super Smash Bros. Ultimate and Melee, Guilty Gear Strive and Rocket League. Jeremy “DisguisedToast” Wang sunk half a million dollars potentially into the formation of a Valorant team that has had success. Imane “Pokimane” Anys co-founded and is the chief creative officer of the previously mentioned RTS management, which co-owns Evolution with Sony. Anys and Wang are both part of OfflineTV, one of the biggest influencer groups in the space, and Ahgren and White are two of the more successful creators on both YouTube and Twitch respectively.
My kvetching about the unreliability and unsustainability of streaming as a business aside, these influencers are legitimately proven brands, much more so than many of the professional organizations that inhabit the current Esports realm. The market for Esports and streamers isn’t the same as professional sports – an ad for Alka-Seltzer starring the parents from Everybody Loves Raymond might work on your average adult sports watcher, but it does nothing for the much younger audience that these influencers pull in. They would much rather follow their fave and support them through subscriptions or buying their personalized merchandise than feel compelled by the corporate logo on an ugly jersey.
It stands to reason that while an advertiser would look at the impressions and potential of an Esports organization and roll their eyes, someone like Pokimane or Ludwig could actually do something for them. Not only that, but Ludwig and MoistCr1TiKaL and DisguisedToast and the others who have leapt into the Esports business are nothing if not loaded superfans. There’s something to be said for a hyper-engaged owner proudly using their large platform to show off the fruits of their labor instead of faceless, invisible suits sitting in the meeting rooms of a large venture capital firm, the organization (and by extension its culture) solely a statistic on a revenue sheet.
While I understand the potential upside to that model, the reality is it doesn’t address the same core issues. These are still business endeavors that hemorrhage money with no chance of making money on its own – they will be held afloat by the revenue brought in from its owners in other avenues. While these young creators are indeed loaded, I imagine even your most enthusiastic mid-20’s streamer would start to chafe at losing six figures a month trying to run a business solely on passion alone. And despite their reach with a younger, more engaged and more trustful audience, I don’t know if they could (or care to) push for monetization options that are still unpopular, like PPV-style streams or having their players work on deliverables for sponsors. I still foresee a future where these teams grow and grow until they are no longer able to be sustained by that influencer, and they are sold off to a higher bidder or dissolved entirely, all within a relatively short amount of time. After all, this is just another source of content for them, and like any other ideas that didn’t work out or get the right viewership, they’ll move on when it doesn’t work.
More to the point, however, I think of just how much this dream, this professional gaming dream, relies on simply being a fleeting plaything for rich enthusiasts, at least on my side of the world. I think of the aliens in Toy Story – stacked on top of each other in their little crane game world, worshiping a claw that comes down and plucks one of them at random for an undetermined fate. You need to be so fun that someone would burn money with no guarantee of a RoI just to make you successful. Except instead of a couple of quarters, the buy-in is a quarter of a million dollars.
I don’t feel like there’s a lot of dignity in hoping that someone will inject the scene with massive, no-interest money in order to make a decent living for a bit. We all gotta serve somebody, but Jesus – I hope someone would pay me $40k a month to play games for a year too, but that doesn’t make it good business. The NBA and the NFL and other pro sports also require very rich owners, but the leagues are very much self-sustaining, the players can simply just play when they are signed, and the teams themselves are huge boons to their local area. The Overwatch League tried that and no one showed up, even though Activision-Blizzard’s pitch, which was ridiculous, promised hundreds of millions in earned revenue and stadiums full of fans. Oops! What we all want, and what even the publishers claim, is they want a “healthy ecosystem” where the teams and organizations can make money to pay their players, but no one has quite cracked the code yet in many years, and the publishers aren’t willing to budge more than they already are. It almost makes you wonder if it’s even possible at all.
At this point, you’re better off biting into influencer capital rather than esports, just gaming the Twitch or YouTube ecosystems and hoping that is enough to buoy you until something more stable arrives. Even then, I’m not entirely sure Twitch and YouTube are even a stable ecosystem – obtuse and confusing moderation and the real threat that mass reporting or channel strikes can be to income is pretty tenuous stuff. I also wonder if moves like Anys and Ahlghren are doing are not themselves attempts to find more stable, less publicly exhausting lines of revenue. Once again, Esports is at best a fun sideshow, an interesting blip in the portfolio of someone who’s success does not rely on this endeavor and could simply pull the plug if money got tight. I can appreciate the sincerity, but I doubt the seriousness.
Obviously in the case of fighting games, there is an ecosystem that has sustained itself well enough for years and years. But it has a ceiling – in no way could it be something that has world-class production and huge payouts for players and an open tournament with reasonable entry fees. Not without more sacrifice, financially and physically, from the organizers and staff already worked to the bone to get these things going. It would need significant financial contributions from advertising partners, investor money, and, most importantly, the publishers and rights-owners.
And there is no compelling reason to expect why we would get that either. The publishers don’t make money from Esports endeavors, not even Riot who makes teams shell out $10 million just to be in their circuit. This is just a piece of marketing to them, and while Capcom might occasionally break the bank and pull out a legitimate $2 million prize pool for its Capcom Pro Tour, I don’t think we’re quite at the point where they’re going to be paying startup orgs to be part of the CPT. As the rights holders to these games, and therefore someone holding a nuclear football in any negotiation for monetization, they will always get the largest slice of the pie and we can’t compel them to do any more.
So it’s back to the claw. A 25 year-old YouTuber will decide to burn money for a year or two on an Esports team as CEO before getting bored two years later. A VC firm member who has an ownership stake in an NBA team will read a quarter of a Wall Street Journal article about how Minecraft rakes in millions and hurry to invest in the space, backing out 17 months later when the firm is down $4 million and they realize Skullgirls isn’t Fortnite. A member of Saudi Arabia’s House of Saud will start an org and host online tournaments with extravagant cash prizes for 5 months before he starts writing Twitlongers on community members he feels have chased him out of the space by spreading rumors. A startup organization founded by former members of the team the VC firm started will flounder 11 months later when two of its owners are filmed partying with a Romanian sex trafficker and apologize/resign over Twitter.
But the dream will live on. There may indeed come a day where people will pay money, whether it’s for a streaming service or a live ticket, to watch competitive videogames at such a clip that publishers and advertisers have no choice but to fall in line. I believe in the competitive integrity of the genre, and I think that the same kinds of stories and pure skill involved in any number of athletic competitions are present in our digital space here. But we are a long way away from that point, and trying to will it into reality through sheer force has not worked out. Pretending that it will someday is going to get us nowhere, as will denying that the current big players in the space have essentially done Sherman’s March through it and salted the earth. I hope, for the sake of the players who work hard to perfect their craft and the organizers who want to see them go at it, that something sustainable and serious crops up one day.
After all, somebody has to save us from the Saudi Public Investment Fund.
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