Making the waters a little more attractive: The big stuctural changes that eSports needs to make if it wishes to attract investors

In our last article we discussed the disproportion of eSports, given its viewership (and its relative young-ness) it should be growing at a much larger rate than it currently is. I believe that one of the two major problems impeding eSports proper growth is this: the inability for franchises, or to put another way, that teams rise and fall from even competing too easily. It’s difficult to want to put serious investment, particularly from a sponsor’s point of view, in a team that within a few months may very well never see competitive play again. The next and final part of this series will discuss the last impediment, intricately related to this one, in that eSports merchandise is so far behind that of traditional sports. Now let’s dive right into this issue, as it’s a bigger one than it might appear to be.

Creating a franchise in a lot of current titles of eSports is rough. Aside from League of Legends, most eSports scenes are running on Major tournament circuit. I’ll deal with this issue in the later part of this article, but for now let’s just say that big investors will be weary of sponsoring teams who may not even make it into the next major tournament. Franchises, too, are members of a (e)Sports league and always will be there. For sure certain teams will always be at Major tournaments, it’s hard to imagine a Major tournament in CSGO without Fnatic or Virtus.Pro, or a Dota 2 Major without Evil Genuises. But most aspiring teams can’t dream of competing at that caliber of play, let alone starting up franchises in their current positions.

It says something when the sponsor logo is bigger than the team logo.

It says something when the sponsor logo is bigger than the team logo.

So what does this mean in the larger picture of eSports economic impact? Well, unlike in sports, where the thought of the Premiere League without Manchester United, or of the NHL without the Montreal Canadians, seems completely out of the realm of possibility, in the world of eSports big teams have been repeatedly knocked out of leagues by lower tier teams. In the LCS we see this all the time: SK Gaming, once considered the second best team in EU and the proud dancing partner of Fnatic in El Classico, is no more (the LCS, that is). CLG, one of NA’s most storied teams, also almost faced relegation. The fact is that even these well-established teams still are not guaranteed the same kind of status as major sports teams are, that is, that they will still be kicking, even if they have a bad split.

Insane viewership means insane revenue from advertisement and sponsorship.

Insane viewership means insane revenue from advertisement and sponsorship.

But what’s the big problem with this? Well, sponsorship works on the basis that the team sponsored will be seen playing in the biggest leagues/tournaments. The viewership difference between the LCS and the CS in League, the difference between an ESL or Dreamhack tournament against lower tier tournaments, is insane. It goes from 100,000’s to 10,000’s. And that’s huge for sponsors. Think of the costs for advertisements in the NFL. Those ads are because of the viewership, of the exposure of their brand. The same goes for sponsors for football (soccer) teams in Europe. There’s a reason Chevrolet pays the huge sponsor price to be placed front and center on Manchester United’s jersey. People are going to see it. But this doesn’t happen if that team is relegated to a vastly less viewed league.

But most eSports work on a highly contingent and short-sighted framework now. Teams scramble to fix troubles, usually by looking to talent elsewhere or cracking down on players, if they lose in a Major tournament because there isn’t time to build up that team. We see this in NA CSGO all the time, the constant shuffle of talent trying to find the right ‘clique.’ Instead of teams being given the chance to work together, to foster talent and teamwork, we are faced with them throwing together a bunch of good players and hoping it works. This is directly caused, in my opinion, by the fact of the constant pressure for short-term success that eSports’ current systems require of teams.

What does it matter if a team could, after a year of playing together, improve dramatically if that team is never given the funding or even the opportunity to do so? This is why we see, in CSGO at least, bigger teams hold onto rosters for longer, while tier 2-3 teams seem to constantly shuffle. The risk of changing players for a tier 1 team is huge: if the gamble doesn’t pay off, it could be the downward spiral into non-relevancy. And the same is said for tier 2-3 teams. The gamble is risky, but worth it if it works out (think ex-G2 eSports, now FaZe), where you managed to get a winning mixture of solid talent. Or, maybe acquiring that one star player that clicked with the overall team changes it enough to make it into the next Major tournament, and ultimately the breakout into tier-1ship. Instead of having the ‘luxury’ of the top teams, who can rest on their laurels so to speak, and build and grow together as a team, lower tiered teams are constantly shuffling, hoping to find the right mixture to make their breakout. And this is hostile to investments in lower teams that can have big turnarounds.

Alright, so far we’ve talked more about eSports growing on the talent/quality side and less about the money. But these two are intricately related. Because of this inconsistency within eSports, fair weathering, where someone is a fan of a team only because they are currently doing well and will leave once they aren’t, is almost forced on them. Who wants to watch as their favourite team spirals into insignificance, because they aren’t able to crack into a Major? Major tournaments almost force fair weather fans, because only (usually) the top 8 teams make it into the real testing grounds of best of 3’s. This means that fans are typically galvanized to current favourites, and this means too that sponsors need to do the same.

Nobody really cares about watching tier 2-3 teams play each other, which means that sponsorship of those teams is going to be lower than, say, tier 1 teams. But even tier 1 teams aren’t excused from having falls from grace, which only increases investor apprehension. A deadly storm of instability caused by relatively shifting eSports scenes, particularly in Major tournament circuit styles, alongside the fact that fans only want to follow the best of the best, and not building up a team allegiance, make investing too risky for a guaranteed payoff. Why invest massive money into a team that within a six month slump might dissolve, particularly where fans follow players more than teams in a lot of cases.

The nature of investment is taking a risk of buying into something with the prospect of it growing well beyond your initial investment. To put another way, it’s like planting an apple seed knowing that you’ll harvest the fruits of your labour later. But the current environment of eSports is, to put it bluntly, hostile to this kind of investment. Why invest in an environment who won’t have any interest in your apple tree because it isn’t producing fruit right after you plant it? eSports’ current state favours short-term strength over franchise building, and we see this from multiple angles. It’s hostile to teams growing slowly and collectively, because if those teams can’t make it into the major tournaments they’re almost doomed to obscurity. It’s also hostile to this kind of growth because fans tend to be much more flighty or player focused, preferring to either cheer for the winning team or for their favourite player over a franchise.

The Leafs struggle to be relevant is almost caricature and yet they're still one of the most profitable NHL teams.

The Leafs struggle to be relevant is almost caricature and yet they’re still one of the most profitable NHL teams.

But why is this impeding eSports proper growth? Well, investors can’t invest in such contingently natured things. You can’t invest, say, in CLG and essentially in Doublelift, just to have him leave the next split, go to rival organization TSM, and lose a portion of your fanbase (and, thus, viewership too) over such a relatively small off-season change. All of a sudden the value of the team drops. Will it recover? That’s the real question. But, more truthfully, will it recover quick enough to remain relevant. Sports teams lose their star players, have horrible seasons (or decades, if you’re a Leafs fan), but still retain fans, and thus are still sound investments. eSports, in its current competitive state, just doesn’t allow those kinds of things to happen, for the main reasons of fair weathering and inconsistent competitive play.

How do we fix this problem then? Well, I’m going to be quite bold here and state this: cut the tournament circuit crap and relegations. “But,” the scene will cry, “this is what the scene wants! This makes it so the most competitive players are playing!” I don’t think so. I’ve seen too many upsets in group stages, too many best of 1’s lost online qualifying for Majors to take this statement seriously. Sure, the scene has thrived, up until now, on that principle. But I don’t think it’s sustainable for players and teams. Fans might love it, it sure creates very intense games that have us on the edge of our seats, but it doesn’t allow the scene to grow in investors eyes.

I’ll tackle both things separately: we need to reconsider tournament circuit style eSports. Why? Well, because many teams are left with big question marks over their heads if they’re not in the top 8 (of 16) teams (thinking Counter Strike here). Will they qualify next time around? Will they be able to make a significant run in the tournament if they do? The problem with this style is it almost promotes short-term thinking on multiple levels. First, learning how to play an off-meta map really well has gotten teams into Majors over (possibly?) stronger teams who didn’t practice on that map, knowing it would never make it through the ban phase at the actual major. It also means that players and organizations are always looking to improve their teams, usually in raw talent or possible synergy kinds of ways. This creates a fluid state for most tier 2-3 teams, and one that is just too risky for investors.

So what would we replace this with? Well, looking around to most major sports that make a lot of money, league systems are what they do. It’s almost painfully obvious. But league formats are very costly to implement and start up, and also create a kind of monopoly that tournament organizers will be up and arms in (and thus also mobilize the community around too). But this will have the long-term effect that most fans want, that is, bigger and better production, discussion, and most importantly competition. The consistency of play, in league formats, allows teams to grow together, but also to be given just as much opportunity to repeatedly play against their peers. The best practice is against those who are better than you so you can learn from your mistakes and come back stronger the next time. But tournament circuits don’t allow this, if you lose once you may never have a chance to play again for months, or maybe ever. The stress is then on winning, not growing.

Okay, so Virtus.Pro seems to be doing alright for finding investors...

Okay, so Virtus.Pro seems to be doing alright for finding investors…

Investors don’t care about winning, they care about growing their money investment. This means that, say, investing in a smaller team that might have potential, that you can grow and mold around some untapped talent within it, or even just make it into a greater teamwork/synergy team than others, becomes a possibility. Sure, now that team is 9th out of a 10 team league, but with the proper management, they can grow into a 6th place team, and maybe even continue upwards after that. It’s not about having the best team for investors: it’s about finding the potential in teams, to grow that and create more money. Same goes for sponsors. Sponsors don’t need the best team to be viewed, they just need to be a consistently ok team to maintain a good record and possibly be seen in playoffs to be a sound investment.

League systems also are better as they work towards a playoff slowly and give ample time and opportunity for teams to prove themselves worthy. It’s not about getting lucky and winning two games in a row in a best of one format, it’s about consistently out performing other teams. But this is key because viewership tends to be much higher the deeper a team gets in a playoff series. A lot of eSports high viewership comes in the finals of tournaments, not so much in the lead up to it (although those numbers are still nothing to shrug at). Investors might see the potential in a 9th place team making it into playoffs and see the potential growth of that investment when and if they do. With tournament circuits this is a much higher risk, with arguably the same possible outcome. Which system fosters, then, this kind of investment better? I think I’ve made a case for league formats.

The next point with league formats that would need to be considered is the relegation system within them. Yes, relegation works great, and has brought some of the best teams in the LCS ever (think Cloud 9’s record in their first NA split.) But relegations also mean that those 9th place teams are always at risk of the same problem found in tournament circuits. If they can’t pull it around and climb their way out of relegation threats, then there’s a chance we’ll never hear of them again. Nobody wants to be investing in a team that’ll never be heard of again. Now, I’m not quite convinced that relegations should be removed entirely, particularly with how fledgling eSports still is. I think having a robust ‘relegation’ league is important. But, as the scene grows, relegation might want to be something that is eventually dropped entirely. Think about it this way: regardless of how bad (currently) that 10th place team is, it doesn’t matter. They’re a spot in the most stable, coveted eSport ever (whatever that may be). All of a sudden that team becomes an investment of huge potential. If you can turn them around, then you have just gotten a great team at a low cost (because of their rank). and if that doesn’t work, well, you can still sell the spot/team for a huge turnout because that’s the only way into the league. You want in, you pay my (the investor or owner of the team) price.

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Removing relegations also helps with the problem of thinking in longer term mentality. Sure, that team might be 10th place again the next split. But with proper management, infrastructure and scouting for talent to replace weaker members, owners constantly have the chance to breakout. Instead of thinking, “lets assemble a super team of talent not in use,” they can actually build a team, helping to foster each player and replacing ones who are still problematic. It alleviates the constant pressure of having to prove themselves right now. There are plenty of teams in major leagues of sports that one wouldn’t have invested in, because of their standing years ago, but all of a sudden are top contenders to take it all. Being from Toronto, look no further than the Toronto Blue Jays for a case in point. The mania that surrounded that team as they made their first playoff appearance in a long while, was insane, and more importantly the merch sales too.

So what are I am saying here? We need to consider eSports as being hostile towards investors because of its short-sighted nature currently, and attempt to give it the potential to develop and grow over time. Investors will invest in short-term things, of course, but mostly if those have the chance for big return, which, currently, eSports does not. We need to open up for longer term investments. I’ve attempted to make a case for how to change this, that is, by removing the tournament circuit style so prevalent in eSports into a league system modeled off existing leagues, and then once this is established remove relegations or make them not as harsh as they currently are. In my next article I’ll be discussing how all of this leads to the difference in merchandise possibilities, a massive source of revenue for sports and a largely and massively lacking element in eSports.

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