If You Give an Organization An Option Out: League of Legends’ Buyout Problem

There is a new theme when it comes to contracts in esports.

First, there was a pure lack of recognition when it came to contracts. Players and organizations shamelessly disregarded the nature of their agreement and freely navigated the free agency market without real consequence. The openness — while mutually beneficial at times — wasn’t realistic.

And now, we’re in the era of “buyouts.”

Buyouts are a relatively simple concept yet incredibly complex in nature. A player and an organization have a contract agreement. Rather than releasing a player from their contract for free, a player can be bought out from their contract — oftentimes for the amount of the remaining balance of the player’s contract or a pre-determined figure.

Recently, we’ve seen multiple examples of the buyout process taking place — likely a result of organizations wanting this information to be communicated to the public through their media contact. G2 Esports’ CEO has publicly stated that agreements regarding his former players have been completed at a discounted figure compared to the original terms of the contract. This offseason, Team Liquid and Evil Geniuses completed buyouts of two Rogue members presumed to be for a large sum of money.

This adjustment has been needed to the market — confirming the integrity of contracts. But, there are consequences.

Prior to the start of free agency this year, Riot Games updated their policies around pro player contracts. The standard maximum contract length has been increased for certain eligible pro players, increasing from three years to four years. Presumably, a way for organizations to offer lucrative contracts to players, yet, it doesn’t necessarily do that.

Think about it – what is a longer contract meant to accomplish versus what it really does accomplish?

It provides more certainty regarding a business agreement, connecting two parties for a longer period of time. Organizations will like this as they’re able to lock down their top talent. Players, in theory, will enjoy a confirmed deal and the money that comes with it. In practice, this clearly doesn’t work.

Looking at the NBA, players have begun to break the system. Top talent are starting to ask for trades despite signing lucrative max contracts. James Harden fought his way out of Houston, Ben Simmons is fighting his way out of Philadelphia. He’s sitting on the sideline until he is traded. In Simmons’ situation, I don’t blame the man for wanting to get out of Philadelphia. The comfort and security organizations once had after offering the max deal is now gone. The tool to keep their top talent is now meaningless to a degree.

Unfortunately, the NBA is still working on how to fix that. In competitive League of Legends, we’re seeing something relatively similar. Luka “Perkz”  Perković has gone through it twice: once with G2 Esports, once with Cloud9.

But the NBA and competitive League of Legends are much different. One has a collective bargaining agreement, the other has a Players Association that has been relatively non-existent.

So things that get players out of a contract become more important.

There are very few limits when it comes to contracts between players and organizations. The freedom that comes with the market makes buyouts much more dangerous. It creates a market where the rich get richer — rewarding high payroll organizations and top talent. Using Perkz as an example, he is able to be much looser with his decision-making and organizations will accommodate because of the value he provides as a player and as a representative. His, likely, future home, Team Vitality, is probably very happy about the situation. But his former home may also be in luck given that they’re able to get out of the contract with little-to-no impact on their financial wellbeing.

The power dynamic is shifting into the player’s favor. However, this is only one part of the matter.

The second part comes with the money that is being exchanged as a result. Team Liquid is a good example to look at. One of the larger spenders in the LCS, the team took advantage of the buyout market this offseason to secure Steven “Hans sama” Liv for a rumored large amount and signed him to a three-year contract for also a likely large amount. Their investment into the player, from a financial perspective, is huge.

If, hypothetically, Hans sama was to move on next year, that purchasing cost will affect his transfer value. Despite having six or seven-figure contracts, buyouts are much more palatable compared to that of NBA, MLB or soccer contracts. There aren’t trades or transfers in competitive League of Legends.

As a result, the money trail follows a player. Perkz really didn’t have a great season in 2021 yet the idea or thought of his buyout figure didn’t make teams bat an eye. Even his presumed larger buyout figure in 2020, multiple suitors were interested.

This hasn’t cost teams…yet.

Effectively, the market will be forcing teams into longer contracts that protect them more than the player. And top talent will treat it as a one year with a restricted free agency period.

But what if a player’s contract does become a toxic one?

It has still been suggested that player contracts are overvalued compared to the return on investment for organizations from their respective leagues. Despite the insight that the LCS and LEC are becoming profitable, the growth in revenue may or not match the continued growth in salaries.

Small payroll teams being bullied by large payroll teams also isn’t great for health for the League of Legends ecosystem. Despite the perception that it would force teams to invest more, the health of the league is reliant on natural and healthy competition rather than manufactured pay wars.

Thinking through it, this is something to be passionate about. What we’re witnessing teams get away with should be addressed as soon as possible. However, old-guard owners likely will fight against it given how much it rewards their current strategy.

A salary cap concept has been thrown around and discarded by personalities yet it is an incredibly valuable tool at protecting all parties. A luxury tax is an even better tool.

A “luxury tax” taxes teams whose payroll exceeds a predetermined amount.

Basically, it keeps big-money owners in check. In baseball, the tax actually goes to small-market teams, allowing them to have more revenue to spend on contracts of high-quality players.

But an even better solution would be organizations realizing how damaging reliance on buyouts could be. Teams have been recklessly spending for some time. Franchising really did give a lot of organizations much more confidence in their spending. The “esports bubble” — a concept that organizations will eventually be burdened by their poor decision making, leading to a financial collapse — is still very real and isn’t going away anytime soon.

Front offices in competitive League of Legends are missing a voice of reason. Whether it comes from a new member inside their respective organizations or a much-needed re-evaluation from Riot, it has to happen.

The current landscape of contracts is creating a snowball of issues. Rolling down the hill, it will be interesting to see what Riot Games and teams do next. Do they address the issue? Do they let it snowball and hope it doesn’t hit anything or cause damage? Does Steve Arhancet pay the snowball to join their 2022 lineup?

We’ll find out.

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