Rapid growth of Esports raises questions about investments

The season three League of Legends World Championship Grand final was held at the Staples Center in downtown Los Angeles on Oct. 4, 2013. (credit: Courtesy of artubr via Flickr Creative Commons) The season three League of Legends World Championship Grand final was held at the Staples Center in downtown Los Angeles on Oct. 4, 2013. (credit: Courtesy of artubr via Flickr Creative Commons)

Esports, otherwise known as competitive gaming, is a rapidly growing industry that caters to the competitive nature of humans, while fulfilling that millennial need of always having one’s eyes glued to a screen. Many people dismiss the idea of esports being a legitimate competitive outlet, either because they don’t realize how large the industry already is, or they haven’t played enough video games to understand how they can be competitive. Those opinions are beside the point, because in the world of gaming, one common desire that people share is that they want to watch a game they love be played at the highest level. It doesn’t matter if it's American football, cricket, rugby, or water polo, if people play the sport they will want to see the best of the best play. The most popular sports have well established leagues, and professional, clear-cut broadcasts used to explain the game to viewers and to comment on the action. This can be found in esports as well: League of Legends, one of the most popular esports, is organized into regional leagues that play a full regular season with playoffs at the end, culminating in an international world championship, all organized by the developer of League of Legends, Riot Games.

With such a high level of organization, big name sponsors are starting to notice just how similar esports are to traditional sports and and as a result are beginning to invest heavily. These investors see the value in putting money into such a rapidly growing industry, but it’s possible that the established leagues could be unintentionally pushing these investors away. For example, in the Riot Games-hosted League Championship Series (LCS), some serious investors have recently bought teams and attempted to try their hand in the esports world. In North America, former NBA player Rick Fox purchased a slot in the LCS, along with NRG Esports of which another NBA star, Shaquille O’Neal, is a part owner. In Europe, established soccer club Schalke 04 purchased a spot in the LCS as well. Already we can see a problem with this system: Investors can purchase the slots of failing teams that want to sell the spot without having to qualify for the league itself.

This may seem like a benefit at first glance, but in reality the teams put together by these new investors are not the best, in fact they are rarely in the top half of the standings. While a spot in the LCS can be purchased, the bottom three teams in the LCS have to play to retain their spot in the LCS once the season is over. This means that new teams purchased by big name investors often have to fight for the spot they purchased, without ever having time to get settled in the new league and improve as a team over time. The argument against this is that the best teams will adapt quickly. This is true, but anyone that plays a team game knows that it takes time to build chemistry with teammates and get used to a routine. So while the teams that have been competing in LCS for years are always at the top of the standings, the bottom half of the standings is usually a revolving door of new teams with new investors that never seems to settle. Without there being a guarantee that an investor will have time to develop their team and their brand within the esports industry, it could very well turn off big name investors that might have otherwise supported esports or tried to start their own team. That said, some investors do choose to stick around even after losing their spot in the LCS. Schalke 04, after being relegated in their first split (half season) of LCS, announced that they would not disband their team and would instead continue to develop talent and the industry as a whole with their influence. NRG Esports on the other hand, disbanded their League of Legends team and moved on to focus on other esports. Rick Fox’s team, Echo Fox, had to fight for their spot in the LCS as well, but they persevered and retained it for next season, which shows investors that it is possible to get in and stay in, even with a new team.

But how could the problem be resolved? Multiple team owners including Fox have suggested franchising, which is a system typically used in American sports leagues that locks teams into their spots in the league. This is why we have the same 32 teams in the NFL every year, this is why the Cleveland Browns or the Philadelphia 76ers were never kicked out their leagues for being bad teams. While franchising is clearly the better option for team owners that want time to develop a new team within the league, it also brings up the question of whether or not franchising is fair to teams. Team Misfits defeated NRG Esports for their spot in the LCS and now Misfits, a brand new team, will get to try their hand in the LCS. They certainly deserve it after handily defeating NRG, who was supposed to be an LCS-caliber team. But what if they had never even had the opportunity to play for that spot? Misfits would still be dominating every team in the Challenger Series (essentially the minor league for LCS) and NRG would be at the bottom of the barrel, unable to lose their spot even though a team in the league below could beat them handily. If people want to watch the best of the best play, then only the best of the best should be playing, not teams that only remain in the league because it's written in a contract. While franchising may give new teams time to improve, it could potentially make the viewer experience less enjoyable by keeping teams in the league that shouldn’t be there. It’s hard to say whether or not franchising is a good idea. Without it, the Tampa Bay Buccaneers would have been kicked out of the NFL as fast as they got into it, and they never would have won the Super Bowl. However, teams that have never been to the Super Bowl, like the Cleveland Browns, still exist but remain in the league because of franchising. The NFL is obviously a different case because of the scale of the games: large stadiums and nationwide broadcasts. It is a larger undertaking compared to creating an esports team, but it is an investment nonetheless.

Regardless of whether or not franchising is good for esports in the long run, investing in the industry is definitely worth it. Rick Fox has shown that even without franchising, its entirely possible to keep a spot in the LCS with a brand new team. That alone may not be enough to convince other investors though, and the LCS may need franchising to attract more big names after two of the largest recent sponsors were relegated from the LCS this year. All that matters is that people continue to realize the potential that esports has as an industry, and it will keep growing. As the millennial generation gets older, they will have more disposable income, leading to even more opportunities for investors to get people interested in their brand, but they need to start now. The best investors for the industry will be in it for the long haul. Any investor who sees the potential growth in the esports industry would be naïve not to at least explore their opportunities.