Imagine if the New York Knicks were booted from the NBA after a year of bad play. It would, at the very least, cause havoc for sponsors shelling out big bucks to back the team. This scenario has been exactly what's happening in the burgeoning esports business, where poorly performing teams are dropped each year, potentially limiting the growth of a sport that has enjoyed a surge of fan interest in recent years.
One of the industry's biggest players on Thursday announced changes aimed at fixing the problem in a bid to lure more brand dollars and make the sport more accessible to casual fans.
Riot Games Inc., owner of the wildly popular League of Legends game and leagues, unveiled a new franchise model for its North American League Championship Series that includes creating a permanent lineup of teams starting in 2018.
Teams joining that lineup must pay a $10 million fee, a big amount that suggests something about just how lucrative competitive video game playing has become. Less than two years ago, esports teams sold for about $1 million, according to Bloomberg.
The changes loosen so-called relegation rules in which underperforming teams can be dropped annually and replaced with newcomers. In the old arrangement, the 9th and 10th place teams had to enter a special tournament against minor league teams to win their way back in.
The new rule still allows the 10-team league to strip teams if they finish in 9th or 10th place five times over a four-year period. The league runs a spring and summer season each year.
The changes come as prize pools are rising across the nearly $700 million global competitive video-game-playing industry, which has drawn headlines for packing stadiums like the Staples Center for big tournaments. But at the same time, the sport has suffered from an image of having a Wild West mentality with a fractured landscape and rules unfamiliar to casual sports fans and brands -- including dumping losing teams.
"It's harder to make long-term investments as a brand if you don't know if the team is going to exist," said Jarred Kennedy, who co-heads Riot Esports. The changes "are going to make it much more palatable and approachable for brands to come in and invest," he added.
Riot's North American League is also implementing a revenue-sharing model, while setting up a players association akin to what exists in traditional sports leagues. League-based revenues, which includes media deals, will be shared among teams, pro players, and Riot. At the same time, teams will share a portion of their league-driven revenues, such as sponsorships and merchandise sales, with the league. Riot set a minimum salary of $75,000 for individual players.
Riot Games' esports content media revenues were bolstered by a $300 million deal announced last year with BAMTech, the streaming company formed by Major League Baseball in which Walt Disney Co. has a stake. BAMTech is assisting Riot with sponsorship negotiations.
A league's health -- and its accessibility to outsiders -- can be measured by how many sponsors it has that are nonendemic, meaning from categories that do not sell products directly related to video game playing. At present, Riot's North American league counts the following brands as nonendemic sponsors of individual teams: Geico, Nissan and Axe. (Endemic sponsors include Twitch, Logitech and HTC.)
Example for other leagues
Coca-Cola, which has been active in esports marketing, sponsored last year's League of Legends World Finals, but has yet to renew. "Partnership decisions are still being made for 2017," said a spokeswoman. Matt Wolf, who oversees esports for Coke as its VP-entertainment ventures and gaming, praised Riot's organizational changes, saying in a statement to Ad Age that it "allows a more streamlined partnership approach within the esports industry and ecosystem. We see this as a positive evolution to enable brands like Coca-Cola to build strategic partnerships with the future-focused esport community."
Joost van Dreunen, CEO of SuperData Research, which provides marketing intelligence for the digital games industry, characterized Riot's rule changes as "good news for advertisers," adding that the old system "has been challenging for advertisers to figure out who and how to sponsor." He also suggested that the changes will set a precedent for other esports leagues to follow, including Activision Blizzard's Overwatch League.
"The devil is in the details," he said. "But if I have a team that kicks ass in sponsorship, why should I give up more money than another organization?"