Fixing Esports Finances: A Salary Cap Course Taught By Traditional Sports
By Harris Peskin · Wed, Jan 10, 2024 6:54 PM
Salary Caps in Esports
Executive Summary
This paper will argue that salary caps are the best and most immediate measure that can be taken to stabilize finances in esports. The current financial landscape is unsustainable with investment receding and teams struggling to drive revenue. This issue is largely due to excessive player salary expenditures made by teams that are incentivized to spend in competition for a limited pool of sponsorship money.
Competitive success drives viewership and engagement, two metrics particularly attractive to sponsors. In the NHL there is a .69 median correlation between regional year over year adjusted viewership and a team’s competitive success; in the MLB that median correlation is .83. Without as large a baseline of fans, which traditional sports teams have been able to build through regionality, esports team revenue is more reliant on competitive success to generate revenue.
Competitive success is positively correlated with player salary expenditure. Which can be seen across multiple major sports leagues including the MLB, NHL, NBA, and the NFL. With positive correlations between competitive success and viewership, teams are motivated to spend in order to increase revenue. Teams compete both on and off the rift for the limited pool of sponsorship dollars. A fear of poor performance and the corresponding poor engagement has led to wage to revenue ratios in excess of 2 to 1.
This issue is not endemic to esports. Poor wage to revenue ratios have been a feature of competitive sports ecosystems for decades. The issue is exacerbated in the esports ecosystem as teams are more heavily reliant on sponsorship dollars. By implementing a salary cap, LCS teams can immediately reduce their spending to more sustainable levels. This concept has proven effective in traditional sports. Two examples include the NHL which saw a wage to revenue ratio drop from 76% to 54% after the implementation of a cap, and most recently the EPL which had a wage to revenue ratio of 70% drop to 58% after the implementation of Financial Fair Play.
A salary cap cannot be implemented absent a collectively bargained agreement between a players union and its employers, without violating antitrust laws. To date, LCS players have had little incentive to unionize. They have possessed a stronger bargaining position than teams due to their public favorability and Riot’s competing marketing incentives. By publicly lobbying Riot, players have achieved workplace related goals which would typically be a mandatory subject of collective bargaining, without needing to unionize.
Riot should promote the concept of player unionization and assure the players that it will not attempt to block any attempted unionization. Next, Riot should step back and allow teams and players to negotiate a collectively bargained agreement.
Introduction
After the LCS Players Association’s walkout during the 2023 Spring and Summer off-season, and TSM’s departure from the LCS amidst 7 year old claims of poor return on investment,3 additional attention has been paid to the topic of LCS ecosystem stabilization and long term sustainability.4 The issue of league finances has been catapulted back into the public conversation after news that the LCK and LEC intend to implement versions of a salary5 cap.6 This paper will analyze the desirability of salary caps in professional sports and ultimately argue that Riot, in conjunction with the LCS team owners, should both support and motivate player unionization in order to facilitate collective bargaining and the creation of a salary cap, a remedial action that will provide long term structural stability to the scene. The most immediate action that can be taken to stabilize the ecosystem in the LCS would be the implementation of a salary cap. While today, player salaries may be naturally declining due to a shrinking pool of revenue and lack of VC investment, absent regulation, the same market dynamics which led to the instability seen today may eventually re-emerge, causing a second "esports winter" after the industry experiences future growth. The implementation of a salary cap now would provide both a short term stabilizing effect and create the opportunity for long term, sustainable growth.7
PART 1. THE ESPORTS ECOSYSTEM AND TEAM INCENTIVES
Esports teams make a majority of their money from sponsorship agreements.8 In 2018, Fnatic’s Chief Gaming Officer Patrik Sättermon stated: “It is estimated that around 95% of the money generated by our esports teams comes directly from sponsorship deals.”9 Reasonable modern estimates place that number anywhere from between 50% to 90%.10 With the global economy in an uncertain place, investment in gaming decreasing,11 and sponsors looking increasingly to influencers in the gaming market,12 YoY gross revenue in North American esports experienced a decline in 2023.13
In addition to decreased revenue and investment, in 2023, esports organizations continued to disproportionately allocate their financial reserves to players. As Thorin observed in a recent video, each team in the LCS loses money on an annual basis.14 “In many instances teams have spent greater than 200% of their annual revenues on player salaries.”15 In 2019 Chris Greeley, head of NA Esports for Riot at the time, said the average player salary in the LCS was north of $300,000.16 As reported by Dot Esports in 2020, the average player salary was $410,000. Extrapolated to a six player roster,17 in 2020, the average LCS team spent $2,460,000 on player salaries alone. This has resulted in considerable losses across the industry. In Korea, T1, arguably the most popular League Of Legends team in the world, reported losing nearly $12.6 million USD in 2022.18
Industry stakeholders seem to be coming around to the idea that player salaries are to blame for the unsustainable ecosystem. In their essays on esports, Bryce Blum, my partner at ESG Law, and Avi Bhuiyan discussed the esports winter and paths towards monetization. At the outset of the series of essays, Bryce accurately depicted the ecosystem’s expense problem:
“[a]ll of this is true for esports teams as well, though there was another layer to the problem: player salaries. As more and more teams received a massive influx of capital, all of them felt the pressure to win. Whether an established powerhouse or an up-and-comer, winning was seen as the primary tool for growing a team’s fan base and in turn its monetization prospects. Winning required signing the best players, so the best (and most popular) players often found themselves in the driver’s seat when it came time to negotiate their new contracts." 19
Though both Bryce and Avi addressed comparative problems between esports and traditional sports revenue streams,20 provided a compelling analysis on publisher incentive structures,21 and even offered up recommendations on how to grow revenues and align publisher incentives with its esports operations,22 they did not offer up immediately actionable steps to calm the ecosystem’s burn or create financial stability.
Little attention has been paid to the incentive structure inherent in business frameworks based on competition, particularly one where nearly all of the business’ revenue is attributable to advertising. Teams are incentivized to spend money on players because retaining higher quality players increases the likelihood of winning and therefore sponsorship revenues, the largest revenue stream available to esports organizations.
Competitive Success is Strongly Correlated with Sponsorship Desirability
We started with the assumption that sponsors are driven by a desire to increase the number of eyeballs on their product; their primary purpose for sponsoring a team is to market their product to the highest number of potential consumers in the desired market they seek to reach.23 Sponsors achieve their goal through a variety of marketing initiatives. In addition to receiving eyes on their product during the broadcast and generally wanting to sponsor a team associated with winning, they might choose to activate a sponsor booth at a playoff game, or insist the activating team create custom branded video or social media content related to the team’s performance.24
We next assumed that teams endeavor to capture sponsorship revenue.25 We sought to demonstrate that competitive success is positively correlated with viewership; teams that achieve competitive success are teams that have higher viewership than they would if they finished poorly.
To prove this assumption, we reviewed the regional sports network (“RSN”) average ratings for United States based national hockey league teams for each year from 2018 to 2022. We found that, when adjusting for yearly decreases or increases in the NHL fan populace’s television consumption, the median correlation between the success of the team and its television ratings in that given year was equal to .69.26 These findings suggest a statistically significant and strong correlation between viewership for the team and its competitive success.
Figure One
This dynamic was also present in Major League Baseball ("MLB"). Craig Edwards graphed the relationship between win percentage change and ratings change in the MLB.27 That graph is displayed below in Figure Two. As demonstrated by the graph, 9 of 10 teams that experienced a win percent increase saw a corresponding ratings increase. “At the other end, [8] of the 11 teams that have seen a drop of [greater than 20 points] in winning percentage have also seen falls in [their] ratings. . .”28
Figure Two
We expanded on this concept using the same methodology as we used in our assessment of the NHL. After reviewing winning percentages and local ratings changes from 2015 to 2018, we observed a .83 median correlation between a team's success and its increase in viewership, this relationship is displayed in Figure Three.29
Figure Three
By tailoring our assessment to viewership across local RSNs, we pinpointed team interest in their specific addressable market of fans. For example when the Colorado Avalanche finished as the top team in 2021, roughly 42% more Coloradans tuned in to watch their games.30 Similarly, as the San Jose Sharks went from finishing as the second best team in the Western Conference in 2018-19 to missing the playoffs in 2019-2020, they experienced a 22% decrease in viewership.31 Put simply, teams in competitive sports are incentivized to field a better roster if their goal is to increase sponsorship revenue. In esports, this problem is exacerbated because non-sponsorship revenue generating opportunities are more scarce in the current marketplace, thereby increasing reliance on sponsorship.
Traditional sports team RSNs typically are not viewable by individuals outside of the region. By way of example, a New York Islanders fan living in Washington D.C. would not be able to watch MSGSN (the network which broadcasts New York Islanders games) because the network is not broadcast there. Prior to the NHL’s integration with the ESPN Plus streaming platform in 2021-2022, the only way to watch an Islanders game from D.C. would have been to purchase the NHL.com full season streaming package or buy an expanded sports package on cable or DIRECTV. Each of those options carried a heavy additional expense in addition to viewing difficulties that might arise from time differences in games across various time zones. The result is that viewership for a team is often concentrated in the market that team plays in. It is important to distinguish this point from the North American League of Legends addressable market of fans.
Traditional sports viewers are locked in to their teams. Prior to the NHL’s deal with ESPN, if a Colorado Avalanche fan didn’t want to watch a struggling Avalanche team, there were few other ways to watch hockey unless that viewer spent over $200 to buy a package to watch a team the viewer had no affinity towards. This problem was even more amplified before RSNs. Brooklyn Dodgers fans didn’t follow their team to Los Angeles in 1957 because there was no way to listen to the team on radio. Conversely, a viewer for a team in the LCS has easy access to watch each team in the league. In the competition for attention, an LCS fan looking to allocate an hour to watching the LCS has little reason to watch a bad team over NRG or Team Liquid, the two teams that finished in the LCS finals this past season. LCS Fans aren’t locked into fandom of a specific team by virtue of their location in North America, whereas the locking effect has laid the foundation for the creation of a baseline of diehard fans for each team in the NHL. No matter how bad the Buffalo Sabres are, they are still going to pull over a 3.5 viewership rating in the Buffalo market. Because geographically-tied fandom is not well established in esports, teams cannot rely on a consistent baseline of fans to sell to sponsors; their continued ability to generate revenue is entirely reliant on sustained viewership and thus repeated competitive success, or long term sponsorship agreements.32
Competitive Success is Correlated to Salary Expenditure
With a direct correlation between winning and viewership, and therefore sponsorship revenue, and with an extremely limited baseline of fans to fall back on absent winning, esports teams are incentivized to win now and in the future to sustain their business. For several years while trying to prove out their business model to investors, this meant winning at all costs. The phenomenon is not endemic to esports; in traditional sports salary expenditure has often been tied to increased revenues, a key reference point for investors.33 To demonstrate the correlation under a similar competitive structure, we assess the relation between winning percentage and salary expenditure in traditional sports as esports salaries are generally not made available to the public.
In 2000, the MLB commissioned a study to examine if revenue disparities were damaging to competitive parity.34 Researchers Richard Levin, George J. Mitchell, Paul Volcker, and George Will divided the existing MLB teams into four equal quartiles by ranking them based on their payroll.35 The commissioned study concluded that “although a high payroll is not always sufficient to produce a club capable of reaching postseason play - there are instances of competitive failures by high payroll clubs - a high payroll has become an increasingly necessary ingredient of on-field success.”
In 2017, a Duke University student named Grant Shorin conducted an analysis of all four major North American sports leagues from 1995 to 2015.36 Using the same quartile analysis as Levin, Shorin concluded in the MLB “there is a clear relationship between increased spending and higher odds of making the playoffs [where] almost 50% of quartile I teams make the playoffs, while over 85% of quartile IV clubs miss the playoffs.” The MLB has the most restrained form of a salary cap which is more akin to a luxury tax for spending above a threshold amount than, for example, the NHL’s hard spending cap. Its loosened restraints make for a good analogue to esports creating a higher likelihood of success for the top spending teams.
In a more detailed analysis of the four leagues, Shorin concluded “that when a given team ends up spending one standard deviation (which corresponded to $44.6 million in the MLB, $10.6 million in the NBA, $4.3 million in the NHL, and $17.2 million in the NFL during the 2015 season) above the average payroll, they are expected to have a winning percentage that is between 2.3 and 5.4 percentage points higher than if they spent the league average. Over the course of an entire season, this equates to approximately 4 additional wins in the MLB, 4.4 wins in the NBA, 5.9 points in the NHL, and 0.4 wins in the NFL.”37 In real life terms, the Colorado Avalanche finished 2nd in the Western Conference last year with 109 points where the last team to make the playoffs in the Western Conference, the Winnipeg Jets, finished with 95 points, a difference of 14 points. Two standard deviations of spending, which is commonly the difference between top spenders and the NHL league average,38 is nearly enough to be the full difference between finishing number 2 in the conference and missing the playoffs entirely.
Figure Four
In 2021, Dr. Coleen Wilder and students at Valparaiso University found that the best predictive model for an MLB team’s payroll over 25 years was comprised of the year in question and the number of losses for the team.39 The authors found a .7405 correlation between this formula and the applicable team’s payroll,40 indicating that payroll is often explained by the date and team’s on-field results. The authors provided a helpful snippet from the 2019 baseball season to help illustrate this point, as seen below in Figure Five.
Figure Five
Given the direct correlation between spending and competitive success, as well as the direct and substantial correlation between viewership and competitive success, teams are incentivized to spend money on player payroll to increase viewership and sponsorship revenues. This relationship helps shed some light on the wage-to-revenue ratio provided above. Left unchecked, spending on player salaries in competitive sports often results in an unhealthy business model.
PART 2. SALARY CAPS IMPROVE TEAM FINANCES AND LEAGUE PARITY
Esports has not yet figured out how to diversify its revenue streams. As cited above, nearly 50-90% of a team’s revenues come from sponsorship.41 Any problem of incentive inherent in competitive sport business models is even more problematic without diverse revenue streams. In 2003, the Green Bay Packers, a publicly owned NFL team, released a detailed profit loss statement.42 In FY 2003, the Packers reported $77 million dollars in television and radio revenue compared to $21 million dollars in marketing and merchandise revenue.43 The team operated at a $23 million dollar profit before accounting for taxes and the league’s shared expansion revenue.44 Even if all of the team’s advertising revenue were to disappear, the Packers would still have operated a $2 million dollar profit.
Esports teams do not have the same luxury–they are reliant on advertising revenue and therefore incentivized to capture it however they can. Any effort to stabilize spending on players, on a single team basis, would jeopardize the team’s performance, viewership, and revenues; the result is necessary cannibalization and over-inflated salaries driven up by increased demand.
The most immediate business remedy to this issue is a restraint on player spending. That restraint would prevent the race to the bottom to grab up existing sponsorship revenue. The best teams, all spending at a sustainable rate, will be able to enjoy financial success. In traditional sports, this restraint has come to be known as a salary cap.
Figure Six displays spending as a percentage of team revenue immediately before the imposition of a salary cap across the NHL, NFL, and NBA, representing three of the big four North American sports leagues which have implemented some form of a salary cap. The chart reveals that salary caps have the effect of reducing spending as a percentage of revenue generated. The reasoning for this is the manner in which a salary cap is calculated. Take the NHL, where a salary midpoint is derived by calculating the aggregate hockey related revenue, dividing by the number of member teams (32), and dividing by 2. 115% of the midpoint is equal to the team’s salary cap ceiling and 85% of the midpoint is equal to the team’s salary cap floor.45 Teams cannot spend in excess of the ceiling, or below the floor.
Figure Six
| League | Salary Percentage of Team Revenue Before Salary Cap | Salary Percentage of Team Revenue After Salary Cap |
|---|---|---|
LCS | >100% to ~200% | TBD |
NHL (2005) | 75% in 02-03, 76% in 03-04 | 54% (midpoint) in 2005-2006 (50% in 2023) |
NFL (1994) | 68% in 1993 | 56% in 1995 (55.47% in 2015) |
NBA (1983) | >60% <70% in 1983 | 40.6 in 1989-90. 51% in 2023 |
Notes for Data Table:
LCS (Wage to Revenue Ratio pre-cap) 46
NHL (Year,47 Wage to Revenue48 pre-cap,49 Wage to Revenue post-cap)50
NFL (Year,51 Wage to Revenue pre-cap,52 Wage53 to Revenue post-cap) 54
NBA (Wage to Revenue pre-cap,55 Wage56 to Revenue post-cap)57
In 2004-2005 the NHL locked out its players and canceled its season due to a labor dispute over the owners' request to create a salary cap. Two years prior, in the 2002-2003 season, the NHL recorded revenues of nearly $2 billion dollars whilst spending in the aggregate nearly $1.5 billion dollars on player salaries.58 In other words, 75% of all NHL related revenue was spent on players prior to the creation of a salary cap. The clubs operated at a total loss of $273 million dollars that same year.59 According to the 2002-2003 Forbes Income and Expense NHL report, 17 of the 30 member clubs operated at a loss. 4 years prior, the Pittsburgh Penguins declared bankruptcy for the second time in franchise history, citing losses of $37.5 million dollars over the prior two seasons.60
The 2005-2006 NHL season, the first season after the creation of the salary cap, saw the number of teams operating at a loss decrease from 17 to 8.61 Where 3 of the top 6 revenue generating teams in 2002-2003 had operated at a loss due to exorbitant player salaries,62 7 of the 8 teams that operated at a loss immediately after the creation of a salary cap were those in the bottom 9 of revenue generation.63 Teams that were able to generate revenue were no longer forced to spend all of that money to sustain the revenue generation, despite the fact that the NHL’s national television deal decreased from an annual value of 120 million dollars per year64 to 65.5 million dollars per year.65
In parallel with the financial stability brought by the NHL salary cap, the creation of the cap increased parity in competitive balance. As displayed by Figure Seven, before the creation of the salary cap, the ginni coefficient (a measurement of inequality of points distribution in the NHL) was .0816. Immediately after the salary cap, inequality in point distribution decreased to .0602.
Figure Seven
| Time Period | Distribution of Points |
|---|---|
2001-2004 Before the Salary Cap | .0816 |
2006-2009 After the Salary Cap | .0602 |
2010-2014 After the Salary Cap | .0586 |
As spending is positively correlated with team success, the increased equitable distribution of points is not surprising when there is more balanced spending throughout the competitive league ecosystem.
The MLB, a league without a hard salary cap,66 is a strong example of how leagues without restraints on spending have higher inequality. As we described above, teams which are in the top quartile of league spending are far more likely to make the playoffs than teams in the bottom quartile.67 The Los Angeles Dodgers have made the playoffs in each of the last 10 years whilst spending in the top 5 in each of those years.68 The New York Yankees have made the playoffs in 21 of the last 25 seasons, having been a top 3 spender in all but 1 of those seasons.69 This offseason, the Los Angeles Dodgers have spent over 1 billion dollars on 3 free agent players and as of this article are being given +350 odds to win the 2024 World Series, making them the far and away favorite before the first pitch is thrown.70
For the last 10 years, esports team owners, league operators, and analysts have mostly ignored league structural issues. Even today, the conversation focuses more on how to diversify revenue streams71 or increase fan payments than on how to stabilize the league by downsizing where necessary. The industry ignores the fact that, for nearly all of the LCS’ existence, sponsorship revenues have been mostly concentrated in the top teams. This has created a massive disproportionality in competitive and financial parity. Esports tries to justify its massive valuations as a sports business without being introspective enough to first take the necessary steps to create a sustainable sports business.72
Consider Avi Bhuiyan’s extremely thoughtful article titled “Incentives of Esports (Part II): Paths to Profitability.73 Despite providing an extremely compelling and unique take on how fan interactivity with an esports product can help generate new revenues, the analysis does not discuss the bottom half of the profit and loss statement.74 Increased revenues do not guarantee financial stability. The LCS was just as unstable in 201675 amidst an influx of investor capital and sponsorship revenues as it will be in 2023, when investor and sponsorship interest have both significantly cooled.
Increased Revenue in an Uncapped System Will Not Create a Sustainable Ecosystem
Absent some mechanism to restrict spending, revenue growth will be consumed by rising player salaries as teams bid against each other in pursuit of the brand value associated with success.
The current situation is similar to what football’s English Premier League (EPL) experienced before the adoption of Financial Fair Play (FFP). FFP is a ruleset adopted by UEFA and applied to football clubs in the EPL that restricts spending by enforcing a “break-even requirement”.76 Under the break-even requirement, clubs are required to submit financial statements annually and meet the requirements of four indicators, the most important of which is the break-even requirement. The break-even requirement punishes a club if its relevant expenses are greater than its relevant income for any particular reporting period.77 Additionally, FPP grants the UEFA Club Financial Control Body the right to request additional financial information regarding clubs that have a wage-to-revenue ratio exceeding 70% and/or net debt exceeding 100% of total revenue. Teams looking to avoid additional scrutiny and penalties which include exclusion from future UEFA competitions are incentivized to remain below the target.78
In the 2011-12 season, the EPL was generating £2.4 billion annually, more revenue than any league in the entire world. Growth from the 2010-11 season was equal to £200 million.79 Despite 9% growth from the previous season, and forecasted 28% growth through the 2013-14 season owing primarily to then executed broadcasting agreements, EPL clubs struggled with an average wage-to-revenue ratio of 70%.80 Despite league growth, 75% of 2012’s new revenue (i.e. the difference between the new year’s revenue and the previous year’s revenue) was consumed by increased player salaries.81 In the aggregate, clubs recorded operating losses of £375 million. 12 of the 20 teams recorded operating at a loss. Of the 8 teams that profited, the average margin was equal to 4% of revenues.82
This situation continued until the adoption of financial fair play.83 In 2013-14, the EPL saw an increase in revenues of £735 million (equal to 29%), and a wage-to-revenue ratio of 58% (a decrease of 12%), with wages consuming only 16% of new revenues (down from 75%).84 In that year, total wages increased across the EPL by only 7%.85 From that point forward wages continued to grow at a more sustainable pace commensurate with the growth of the league. For the first time since the 2007-08 season, wages increased at a slower rate than revenue, allowing clubs to benefit from their investment.86 For the first time in 15 years, most EPL clubs operated at a profit, with 14 of the 20 teams recording profitable years.87
When spending is capped, if spending had previously been exceeding the cap, new spending must fit underneath it. The result is that new wages cannot consume new revenues. The Esports ecosystem currently finds itself in a similar situation to the EPL prior to the implementation of FFP, with some teams currently having operated at wage-to-revenue ratios in excess of 200%.88 Player salaries may temporarily fall as a result of market correction, but even if current revenue sources were expanded or new sources cultivated, the same pattern would eventually reemerge.
Teams will always be incentivized to target revenue sources which are derived from competitive success. So long as (1) competitive success, and revenue from that success, is restricted to a few teams, (2) investment in competitive success is uncapped, and (3) teams have financial incentive to achieve competitive success, teams will compete to sign players they feel are likely to bring about that competitive success, and as a result, salaries will rise without a commensurate jump in revenues. In a growth scenario, higher salaries will cannibalize newly generated revenue and esports would find itself in a larger market with the same problem. This is the same phenomenon that played out in the EPL which recognized, even amidst record high league revenue, that unprofitable teams and a lack of proper spending control mechanisms, created instability and required correction.89
PART 3. DEVELOPER INTERVENTION IN ESPORTS
Across the industry, developers and publishers have acknowledged team struggles and seem to be asserting themselves in a more noticeable way to quell the industry’s financial woes.
Valve recently announced an end to partner leagues.90 If its recent statements are any indication, Riot understands the necessity of providing its partner teams with financial relief.91 To its credit, it has recently taken positive steps to remove financially burdensome obligations on the teams, including by way of removing the requirement that teams field an NACL team. This change alone will save teams roughly One Million Dollars ($1,000,000) per year.92
Riot’s Confused Approach
In November 2023, Riot announced that the LCS would be downsizing to 8 teams, and the Golden Guardians and Evil Geniuses would be exiting the league.93 Riot’s move is an attempt to stave off dilution of fan interest in the competition for sponsorship dollars and fan attention. A reduction in the number of teams should equate to a consolidation of viewership in the remaining teams; in other words, there are fewer teams to be a fan of so the remaining teams will see increased fandom. It is also a step that may increase the valuation of teams by creating further scarcity in the market; but by itself, the move will not remedy the long term financial stability of the remaining organizations. The incentives we discuss above will remain, though may be tempered to a degree with fewer teams competing for sponsorship dollars. That being said, the best way to create long-term stability is to implement a form of a salary cap.
At a high level, Riot seems to be aware of the necessity of a cap. We discuss below Riot’s implemented salary caps in non-US leagues. Despite this, Riot has gone to great lengths to distinguish League of Legends esports from traditional sports. John Needham’s94 suggestion that “one critical lesson learned in the first decade of esports at Riot Games [was to stop] thinking about the esports business like traditional sports.”95 In his article, Needham correctly goes on to discuss how broadcasting revenues which make up the majority of revenues for traditional sports teams are not currently available to esports teams.96 Needham is also correct to suggest that alternatives to Twitch broadcasting exclusivity deals which did not “earn out” need to be developed to help monetize the younger demographic which has, up until this point, consumed esports for free.97 Despite these differences, it would be wrong to assert that there is any difference in business incentives inherent to competitive frameworks.98 While esports may be a unique industry, competing teams are still fighting the same battle for viewership, sponsorship, talent, and competitive success that can be seen across other industries with competitive frameworks, such as traditional sports.
Needham postulates a scenario where fans watching an esports match through the Riot platform are prompted to purchase a T1 fan pack.99 Imagine the same scenario where a consumer is given the option to purchase the fan pack from a poorly performing team versus a Team Liquid fan pack. It is a reasonable position to assert that given the choice, the consumer would likely target the Team Liquid fan pack. The generation of fans in this ecosystem, much like the viewership correlation displayed at the outset of this article in traditional sports, is reliant on competitive success. Without competitive success, in esports, fans have no reason to come back to a team; there is no draw of regionality100 and if fans cheer for a team because of its players, their care for the team would diminish after the player leaves.101
Though a portion of team specific revenue may be shared from Team Liquid back to the poorly performing team through a revenue sharing program, there would likely still be a substantial disparity in revenue that will not be overcome absent complete sharing. Just like in traditional sports, teams will spend to increase their relevance, sell more tickets,102 sell more “fan packs,” and sell sponsorships. Liquid or T1 can sell a fan pack because they have fans, as they have been the most successful teams in their respective regions. Therefore the incentive structure is no different than traditional sports.
Where there is a difference, esports suffers more from the competitive incentive structure. This is best exemplified by a comparison to a team like the Buffalo Sabres, who since 2013 have been one of the worst teams in the NHL. Despite their competitive irrelevance, the Sabres still draw some of the highest RSN ratings amongst US based teams. The same cannot be said about the team which has the most championships in the history of the LCS, TSM. TSM did not break into the top 5 teams in terms of hours watched or average viewers in any of the last 4 splits.103 The last time it did was when it finished first in the LCS, in summer 2021. In other words, the existence of team specific fans in traditional sports provides a cushion relieving the incentive to always spend to maintain relevance. Esports will be required to implement even stricter restraints than traditional sports until revenue is diversified.
Salary Caps: Hard Caps versus Luxury Taxes
Thus far, Riot has attempted to remedy the issue in Europe by creating a soft salary cap system whereby teams are permitted to spend up to a threshold calculated after consideration of league revenues and attributable team revenues. Spending in excess of that threshold results in a tax of either 50% of the amount in excess, or 100% if the amount is greater than 150% of the threshold. A similar luxury tax is planned to be imposed in the LCK, though details around the threshold calculation remain limited.105We believe that the steps taken thus far in the LCK, LPL, and LEC,104 though relieving to a degree, will ultimately be insufficient. We recommend the adoption of a hard salary cap in the LCS similar to the one adopted by the NHL.
Despite even the implementation of a soft salary cap system, the incentives to spend money to generate sponsorships and fandom is exacerbated in esports. Until this is remedied, stability will be difficult to achieve. The LCS also risks turning into a league similar to the MLB or EPL, where either there is no hard cap on spending or such a cap is dependent on your previous year’s revenue generation.
Figure Eight displays two histograms, the first is the MLB payroll z-score from 1995-2015, the second displays the NHL’s payroll z-score from the same period.106 The histogram displays a far greater disparity in player spending for the MLB, a soft capped league, as compared to the NHL, a hard capped league.107 Figure Eight shows that the top spending MLB teams were at times 4 standard deviations higher than the mean, as compared to the NHL, a league with a hard salary cap, which capped out closer to 2 standard deviations.
Figure Eight
This past year the New York Mets, the top spending club in the MLB, spent 2.5 standard deviations higher than the mean ($178 million). By comparison, the NHL’s top spending club, the Tampa Bay Lightning spent 1.7 standard deviations higher than the mean ($20.6 million).108
In addition to more disproportionate spending, we surmise that sponsorship revenue is likely more unequal in uncapped leagues.109 If sponsors value viewership and viewership is concentrated with the best teams, those teams will be the safest bet for a sponsor looking to allocate budget. Figure Nine displays revenue sources from Manchester United, one of the most successful English Premier League teams, compared to teams participating in the Champions League, Europa League, and English Premier League, among others.111 Commercial revenue in Figure Nine represents merchandise, sponsorship, and other commercial revenue sources. Importantly, commercial revenue generally scales up as the teams become more successful.110
Figure Nine
To lay down a sustainable foundation with more equal spending and revenue generation, where teams cannot spend in excess of a threshold determined by their aggregated revenue, we recommend that the LCS move to adopt a hard salary cap structure.
Unfortunately, in the United States, Riot is not permitted to take unilateral action and thereby impose a salary cap due to existing antitrust laws.112 A salary cap can only survive antitrust scrutiny by making use of the non-statutory labor exemption.113 That exemption is only available where an employer, or joint employers, and a union have negotiated a collectively bargained agreement.114
As of December 2023, players have had very little incentive to unionize and have instead achieved many of their goals through lobbying campaigns directed at Riot, through their 501(c)(6) players association. Take, for example, the 2023 player walkout. In response to the removed requirement of participation in the NACL,115 players demanded Riot provide (i) Valorant style promotion to the LCS, (ii) a budget of $300,000 per NACL team per year, (iii) permission for NACL teams to partner with LCS organizations, (iv) guaranteed minimum contracts for players who had just won an LCS final, and (v) 3/5 player ownership of NACL slots.116 Though undoubtedly asking for more than they could have ever hoped to achieve, and receiving none of their demands in return, players were still able to convince Riot to dictate a new requirement that future team contracts include a minimum of one month’s severance.117
By guaranteeing player contracts contain a severance payment, Riot itself is not conceding anything. Instead, it is passing the buck to struggling teams by forcing them to shoulder an additional economic burden. This pass through term is another in a long line of concessions meant to alleviate public pressure from lobbying players. Some other notable pass-through-terms include a minimum $75,000 player salary, guaranteed health care benefits, three year max contract terms, and restrictions on rights of first refusal. By taking this despotic approach to player-team relations Riot has removed any incentive for players to unionize whilst simultaneously confusing their role in the broader ecosystem.
LCS Players Have Little Incentive To Unionize
The Sherman Antitrust Act prohibits the imposition of a salary cap absent a collectively bargained agreement between a union and employers. Such an agreement creates a “non-statutory labor exemption” to the act.118 Historically, “the non-statutory labor exemption has been used to defend the imposition of (1) a mandatory, multi-employer imposed fixed individual salary of $1,000 per week for all NFL development players,119 (2) a maximum salary limitation in the form of a salary cap,120 and (3) a college draft121 . . . from antitrust attacks.”122
Players are able to coordinate, publicly lobby Riot, enter into group licensing deals,123 and resolve grievances through their 501(c)(6) players trade association known as the NALCSPA. This form of an entity is significantly different from a players union. Though the topic is more nuanced and worthy of a full law review article,124 the primary differences between the two are that (1) a players trade association cannot collectively bargain with an employer or group of employers and thus cannot generate an agreement capable of surviving scrutiny under the Sherman Antitrust Act,125 and (2) a union is formed through a National Labor Relations Board sanctioned election where a minimum of 30% of employees sign union authorization cards, file for a union petition with the NLRB and then, after passage by majority vote of the employees, are certified by the NLRB to conduct collective bargaining as the representative of employees against the named employers.126 To the latter point, consider that the NALCSPA was formed at the behest of, and initially funded by Riot .
The difference is relevant because a union’s ability to enter into collectively bargained agreements is only useful inasmuch as the subject of bargaining remains a principal concern for the union members. The National Labor Relations Act states that upon the request of one party to collective bargaining, the parties jointly negotiate on a list of “mandatory” topics. Those topics principally include wages,127 benefits,128 grievance and arbitration procedures, contract length,129 termination,130 and expiration.131 With the exception of dictating grievance and arbitration procedures, Riot has ceded to public pressure in each instance and guaranteed favorable terms to players, to the detriment of teams, on each of the above mandatory topics of collective bargaining, without ever actually requiring bargaining.132 This despite the fact that Riot is obligated and arguably incentivized to create more favorable financial conditions for their partner teams.133
Without incentive to collectively bargain, players have no incentive to unionize. The founding Executive Director of the North American LCS Players Association, former General Counsel at the National Basketball Players Association, and Executive Vice President at Wasserman, Hal Biagas, conceded as much when asked the question by Montecristo on Season 1 Episode 4 of “Essential Esports.” He was quoted as saying:
“[T]he difference between an association and a union is that when you are a union you give up your right to bring a legal action under the antitrust laws, and when you’re a trade association you still retain those rights. . . It basically means the teams and/or league cannot act collusively to impact the marketplace. So the teams couldn’t all get together [and say] ‘that no one is going to pay a single player more than $250,000, or we’re not going to negotiate for each other’s free agents.’ Those would be violations of the Sherman Act and would avail the players association of the right to bring an antitrust action. . .”
In response to a question about what the players would look to achieve out of a hypothetical collective bargaining scenario, Biagas responded
“From our perspective . . . we’ve got a system thats pretty player favorable. The big question is if we were in a collective bargaining relationship we would have a better perspective on what the revenues were.134 But aside from that and that players would want greater control over their name image and likeness rights. . . we have a system right now that unlike almost any other sport . . . we don’t have any restrictions on free agency. The players can leave and go to any team that they want to, either domestically or internationally after their contract is over. There are no salary caps, so teams aren’t saying ‘we’re not paying more than x amount in total to employ all the players on our team;’ and there is no draft, players get to pick where they want to play when they first sign with a team.”
Biagas was correct to note that the situation is unlike any other professional sport, the reason is because Riot did not allow the league’s ecosystem to grow naturally. It exerted itself, responding to public pressure when it was convenient to them with no expense on their end.
PART 4. THE RESERVE CLAUSE AND THE EVOLUTION OF PLAYERS UNIONS IN SPORTS
Unionization in professional sports dates back to 1879. Before the Sherman Antitrust in 1890, professional baseball teams had uniformly inserted into player contracts an option to renew a player’s contract for a full year even after the contract had expired.
The result of the reserve clause was to impose free agency restrictions on players. Players would never be able to determine their market value because their rights perpetually135 belonged to the first organization they signed with. In 1885, the first players union was formalized to fight this restriction on player mobility. John Ward, a baseball player moonlighting as a Columbia educated lawyer, argued that players were locked into contracts either for whatever salary the owners’ deemed acceptable or were prevented from playing baseball entirely. Though Ward’s efforts to extract concessions were unsuccessful, he founded the first players union in sports history in response to a perceived labor injustice forced on both him and his fellow players.
For nearly a century, players were restricted by the reserve clause without the hope of contractual freedom. In 1968, Marvin Miller negotiated the first ever collectively bargained agreement in professional sports on behalf of the Major League Baseball Player Union.136 Miller had identified an ambiguity in the wording of the reserve clause and put in place a strategy to eventually have the clause’s language challenged by an impartial arbitrator.137 This strategy was successful in 1975 when, nearly 100 years after its first use, the impartial arbitration panel ruled that the reserve clause was ambiguous and tossed it aside.
Unionization occurs as a response to unfair labor conditions. In baseball, there was the reserve clause. In football, players argued that they should be paid for their play in pre-season games where they risked career ending injury. In hockey, owners hid pension plan financial information from players and consequently exacted retribution by blacklisting players who joined the players union.
As Biagas insinuated, LCS players have not had sufficient reason to rock the boat. Unlike their professional sport predecessors, LCS players are paid far in excess of what teams revenues justify. In 1967 most players were paid the minimum annual baseball salary of $7,000.138 Because of the reserve clause, most players were paid this amount. In 2020 the average LCS salary was $410,000.139 By 2023 standards, that $7,000 was equal to $63,000.
LCS players also enjoy unlimited free agency. Looking past the now defunct restrictions of the reserve clause, in the modern National Hockey League, a player is drafted to a team at the age of 18. That player is only permitted to sign with another team if their current contract ends after having either played 7 seasons or turning 27 years old. Since most NHL players will not enter the league until they are 20, they are restricted to playing for one team for the first 9 years of their careers.140 In the LCS there is no draft, players can sign anywhere they want, nationally or internationally, at any time and at any age without restriction.
LCS players have historically advocated for short term contracts. Unlike professional baseball, which recently saw the Seattle Mariners hand out a contract to Julio Rodriguez for a term of 13 years, LCS contracts have been capped at 3 year terms.141 Without the possibility of offering increased years, the market had historically been artificially pushed to the players since annual salaries rose YoY.142 In our experience, players had actually been advised by their agents that they should never take anything longer than a one year contract in order to increase their value in subsequent years in line with a ballooning market.
Up until recently, almost all LCS players had been provided free housing by their teams. Whether by way of subsidy or tenancy, most teams incurred costs greater than $150,000 per year to provide housing to players and coaches. In professional sports, players purchase their own homes or apartments.144 In some instances they are forced to do this with almost no notice as a trade to a new team can occur at any time. In other instances, an up and coming player may not know how long their stay in the professional league will last; they may be demoted to the minors. To account for this, like millions of Americans, they use the salaries their work pays them to afford lodging, including hotels they may be forced to stay at on a temporary basis.143
The list goes on to include things like healthcare and dental benefits, free meals served by a private chef, travel budgets, a prize pool split which frequently favors the players,146 0% share to organizations for player streaming revenue, even when performed on company property and during work hours, no practical ability to impose streaming service requirements on players, amongst a whole host of other terms.145 If Riot and teams wish to implement a salary cap, economic conditions must be modified to create incentives for players to unionize and Riot must restrain from inserting itself to remedy perceived injustice when called upon to do so.
PART 5. CREATING THE CONDITIONS FOR UNIONIZATION.
Riot North America must revisit its role in the esports ecosystem. Its primary business as a game developer and lesser role as judge, jury, and executioner in its esports ecosystem presents a conflict of interest. Riot generates over $1.5 billion147 in revenue each year solely off of League of Legends. Though financials for the LCS are not made public, any revenue generated by the LCS is likely the equivalent of a rounding error for its broader business. Therefore, it’s likely that LCS exists as a marketing tool for its game.
Consider Riot’s incentives if the LCS exists to market League of Legends. As a marketing tool, the LCS should bring positive attention to League of Legends. When the attention the LCS receives is negative because its players are perceived to be mistreated, Riot is incentivized to correct that perceived mistreatment immediately, resulting in Riot taking unilateral action without an opportunity to actually engage in collective discussions with the affected stakeholders, namely players and teams, to more sustainably correct the issues. By correcting any perceived mistreatment immediately, the conditions necessary for unionization and stabilization of the broader ecosystem are less likely to be cultivated over the longer term.148
To ensure the financial viability and future growth of the LCS, stakeholders should take the following steps:
- Riot should publicly or privately communicate to LCSPA leadership that unionization will not be met with the termination of the LCS. The LCSPA may be fearful that attempted unionization may result in Riot’s decision to terminate the league and therefore the jobs of any professional LCS players.149 This fear would not be unfounded; publishers like Activision Blizzard have been accused of engaging in union busting measures.150 If Riot were looking to dissuade unionization at its larger parent company, one good way to send an anti-union message would be to fold the LCS after being threatened with unionization.151 This, plus the fact that Riot likely losses money each year on the LCS, is a strong argument that Riot may prefer to rid itself of the headache. Nevertheless, Riot should welcome unionization as a benefit not just to market stabilization in North America, but as a means of guaranteeing players a seat at the table without needing to resort to petty lobbying in the public eye. A guarantee that the league would not be shut down, is no guarantee that the players would take steps to unionize. As set forth above, executives within the NALCSPA have publicly taken stances that it may not be in their best interests to seek unionization at this time; those incentives or the threat of their future creation, must still exist for players to take the next step towards unionization.
- Assuming Riot takes the first necessary step of communicating that it will not attempt to interfere with the creation of a players union, Riot should determine the role it will play in the future ecosystem. There are two paths that it can take on a moving forward basis:
Path A.
The first path would be for Riot to remove itself from its current position of authority to determine conditions of employment such as mandatory minimum player salaries, maximum contract lengths, restrictions on rights of first refusal, mandatory benefit offerings, and required location of employment.152 Riot should amend its team participation agreement with the teams to guarantee that mandatory terms of employment will not be dictated by Riot, but will instead be dictated by applicable law and any theoretical collective bargaining agreement reached between the PA and team owners. Taking such a step would permit teams the authority to negotiate a CBA on their own behalf. Due to the marketing concerns we specify above, Riot may be hesitant to adopt this approach. Relinquishing control of player employment minimum standards to the teams, a natural adversary of their employees, may create a significant marketing issue for Riot. Players, who have relied on Riot to oversee the employment relationship for a decade, would be left to their own devices.
Path B.
Alternatively, Riot may choose to continue to exercise control over the standards for player employment. In order to implement a salary cap. Riot should unilaterally remove all standards it had previously set. Riot does not need to impose obligations which only serve the purpose of removing any reason for players to collectively bargain. Should Riot choose to maintain its control over pass through terms, teams would continue to operate as a sort of agent of Riot. Riot would likely subject itself to mandatory collective bargaining as a joint employer alongside teams which have the affirmative right to oversee certain parts of the employment relationship. We assess that this second path is the less optimal path for Riot to take. Though Riot would maintain some degree of control over the employment relationship, it would subject itself to collective bargaining, an action that would likely have broader consequences throughout its primary business. Riot would likely receive the same degree of scrutiny for effectively abandoning the players as it would if it permitted teams the power to bargain without oversight. We therefore conclude that if Riot wishes to incentivize player unionization, Riot should remove itself from the process. Despite our belief that salary caps are necessary to stabilize any competitive sports ecosystem, particularly one so reliant on sponsorship as the primary revenue stream, Riot’s divergent interests may cause it to value its public perception and other business interests more than a stable esports ecosystem. Riot may choose to allow the status quo to continue to exist. In such a scenario, the value of franchise slots will continue to decrease as teams and potential investors become more exposed to not just the impossibility of sustained profitability, but also the degree to which profitability is completely out of the hands of those most interested in its success.153 - Assuming Riot were to take Path A, players should seek to unionize to avoid market adjustment without Riot’s previously imposed protections. Upon formal recognition of unionization and the naming of teams as employers, teams should seek to negotiate a more favorable economic situation which would, by necessity, include salary caps and restrictions on free agency like each of the big four sports leagues in North America has imposed. Teams should be willing to give on certain player concerns as well. Players had the opportunity to unionize after the requirement to field an academy league team was removed. Given their economic situation, teams may have been willing to guarantee continued support for an academy league team conditioned upon Riot’s maintenance of an academy league, in exchange for a salary cap. Not only did players not unionize, but there have been no reports that players felt compelled to negotiate with teams around their continued support of an academy league team.154
By immediately taking the above steps, the ecosystem will naturally move to a more balanced state for everyone involved. Some may argue that the ecosystem is already adjusting naturally; LCS players will receive less money in 2024 than they have since the beginning of the esports investment bubble.155 This fact does not take away from the reality that uncapped leagues are more prone to large spending spikes and dips. As we outlined in Part 1, this is exacerbated given esports’ teams reliance on sponsorship revenues.
As sponsors have begun to look elsewhere in the space, teams have necessarily readjusted their financial burn to avoid spending themselves out of existence.156 If teams are to reengage sponsors, and those sponsors show interest in reentering the scene, the market dynamics that exist to cause a race to capture that limited sponsorship pool will not suddenly disappear. As before, teams will invest in players to capture that revenue and to justify investment. No foundational stability will have been inserted, and the industry will be just as vulnerable to the kind of collapse we witnessed in 2023. Esports has the opportunity to lay its foundation for years to come, it should not push this issue off further into the future.
APPENDIX 1
APPENDIX 2
1.
This article was authored by Harris M. Peskin Esq, a Partner at ESG Law. ESG Law represents more esports teams than any other law firm in existence. Since 2017, ESG has represented between 70-80% of LCS teams, and played the lead role in negotiating and drafting the existing Team Participation Agreement binding all LCS teams. Prior to working at ESG, Peskin served as Associate General Counsel and Chief of Operations at H2K Gaming, one of Europe’s premier EULCS (now LEC) teams. With H2K, Harris pushed for the removal of relegation and increased revenue sharing.
2.
This article was prepared with the assistance of Krista Hiner, a Partner at ESG Law, Bryce Blum, a Partner at ESG Law, and Nathan McKay, a student at Syracuse Law and Law Clerk at ESG Law. Data was collected with the help of Data Scientist Joshua Cohn.
3.
Andy Dinh (@TSMReginald), Twitter (Aug. 23, 2016), https://www.twitlonger.com/show/n_1sp1imb. Andy Dinh (@TSMReginald), Twitter (Feb. 26, 2021), https://tsmandy.medium.com/my-thoughts-on-the-lcs-1b6b2911dbdd.
4.
Avi Bhuiyan, Bryce Blum, Jake Lyon, The Esports Reckoning, (Aug., 2023), https://scrollofstrategy.notion.site/scrollofstrategy/The-Esports-Reckoning-13640cb4d30f40219e0de1d32bb9b9c8.
5.
LCK (@LCK), Twitter, (Jul. 18, 2023), https://twitter.com/LCK/status/1681470894303240193
6.
Riot Games, https://lolesports.com/article/lec-introduces-sporting-financial-regulations-(sfr)/bltf7b7f07e130f0618 (Last Visited Dec. 21, 2023) (The LEC intends to implement a soft salary cap with a redistributive luxury tax for expenditures above the threshold).
7.
We acknowledge that increasing revenue is a necessary step to creating a more scalable esports ecosystem; but we argue that YoY revenue growth would be disproportionately funneled to player salaries, thus continuing the trend of high wage to revenue proportionate expenditure.
8.
Steve Van Sloun, Esports Franchise Economics, (Mar. 9, 2023), https://deepwatermgmt.com/esports-franchise-economics/; this number likely does not include payments made by a league for participation in that league.
9.
Rohan Bose, eSports: Business Models How and eSports Team Makes Money, (2018), https://mercercapital.com/article/esports-business-models-article/.
10.
Uta Allenstein et al., Esports as a Sponsorship Asset?, (2020), https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Marketing%20and%20Sales/Our%20Insights/E%20sports%20and%20the%20next%20frontier%20of%20brand%20sponsorships/esports_whitepaper_03_06_2020_vfinal.pdf (states 58% of revenue comes from sponsorship 2020); Strives Sponsorship, 2020 Global Esports Market Report, (2020), https://strivesponsorship.com/wp-content/uploads/2020/03/Global-Esports-Market-Report-2020.pdf (states 74.8% can be attributed to sponsorship and media rights 2020); Statista, https://www.statista.com/statistics/490358/esports-revenue-worldwide-by-segment/ (Last Visited Dec. 21, 2023), (States 90% of revenue comes from sponsorship 2022).
12.
Cecilia D’ Anastasio, The Hype Around Esports Is Fading as Investors and Sponsors Dry Up, (Dec. 8, 2022), https://www.bloomberg.com/news/articles/2022-12-08/the-hype-around-esports-is-fading-as-investors-and-sponsors-flee?in_source=embedded-checkout-banner; Cecilia D’ Anastasio, Shady Numbers And Bad Business: Inside The Esports Bubble, (May 23, 2019), https://kotaku.com/as-esports-grows-experts-fear-its-a-bubble-ready-to-po-1834982843.
13.
Billy Studholme, Sponsors are wising up to deals with esports teams and adjusting spending accordingly, (Apr. 5, 2023), https://digiday.com/marketing/sponsors-are-wising-up-to-deals-with-esports-teams-and-adjusting-spending-accordingly/.
14.
Thooorin, LCS Economics! Team Orgs Out 100s of Millions of Dollars!?! - Narrative Mechanic - League of Legends, (Jun. 2, 2023), https://youtu.be/S04qQqobGyg.
15.
Id.; See Last Free Nation, Should we blame PLAYERS for the unsustainable LCS? - Summoning Insight S6E23 (feat. Harris Peskin), (Jun. 15, 2023), https://youtu.be/9LjLLsYKySs.
16.
Dani Lee Collins, How Much Money Do Pro League Of Legends Players Make?, (Jan. 26, 2023), https://www.svg.com/164026/how-much-money-do-pro-league-of-legends-players-make/.
17.
Riot requires one substitute whose salary is also calculated as part of the average.
18.
Jeremy Gan, LCK announces salary regulations in 2024 season amid league financial troubles, (Jul. 19, 2023) https://www.dexerto.com/league-of-legends/lck-announces-salary-regulations-in-2024-season-amid-league-financial-troubles-2216658/
19.
Avi Bhuiyan, Bryce Blum, Jake Lyon, The Esports Reckoning, (Aug., 2023), https://scrollofstrategy.notion.site/scrollofstrategy/The-Esports-Reckoning-13640cb4d30f40219e0de1d32bb9b9c8.
20.
See Appendix One https://awfulannouncing.com/streaming/media-rights-largest-source-of-revenue-continue-rise.htm; See Appendix Two, https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/sports-business-group/deloitte-uk-annual-review-of-football-finance-2022.pdf
21.
Esports is not a standalone industry, the games played are owned exclusively by publishers, and the revenue generated through esports equates to a small percentage of that generated through game sales, microtransactions, and other revenue channels for publishers. Publishers are incentivized to promote esports as a marketing venture for the benefit of their game. As a result, they are often willingly operating leagues at a loss. With the limited lifespan and dynamic nature of the gaming industry, publishers are incentized to focus on short term sale based revenue as opposed to building a longterm profitable league, including at times avoiding investment in longer term returns. Avi Bhuiyan, Bryce Blum, Jake Lyon, The Esports Reckoning (Aug., 2023), https://scrollofstrategy.notion.site/scrollofstrategy/The-Esports-Reckoning-13640cb4d30f40219e0de1d32bb9b9c8.
22.
Avi surmises three conditions ideally need to exist to facilitate the expansion of esports revenue. First, the ecosystem surrounding a specific game must have organic popularity; second, the game must not only be popular, but the publisher must demonstrate a serious desire to expand the IP beyond video games; finally, once an organic fanbase has been built, the league must collaborate with third parties to establish esports specific revenue streams. Under these conditions Avi suggests that additional revenue sources can be found by broadening the esports fanbase beyond hardcore players through new ventures based on both the game and the league. Avi cites the creation and promotion of F1’s Drive to Survive series as an example of how this can be done. Additionally, Avi notes that interactive monetization has significant potential in the esports market noting that this method has seen success on streaming sites such as Twitch. Successful implementation would likely take advantage of (1) the immersive pull of interactivity and user-influenced (if not generated) content (2) the appeal of flexing, and (3) the empowerment of fans (particularly those watching at home) to act as the 12th man. Id.
23.
Though nowadays sponsors typically care more about conversion rates than straight engagement, we assume for purposes of this essay, that conversion rate is normalized across all teams participating in the North American competitive league of legends scene, as each team seeks to capture a slice of the same total addressable market of NA league esports fans.
24.
We observed a median positive correlation of .3 between both TSM and TL’s LCS YouTube video series and their performance over 13 splits. We adjusted team viewership numbers based on the overall LCS increase or decrease in viewership as we assumed a decrease in LCS interest would otherwise influence viewership of a team’s LCS YouTube content. We chose to use TSM and TL as they are the only teams that have consistently created content since the implementation of “franchising” in 2018.
25.
From both an investment attractiveness perspective, as well as to keep their business afloat, teams need to maximize their revenues from sponsorships.
26.
Figure One. RSN Viewership data pulled from Sports Business Journal reports. https://www.sportsbusinessjournal.com/Journal/Issues/2022/05/09/Insiders/Sports-media.aspx https://www.sportsbusinessjournal.com/Daily/Issues/2021/05/27/Media/NHL-RSNs.aspx
27.
https://blogs.fangraphs.com/local-mlb-tv-ratings-shine-clouds-still-loom/
28.
https://blogs.fangraphs.com/local-mlb-tv-ratings-shine-clouds-still-loom/
29.
RSN Viewership Data pulled from Rodney Fort's Sports Business Data, accessible at https://drive.google.com/drive/folders/1KEUJIeLDZxYUJBWHwrRZ6hTUfTSuA_BT
30.
Figure Three
31.
Figure Three
32.
We have observed a hesitancy to enter into long term sponsorship agreements on the part of sponsors in the midst of the esports winter.
33.
See Figure Nine. See also, the history of professional baseball in the United States, with its origins owing to the Cincinnati Red Stockings, the first team to pay players and subsequently derive revenue from ticket sales.
34.
https://www.loc.gov/item/2006619993/
35.
Id.
36.
Grant Shorin, Team Payroll Versus Performance in Professional Sports: Is Increased Spending Associated with Greater Success?, (2017), https://sites.duke.edu/djepapers/files/2017/06/grantshorin-dje.pdf.
37.
Id. Shorin concludes that the NBA and NFL are less equitable leagues than the NHL and MLB. The bottom 10% of NBA teams combined to account for only 3.9% of NBA wins and the top 3 teams collectively accounted for 16% of NBA wins in 2015. Conversely, during the same year, the 3 weakest teams in the MLB accounted for 8% of the MLB’s wins and the 3 strongest teams accounted for 12.1% of the MLB’s wins.
38.
See Figure Two
39.
Jonathan Bledsoe, et al., Relationship Between MLB Payroll and Performance Is it worth it to spend more money on your players?, https://scholar.valpo.edu/cgi/viewcontent.cgi?article=2084&context=cus. The formula is equal to ŷ = -1064373.5L + 4663781.5D - 9189563629, where D is equal to the date and L is equal to the number of losses.
40.
The adjusted R2 is equal to .5471 indicating that 57.41% of the variation in payroll is explained by the date and number of losses.
41.
This number excludes stipends paid by a league for participation.
43.
Id.
44.
Id.
45.
National Hockey League Player’s Association and The National Hockey League. (2013). Collective Bargaining Agreement Between National Hockey League and National Hockey League Players’ Association: September 16, 2012 - September 15, 2022, 258, (Sept. 16, 2012) https://www.nhlpa.com/the-pa/cba.
46.
See supra note 14
47.
See explanation provided above.
49.
https://www.wsj.com/articles/SB106392984011849500
50.
https://web.archive.org/web/20120115043720/http://proicehockey.about.com/od/thelatestonthelockout/a/cba_agreement.htm; see also https://docs.google.com/spreadsheets/d/1yglQd_DouTGXucg7lxNSjvNIIbv6XX_7/edit#gid=1605732615
51.
The NFL salary cap is equal to 48% percent of the sum of Media Revenue, NFL Ventures/Post Season Revenue, and Local Revenue, divided by the number of teams (32). The minimum salary under the CBA is calculated as 89% of the cap over a four year CBA period https://www.the33rdteam.com/category/analysis/explaining-nfl-salary-cap/; See also Dallas Robinson How Does the NFL Salary Cap Work? NFL Salary Cap Explained, (Mar. 6, 2023), https://www.profootballnetwork.com/how-does-nfl-salary-cap-work/
52.
Jon Vrooman, The Economic Structure of the NFL, (2012) https://my.vanderbilt.edu/vrooman/files/2016/06/VROOMAN-NFL.pdf Page 25
53.
Brian McFarland, NFL Salary Cap FAQs, https://russellstreetreport.com/salarycap/nfl-salary-cap-faqs/#:~:text=How%20is%20the%20Salary%20Cap,and%20(2)%20player%20salaries.
54.
Grant Shorin, Team Payroll Versus Performance in Professional Sports: Is Increased Spending Associated with Greater Success, (2017) https://sites.duke.edu/djepapers/files/2017/06/grantshorin-dje.pdf Table 1
55.
Jared Weiss, NBA 75: How the creation of the salary cap and bird rights revolutionaized the league, (Feb. 10, 2022) https://theathletic.com/3121085/2022/02/10/nba-75-how-the-creation-of-the-salary-cap-and-bird-rights-revolutionized-the-league/?access_token=6678733&redirected=1
56.
Major League Franchise Values, Financial World Magazine (The Olympian, 6/12/91, p. B4). Accessed via https://docs.google.com/spreadsheets/d/1UJsXVjPqJDFvLUJBZ-q8CA5ErTgph_wH/edit#gid=960021856
57.
Kurt Badenhausen, NBA Players Score as Shared Revenue Grows by $250M in New CBA, (Apr. 24, 2023) https://finance.yahoo.com/news/nba-players-score-shared-revenue-130000564.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAACAEvF2uRSORdYuB0SoFdgk2WCnPAkSj4vUNA_ZXiNXBZqBAKxNU-PpmsAWPCYU5xg-JySx_KCb33aVihOUJwtGMbkMTRkCU8UMqzoL7e5hHcC6c844wdjJjyvIeGkKCeqy4sxFqx4x4tPets8kS6GSe2x-QJYJbWAyZ-c3L9Q9_
58.
https://docs.google.com/spreadsheets/d/1w0Z3NBVj04vARz9oDXhfuz-pDjQPj2ka/edit#gid=81247097 (Spreadsheet pulled from https://sites.google.com/site/rodswebpages/codes); See also Levitt Report, Appendix 1, 2004
59.
Levitt Report, Appendix 1, 2004
60.
The Hockey Nut, Penguins declare bankruptcy, (1999), http://hockeynut.com/9899/penguins1098.html
63.
https://docs.google.com/spreadsheets/d/1yglQd_DouTGXucg7lxNSjvNIIbv6XX_7/edit#gid=1605732615 (Spreadsheet pulled from https://sites.google.com/site/rodswebpages/codes). The other team ranked 15th out of 30 teams in revenue generation.
65.
Wikipedia, https://en.wikipedia.org/wiki/NHL_on_NBC (last visited Dec. 27, 2023)
66.
Instead of implementing a hard salary cap the MLB uses a “Competitive Balance Tax” or “Luxury Tax” as its primary spending control mechanism. Teams must pay the luxury tax if their payroll expenses exceed a predetermined cap set each year. The tax a violating team must pay is determined by aggregating the annual value of each player contract on the teams’ 40 man roster plus additional player benefits. If the aggregation exceeds a threshold, the violating team pays an escalating penalty.The first penalty is a 20% tax on all overages, the second consecutive year is a 30% tax on all overages, the third consecutive year and beyond is a 50% tax on all overages. Additionally, teams that exceed the cap by tiered flat amounts pay an additional surcharge ($20 Million (12% surcharge), $40 Million (42.5% surcharge for the first year, 45% for each consecutive year after that), 60$ Million (60% surcharge)). https://www.mlb.com/glossary/transactions/competitive-balance-tax.
67.
See supra note 36 at 28; See also Tyler Veach, Competitive Balance and Team Payroll: The Case of Major League Baseball, (2010) https://scholarworks.uni.edu/cgi/viewcontent.cgi?article=1081&context=mtie at 77.
68.
https://www.stevetheump.com/Payrolls.htm
69.
Id.
70.
https://www.vegasinsider.com/mlb/odds/futures/ as of December 22, 2023.
71.
Avi Bhuiyan, Incentives of Esports (Part II): Paths to Profitability, (Aug. 2023),https://scrollofstrategy.notion.site/Incentives-of-Esports-Part-II-Paths-to-Profitability-319cc1192c5448d58ec6801f4db72fee; Travis Gafford, Talking Future of Esports with Riot President of Esports, YouTube, (Apr. 19, 2023), https://youtu.be/4WAlaiamJho.
72.
Each of the top 4 sports leagues in North America have adopted a form of a salary cap. This approach is gaining traction across the globe.
73.
Avi Bhuiyan, Incentives of Esports (Part II): Paths to Profitability, (Aug. 2023),https://scrollofstrategy.notion.site/Incentives-of-Esports-Part-II-Paths-to-Profitability-319cc1192c5448d58ec6801f4db72fee
74.
Id.
75.
“The current situation is not sustainable and cannot continue. We will not continue in the EULCS beyond the 2017 season unless Riot creates a new financial and operating structure.” See H2K Letter to the EU LCS Community.
76.
Union of European Football Associations (2012). UEFA Club Licenesing and Financial Fair Play Regulations https://www.uefa.com/multimediafiles/download/tech/uefaorg/general/01/80/54/10/1805410_download.pdf Article 62
77.
A break-even deficit can be found across a single reporting period (1 year), or, can be calculated aggregately across multiple reporting years, where yearly surplus and deficits are combined to determine if there exists a break-even deficit across multiple years. A club can withstand a break-even deficit within any period if it can point to any break-even surplus higher than the current deficit. Id. at Article 60 Page 35-36
78.
Id.at 38
80.
The growth is mostly attributable to the expansion of current broadcasting deals, additional broadcasting deals with the Manchester clubs, and the addition of new telecommunications company BT into the market.
81.
https://www2.deloitte.com/hr/en/pages/press/articles/In-2011-2012-the-european-football-market-grew-to-19-point-4-billion-Euros.html
83.
Id.
84.
https://www2.deloitte.com/mk/en/pages/about-deloitte/articles/annual-review-of-football-finance1.html
85.
Id. at 12
86.
Id. at 7
87.
Id.
88.
See supra note 14
90.
Scott Robertson, Valve setting up open CS2 esports scene, ending partnership leagues in 2025, (Aug. 3, 2023) https://dotesports.com/counter-strike/news/breaking-valve-setting-up-open-cs2-esports-scene-ending-partnership-leagues-in-2025.
91.
Travis Gafford, Talking Future of Esports with Riot President of Esports, YouTube, (Apr. 19, 2023), https://youtu.be/4WAlaiamJho.
92.
Cloud 9, Regarding Cloud 9’s Participation in the NACL, (May 17, 2023) https://cloud9.gg/latest/regarding-cloud9s-participation-in-the-nacl/.
93.
Davide Xu, Evil Geniuses and Golden Guardians leave LCS, franchise league to operate with eight teams, (Nov. 21, 2023) https://esportsinsider.com/2023/11/evil-geniuses-golden-guardians-leave-lcs-8-teams-2024
94.
John Needham is the President of Esports at Riot.
95.
John Needham, Building the Future of Sport at Riot Games, (Apr. 19, 2023) https://www.riotgames.com/en/news/building-the-future-of-sport-at-riot-games.
96.
Id.
97.
Id.; See also Richard Lewis, Esports Fans Need To Start PAYING, YouTube, (May 22, 2023) https://www.youtube.com/watch?v=IegGCcYWI-w&ab_channel=RichardLewis.
98.
In their piece on the esports winter, Blum and Bhuiyan discuss the necessity of esports further developing its traditional sports analogous revenue, as that revenue is the only revenue which does not compete with developer specific revenue. “Publishers have a finite amount of dev resources and strategic focus, and when there are meaningful trade-offs between an esports ecosystem generating several million dollars in revenue annually and a flagship 10,000 hour game that generates many times that with better profit margins, it’s not a mystery which one the publisher will optimize for.” See supra note 4.
99.
Id.
100.
Under the current structure the development of a regional fanbase is near impossible at the local level. The development of a regional fanbase however, is possible where teams are intentionally, or organically, tied to a specific region. This was seen with “The 5 Deadly Venoms,” a supporters club for the New York Excelsior team in the Overwatch League. The club had fan meetups at Mr. Wu’s Basement, a local bar in NYC, during Overwatch League games that averaged 100 attendees. Interview with @5DVNYC, Twitter, (Dec. 29, 2023). See The 5 Deadly Venoms, https://docs.google.com/document/d/1UhdzLdgI875h7sWOPWn1PYLvsyGI41p_5jOYq5A3blw/edit; Compare, interview with @Offside_NYC, Twitter, (Dec. 30, 2023). The largest New York Islanders fan bar, located 11 blocks away from Mr. Wu’s Basement, saw turnout between 50-100 people for weekend games, the same time of the week Overwatch League games were played, during The 5 Deadly Venom’s tenure at Mr. Wu’s Basement.
101.
An interesting experiment would be to perform the same viewership analysis for traditional sports as was done in Figure Three, for esports teams. The problem is likely exacerbated in esports as traditional sports teams have regionality to fall back on when competitive success wanes. Anecdotally, as a former executive at H2K Gaming, the team’s fanbase lost nearly all of its Greek fans after Forg1ven was removed from the team after the 2016 Spring Split. We conducted a test using YouTube behind the scenes content viewership for TSM’s TSM Legends and Team Liquid’s The Squad and found a positive correlation between split performance and viewership.
102.
Ticket sales are not available to teams in esports.
103.
https://escharts.com/tournaments/lol/lcs-summer-2023-lol; https://escharts.com/tournaments/lol/lcs-spring-2023; https://escharts.com/tournaments/lol/lcs-summer-2022; https://escharts.com/tournaments/lol/lcs-spring-2022
104.
These are the Korean, Chinese, and European equivalents of the LCS.
105.
Jeremy Gan, LCK announces salary regulations in 2024 season amid league financial troubles, (Jul. 19, 2023) https://www.dexerto.com/league-of-legends/lck-announces-salary-regulations-in-2024-season-amid-league-financial-troubles-2216658/.
106.
The NHL implemented a hard salary cap after the 2003-04 season.
107.
A z-score is a method of measuring how far a value is from the mean of a group of values displayed in standard deviations. One standard deviation in either direction represents a deviation of 34.1% from the mean. A second standard deviation represents a deviation of 13.6% from the mean.
108.
Spotrac, NHL Team Cash Payroll Tracker, (2022) https://www.spotrac.com/nhl/cash/2022/; StevetheUmp, 2023 MLB Opening Day Payrolls, (2023) https://www.stevetheump.com/Payrolls.htm.
109.
We do not have access to comparable revenue data for the NHL to test this theory.
110.
The top 4 teams in the EPL qualified for the Champions League. Teams 5-7 and 12 qualified for the Europa League.
111.
The Europa League is a second tier league which makes successful participants eligible for the Champions League.
112.
See lawsuit filed by the US Department of Justice against Activision Blizzard. https://www.justice.gov/atr/case/us-v-activision-blizzard-inc.
113.
Harris Peskin, Unionization in Esports, 2019 Esports Bar Ass’n J. 8, 11 (2019). https://esportsbar.org/2019/10/11/2019-9-11-unionization-in-esports/.
114.
Id. In Unionization in Esports, anti trust laws, and the implication on salary caps are discussed. The Sherman Antitrust Act of 1890 forbids any “contract or conspiracy, in restraint of commerce.” In applying this standard the Supreme Court formulated the per say rule and the rule of reason. The per se rule invalidates arrangements that are by nature adverse to competition, the rule of reason analyzes the reasonableness of the challenged restraint, looking to see if it is justified as a legitimate business purpose. In response to growing support for unions across the country, Congress passed the Clayton Act, the Norris-Laguardia Act, and the National Labor Relations Act. Together these pieces of legislation protected union tactics like strikes and boycotts, and created the “non-statutory labor exemption” which put union-employer agreements beyond the reach of the Sherman Act. This allowed unions to not only engage in anti-competitive behavior to motivate employers to bargain, but also protected collectively bargained agreements that were anti-competitive from being invalidated under the Sherman Act. In the current esports environment players negotiate under a 501(c)(6) players association which is not a union. Players cannot collectively bargain under the protection of the non-statutory labor exemption. Without the protections afforded to the results of collective bargaining, absent a hail mary that a cap would survive the rule of reason argument, there is no possibility of implementing a salary cap. In 1994, a District Court in the Southern District of New York stated in dictum that a salary cap in traditional sports imposed without a collectively bargained agreement was permissible under the rule of reason as the positive effect on competitive balance outweighed the anticompetitive nature of the restriction. Ultimately, the District Court’s decision was determined on labor grounds after appeal to the Second Circuit Court of Appeals. The inevitable litigation stemming from the unitary imposition of a cap by Riot, and its probable invalidity under the Sherman act, is likely to dissuade them from doing so. Therefore, the only realistic way to impose a salary cap in esports would be through a collective bargaining agreement.
115.
The LCS academy league
116.
Jeremy Gan, Riot shuts down all five LCSPA demands in response to player walkout, (May 31, 2023) https://www.dexerto.com/league-of-legends/riot-shuts-down-all-five-lcspa-demands-in-response-to-player-walkout-2161501/.; At the 2023 Esports Bar Association panel on the 2023 Player Walkout, LCSPA Executive Director Phil Aram stated that the one month’s severance had been a long term goal for LCS players who were satisfied with the outcome of the walkout.
117.
Luke Plunkett, League Strike Called Off After Riot, Player's Union Reach Agreement, (Jun. 8, 2023) https://kotaku.com/league-legends-strike-walkout-union-lcspa-summer-split-1850521669.
118.
Amalgamated Meat Cutters & Butcher Workmen v. Jewel Tea Co., 381 U.S. 676, 682 (1965). See also Harris Peskin, Unionization in Esports, 2019 Esports Bar Ass’n J. 8, 11 (2019). https://esportsbar.org/2019/10/11/2019-9-11-unionization-in-esports/
119.
Brown v. Pro Football, 518 U.S. 231 (1996).
120.
Wood v. Nat’l Basketball Ass’n., 602 F. Supp. 525 (S.D.N.Y. 1984).
121.
Id.
122.
Unionization in Esports, 2019 Esports Bar Ass’n J. 8, 11 (2019).
123.
Ivan Šimić, OneTeam partners with the LCS Players Association, (Mar. 11, 2022) https://esportsinsider.com/2022/03/oneteam-lcspa.
124.
See Out of their League: An Antitrust Analysis of Esports Players Associations and Attempts at Unionization. 58 Hous. L. Rev. 777 (2021). See also State of the Esports Player Union: Drawbacks and Legal Challenges https://archive.esportsobserver.com/state-of-the-esports-union/.
125.
Section 8(d) of the NLRA creates a mandate that “the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment
126.
NLRB, Your Right to Form a Union, (Last visited Dec. 12, 2023) https://www.nlrb.gov/about-nlrb/rights-we-protect/the-law/employees/your-right-to-form-a-union. Unions can also be formed by voluntary recognition of the employer after evidence is provided that a majority of employees want the body to represent them.
127.
Richard Scott-Jones, League of Legends pros getting a union and $75k salary, (Jun. 1, 2017) https://www.pcgamesn.com/league-of-legends/lol-esports-lcs-2018.
128.
Jacob Wolf, Riot plans to mandate teams give players employee benefits, (Nov. 1, 2016) https://www.espn.com/esports/story/_/id/17945538/league-legends-riot-plans-mandate-teams-give-players-employee-benefits.
129.
Parkes Ousley, Sources: Riot raises maximum LoL Esports contract length to four years, (Nov. 1, 2023) https://upcomer.com/sources-riot-raises-maximum-lol-esports-contract-length-to-four-years.
130.
Luke Plunkett, League Strike Called Off After Riot, Player’s Union Reach Agreement, (Jun. 8, 2023) https://kotaku.com/league-legends-strike-walkout-union-lcspa-summer-split-1850521669.
131.
This could include the right of first refusal, which, in the context of employment, provides that a contractor must be given the opportunity to be considered first for available positions under the new contract for which they are qualified when their previous contract terminates.
132.
Consider that the demands made by Aram were made of Riot. https://www.reddit.com/r/ValorantCompetitive/comments/16cl1gz/comment/jzk4618/. See also Aram conversation on four horsemen discussing Riot’s role. See Last Free Nation, Will Riot Kill the LCS by removing the path to pro? - The Four Horsemen S2E12 (feat. Phil Aram), (May 25, 2023). https://youtu.be/5RMjoV--AM0.
133.
See Part 3 for discussion on Riot’s confused approach and the justification for it.
134.
Teams should consider voluntarily granting greater transparency into player costs to better relay the point to the public and to exert additional pressure on Riot, that players are overpaid and the system is in need of reform.
135.
The reserve clause ended up being limited in arbitration over an ambiguity in the language regarding its perpetual nature.
136.
https://www.mlbplayers.com/history.
137.
Stew Thornley, The Demise of the Reserve Clause, (2006) https://milkeespress.com/reserveclause.html.
138.
Id. $7,000 in 1967 equates to roughly $65,000 in 2023. In 1967 most baseball players received less than the 2023 minimum LCS contract’s value, despite being the most popular sport in America.
139.
Aaron Alford, The Average 2020 LCS player salary is reportedly $410,000, (May 27, 2020) https://dotesports.com/league-of-legends/news/the-average-2020-lcs-player-salary-is-reportedly-410000. This equates to an annual salary of roughly $45,500 in 1967.
140.
Puckpedia, Unrestricted Free Agents (UFA), https://puckpedia.com/salary-cap/unrestricted-free-agents-ufa#:~:text=A%20player%20becomes%20an%20Unrestricted,(30%20games%20for%20Goalies).
141.
This number has recently been raised to 4 years in limited situations. Parkes Ousley, https://upcomer.com/sources-riot-raises-maximum-lol-esports-contract-length-to-four-years (last visited Sept. 30, 2023).
142.
Billy Studholme, The esports salary market is headed toward a correction, (Jan. 6, 2023) https://digiday.com/marketing/the-esports-salary-market-is-headed-toward-a-correction/.
143.
Cory Wright,The Suite Life of the New York Islanders, (Mar. 12, 2019) https://www.nhl.com/islanders/news/the-suite-life-of-the-new-york-islanders-305548996#:~:text=Extended%20hotel%20stays%20are%20fairly,of%20a%20nomadic%20hockey%20lifestyle.
144.
Karina Kovac, NY Islander Bowie Horvat, Plandome Manor sued over landfill decision, (Aug. 22, 2023) https://theisland360.com/great_neck/ny-islander-bowie-horvat-plandome-manor-sued-over-landfill-decision/
145.
Some professional sports organizations ban players from streaming during the sports season, or otherwise implement policies to prevent them from using social media or playing video games altogether. Curtis Withers, Jets' Laine mocks Canucks' ban on Fortnite game: 'They need something to blame', (Oct. 3, 2018) https://www.cbc.ca/sports/hockey/nhl/jets-laine-mocks-canucks-ban-on-video-game-they-need-something-to-blame-1.4849218.
146.
In 2015 as Associate General Counsel and Chief of Operations at H2K Gaming we were ridiculed for suggesting that teams should be entitled to a 50/50 split on prize pool payouts.
147.
Jordan Bevan, League of Legends Revenue and User Stats (2023), (Sep. 28, 2023) https://mobilemarketingreads.com/league-of-legends-revenue-and-user-stats/
148.
The first collective bargaining agreement in baseball came about 90 years after the beginning of the National League.
149.
Minnie Che, Is Riot Games in Violation of the NLRA for Funding its Own Union?, (May 1, 2019) https://onlabor.org/is-riot-games-in-violation-of-the-nlra-for-funding-its-own-union/.
150.
Megan Farokhmanesh, Activision Blizzard Has Another Union on Its Hands. Now What?, (Dec. 2, 2022) https://www.wired.com/story/activision-blizzard-unionization-albany/.
151.
Whether Riot could do this without claim from teams would be determined by the LCS Team Participation Agreement.Riot has come under fire in the past for gender based discrimination. In 2018, it was sued by a class of women employees for sexism and harassment at the workplace. See Shannon Liao, Riot Games agrees to pay $100 million in settlement of class-action gender discrimination lawsuit, (Dec. 28, 2021). https://www.washingtonpost.com/video-games/2021/12/27/riot-discrimination-100-million-settlement/.; As part of its settlement with the class of women and California’s Department of Fair Employment and Housing, it was required to have its human resources complaints monitored by a third party. The third party is required to be approved by the state of California. Throughout the lawsuit, Riot came under scrutiny to revise its employment contracts which mandated arbitration. Issues like arbitration were not addressed by the lawsuit and could be revisited if the issue were to gain the previous momentum it had in 2019 when a group of Rioters walked out of work in protest.
152.
We intend to draft a separate article outlining a new approach to regionalization and the LCS.
153.
In the article mentioned at Id. we intend to address two separate arguments. The first is that content creators may serve as wealthy individuals dedicated to propping up the esports ecosystem. Though content creators passionate about gaming may choose to run an esports organization in the short term, they will still be subjected to the same financial instability that plagues current esports teams. See Disguised Toast, How I lost $1,000,000 starting an Esports team…, YouTube (Jun. 10, 2023), https://youtu.be/UbOsE1FT8nk. Moreover, those content creators will always be more financially incentivized to perform sponsorship activities separate from their esports organization, which carries with it a higher overhead and lower conversion rate than if the sponsorship activity were performed by the content creator itself. Second, industry veterans such as our esteemed colleague Adam Apicella have suggested that power be returned to the players. Disclosure, Apicella is a client of ESG Law. Though compelling, we doubt the scaleability of an organization without a dedicated business arm. We also question who would own the intellectual property of the team. If owned jointly, that intellectual property would be unlikely to generate long-term sustained fandom, as any player’s removal could call into question how the intellectual property could continue to be used. If owned by one individual on the team, that individual might naturally transition into a content creation role, which would raise the problems set forth above, or into a business ownership role analogous to TSM or 100T. Disclosure, both TSM and 100T are clients of ESG Law. In the latter scenario, the structural challenges inherent to the industry would persist.
154.
Phil Aram mentioned on The Four Horsemen Podcast that Riot was the party he was looking to bring to the table, not teams. See Last Free Nation, Will Riot Kill the LCS by removing the path to pro? - The Four Horsemen S2E12 (feat. Phil Aram), YouTube, (May 25, 2023) https://youtu.be/5RMjoV--AM0.
155.
CryptoPolitan, Doublelift Retires from Professional League of Legends, (Dec. 2, 2023) https://cryptorank.io/news/feed/a9977-doublelift-retires-from-league-of-legends; See also Matt Craig, Why Esports Must Keep Leveling Down In 2024, (Dec. 28, 2023).
156.
Id.
