The E-Sports World’s Future Is Uncertain as Growth Stalls

Six years ago, the Madison Square Garden Company, the group that owns New York Knicks and New York Rangers owner James Dolan, announced its triumphal entry into sports’ next frontier: professional video game leagues. .

New York investors spent more than $10 million to buy a majority stake in esports team Counterlogic Gaming. Said Professional video games are “currently on the brink of major change, and we believe it has the potential to generate significant growth.”

Rather, its growth has stagnated. Last year, Madison Square Garden owners tried to find a way out of the business by selling their flagship team as esports earnings fell short of expectations and investors became skeptical of the industry.

After years of much hype, US esports is giving way to economic reality. Unprofitable team owners cut costs by laying off employees and terminating contracts with star players. Sometimes selling teams, sometimes taking losses, it offers a candid reality check for those who believed esports could be the next big thing in entertainment.

Most worryingly, some viewers seem to be losing interest. Data company Esports Charts estimates that the League Championship Series, the largest esports league in the United States, will have 14.8 million hours watched in the spring 2023 season, down 13% from the previous year and down 32% from 2021. rice field.

“We are at a stage where everyone thinks there is a lot of work to be done,” said gaming and esports analyst Rod Breslau. “There is too much hype and too little real value.”

As in traditional sports, esports stars can earn seven-figure salaries, compete for championships, and attract sponsors and fans along the way. Over the past decade, investors have bought stakes in teams participating in professional leagues in games such as League of Legends, Overwatch and Call of Duty.

The largest of these is the League Championship Series. This is his 10-team league founded in 2013 and run by Riot Games, which developed League of Legends. Leagues pit teams against each other in a fantasy-themed game, League of Legends, in matches that draw millions of viewers and sell out stadiums.

But leagues are struggling to make money. Partnerships to broadcast esports tournaments on sites like YouTube and Twitch have dissolved, sponsors have cut advertising budgets, and owners pay esports players huge salaries while running teams at a loss.

Some esports teams, like Evil Geniuses, Many high paying League of Legends players. In addition, such as “100 Thieves”, laying off employees and senior executives.

Shares of esports group FaZe Clan, which went public last year, have fallen to just 50 cents a share. In March, FaZe received a delisting notice from the Nasdaq, warning it could be removed from the stock exchange if its share price did not return above $1. And on Friday, FaZe announced it would furlough about 40% of its workforce after a string of layoffs in February.the news is Digiday reported earlier.

Jacques Etienne, chief executive of esports group Cloud9, said his organization cut costs by pulling out of nearly half of the esports leagues it was a part of, up from about 15 leagues to eight today. Stated.

TSM, one of the most valuable esports organizations, announced on Saturday that it will sell seats in the League Championship Series. TSM is one of the oldest and most recognizable brands in North American esports, so this is a big blow to the league, much like a major franchise leaving the NBA or NFL.

TSM began talking to interested groups about three weeks ago and narrowed the list of potential buyers to about a dozen, mostly from the media and traditional sports worlds, according to people familiar with the discussions. The asking price is in the $20 million range, the person said.

TSM CEO Andy Ding said in an interview that his exit from the U.S. league had nothing to do with financial issues but a desire to compete in the world championships. Most of League of Legends’ strongest teams come from places like South Korea and China, and the North American region has long lagged behind these regions in terms of competitiveness.

Ding said he plans to buy League of Legends top league slots elsewhere in the world after selling slots in the United States.

Riot Games is under pressure right now. League of Legends has generated billions of dollars in sales throughout its history, but the esports leagues around this title have long been losing money. For Riot, which is owned by Chinese internet giant Tencent, this worked well because Riot can use the league to drive interest in the game.

But the scheme has increasingly put Riot at odds with esports team owners who promised to pay Riot at least $10 million to qualify for the league and ultimately profit. This month, at the request of the team, I agree with the riot Removing the requirement for a team to join the less-developed League of Legends League one step below the League Championship Series could potentially save money for the team.

last month, Riot publishes lengthy blog He admits his mistakes and tries to reassure investors. The esports optimist points to his two main advantages: the youth of the esports audience, which is attractive to advertisers, and the promise of revenue from the sale of in-game items themed around esports events. doing. Last year, sales of such items in another Riot game, Valorant, generated $42 million, half of which was donated to teams participating in the Valorant esports league, Riot said.

Riot’s president of esports, John Needham, acknowledged that the industry is in trouble.

“A big part of what we sell is the dream, and that is the long-term future of esports. I see that as a failure,” Needham said in an interview. “So we’re certainly feeling the pressure.”

For Madison Square Garden, selling its esports team, Counter Logic Gaming, was a loss-cutting effort. But the company was unable to find a buyer for the team willing to pay enough to recoup its expenses, according to four people familiar with the situation.

Instead, Madison Square Garden Group laid off dozens of Counter Logic Gaming employees and signed them off. last month Merging the remaining assets, the League of Legends team, with another esports organization, NRG Esports.

Madison Square Garden did not receive any cash payment in the transaction. Instead, it paid NRG millions to cover the costs of the CLG facility and the salaries of 25 remaining employees, three people familiar with the deal said.Some aspects of the deal were previously reported By Jacob Wolfe Report, esports news outlet.

Madison Square Garden Group acquired a minority stake in NRG’s parent company called Hard Carry Gaming, allowing it to maintain its foothold in esports. Madison Square Garden Company senior vice president Dan Fleeter has also been appointed to Hard Carry Gaming’s board of directors as part of the deal, according to people familiar with the matter.

In a statement announcing the deal, Madison Square Garden Sports president David Hopkinson said it would allow the company to “continue to be a significant investor in the esports industry.”

Some see the exodus as an opportunity. NRG Esports chairman Andy Miller, who bought Madison Square Garden’s League of Legends team, said he sees the departure of celebrities as a way for the industry.

“It’s been a tough time, but it’s our time,” said Miller, a former tech executive and co-owner of the NBA’s Sacramento Kings. “I think we have a chance to steal a lot of existing fans.”

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