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What is the optimal esports business model for teams?

What is the optimal esports business model for teams?

Franchising fees can be cost prohibitive while non-franchised teams often suffer from a lack of exposure.

Epic Games Wages

Riot’s Valorant continues to grow its presence in the esports industry, but as more pro players flock to the title, some are concerned that the publisher could take the esport in the League of Legends direction by introducing a full franchise system. Valorant pro Vincent “Happy” Cervoni Schopenhauer, a member of Excel Esports, wants to see Valorant thrive with more non-Riot events, similar to Valve’s hands-off approach with CS:GO.  As he told Dot Esports, “…competitively, it’s not that great right now, because you don’t get enough exposure for orgs, and you don’t get enough matches as a team.”  

It’s not a “Happy” coincidence that these comments come at the same time that game publishers are trying to figure out an optimal esports business model that gives up-and-coming players and teams a fair shot at success. Initial investment to become a franchise in OWL, CDL, or LoL esports can range from $10 million to $30 million, which immediately eliminates the opportunity for numerous orgs. That said, open ecosystems like CS:GO, Valorant, and Dota don’t require a massive outlay of capital, but revenue generation and future profitability are hazy at best.

For its part, Riot seems to be recognizing that teams, which rely on exposure to land sponsorships, need a bit of help. The company is launching a new title, initially in China, LoL Esports Manager, which will distribute a portion of revenues to the teams featured in the game. Microsoft is taking revenue sharing even more seriously for Halo Infinite esports, as an official partnership program will grant teams a “significant” portion of revenues from in-game item sales. Partnered teams will also receive broadcast VODs, will have their travel paid for, and can take on their own sponsors so long as they don’t conflict with Halo Championship Series’ own sponsors.

These moves, which follow in the footsteps of Ubisoft’s R6 Share program from 2018 (credited with saving Rainbow Six Siege esports), speak to a deeper understanding from publishers that teams are foundational to the business. Interpret’s Esports Replay indicates there may be upside to franchising from a viewership perspective, as 15% of game-related video watchers and esports viewers in the US have watched a LoL tournament in the past three months, while that figure falls to just 9% for CS:GO and Valorant tournaments. If non-franchised teams across esports can gain the revenue generation support they need to survive, esports will be a step closer to having a proper tiered system where franchising isn’t the only choice for success.

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