Over the last several years, investors have grown curious about the world of professional video gaming. If this were any other sport, one logical thing to do would be to put money into a team. But in esports, it’s not clear what prospective team owners would be buying.
On Thursday, the company behind the world’s biggest esports game— League of Legends — tried to answer that question. Riot Games Inc. laid out a new framework for its ten-team, North American league and set a $10 million price to buy in.
Among gamers, it’s a long-awaited sign that the industry is growing up. To outsiders, it’s an indication that there’s a real business here. The price also signals confidence. Less than two years ago, League of Legends teams typically sold for about $1 million.
In a two-hour conference call Tuesday with existing League of Legends team owners, Riot laid out its new terms. As in traditional sports, the league will have a stable roster of franchises, and teams will share revenue from media deals. There will be a players association. Riot is locating the entire operation in Los Angeles, where it has an esports arena.
Riot will give existing team owners the opportunity to buy a slot in the league for $10 million – a price on par with Major League Soccer expansion fees as recently as a decade ago. Riot will help match interested investors to teams that need backing.
One of Riot’s challenges is to balance attracting deep-pocketed outside investors with its interest in supporting existing teams that have helped grow League of Legends to where it is today. Anyone who doesn’t already own a team will have to pay an additional $3 million fee that will go toward existing teams who get shut out of the new league.
Riot will also blunt the cost of the franchise fee by spreading it out over time. Teams can put in $5 million up front, and then pay $1.5 million out of their portion of the revenue they make from the media deal and merchandising at the end of both 2018 and 2019. The last $2 million comes due at the end of 2020, but could be waived if the league hits certain revenue targets.
“We think this process will actually spur on the old-school esports guys to join forces with new investors to create new organizations that should have the best of both worlds,” said Whalen Rozelle, co-director of esports at Riot, which is owned by the Chinese Internet conglomerate Tencent.
The revenue sharing structure is designed to make sure the players also benefit directly from the league’s financial success. Riot and the team owners will each take 32.5 percent, leaving a slightly larger share -- 35 percent -- for the players.
For the moment, team owners seem pleased. The new structure creates some stability, and the new league limits the practice of relegating poorly performing teams to a minor league.