Why Even Riot Games Isn't Immune to the 'Esports Winter'

The most successful publisher in all of esports is experiencing the harsh realities of the industry just as much as its competitors.

Six and a half years ago, I sat in the Los Angeles Lakers’ ownership suite at the then-Staples Center in what felt like a seminal moment. It was the League of Legends World Championship in October 2016, as the best two teams in the world competed for a trophy in front of thousands of people. It was not the first time that esports had filled the stadium where the Lakers and L.A. Kings have won a combined four championships. But this time felt different.

Sitting where the late Jerry Buss witnessed Kobe Bryant win those titles, I wasn’t flanked by members of the Buss family — or even Lakers staff at all. No, I was in a room that was the who’s who of modern day esports: Cloud9 CEO Jack Etienne, TSM founder Andy “Reginald” Dinh, G2 Esports founder Carlos “Ocelote” Rodríguez Santiago and, notably, Team Liquid co-CEO Steve Arhancet.

I say notably because the group who had rented the Lakers’ suite that evening was aXiomatic, a then-recently formed investment group backed by Washington Wizards chairman Ted Leonsis and Golden State Warriors co-executive chairman Peter Guber. Months earlier, the two basketball and entertainment luminaries had made a multi-million dollar bet on Arhancet’s business by acquiring a majority stake.

With the League of Legends Championship Series, the North American leg of the biggest esport in the world, inevitably soon to franchise, it was time for deep sports money pockets and venture capitalists to put up or shut up. Guber, who I was set to interview, was among the first to do so.

“I saw the psychographics and demographics of the audience, and Bruce and I talked about that; the idea that it isn't a fad, the median age keeps getting older, older and older as it goes through it and the bottom is also growing too,” Guber told me that evening. “So you get both things growing — the tail and the head grows. It's a tsunami, it has that effect. It's an influencer, too — it influences product, it influences sponsors, it influences behavior. It has all the components that makes it a viral activity.”

At the time, I thought Guber was right: Esports was the next big thing, with League of Legends the clear frontrunner, and it was only growing. Now, six and a half years later, I feel very different. A market correction has hit the esports industry like a truck, and by no means is League of Legends or its creator, Riot Games, immune.

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On April 6, New York Knicks owner The Madison Square Garden Company (MSG) sold its League Championship Series slot, previously branded as CLG, to NRG Esports. At the time, financial details of the transaction were not disclosed or reported.

That sale did not see a single dollar in cash change hands between the two companies, sources familiar with the deal told The Jacob Wolf Report. Instead, MSG was given a “significant” stake in NRG and NRG took on all debts and liabilities related to the CLG business as the crux of the transaction, NRG CEO Andy Miller confirmed to me.

Some reporters covering the deal propped it up as evidence of the league’s health. Yet in reality, for the first time in League history, a major franchise asset changed hands without any cash consideration—a sign that the league, like all of its peers, is struggling to make good on its promises of grandeur from years ago.

Over the past year, executives at the top of some of the most notable esports teams in the world have warned of an “esports winter.” After billions of dollars in investment money flooded the space from 2015 to 2022, the reality has become more stark: Companies such as Riot and Activision Blizzard, who run the three preeminent franchise leagues in the LCS, the Overwatch League and the Call of Duty League, made near-impossible promises, and now, after they failed to achieve those goals, the market is aggressively coming down to earth.

The core problem exists with the audience. It is both shrinking, with the most recent LCS Spring Split having the lowest average per-minute audience since the league franchised in late 2017, and failing to deliver sufficient advertising value.

The LCS’ average per-minute audience peaked in spring 2018, its first split of franchising, with an average of 212,985 viewers tuned in during any given minute. Since a pandemic-driven spike in summer 2020 with an 205,646 average per-minute audience, the LCS has continued to decline split over split. The LCS 2023 Spring Split, which concluded two weeks ago, garnered just 109,690 average audience, according to Esports Charts.

Compared to major American sports leagues, the LCS is significantly smaller. The MLS and the NHL averaged more than 340,000 viewers a minute in the 2022-23 regular seasons, while the NBA and NFL were even bigger. The NBA averaged 1.4 million viewers a minute on both ESPN and TNT in the 2021-22 season, and the NFL—the biggest sports league in America—averaged 16.7 million viewers a minute in the 2022 regular season.

Despite the massive viewer descreprancy, LCS teams have purpoted for years that they are as valuable as MLS franchises, in particular. In May 2022, Forbes estimated that TSM is the most valuable esports organization in the world, worth $540 million, with 100 Thieves second at $460 million and Team Liquid third at $440 million. The median MLS franchise is worth $557.5 million, according to Sportico, with the lowest team worth $390 million.

And key to the valuations of traditional sports orgs is their share of broadcast rights deals. In early 2022, the MLS signed a 10-year, $2.5 billion deal with Apple TV for all of its regular-season games. While the LCS and Riot have had broadcast right deals with BAMTech and Twitch in the past, neither are currently meaningful sources of revenue. The NBA and MLS are growing as spectactor sports. The LCS is not.

There are many theories why League of Legends esports in America is dying. 100 Thieves founder and CEO Matthew “Nadeshot” Haag opined on a recent podcast that League is not interesting to teenagers and that the existing audience is moving on—contradicting Guber’s 2016 take.

League of Legends is just tough right now,” Nadeshot said. “When you ask a 16-year-old kid what’s the first game they’re playing when they get home from school, I can’t imagine… You poll 100 16-year-olds, maybe five of them are going home out of those 100 to play League of Legends. This game’s been around now for more than a decade and a half and I just don’t think there’s a lot of new players coming in and trying to get better at the game.”

Riot privately is cagey with its esports team owners about total player count. It has not publicly disclosed player numbers since November 2021, when it celebrated its 10-year anniversary. At the time, Riot said that 180 million players played League of Legends, Teamfight Tactics, Legends of Runeterra and Wild Rift in October 2021. It has not disclosed specifics about League or how that 180 million breaks down by region.

The general consensus, reading between the lines, is that League is stagnant or in a decline in North America. And its esports is suffering.

When it asked sports ownership groups and VCs for $10-13 million in franchise fees in 2017, the narrative was that the LCS was the American sports league of the future. It has become increasingly clear, though, that it’s not.

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