Esports – TI9 and a developer-controlled industry

Posted in eSports Regulations

Co-authors: Daniel Too and Tong Lap Way

With thanks to vacation scheme student Chang Hui Tze for her assistance in preparing this blog post.

This article explores the role of developers in esports and how their actions affect esports teams and investments.

A few weeks ago, on August 26, 18,000 people packed into a darkened arena, 1.97 million more viewers watched online, many whose necks were craned over their mobile devices while others chatted and broadcasted their own commentary. It was the finale of “The International 9” (TI9), one of the most highly anticipated esports tournaments and the highest paying in history with a US$34.3M prize pool.

Esports has joined the big leagues and the industry already has a larger audience than Major League Baseball[1]. While fans, managers, streamers and sponsors all play an important role, it is the developers that are the real lynchpins of this industry – presenting the largest risk/reward variable to esports teams and investors.

Although the rise of competitive video gaming has had a significant impact on the gaming industry as a whole, only a few developers have truly embraced esports – in particular Activision Blizzard, Riot Games and Valve Corporation (Valve). They have created and supported some of the most important games currently played at a professional level. For example, Valve organizes TI9, a Dota 2 tournament and one of the most highly anticipated and biggest tournaments each year. TI9’s prize pool is largely comprised of monies provided by the gaming community, as Valve, Dota 2’s developer, funnels a portion of in-game spend to the prize pool as a means of growing the esports scene. Without this mechanism and Valve’s support, the Dota 2 esports scene would have been far less lucrative.

Another recent esports tournament was the Fortnite World Cup. Fortnite is a fairly new game, at barely two years old. Yet, its World Cup had an astounding US$30 million prize pool and the event was won by 16-year-old Kyle Giersdorf, who took home the US$3 million grand prize. Fortnite’s developer, Epic Games, funded the entire tournament and was able to do so with the US$3 billion profit it brought in over 2018. Even though it is highly unlikely that Epic Games made the prize money back through selling tickets and merchandise for the tournament, it is seen as an investment for the developer to generate buzz for their popular game and hopefully grow its esports scene to the point where it generates stand-alone profits.

On the flip side, developers can also kill teams and entire games. For example, Echo Fox, famously owned by Rick Fox, the former NBA star, owned a League of Legends team which was one of the ten franchised teams in the North American League of Legends Championship Series (NA LCS). It was revealed this spring that a shareholder of Echo Fox had demonstrated an "abhorrent display of pure racism" and made threats against Rick Fox’s family. League of Legends’ Developer, Riot Games, quickly launched an investigation into this behavior and on May 15, 2019 concluded its investigation and “directed Echo Fox to take appropriate corrective action within 60 days.” Chris Greeley, the commissioner of the NA LCS stated that “If Echo Fox does not take action by removing any individuals whose actions violate League rules and agreements within the required time period, the League will take formal action that may adversely impact the future of Echo Fox in the LCS.” When Echo Fox failed to eject the shareholder in question, Echo Fox was forced to sell its franchise slot and leave the LA NCS altogether. In fact, when Echo Fox failed to sell their slot within the designated time, Riot Games took over the sales process altogether. The NA LCS Official Rules, an agreement all teams sign up to, grants Riot Games wide ranging and highly discretionary powers. Violation of its rules on profanity and hate speech (clause 14.3.1) and discrimination and denigration (clause 14.3.6) grants Riot the right to issue penalties “without limitation of its authority” (clause 14.5.4).

In addition, Activision Blizzard, another major game developer has a multiplayer online battle arena (MOBA) competitor like Dota 2 and League of Legends called Heroes of the Storm (HotS). It had a small but growing esports scene largely consisting of two developer-supported tournaments: Heroes of the Storm Global Championship (HGC) and Heroes of the Dorm. However, in December 2018, Activision Blizzard decided to abruptly cancel the HGC and Heroes of the Dorm. Professional HotS commentators found out the morning of the announcement while some players were alerted mere minutes ahead of the announcement via email, other players did not even find out their careers were over until after the news was made public, leaving players and commentators fuming. In a single decision, all the investment that the teams had put into the game was wiped out and while there is a small grassroots movement (comprising players who still are passionate about the game) HotS esports is no longer financially viable and effectively finished – along with the careers that it created.

Developers also exercise significant control over the game itself. Developers are constantly changing and patching their games, they do so to keep the game fresh and interesting but also to “balance” the game and keep it fair. This involves constant changes to individual characters as well as overall game mechanics and a character which is particular strong in one patch may be uncompetitive in another. By extension, players and teams who specialize in a specific character or strategy may do very well in one patch but suffer in another. Therefore, the performance of teams can sometimes be dependent on the content, extent of and even timing of developer patches. The performance of teams naturally affect how popular they are, their share of the prize pool and the size of their sponsorship agreements thereby significantly affecting the underlying value of the team and the investor’s return on investment.

TI9 has been extremely successful, racking in the highest viewership and biggest prize pool of any tournament. However, amidst all the buzz about the players, streamers and teams, one must not forget the immense power that developers have. Strong developer support can really grow a game and allow its esports scene to flourish but developers are also a major threat to investment and present a systematic risk to any team or investment in esports.

 

[1] https://www.goldmansachs.com/insights/pages/infographics/e-sports/index.html?cid=sch-pd-bing-Esportshub-searchad-201810-----&mkwid=9b1dvEvt

About

Inside Sports Law provides you with up to date legal and business commentary and analysis on key sporting topics from across the globe.

Our global sports law practice

Blog Network

Topics

Archives