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Fnatic, H2K, three other EU LCS teams on Europe's season of turmoil and its uncertain future

by theScore Staff Nov 10
Thumbnail image courtesy of Riot Esports Flickr

On Oct. 30, after months of speculation, Riot Games announced a new format for the EU LCS for 2018. With an increased stipend, elimination of mid-season relegation and the promise of permanent partnerships in 2019, the new format appears to many as a much needed remedy for a region in turmoil.

Let’s get this out of the way: It's been a tough couple of years for European League of Legends. While Riot pivoted away from last year's controversial best-of-two format, viewership of the EU LCS has continued to fall while player salaries and costs have risen, leading to more and more and organizations expressing concerns that they are unable to make money in the league.

Through numerous public statements from teams ranging from H2k-Gaming threatening to leave the league to Paris St-Germain Esports going through with it and pulling out of the EU Challenger Series, a picture has emerged of the fundamentally uneven balance of power between the teams and Riot Games.

RELATED: PSG brand director on leaving League of Legends: 'We take the risk and at the end, we need also the support of the publisher'

Unlike traditional sports leagues like the NFL and NBA, LCS teams are not part of any governing bodies nor do they have any decision making powers. As the developer and copyright holder of League of Legends, Riot has total control over broadcast rights and tournament licensing and in 2013 chose to exert that power through the establishment of the LCS. As the sole league operator and owner, Riot is under no legal obligation to consult with teams before making major changes nor to provide them with monetization opportunities such as revenue sharing.

According to Schalke 04's chief gaming officer and former soccer player Tim Reichert, there is no corollary to the role of a video game developer in traditional sports.

"You cannot even compare that because in football, there is no football developer," Reichert, who was also a co-founder of SK Gaming, said. "So this makes the whole working environment different to football and traditional sports. It was very new for us — for me personally not that new because I do have an esports background — but for all the departments here within the club it was very, very complicated at the beginning to work with a strong party like that. For example, they can do changes kind of whenever they like to."

Under the current framework, teams rely entirely on Riot’s good will and their commitment to the scene through initiatives such as the yearly stipend they give to to teams to aid in their operating costs.

However, according to H2k co-chairman Richard Lippe, that stipend has not risen in line with increasing player salaries and other expenses. Additionally, the developer places strict restrictions on the teams that limit some of their revenue sources, for instance through their regulation of the sorts of sponsors teams can acquire.

While the teams struggle to be profitable through limited merchandise sales, finding appropriate sponsors, and in-game icon sales, Riot Games has flourished thanks in no small part to the immense popularity of the LoL esports scenes.

"The pro leagues are the fundamental foundation of the ecosystem of League of Legends and it's absolutely true," Lippe said. "If you didn't have the pro leagues, you wouldn't have people watching the games, Riot wouldn't be able to generate sponsorships, Riot wouldn't be able to generate revenue from broadcasting, Riot wouldn't be able to generate advertising revenues from the broadcasting of the games. Their in-game sales which are 2 billion dollars a year or more would clearly dramatically be reduced if the pro leagues didn't exist."

But, while Riot’s recent announcement of the 2018 EU LCS format reads like a team owner’s Christmas list, it doesn’t tell the whole story.

On Sept. 5, ESPN’s Jacob Wolf reported that Riot was planning to split the EU LCS into four regional leagues with six teams each in 2018 in a format similar to European football. While Riot did not go through with that plan, it was only after stiff opposition from the teams. It’s important to understand that the new format is a mea culpa, an attempt to clear the waters ahead of franchising. The EU LCS still faces the same problems it did before: a highly diverse region with over a dozen languages, rising costs without adequate means of monetization, and — perhaps most importantly — a fundamental inability to meet Riot on an even playing field.

"The revenue are not there"

Esports as a whole and League of Legends in particular have experienced a boom in venture capital since 2015. There’s a lot more money in the scene now and top-tier players are more valuable than ever. According to Lippe, the average salary for an EU LCS player in 2015 was around €20,000 ($23,196.60 USD). In 2017, he says it’s now in excess of €100,000 (115,983 USD).

RELATED: H2k co-chairman on the economics of the EU LCS: 'We will not stay in the league if we're required to continue to subsidize Riot. It doesn't make any sense. I'ts upside-down and backwards'

On top of that, Riot’s 2016 mandate to have teams sign players as employees instead of independent contractors has also led to a variety of social security and HR costs that vary from jurisdiction to jurisdiction. That’s not even to mention the salaries of coaches and support staff.

Paris St-Germain brand director Fabien Allegre says that while the organization was prepared to take a loss as they got their foot in the door in LoL, the economic situation was untenable even in the Challenger Series.

"Even at this level of competition, the budget was quite high and yeah it's true, if you want to compete on the European scene and aim to be a part of the world competition, well, the budget is far away — not far away from what we expected, but it's a kind of balance. The revenue are not there," he said.

"So even if you're talking about sponsoring, the merchandising is a part but it's not so huge, and the share of the rights are not really clear. there's no commitment from Riot to give not a minimum guarantee, but to make sure that we'll have at the end of the year a line, a budget coming from them in order to balance a little bit the expenses of the salaries."

While sponsorships make up the bulk of a team’s revenue, acquiring them is not an easy task. According to Lippe, not only does establishing them often require the services of an agency which will take a cut of the deal, but maintaining and attracting sponsors requires strong branding efforts which add onto the budget.

On top of that, in many cases the most lucrative sponsorships come from gambling websites, which is something Riot heavily restricts. For instance, in August Ninjas in Pyjamas briefly suspended their six-figure partnership with Betway prior to their relegation from the EU LCS.

Though the team representatives I spoke to welcomed the increase of the stipend, they were clear that it still would not cover their operating costs. According to Team Vitality owner Nicolas Maurer, revenue-sharing, perhaps in the 2019 EU LCS, would be a much more sustainable alternative to the stipend.

"If in the future we go to a model of revenue-sharing, it's much more healthy than the current system where Riot arbitrarily decides teams should get this or that. In the future, if you go to a model of revenue sharing where we as team owners get a pool of the revenue generated by the league, it's a much healthier ecosystem," he said. "If the league and Riot make a lot of money by selling their product to broadcasters and sponsors, then we should be rewarded for that because we created a big part of the value of the league."

"The problem is not that Riot tried..."

As difficult as the current situation for the EU LCS is, Fnatic chief gaming officer Patrik “cArn” Sattermon says it’s still much more stable than other esports scenes.

"We have to remember that the financials of LCS are still considerably better than the ecosystems in other esport titles, something that obviously makes sense with its legacy and audience size,” he said. “The revenues opportunities for teams in the LCS, such as the in-game items and stipend, still puts Riot at the forefront and that is something that must be acknowledged.”

However, there’s no denying Riot have made missteps. The partnered 2019 EU LCS will be the league’s fourth new format in four years. While Riot’s attempts to combat falling viewership in 2016 and 2017 with the experimental BO2 and double group formats failed, the team representatives I spoke to were ultimately forgiving and even complimentary of their willingness to experiment.

RELATED: Schalke heads on changes to the EU LCS, PSG's departure from the scene and preparation for their return to the LCS

"It's good that they tried and that they also could adapt to things not working and obviously a lot of these changes didn't work out. They are now going back to the best-of-one format. I think we all agree that this will be good for the whole ecosystem"” Reichert said.

"But important if that they finally come to a clue and this has to stop the changes over and over again, hopefully we are now at a system that is kind of set in stone and we move on with this the next couple of years with slight changes. You always have slight changes also in football that already exists plenty of years, but it should not be big changes that we had in the last months or years."

Though they accept Riot’s right to experiment with the league, the fact remains that their decisions affect the livelihoods of every single team and player in league. According to Maurer, he would like to see teams get a seat at the table when such decisions are made.

"The problem is not that Riot tried, the problem is that this kind of decision and change should be a discussion between the league, between Riot and the teams," Maurer said. "I think the future, if we have a partnership system, is much better because that kind of decision should be a decision that we take together."

Sasha Erfanian was a news editor for theScore esports. You can follow him on Twitter.