How is the E-Sports Revenue Pie Going to Be Split?

Pie
Yes, I got lazy with the picture, but you try finding something that matches “e-sports revenue pie”

I recently did a podcast with local game developer Christian Sears, and a really interesting question came up and I thought I’d write a post about it, as it’s probably one of the most interesting issues to follow as the e-sports industry develops. The question comes down to this: as e-sports, and in particular e-sports leagues, become more established, how are revenues they earn going to be split?

One good starting point for an answer to this question is probably traditional sports. In most traditional pro sports leagues like the NBA and NHL, revenue is generally split roughly 50/50 between owners and players. Each league has arrived at that split after years of hard-nosed labour negotiations, including lockouts, strikes and countless melodramatic press conferences, so maybe there’s something about that number, and we can expect that in e-sports revenue will also end up being shared along those same lines.

Of course, with e-sports you have a third power group that doesn’t really exist in traditional sports: the companies that make the games. While no one “owns” basketball or hockey, someone does own games like Overwatch, League of Legends and DotA. Anyone who wants to operate an e-sports event needs the game maker’s consent, which means the game maker is going to get a piece of the pie. For this reason, I think the key issue regarding how revenue will be allocated in e-sports leagues is not the split between players and owners, like in traditional sports, but the split between the game companies and everyone else.

That seems to be the direction things are heading for a lot existing sports leagues. For instance, the League of Legends North America League Championship Series (NALCS) recently unveiled an overhauled revenue sharing model that states revenue will essentially be split three ways with Riot Games, the company behind LoL, getting 32.5% of league revenues, teams getting 32.5% and players getting 35%. In Blizzard’s upcoming Overwatch league, the split is apparently going to be 50/50 between Blizzard and the teams (with no details regarding how much of the teams’ share will go to the players).

While 32.5% and 50% are already significant numbers, if I had to guess, I would say that as things continue to shake out, the revenue going to the game companies is only going to increase. This is because, as discussed above, they’re literally the only game in town, and have all the bargaining power.

Say for example Blizzard goes to the owners and players in the Overwatch league a few years from now and asks for 70% of revenue instead of the current 50%. Even if all the owners and players were united against Blizzard’s demands, they can’t exactly tell Blizzard to f*** off and start their own league, because, as discussed Blizzard literally owns the game their league is based on and can prevent them from doing that. Instead, the owners and players would have essentially two choices: (1) take the 30%, or (2) stop operating and make nothing.

Blizzard, on the other hand, could always find more teams and players to replace the ones sitting out. They probably prefer not to go through the effort, but if the league is making money hand over fist and that extra 20% of revenue works out to a lot of cash, the effort may be worth it to them. Plus, if the league is doing well financially, there will probably be no shortage of new teams and players looking to sign up, even if they’re only getting 30% of revenues instead of 50%.

The bottom line is that Blizzard can always find more teams and players. The teams and players can’t find another Overwatch league.

Right now, the owners and players in e-sports leagues are basically in the same situation baseball players were before unrestricted free agency came along. They’re basically at the mercy of the game companies, who can pay them the minimum they’ll accept to continue operating and no more, then keep all the remaining profit for themselves.

I may be overstating things here of course. There’s obviously PR aspects to this I haven’t really considered. As EA has learned recently, the gaming community can get petty worked up by things they perceive as unfair. This would also take a certain cold bloodedness from the game companies that we haven’t really seen yet, nor would I expect to see anytime soon given that a lot of these e-sports leagues are just getting off the ground, no one knows how successful they’ll be, and everyone is in the “let’s all get together and make this thing work” phase.

However, and as e-sports gets more established and the amount of money at stake increases, that phase might start to give way to a more business-minded approach by the game companies (it’s worth noting, for instance, that Blizzard has essentially spent the year essentially shutting out independent Overwatch tournaments, harming the Overwatch scene in the process, in order to prepare for the roll out of the Overwatch league), and lead to the kind of negotiations you see in traditional sports. If that does happen, I can tell you right now who’s probably going to win, and it’s not going to be the teams or players.

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