On the Economic Sustainability of Esports

Esports is growing up. Like other professional sports and competitive enterprises before it, issues outside the game are generating discussion. Player salaries and transparency took center stage last week.

The debate is born from a confluence of desires related to the sustainability of esports. Players need to earn enough to make it a possible and worthwhile profession. Teams need to earn enough revenue to pay the players and in some way make a profit. If players had agents, the agents would want to make a profit. And, of course, any sponsors involved want some kind of return on their marketing outlays.

It all comes down to the players. If it’s not worth it for the players to play, they won’t and the whole system will crumble. It’s for that reason that measures must be taken to ensure players receive fair market value. Salary transparency among players is good because it allows the athletes to see how they are compensated in relation to their peers. (Several esports commenters have made similar points:Thorin here & Bryan Blum here). From a journalistic standpoint, transparency is almost always a good thing. It helps to keep those in power in check.

SImply posting player salaries, however, is not good enough. Teams need to go further. While salary transparency is generally a good thing, players need a mechanism to bargain efficiently for their value, such as a union.

Right now, even though the players are the essential building block of esports, the teams, the developers and those who run the tournaments (who often are the developers) wield more power. If those entities truly care about the long-term viability of esports and not just short- or medium-term gains, they need to work together to create a viable infrastructure for esports.

Successful, professional team-sport organizations have many characteristics. The most important are:

1. Players who earn enough to make a living.

2. A confederation of privately-owned teams held together by a central governing organization.

3. Player representation (agents)

4. A players’ union.

Comparisons have made to other professional sports in terms of player transparency. But we should exercise caution when making these comparisons because they are far from a perfect parallel. Richard Lewis makes the point in a recent video that simply making all player salaries public would not solely provide more bargaining power for the athletes. What would come next? If the teams don’t have the money to pay a player, negotiating is irrelevant. (Marty Strenczewilk, Co-Founder of Splyce.GG hasa piece very much worth reading that further discusses the similarities and differences of traditional sports and esports.)

An athlete can not always negotiate one-on-one with a team and expect the best possible outcome, even if a team can afford to pay. It’s a primary reason other pro sports have players unions. Athletes need other mechanisms for leverage. They need collective bargaining agreements that stipulate minimum salaries, training regulations, how players are taken care of once they retire, etc. Salaries are not the only determinant of player well being.

Jonathan Pan, CEO of Team Elemental wrote that “In every other sport, we know how much players make.” His point is understandable, and again, transparency is generally good. But, the claim is not accurate. There are several leagues where this is not the case, or where we only are making educated guesses based on media reports. It’s not the same as a team posting salaries in a public forum.

In the cases where salaries are disclosed (not necessarily directly to the public, but to anyone), there are many reasons for doing so. First, major American sports leagues — NFL, MLB, NBA, MLS — have salary caps. Salaries must be disclosed to the league in order to guarantee a team is under the cap. As mentioned above, agreements between players unions and the league mandate things such a league minimums. Contracts must be disclosed to the unions to make sure they meet the requirements.

Different participants have their own motivations for sharing player salaries. A team loaded with cash can use higher salaries as a recruiting tool. But this comes with a cost in most professional leagues. If an NBA team goes over the salary cap, it must pay a “luxury tax” to the league. Other professional sports leagues also share revenue among franchises. Would esports organizations, some without a proven revenue history, be open to either? If they care about the long-term viability of the industry, they need to be.

Collective bargaining agreements in the NFL, for example, also stipulate how much of league revenue goes to the players versus going back to the owners. And revenue is shared. It’s basically a socialistic enterprise. Again, are the teams willing to make that kind of leap?

Those initiatives exist for competitive balance, but also for sustainability. If a few rich owners could come in and pay whatever the hell they want for players and create dream teams, it could kill the league. Teams that couldn’t keep up would die out. Several voices in esports such as Monte Cristo,H2KRich & Mylixia have said there’s similar salary-inflation risk. Posting player salaries without sufficient context might be detrimental.

But, you might say, if that were the case, those teams would be so popular, of course they’d earn enough revenue to be sustainable. This would then draw other billionaires to the industry!

We shouldn’t assume this. According to an analysis by Deloitte as reported by the BBC, the clubs in the Barclays Premier League, in its 2013–2014 season, made a pre-tax profit for the first time since 1999. Fifteen years! It resulted from lucrative television deals and cost cutting measures, and still not every team turned a profit. And this is the upper echelon of one of the most popular sports in the world.

If esports investors hope to spend a lot on wages so that someday they get substantial return on investment, it’s unlikely they want to wait more than a decade. (Stephen “Snoopeh” Ellis does make the point, though, that not all VC’s are in fact looking for direct ROI. Sometimes it’s passion project, or part of a larger strategy.)

It also behooves agents to disclose salaries because it shows that they can go out and get the biggest, most lucrative salaries. There’s a reason the general public is aware of mega agents like Scott Boras and Drew Rosenhaus. Or that you can make a movie like Jerry Maguire about a sports agent. Or that Jay Z raps about signing Robinson Cano.

So what’s the point? Esports needs a hell of alot more than player salary transparency. And it’s not even a guarantee that transparency, without a proper infrastructure, will do anything other than serve as good marketing for the richest teams. (I should note, however, that Thoorin points out in the previously-linked article that in CS, posting player salaries eventually led to the forming of a union.)

It’s not an easy or quick fix. Let’s not delude ourselves into thinking that. It’s a step, at most, that needs to be carefully considered. Major, major steps need to be taken on a macro level — not a team-by-team level — to get this right. And frankly, with the money pouring into esports, these discussions need to happen soon. Very soon.

It’s also important to keep in mind esports faces a unique challenge other sports don’t: An entity literally owns the games being played. There have been debates for years about whether the NFL is a monopoly, but even if it is, nobody owns the game of football. Riot owns League of Legends. Valve owns Dota 2 and CounterStrike. Blizzard owns Hearthstone, StarCraft, Heroes of the Storm, Overwatch, etc.

Esports is unique, and therefore, it will likely require a unique model, or at least a tweaked one. Professional teams should band together. create a united front and form a league together. Then they should allow — and even encourage or help — the players to form a union. The game developers should license their games to skilled third parties to run events and the day-to-day administration of a professional sports organization.

This may seem ridiculous and at odds with what the teams and developers are trying to accomplish. But if they want to survive long term, that is what is needed. Everyone can sit around and try to squeeze every last dime out of this, or they can all drink at the well for years. It’s going to take leadership. Real leadership. Not simplistic, self-serving marketing masquerading as a solution to a complicated issue that other major sporting organizations are still figuring out.

Recommended Reading/Viewing:

Duncan “Thorin” Shields: https://www.youtube.com/watch?v=snfc3e7VP2E& https://splyce.gg/topics/post/181

Richard Lewis: https://www.youtube.com/watch?v=Zif6Ltd94rg

Snoopeh: https://medium.com/@stephenellis/publishing-player-salaries-a-former-players-perspective-80ae83fb5bc2#.qfwdp9jyy

Bryce Blum: http://www.dailydot.com/esports/esports-lawyer-bryce-blum-player-salary-transparancy/

Ember: https://medium.com/the-nexus/better-humans-become-better-athletes-c6fd451aa5fd#.7olk7db05

Matt Demers: http://mattdemers.com/blog/posts/ember-esports-salaries

Mylixia: http://www.twitlonger.com/show/n_1so3r17

Marty Strenczewilk (@SPY_Lazerchickn): https://splyce.gg/topics/post/183

Esports Salon Ep 1, Duncan “Thoorin” Shields, Bryce Blum, Noah Whinston and Lazerchickn https://www.youtube.com/watch?v=xgaLP8IM3ow

Cover photo by Nick Ares (flickr)