Mazurek: Riot could learn from the NFL
Marek Mazurek | Thursday, September 15, 2016
Have you ever wondered how professional sports leagues work?
Like, beyond the fact they makes billions of dollars a year, have you ever wondered how they work?
Well, let me tell you.
Take the NFL, for instance. The NFL itself is actually owned by all 32 teams collectively and each team gets a share of the total revenue pool. So whether you’re the Super Bowl-winning Broncos or the lowly Titans, you get the same share of revenue from the league.
Additionally, the collective ownership of the NFL means that each team gets one vote in league roles and policies. This equal vote and equal revenue gives each team a fair playing field, in theory.
So that’s how the NFL (and almost all professional sports organizations) share the revenue they take in. But the revenue itself is also interesting. The biggest source of revenue (by far) is television advertising. The NFL is widely popular, so it takes in millions of dollars of ad revenue, which is split evenly between the teams. Each team also has local sponsorship deals and ticket sales, but these other revenue sources pale in comparison to television ad money.
So that’s how the NFL works in a nutshell. Why am I telling you this? Because there is another professional sports entity that needs to learn from the NFL’s model: the LCS, or the League Championship Series.
A big reason the NFL is so successful is equality. Teams get roughly the same amount of revenue and theirs votes count the same so parity is high. But imagine a system where revenue wasn’t shared equally between all the teams, what would happen? Well, that’s what League of Legends is currently like — and it isn’t working.
Unlike the NFL, which sells the broadcasting rights for its games, Riot Games, the owning company of the LCS, does not and thus, the revenue that is generated stays with Riot. Also unlike the NFL, the owning company of Riot Games is not collectively owned by the teams that make up the league. So any revenue Riot generates stays with Riot. This begs the question, how do the teams themselves make money?
For the typical LCS team, revenue comes from only two main sources: stipends and sponsorships. Riot does give each team a stipend, which is supposed to go towards paying for player salaries and cost of living. However, the stipend is not very large and the amount has not changed since 2013, despite the fact that the cost of being a successful League of Legends team has skyrocketed. Fortunately, most teams recognize the importance of paying for high-quality players and most LCS athletes are earning more than enough to make a decent living.
The second, and biggest, revenue source for LCS teams is sponsorships. These sponsorship deals come from software companies like HyperX, which makes headsets and mice, or Intel. A few more recognizable energy drink brands like Red Bull and Monster also support LCS teams, but the big sponsorship money from companies like Coke or McDonald’s is absent. Teams will have their sponsors’ logos on their jersey and will often advertise them on player streams and such. It’s very important to note that these sponsorship deals make up most of a team’s revenue and so maintaining these deals is crucial to the survival of the team.
The problem that has arisen in the LCS is that teams are almost utterly dependent on sponsors to stay in business. This wouldn’t be much of a problem, except that the LCS works on a relegation system like the English Premier League. If a team finished in the bottom three slots of the league, they risk being relegated down. And if a team is relegated, they lose everything.
Think about it: If you’re an executive at Red Bull, you would only sponsor a team because that team would put your logo on their jersey and you gain visibility and thus, money. But if a team is relegated, you aren’t getting that visibility, so you drop them as a sponsor. It makes business sense for the sponsors, but it’s brutal to the lower-tier teams in the LCS. For instance, if a new team is coming into the league, there are an unknown quantity so sponsors will be reluctant to endorse them since they don’t know if the team will be relegated. Without the sponsor money, the team can’t afford to pay as much money for good players and so it is subjugated to a cycle of mediocrity that is hard to break out of. In the NFL, every team can afford to pay a player the same amount of money so talent doesn’t congregate to a few teams because of that factor.
If Riot wants to take esports into the mainstream where it can pick up big sponsors like Coke and Pepsi, it needs to sort out how it runs the LCS. And if you’re a football fan wondering what’s going on, just be happy all you have to worry about is a deflated football or two.
The views expressed in this column are those of the author and not necessarily those of The Observer.