The esports industry moves in cycles. New games gain an audience, esports organizations sign players and teams try and take advantage, games fall out of favor, and esports organizations drop those players and teams.

In the past month, two stories have stood out in the esports news cycle: the layoffs at Infinite Esports & Entertainment and Echo Fox dropping many of its fighting game players, along with its Call of Duty and Gears of War teams.

Both stories have raised alarm bells for those financially involved in the esports space, whether it be sponsors, investors, or organizations looking to gain a foothold in the industry. If these two organizations—both with massive financial backings and interest from traditional sports owners—had to cut back in their operations, what does that mean for the future of the industry?

The answer isn’t simple. But one thing is for sure: it’s not time to panic.

The Echo Fox Situation

Owned and led by three-time NBA champion Rick Fox, Echo Fox has become one of the premier esports organizations in the Western world.

While the organization has teams in established games like League of Legends , some of its earliest signings were fighting game players. Notably, it signed some of the best players in the world in their respective games: Street Fighter V player Victor “Punk” Woodley, Injustice 2/Dragon Ball FighterZ player Dominique “SonicFox” McLean, Tekken 7 players Kim “JDCR” Hyun-jin and Choi “Saint” Jin-woo. The moves implied that Echo Fox was ready to dedicate itself to the fighting game scene.

McLean remains on the team, but Woodley, Hyun-jin, and Jin-woo have all been cut, alongside the organization’s Gear of War and Call of Duty teams. Two Street Fighter V players remain on the roster in Hajime “Tokido” Taniguchi and Justin “JWonggg” Wong, both of whom are veterans in the space, having well over 40 years of competitive experience under their combined belts.

Viewership data for the last six months, comparing Street Fighter V, Dragon Ball FighterZ, and Injustice 2.

While such mass cuts may seem like an indication of a struggling organization, they are likely more indicative of the natural esports cycle. Dragon Ball FighterZ has become one of the most-watched fighting games on Twitch, while Injustice 2 has never gotten a strong foothold outside of its major events. Street Fighter V remains a popular spectator title, but doesn’t earn enough consistent viewership to justify a large roster in the game. Wong and Taniguchi have proven their relevance in the fighting game scene over the course of their long histories, while Woodley’s streaky performances doesn’t necessarily sit well with an organization looking to retain its popularity in the long term.

Meanwhile, Gears of War has never established itself as a leading esport by many measures, never cracking the 50K max concurrent viewers (max CCV) mark in 2018, even during some of its biggest events. Finally, Echo Fox’s Call of Duty squad has consistently failed to show results and, therefore, didn’t manage to get qualify for some of the biggest spectator events the game has to offer, such as the Call of Duty World League.

In short, while the Echo Fox cuts were perceived as drastic by some in the esports space, it’s much more likely that the standard esports cycle of games coming into and going out of popularity is the culprit, rather than any business issues Echo Fox could or could not be experiencing.

“As part of a strategic effort to best position our organization for the future,” Echo Fox president Jared Jeffries wrote in a statement about the cuts, “Echo Fox is realigning its portfolio of teams and player rosters. After careful review and consideration, we will be disbanding our Call of Duty and Gears of War teams, as well as releasing some of our Fighting Game and other select players.”

The Infinite Esports & Entertainment Layoffs

On the other hand, the Infinite Esports & Entertainment layoffs seem to be indicative of what happens when a company expands too quickly into the occasionally volatile esports industry.

The parent company behind the esports organization OpTic Gaming , the Overwatch League franchise team the Houston Outlaws , and live events business Ngage Esports, Infinite has grown quickly over the course of 2018, picking up everything from new teams to clothing brands.

[perfectpullquote align=”left” cite=”” link=”” color=”” class=”” size=””]While esports overall may be growing rapidly, returns on investments aren’t as quick to roll in.[/perfectpullquote]

While esports overall may be growing rapidly, returns on investments aren’t as quick to roll in. After buying into both the Overwatch League as a franchise spot and the North American League of Legends Championship Series in a long-term partnership for their respective 2018 seasons, Infinite had expended a large amount of its war chest. While financial reports have not been released for teams involved in the two leagues, it’s likely that returns will not result in profits in their respective first years.

And with their hands in so many other pots, Infinite Esports looks to take a more conservative approach to the coming months. While partnerships with the likes of Turtle Beach, T-Mobile, and SquadUP are currently bolstering Infinite’s portfolio, representatives within the company have said that they’re not enough to remain sustainable. “Generally speaking, we think we grew too fast,” now-president of Infinite Esports Ryan Musselman told SportsBusiness Daily.

As a result, the company is focusing on its core properties, rather than continuing to expand. The OpTic League of Legends team and the Overwatch League are what the company considers their “foundational” properties, and will be restructuring to take full advantage of these teams.

What Does This Mean for the Future of Esports?

In the past, the growth of an esports organization was largely measured, at least informally, by the number of games it had teams in. Major esports organizations like Team SoloMid and Cloud9 would buy up players and teams in games like Smite and Heroes of the Storm to add to their rosters, with little regard for long-term profitability.

Inevitably, when those newly purchased teams would fail to turn a profit, they would be dropped and the organizations would go back to supporting its core properties.

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Over time, organizational leadership has learned its lesson.[/perfectpullquote]

Over time, organizational leadership has learned its lesson. None more so than Immortals CEO Noah Whinston, who told The Esports Observer, “Picking up more teams in more games isn’t growth.” He believes that the best way for an esports organization to find success with teams is to make sure that team is appealing to the appropriate audience, and not trying to expand into as many games as possible.

He pointed to the fighting game-focused Panda Global as a great example of this strategy. “Panda Global has been on the ground in the thick of that [fighting game community] fight for ages,” he said, “so they have such a better connection with the fighting game community than any external organization does, and that’s great…They have something that is very unique to them, as opposed to other smaller organizations that just pick up teams randomly across the board and essentially do the team version of puffing yourself up to look big.”

Even for Panda Global, this process took time. The organization explored Heroes of the Storm, World of Warcraft , and even Splatoon before finally recognizing that it should focus its core fighting game fanbase.

The cuts at Echo Fox and Infinite Esports aren’t indicative of a failure of esports organizations to turn a profit. They’re a market correction, one that shows esports organizations are beginning to understand what it takes to become sustainable and successful in the long term. Rather than spreading themselves too thin, these orgs are beginning to focus on what they know works.