Where we are today…

This past week the topic of esports has grabbed headlines everywhere, and it seems like just about everybody is trying to get in on the action. Shaq and A-Rod just invested in NRG esports, Blizzard Entertainment launched a 64 team March Madness bracket for their MOBA title “Heroes of the Storm”, and streaming outlet Azubu just partnered with ESL to broadcast their tournaments. While all these announcements, investments, and partnering all look very exciting, current research points that a large shift may be taking place soon and it isn’t where most people would think.

Currently in esports there are three titles that dominate the market and scene. League of Legends by Riot Games leads the pack while Counter Strike and Dota 2 by Valve come in at #2 and #3. These three titles make up a tremendous majority of the market dominating viewership on platforms like Twitch, and generating sellout crowds in countries across the globe. While these three titles are the leaders today there is a strong indication that we are seeing the peak of these titles in their current life-cycle, and that the true future of esports lays in the hands of a small company in San Diego named Psyonix.

While many fan boys and die hard lovers of the premiere titles (including myself) might scoff at the notion of the current leaders ever derailing, I often have to remind myself as an objective analyst to trust in the data and market measurables. Data doesn’t lie, data doesn’t care how much it loves Hex-tech Annie, or how clever the shoutcaster “Phreak” is with his puns. It doesn’t know the difference between Doublelift and Dendi, and it has no sentimental reaction to “Are You Kidding Me?!?!”.

The first indication that got me wondering if a change may be occurring was when I was looking at the Google trends metrics for League of Legends. Google trends is an excellent resource to look at the inquisitive nature of the public. It consolidates search queries on associated topics and then aggregates them into easy to read charts to measure the public’s interest in a particular topic or subject. The chart for League of Legends, the current king of esports, revealed something very interesting.

As you can see from the chart, League of Legend’s interest has essentially stabilized since its meteoric rise at the end of 2013, and now is in a status of fluctuating decline. This is a key indicator that the market for the title is saturated. The fact it’s been in that state for the past two years is contrary to what has been speculated by many as a market that has “no signs of slowing down”. The signs of slowing are most certainly there. In order to get a better grasp on this in context of games I decided to compare this against the previous reigning champion of gaming, World of Warcraft.

It’s interesting to note here just how massive World of Warcraft was in its prime around 2007 with a reported 15 million subscribers. League of Legends boasts a much higher number of players, but nowhere near the level of interest that World of Warcraft commanded. What is very clear, and quite surprising, is that League of Legends has plateaued around the same place it was at when it peaked in 2013. This should raise a few alarm bells to those interested in investing in League of Legends as if the interest has plateaued then what Riot Games will be facing next is a battle to stay at the top. That got me wondering if that is actually even possible given their business model.

Meet the new model same as the old model…

World of Warcraft’s massive decline was in part due to its business model. With a monthly subscription Blizzard continually had to put out new and exciting content to keep its player base satisfied. Unfortunately as the game aged, and free to play alternatives like League of Legends arrived, Blizzard Entertainment found themselves hemorrhaging subscribers which currently have reached such low numbers that they refuse to publish them anymore.

League of Legends model is a free platform that generates revenue from skin and cosmetic sales through micro transactions. Riot was smart to embrace esports as a means to market League of Legends which has helped them reach their current heights, however they are running into a similar problem that Blizzard faced with World of Warcraft.

By constantly adding new content to the game, and being dependent of the revenue from that content, Riot Games can never actually be stable as they have to keep adding more champions and cosmetics to the game in order to support their infrastructure. The problem with this approach is that by adding more content continuously they in fact are diluting the game experience which alienates newer players intimidating them from signing up and joining in. With a daunting task of trying to understand over 100 champions now in the game it’s no surprise that Riot’s growth has stagnated.

Riot has also moved towards constantly updating the summoner’s rift map. These constant changes are an effort to “keep the game fresh”, but with so many constant changes the game then by nature becomes difficult for even older players to stay current. This issue can hurt roster stability on teams as well as create a level of dissatisfaction among veteran players who have spent a lot of time mastering the current landscape only to have to do it all over again.

What makes this concerning for Riot’s hegemony at the top of esports is the fact that they are so reliant on the revenue of new content, and how the aging player base could be leaving not purchasing as much as they have in the past after already acquiring so much. To mitigate such a problem Riot Games would have to double down on releasing more skins and cosmetics if this speculation were to be true, and so I looked to see if they were ramping up the cosmetic offerings to try and offset this issue. Sure enough they are.

Once I saw that reddit post highlighting the increased skin releases from 41 in 2013 to 43 in 2014 to a staggering 59 in 2015 it confirmed the speculation that Riot is facing a veteran fan base already owning a lot of content, and a lack of new players overwhelmed by the options. This is creating a dynamic fluctuation that will only feed itself in a decline over time just like World of Warcraft. This is exactly what we are starting to see as highlighted by the Google trend chart.

So while Riot games fights against this looming problem, the issue of broadcasting esports itself also too becomes a liability for them. The cost of the casters, broadcast equipment upkeep, and infrastructure to support the marketing effort for Riot’s League of Legends comes at a loss. Riot itself has stated that the operating loss in broadcasting esports is something they are okay with as it helps them market the game, but when the game growth is stagnating and cosmetic sales aren’t what they used to be then that marketing expense quickly can turn into a liability that can be very difficult to maintain.

If the broadcast was turning a profit for Riot Games then they could funnel the profits into growing the broadcast itself, but unfortunately, it’s not. This poses a very interesting question. Why are they losing money on the broadcast?

In traditional sports broadcast is a tremendous revenue generating aspect fueling those sports. One only has to look at the massive contracts in college football to realize that something is flawed from the broadcast equation for Riot Games, and that flaw is in the design of the game itself.

Timeout…What flaw?

When I started to think about the broadcasting revenue costs Riot Games was facing I thought about my experience working in traditional sports. What was so different for them as opposed to other sports? They had millions of players. The other games had millions of players. The other games had stadiums of attendees, they had that as well. Something had to be going on at the heart of the broadcast themselves. What was different? They had professional broadcasters, high production value, sponsors. It was that last one that really made everything abundantly clear.

Yes many companies are sponsoring esport events, but when its comes to broadcast the real money is always in commercials. One only has to look to the 5 million dollar 30 second ad spot price during Super Bowl 50 this past year to realize what was missing. A League of Legends game takes too long to generate serious ad revenue.

The website goldper10.com did an excellent write up on the average game time across all seasons of every North American LCS match. The data illustrates that an average game of League of Legends lasts around 36 minutes. That’s 36 minutes of straight gameplay without commercial interruption, and while that sounds great for the viewer, it actually is bad for business.

With so many games to play during the day for the competition, including analysis time, there really aren’t too many breaks for ad sales during the broadcast. This is a killer in terms of allowing Riot Games to turn their esport broadcast investment into a strong cash flow positive revenue stream by itself.

So not only is Riot Games facing a saturated stagnant position at the top of the esports market, but the game itself isn’t engineered in a matter that allows it to offset its broadcast marketing costs. Those obstacles and hurdles are most certainly holding the game back. Another issue Riot Games is facing in terms of attracting more viewers is the complexity of the game and ease to understand for a casual viewer. League of Legends isn’t alone in this situation, and unfortunately it plagues most of the games today.

What exactly are we watching?

“xPeke Backdoor” Fnatic vs SK gaming

“The Play” — Dendi Spell Steal Na’vi vs IG

The following two screenshots are from some of the most infamous plays in League of Legends and Dota 2 esports history. Anyone who has played these games and is familiar with these moments knows of their importance and significance, but to a casual observer that has no knowledge of these games these scenes are extremely difficult to follow.

Nobody that hasn’t actually played the game itself really can decipher exactly what is going on here, and that difficulty in understanding these situations holds back casual spectators from enjoying these moments. If a casual spectator can’t decipher what a BKB, Ravage steal, Kassadin riftwalk is then they aren’t going to be drawn in to watch. Many traditional sports fans have never actually played the sports they watch, but they have a rudimentary knowledge of what is going on; and that knowledge helps fuel viewership.

The issue with the top esport titles is that you must play the game to truly understand what is being broadcast, and with the complex nature of these games it really does isolate viewership only to people who play the game. This isolation to only the players further limits the ability for these titles to grow in viewership, making the opportunity for growth an even steeper uphill battle.

Taking a look at the top three games all together it’s clear that there is an opportunity for future growth in the market sector, but for a new leader to emerge it would have to avoid the pitfalls that the other games have created for themselves. We’ve established that League of Legends and Dota 2 aren’t the easiest games to follow without playing, the market saturation of League of Legends and its current struggle to try and stay on top, and the game time length hurting broadcast revenue profitability. CS:GO has an advantage as opposed to Dota 2 and League of Legends in that it is available to play on home gaming consoles like Xbox while the others are limited to just the PC market. This extra platform has helped CS:GO but unfortunately there also a unique hurdle holding it back. It displays graphic violence. While the extra console market opportunity is helping, from a sponsorship perspective the content will always be holding back the games esport growth. “This kill cam brought to you by Sprite” while hilarious won’t be happening anytime soon.

Enter a New Hero…

While League of Legends, Dota 2, and CS:GO sit at the top it’s clear that there is an opportunity to expand and take esports market to even bigger heights. They most certainly have helped paved the way for a title to come along and blaze a new trail, and that game just might be Rocket League.

Rocket League was released in the summer of 2015, but already in just 9 months the game has had over 12 million players purchase the game across its three available platforms (Xbox, PS4, and PC). To provide comparison, it took Dota 2 two years to reach 12 million players.

The small independent developer Psyonix clearly has a smash hit on its hands taking home over 100 awards including Sports Game of the Year, Outstanding Achievement in Online Gameplay, and the DICE Sprite Award.

While all those accolades are nice, and the sales prolific, the real magic in Rocket League is the design and structure of the game itself as an esports title.

The Game is Fast…

Rocket League by design has a limited game clock since it emulates traditional sports. In fact the typical Rocket League match only lasts at maximum 10 minutes (including stoppage time for goal replays, and possible overtime). This is perfect for broadcast commercial breaks while still giving people uninterrupted action.

Sponsorship Built Right In…

The ability for Psyonix to have banner ad space directly in the game itself is a huge advantage that the other titles can’t actual incorporate. This also allows for them to generate extra revenue to offset broadcast costs.

The options are in the look and not the ability.

The game not only has the same skin customization options that other games have, but these can also generate extra revenue without altering the game competitively too much because the cars are all very similar with no tremendous differences in the cars themselves. They all travel the same speeds, have the same boost, and have the same jump capabilities. There are slight differences in the hit boxes for the cars, but for the most part there is no difference between the options. The look is the only real difference. That means that new players are on a level playing field without having to collect all the cars. The customization is what you are paying for, and only in that specific area.

If it Looks like a Sport…Plays like a Sport…Then it’s a Sport.

Rocket League’s simple emulation of traditional sports with rocket powered cars gives it a tremendous advantage that other games don’t have. There is already a soccer map, a basketball one depicted above coming soon, and even a hockey map already in the game. Tapping into the audiences preexisting recognition with other sports not only opens the door for new players to grasp the game quickly, but it also can attract viewership that anyone can understand.

The clip above was taken from one of Rocket League’s own homegrown tournaments from the community. The action is clear, easy to follow, and most certainly can attract viewership of people who have never actually played the game itself because of its close resemblance to familiar traditional sports.

Couple that with the business model of purchasing the game to play at $20 dollars, cosmetic DLC packages, exciting map varieties, cross gaming platform support, a game length format conducive to selling ad time, G-rated gameplay, and Psyonix may be holding the long sustaining esports title the market has always looked for.

The next step is the development of Rocket League’s own esports professional league much like Riot Games’ LCS. It just so happens that league is starting at the end of the month.

While the prize pool is extremely small at $75,000 in comparison to the gigantic 18 million dollar prize pool for Dota 2’s the international, or 2 million for League of Legends, Rocket League’s RLCS series is the first step for a game still in its infancy.

For comparison, Riot Games’ 1st World Championship for League of Legends in 2011, two years after release, was just $100,000. Psyonix is starting out in a similar fashion, but with a game that is designed for esports at its core in just 1 year.

How big will Rocket League be in four years? Time will tell, but what we may be looking at right now isn’t just the start of another title in esports. What we might be looking at is the biggest esport title yet, and the future looks pretty bright.