Mentioned in this article Games: League of Legends

According to an interview with Polygon, segmented out to Rift Herald, Riot games’ creators, Marc Merrill and Brandon Beck, are “still investing millions into esports without profit.” That’s right—the biggest and most popular esports league in the world continues to operate at a loss.

Merrill and Beck have stated this before, and it’s a fact that likely won’t change moving forward. And the way that they say it paints the pair as generous benefactors to esports—charitable givers who gracefully throw away money so that League fans can enjoy the best esports league in the world.

This portrayal of the pair, and indeed of Riot Games, is ultimately flawed. The real truth is actually rather simple—Riot’s league, the LCS, isn’t profitable, because it’s not designed to make a profit. In fact, the LCS can’t be profitable without creating significant problems for Riot Games.

Conflicts of interest

The biggest problem is one of business model. Riot Games is a video game developer—currently with just League of Legends—and not a sports league. Take, for example, how best to design League.

If Riot operated primarily as a league, and built a game aimed exclusively at the top players in the world, it would probably be a fantastic esport, and would have many features that pros have been clamoring for like sandbox mode. But it would have nowhere close to the 103 million monthly players that League currently has.

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Riot is now stuck between two different business models.[/perfectpullquote]

Alternatively, if Riot operated primarily as a game developer, and cut out the needs of the pros, it would mean ignoring complaints like patch timing—which recently sparked a massive dispute between Riot and team owners—and tuning the game to attract as many players as possible.

Riot is essentially trying to be both right now, threading the needle through an increasingly-small target that is starting to threaten both eco-systems. Riot’s handling of the patch timing debate essentially created a team union that could force many issues that Riot has been able to ignore in the past. Things like player compensation and branding are things that a game developer should never have to think about.

Riot is now stuck between two different business models, one in which the goal is eyeballs, and the other in which the goal is microtransactions. And while those two goals are complementary to an extent, the limit may soon be hit by Riot—and surpassed by other competitors who only focus on only one.

Playing it loose

There’s another element to Riot’s strategy, however, and it’s critical in understanding how the company perceives esports. The LCS, to Riot, serves as a loss leader—something visible that attracts people to the product, an action that then yields profits later on. And because the LCS isn’t supposed to make money, it isn’t treated how an actual business should be treated.

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Because the LCS isn’t supposed to make money, it isn’t treated how an actual business should be treated.[/perfectpullquote]

In a sense, that gives the LCS certain freedoms to avoid making money. Take, for example, this year’s April Fool’s joke, a full-on showmatch featuring LCS casters playing Riot’s campy “League of Draven” mode. You would never see anything like this coming from the NFL or any number of professional leagues, but indeed Riot’s esports division has significant leeway to invest resources in projects that yield very little to its esports scene, if anything at all.

I witnessed this phenomenon firsthand while working freelance at Riot Games’ Lolesports website. While superficially charged with covering the game’s esports scene, there was a significant undercurrent to push Riot’s products. Indeed, this was reflected in the content, specifically from Riot’s employees.

So much to gain

Having Riot tied up in producing both a big-name PC game and an esports league can be easily solved by separating out the esports division. With Riot Games owned wholly by Tencent, this move actually becomes easy—just create an “LCS company” under Tencent, that partners with Riot to throw an esports league.

This move would keep all revenue under the same coffers, but would suddenly give the LCS a drive to become revenue positive, as well as removing the unfortunate side effects of being housed within Riot.

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Most importantly, creating a separate body to operate the LCS would motivate the LCS to become profitable.[/perfectpullquote]

Taking the LCS out of Riot hands would also allow for more flexibility when it comes to the rules. No longer would rules like preventing players from streaming games other than League be even considered.

Most importantly, creating a separate body to operate the LCS would motivate the LCS to become profitable. There are many areas that the LCS lacks currently that it could be using to make money—things like merchandising, selling broadcast rights, and direct advertising—and an independent body would be able to explore all of it.

Unfortunately, on its current course, the LCS is on track to be overcome by competitors. CS:GO has seen a substantial rise in viewers in the past year, and—with the creation of PEA’s CS:GO league—it’s clear where team owners would rather invest. It’s only a matter of time now until League is no longer the top dog.