The NA esports Curse

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2020 was supposed to be the year of NA. Carrying the hopes of NA fans, TSM, TL and Flyquest were some of the best teams from NA that ever played internationally. Yet, despite the momentum, NA once again failed to make it out of groups.

Despite having some of the deepest pockets and most well paid players in all of League of Legends, none of the NA teams have been able to show what exactly their money has bought. The players with big contracts have mostly lived up to their pay. Bjergsen, Powerofevil or CoreJJ, have each developed into franchise talents. But even as teams shell out more in pursuit of better talent, their international record miraculously stays the same or even lower. And while there can be many reasons why any one individual team performs poorly, when the region as a whole has consistently underperformed, there’s only one culprit: bad incentives.

In this post, I’ll be exploring the incentive system for esport and diving deep in understanding the options and incentives open to individual actors within the system such as players and coaches.

Why do you want to win?

Before we start to dive into the incentives, let’s first explore how esports teams work.

So what does it mean to have a good team? For fans, it means a team that wins more games than it loses. It means a team that they can depend on to fight to the last second. It means a team that brings energy to every game they play. Not a team that’s destined to lose before they even start.

But for management, a good team simply brings in more money than it spends. Wins and glory are nice but ultimately, it’s dollars and cents that make a team. Whether it’s the player salary or LCS buy in costs, a team that doesn’t have enough money simply doesn’t even get to the starting line. We’ve seen this time and again with Gravity Gaming being sold to Echo Fox, Echo Fox selling their LCS spot to Evil Geniuses and Immortals being left out of LCS in 2018 before buying their way back in 2019. And despite all these various costs, there are only a few channels for an esports team to earn money.

Most esports teams primarily derive their revenue from advertising, sponsorships and merchandise sales. Some teams like Team Liquid have pushed down the sponsorship route, bringing on big name sponsors like SAP and Alienware while others like 100 Thieves blend into the world of streetwear and become more like a fashion company that has a professional esports arm. Prize money and other revenue channels are often a rounding error for each team. Team Liquid made $30k from coming in third in Summer 2020 LCS while Impact’s contract is rumored to be $1 million yearly.

Yet regardless of whether the teams focus on sponsorships or merchandise, the money stems from one source, the team’s fanbase. Without fans, sponsors can’t justify the return on investment and merchandise stays in warehouses. At it’s core, running a esports team is about building an audience and then monetizing that audience.

Contrast this against traditional sports where teams take part in the sale of streaming rights and generate up to half of their operating revenue just by showing up and competing to be better. Thus, in traditional sports, teams can focus on performance. Esports team focus on another dimension, how to bring in more fans.

This isn’t a dynamic unique to NA esports. However, the stakes and incentives at play in NA are painfully higher than other regions that drags down the talent and performance of the region.

Players, the greatest forgotten asset

In sports, no team holds a monopoly on winning forever. Whether it’s the Chicago Bulls or New England Patriots, the seemingly endless win streaks come to an end at a certain point. As a new generation of talent buds and older talent becomes more costly, each team decides whether they want to maximize present value of their team or build for the future. For some teams, it means going through a rebuilding process where they trade veterans in their prime for younger talent that hold promise for the future. For other teams, it means paying top dollar for superstars and contending for the championship.

Yet in esports, the landscape is completely different. Especially in NA, there’s no concept of rebuilding. Every team competes for the best talent each season. As a result, every year, teams aggressively make room in their budget for importing star players from other regions with the hopes that a key player can change their fates. Obviously, not every team wins the championship and thus, when all the teams have the same strategy, it’s usually the team with the deeper pockets that wins.

Obviously, it seems foolish for weaker teams to pursue this strategy. Yet split after split, none of the teams have loosened up on their pursuit of the best veterans. My guess for why this occurs is two fold -

  1. There’s no incentive for a team to do badly. In most sports, teams at the bottom of their ranking get earlier draft picks which allows them to pick up high potential players before other teams at highly discounted salaries. In LCS, the draft mechanism is represented through the NA Scouting Grounds. It’s a great concept that lacks execution. Most draft picks don’t sign with their draft teams and of all successful draft picks, only 3 have successfully made it to LCS.

  2. Established veterans have their own audiences that teams need to leverage to draw sponsors. In the short run, a fan for a player also roots for the team. As a result, teams choose to pursue veterans that have already built a following rather than a no name rookie.

Further, esports is different than traditional sports in that players are more celebrities than professionals. Whether it’s via Twitch or Youtube, the average professional Esports player interacts with fans a whole lot more than the average NFL or NBA player. As a result, the engagement metrics for Esports players are also much higher. Take Doublelift’s Instagram that has roughly 300k followers, it gets on average 20-30k likes per post. Cam Heyward, Defensive Tackle for the Steelers, has slightly more followers but only an average of 10-15k likes per post.

This is great on paper but when we factor in the fact that the average esports team is horrible in interacting with their fans, it becomes a recipe for disaster. TSM, the team that Doublelift is currently signed to, posts roughly once per day on Instagram. Immortals, 10th place in Summer 2020, posts roughly twice per week with rather incredibly low engagement.

Unfortunately, as a result of this lack of team based engagement, teams are beholden to players to create an audience and try to arbitrage the difference in salary and sponsorship to make money. And there are other ways to create this arbitrage, the most prominent of which is the promise of an LCS seat. Thus, the internal equation for teams becomes less focused on performance and more focused on finding the most “marketable” players. Needless to say, this leads to high salaries and poor performance.

Further, if we look at the relationship between teams and players,

Performance, the magic bullet

And this brings us to the second method of growing a team’s fanbase, its performance. Fans enjoy cheering for a team that wins more than it loses, or at the very least, keeps games close. However, for the bottom three teams in LCS, they had below a 30% winrate. When playing against the stronger half teams in the league, there was a near 0% win rate. In fact, out of 18 games with a bottom 3 team vs a top 3 team, not once did the bottom teams ever win. There’s no dark horse in League, there’s just the inevitable defeat. With such predictability, it’s easy for fans to tune out before the match even starts.

Poor performance means fewer fans which means fewer sponsorships. For CLG, which placed second to last and last in the recent two splits, there’s only been one notable sponsorship/partnership (Newegg) since the start of 2019. To compare, Team Liquid, which placed first in Summer 2020, has partnered with Zoomph, Secretlab, Jersey Mike and Esports Charts in 2020 alone. This might not be an exact apples to apples comparison given TL’s larger organizational size and funding but the fact that CLG was only able to add on one new sponsor in two years speaks to a lack of interest from sponsors and weakening fanbase.

Diving a bit deeper into the CLG example, they signed on Crown, a former world champion, at the end of 2019 and brought on new coaches in hopes of better performance. Without looking at their 2020 performance, I can venture to say that this was in the right direction, but not the right execution. The decision was purely in consideration of immediate performance and rallying their fanbase. However, as we’ve seen, things didn’t work out as CLG had hoped and the organization suffered as a result.

Thus, at the end of the day, each team needs to decide if they want to build a performance based team and take on the additional risk or if they want to build a player based team where they are sure of the payoff.

The NA Curse

Now that we’ve set the scene for competitive esports, let’s explore the question of why NA has struggled as well as examine the incentives surrounding individuals within an organization.

To start, the incentive system for NA teams isn’t drastically different than teams in other regions. What makes NA unique is that the stakes at play here for esports teams are enormous compared to other regions. The buy-in for LCS was $10 million and thus, almost every team in LCS is funded by investors or other groups. Other regions such as the LCK include a promotion based system where teams can be relegated to a lower league as well as rise through sheer performance. Further, the differences in audience are staggering. Doublelift has roughly a million followers on Twitter whereas Damwon Gaming, the 2020 world champions, has only 30k followers on Twitter. Factor in the fact that NA consumers are worth so much more to advertisers and a quick back of the napkin math lands Doublelift worth 20-30x more than Damwon Gaming for an sponsor.

Building on the point of investors, most teams in LCS have deep pockets. As a result, it becomes easy (and lazy) to want to pay for performance with money. Import a world class player from another region, win games and when the player leaves either to another region, hope that the audience stays with the team. This does seem better than the alternative of buying expensive NA talent that will retain most of their audience even after they leave the team. And the final alternative, fostering young, native talent is high risk, low reward given that that there are only two poor outcomes. In the first, the new talent don’t develop into world-class esports athletes and the coaching staff is heavily criticized for taking the risk. For the second, the talent does make it big but rather than lift the organization up, it becomes harder and harder to retain them year after year unless the team can consistently match or beat other offers. Thus, the benefit here is mostly absorbed by the player who commands much more leverage in negotiations. Overall, the deep pockets are both a blessing and a curse.

Now let’s start to discuss the incentives that a player in LCS faces.

First, we’ve previously established that players have great engagement with fans. The caveat here is that only some of these players are blessed with their audience. Most current LCS players are rather fan poor. For example, Stixxay, adc of CLG and hailed as the next Doublelift, has 50k twitter followers, literally a fraction of Doublelift’s following.

And as a result of this, there are only a few choices facing players like Stixxay looking to transition out of being a professional player.

First, step down from being a pro player and becoming a streamer. As a streamer, professional players need to focus on entertainment rather than skill. Worse yet, the earnings as a streamer depend entirely on the player’s audience which is often quite modest for most LCS players.

Second, transition to a coaching position. The odds of this are rather sad, more so than they should be. If we look at the coaching staff on IMT, TL, Flyquest and CLG, the only ex-professional player in LCS is Mash out of roughly 10 coaches.

Third, retire from League of Legends. This is actually the route that most professional players take. They go to university and slowly fade out from the public’s view. While this might sound appealing to some, for most players that have spent years becoming the best, this wastes their previous efforts.

Literally, none of these are good choices for a professional player. So it comes as no surprise to see that NA as a region has the longest average “tenure” of professional players. When the outcomes of the end of a professional career are so bad, it isn’t surprising that players try to stay at the LCS or Academy level as long as possible.

For the coaching staff, the incentives that they face are also extremely similar. Coaching for an LCS team is an extremely ruthless job; the average tenure for a head coach on one of the weaker teams is roughly one year and most teams have very few resources given towards coaching. This in turn drastically reduces the number of actions that a coach can make. With only one year, coaches will have to focus on short term performance improvements even at the cost of long term organizational growth.

So that means actions like signing veteran players that command a significant salary but also have a track record for performance, even if they’re not at their prime. Or they could create hype around signing hot import players that have just had a record breaking season. But the one thing that they can’t do, invest in younger players and give them the resources needed to grow.

When it works, stop gap measures like signing top players will bring mediocre performance to a struggling team for a split or two. But slowly, performance will slowly start to slip and the organization will need to sign another top player, leaving the organization with no long term gains. And when it doesn’t work, like in the case of CLG or Immortals, it leaves the team with a lot less money and fewer fans.

So at the end of the day, it’s not just one or two bad teams or bad players. The problem with NA is that there’s a systemic level of misaligned incentives where long term performance is a side thought, leaving NA as a region weaker over time.

There’s a lot more to be said here looking at the developement patterns of other regions as well as potential solutions that NA teams can employ. I currently don’t have any plans to write about them but if you come across a good article, please do send it my way! Find my contact information in the about page.

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