Six years ago, the Madison Square Garden company, which includes New York Knicks and New York Rangers owner James Dolan, announced a successful entry into sports’ next frontier: professional video game leagues.
New York investors paid more than $10 million for a majority stake in esports team Counter Logic Gaming, and explain Professional video games “are now on the verge of massive change, and we believe it has the potential to generate significant growth.”
Instead, that growth stalled. With investors becoming skeptical of the industry as esports revenues fell short of expectations, the owners of Madison Square Garden tried to find a way out last year by selling off their large team.
After years of fanfare, esports in the US is giving way to economic reality. Unable to turn a profit, team owners cut costs by laying off staff and terminating the contracts of star players. In some cases, they’ve sold their teams, sometimes at a loss, providing a blunt reality check to those who think esports could be the next big thing in entertainment.
Most worryingly, some viewers seem to be losing interest. They watched 14.8 million hours of the 2023 Spring 2023 season of the Championship Series, the largest U.S. esports league, down 13% from a year earlier and 32% from 2021, according to estimates from data firm Esports Charts.
“We’re at a point where everyone needs to do a lot of self-reflection,” said gaming and esports analyst Rod Breslau. “Too much hype and too little actual value.”
Just like in traditional sports, star esports players can earn seven-figure salaries and compete for championships, attracting sponsors and fans along the way. Over the past decade, investors bought stakes in teams that compete in professional leagues such as League of Legends, Overwatch and Call of Duty.
The biggest of these is the League Championship Series, a 10-team league formed in 2013 and run by Riot Games, the company that created League of Legends. In the league, teams go head-to-head in the fantasy-themed League of Legends game, which can draw millions of viewers and fill stadiums.
But the league has struggled to make money. Partnerships that broadcast esports matches on sites like YouTube and Twitch have dissipated, sponsors are cutting their ad budgets, and owners pay esports players huge salaries while running teams at a loss.
Shares in esports group FaZe Clan, which went public last year, have plummeted to just 50 cents a share. In March, FaZe received a delisting notice from Nasdaq warning that it could be delisted from the stock exchange if its stock price does not rise back above $1. On Friday, FaZe said it would cut about 40% of its workforce after a round of layoffs in February.the news is Digiday reported earlier.
Jack Etienne, chief executive of esports group Cloud 9, said he cut costs by pulling out of nearly half of the esports leagues his organization participated in, from about 15 to eight now.
TSM, one of the most valuable esports organizations, said Saturday it would sell its slot in the League Championship Series. This is a massive blow to the league, akin to leaving a major franchise in the NBA or NFL, as TSM is one of the oldest and best-known names in North American esports.
TSM began talks with interested parties about three weeks ago and has narrowed its list of potential buyers to about a dozen entities, mostly from the media and traditional sports world, according to a person familiar with the discussions. The asking price is around $20 million, the person said.
TSM CEO Andy Dinh said in an interview that his withdrawal from the American League had more to do with his desire to compete for a world title than financial concerns. Most of the best teams in League of Legends come from places such as South Korea or China, and the competitiveness of the North American division has long lagged behind these regions.
Mr Dinh said he plans to buy a seat in one of League of Legends’ top leagues elsewhere in the world after selling his US spot.
Riot Games is under pressure right now. League of Legends has generated billions of dollars in sales throughout its history, but the esports league surrounding the title has chronically lost money. This has worked out well for Riot, which is owned by Chinese internet giant Tencent, as it can use leagues to drive interest in the game.
But the model is increasingly at odds with esports team owners, who have paid Riot at least $10 million for league slots with the promise that they will eventually make a profit. This month, following a request from the team, riot consent Removing the requirement for teams to play in the developing League of Legends league — one tier below the League Championship Series — could help teams save money.
last month, Riot posted a lengthy blog post The Post acknowledged its missteps and tried to reassure investors. Esports optimists point to two major positives: the youthful esports audience, which is attractive to advertisers, and the promise of making money selling in-game items themed around esports events. Sales of such items in Valorant, another Riot game, brought in $42 million last year, half of which went to teams participating in the Valorant esports league, Riot said.
Riot’s president of esports, John Needham, acknowledged that the industry has problems.
“A big part of our sales is the dream, which is the long-term future of esports. When we lose a team and they can’t invest in that dream, we think it’s a failure,” Mr. Needham said in an interview . “So of course we’re feeling the pressure.”
For Madison Square Garden, the sale of its esports team, Counter Logic Gaming, is a way to cut losses. But the company was unable to find a buyer for the team that would pay enough to recoup its costs, four people familiar with the matter said.
Instead, Madison Square Garden laid off dozens of Counter Logic Gaming employees and struck a deal last month Merging its remaining asset — the League of Legends team — with another esports organization, NRG Esports.
Madison Square Garden did not receive cash payment for the deal. It instead paid NRG millions of dollars to cover the cost of the CLG facility and the salaries of the remaining 25 employees, three people familiar with the matter said.Some aspects of the deal have been reported earlier Jacob Wolf reports, Esports News Media.
Madison Square Garden did acquire a minority stake in NRG’s parent company, Hard Carry Gaming, allowing it to gain a foothold in esports. Madison Square Garden senior vice president Dan Fleeter was also named to Hard Carry Gaming’s board of directors as part of the deal, the people said.
In a statement announcing the deal, David Hopkinson, president of Madison Square Garden Sports, said it would allow the company to “continue to be a significant investor in the esports industry.”
Some see exodus as an opportunity. Andy Miller, president of NRG Esports, the League of Legends team that bought Madison Square Garden, said he sees a void in the industry as big names leave.
“It’s a tough time, but this is our time,” said Mr. Miller, a former tech executive and co-owner of the NBA’s Sacramento Kings. “I think there’s an opportunity to steal an existing set of fans.”