Though competitive gaming has been around for quite some times, e-sports as a business is still maturing at a relatively deliberate pace – but a the recently announced alliance between the world’s largest and longest standing e-sports network/tournament organizer, ESL, and 13 of the most popular and successful e-sports teams marks a huge step forward to ensuring long-term sustainability of the business of e-sports.
In spite of the massive growth of e-sports, the professional e-sports space has remained largely fractured up to this point with scores of teams, tournament organizers, and leagues cropping up around about half a dozen game titles. To make matters more complicated, unlike traditional sports where the games themselves are in the public domain such that anyone with the proper equipment and access to facilities can play, the games in e-sports are owned by the game publishers who maintain outsized influence and control over how and by whom their titles are used.
As a result, e-sports teams maintain additional and separate teams under their own umbrella to play a specific title and enter into tournaments on a somewhat ad-hoc basis. Many of these same teams are also member of “hub and spoke” leagues owned by game publishers like The Overwatch League and Call of Duty League, which resemble traditional sports leagues in terms of both centralized governance and the selling of franchises.
This lack of centralization across the world of e-sports has raised serious questions about the long-term economic sustainability of e-sports as most of the money pouring into the sport is largely coming by way of sponsorships from various brands. Ultimately, there needs to be consolidation and a blood-letting of teams and leagues that aren’t profitable as well as some sort of detente with the game publishers that keeps them from pulling the proverbial “plug” if and when the businesses predicated upon their intellectual property become substantially successful without cutting them in.
The existence of these structural obstacles within the world of e-sports is exactly why this deal between ESL and the list of teams that includes a well-represented swath of the most successful and well-heeled teams in e-sports, including the top-earning team, Evil Geniuses, is so consequential. “The Louvre Agreement,” as it’s being called, gives these 13 Counter-Strike: Global Offensive (”CS:GO”) teams a majority stake in the ESL Pro League which includes a share of both revenue and profits generated from the events.
Although ESL is one of the most prominent and longest-standing e-sports tournament organizers, they lack the structural competitive advantage the leagues owned and operated by the game developers possess, which is ownership of the underlying game title. That’s also why this move is equal parts savvy and significant by ESL because by effectively making these teams partners in the ESL Pro Tour, they effectively locked down the best talent and incentivized them to help grow the league. Unless and until there are universal industry standards or agreements, entities like ESL are going to need to be both proactive and aggressive in terms of making sure the best teams and talent have some proverbial “skin” in the game. Much like how traditional sports leagues all maintain some form of revenue sharing agreement, e-sports leagues, especially those that don’t actually own the game titles, will need to continue share revenue with teams in order to maintain some level of loyalty to those leagues.
The Louvre Agreement makes the thirteen stakeholder teams permanent fixtures in all tournaments with an additional 11 that are capable of qualifying through the Mountain Dew league, which is the equivalent of the Challenger Circuit in tennis or the Web.com tour in golf. This kind of movement is reminiscent of the early days of the NFL and AFL where everyone is vying for the best talent but there is no one centralized entity where every single one of the best teams compete. Given the lack of centralization around a single game title, the traditional unified hub and spoke model league might never take hold but this is certainly a step in the right direction. Whether it will be economically feasible for all these leagues and tournaments to co-exist separately remains to be seen but I wouldn’t expect for this to be the only deal of this sort struck in 2020.