Adjusting our LoL Esports Strategy

It’s been a year since I wrote about our vision for esports in the blog, “Building the Future of Esports at Riot Games.” A lot of what was true then is still true today. There’s also a lot changing across esports as a whole and specifically within the Riot esports ecosystem, so I wanted to provide some quick updates covering what’s working, what’s changing, and why we’re still optimistic for the future.

I’m going to focus here on LoL Esports. We started LoL Esports 14 years ago. Since then, we’ve scaled in unprecedented ways, served players and fans in every corner of the globe, launched a second major Riot esport (VALORANT Champions Tour/VCT), and, in turn, learned a ton about what works and, frankly, what doesn’t. We love LoL Esports and believe it has played an important role in helping extend the longevity of League of Legends. Because of this belief, Riot invests hundreds of millions of dollars annually in LoL Esports.

Today, we are presenting a new business model to pro teams in the LCS, LEC, and LCK to reflect the changing reality of esports. We’re also working with the LPL on how their business model may evolve. The new model is closer to the one we've successfully implemented with the VCT - one with more predictable revenues for teams and financial upside driven by in-game digital items reflecting the support of LoL Esports fans across the globe. The changes we’re presenting to teams are intended to keep LoL Esports healthy and on a path to long-term sustainability.  In this context, sustainability means that LoL Esports can generate enough revenue to cover the costs of Riot, our professional teams, and other stakeholders investing in our ecosystem while also providing an enduring career for our best players to compete professionally.
 

Winter is coming…or is it?

I want to start with what’s working, as we believe the imminent demise of esports has been overstated. Our community engages with the sport more than ever. The 2023 season and 2024 start have had milestones that give us so much confidence in the future. Our 2023 global event viewership was incredible, with new formats at the Mid-Season Invitational (MSI) and Worlds, combined with deeper co-streaming integrations, driving 58% and 65% year-over-year growth in Average Minute Audience (AMA), respectively. In aggregate, regional LoL Esports leagues also saw AMA growth in 2023, up 16% year-over-year. LoL Esports was the star of the show at the 19th Asian Games, where Team Korea took home the gold. 

In 2024, we launched with record-breaking viewership numbers, and we can’t wait to debut our hall of fame (Hall of Legends) plus spotlight the best competition that LoL Esports has to offer at MSI in Chengdu and Worlds across Europe, culminating in the iconic O2 Arena in London.

For all the highs of 2023, however, the industry faced several business challenges, and we have not been immune to them. Most notably, in January, we made the difficult decision to reduce our workforce by 11%. This reduction impacted all areas within Riot, including esports, and we are in the process of adjusting so we can deliver the esports you know and love, but with a focus on what moves the needle for the ecosystem at large. 

Many of the challenges I outlined last year are also still true today. We all – leagues and teams alike – are overly reliant on sponsorship as a revenue stream. The sponsorship business across the industry slowed down in the wake of a post-COVID global economy, and we saw some team organizations struggle to operate sustainably. 

In recent months, however, we’ve been happy to see the economy regain traction, bringing an uptick in sponsorship across the ecosystem. We’ve seen Progressive, Coinbase, and Honda,  among others, sponsor LoL Esports team organizations. In the first few months of 2024, we’ve welcomed new partners like HP’s Omen and HyperX, Uber, AT&T, Pagoda, and Heineken to our shared ecosystem. Equally importantly, we recently extended and expanded agreements with some of the most iconic brand partners in our portfolio: Kia (since 2019), Mastercard (since 2018), Mercedes-Benz (since 2020), and Red Bull (since 2019). We’re humbled by this growing roster of regional and global partners; they share our deep passion for games and sports and elevate the esports experience every season. 

In addition to the sponsorship business, we remain focused on building additional, meaningful revenue streams. In-game digital sales are the most scalable opportunity to drive meaningful revenues (see below). We still believe that the strongest path forward for the esports business is to monetize it more like games, sharing the upside with our team partners. 
 

Adjusting our strategies for 2025

The needs and realities of the ecosystem today are different than they were just a few years ago. It’s time for us to adjust LoL Esports to reinforce the sport's longevity and reshape the business model powering it so it’s viable and sustainable for us, our team partners, and pro players. We’re committed to supporting the ecosystem but believe we can and should do it in a more scalable way. That’s why we’re offering a new partnership model with our team partners in the LCK, LCS, and LEC that resembles the model we’ve implemented in the VCT.

In the current LoL Esports partnership model, teams committed to pay ~$10M to participate in a league and receive 50% of certain revenues (not profits) generated by that league. Most of this revenue has historically come from sponsorship and, to a (much) lesser extent, media rights. The intent of the original partnership model was to 1) give the teams a long-term slot in the league so that they could sign multi-year sponsorship and long-term contracts for players; 2) align the incentives between the teams and the league; and 3) give teams a way to share in the financial success of the league. When we first introduced this model, abundant access to capital allowed teams to spend in excess of the revenues they were generating directly and from Riot. Over time, access to capital became limited, revenue growth didn’t catch up to cost growth, and team cash reserves dried up.

We want teams to succeed, and we’ve worked with them to help improve their cash position and refocus on long-term sustainability. For example, we’ve opened up new team sponsorship categories and adjusted our policies and competitive calendar to unlock more opportunities for teams and players to participate in additional third-party events, something players have been asking for. Financially, we’ve applied minimum guarantees on league revenues (significantly higher than the share of actual revenues owed to teams), accelerated revenue share payments, and deferred and spread-out participation fee payments (i.e., the $10M noted above) owed to us.  We implemented financial policies in multiple regional leagues to incentivize teams to invest in their operations at a more scalable pace. All of this was done in an effort to afford teams a runway to stabilize and build their businesses, but it hasn’t been enough to give us the confidence we’re heading toward long-term sustainability. 
 

Aligned Financial Incentives

Today, I’m outlining to owners a proposed new team partnership model that looks much like the VCT model from a team revenue perspective. Teams in the LCK, LCS, and LEC will still retain their rights to the slots, but this new business model better reflects our collective business goals for esports teams. They’re similar to what we set out to achieve originally with LoL Esports: 

• We want team partners to participate in the upside of our esports 

• We want to align the financial incentives between teams and leagues

• We want to give teams some predictability on revenue share so they can manage their businesses sustainably

Under this new model, LCK, LCS, and LEC teams will be paid a fixed stipend and share in revenue from LoL Esports digital content sales. This model shifts the revenue-sharing mechanism away from sponsorship sales as the primary revenue source and focuses on digital content sales, which are generally more resilient to economic downturns and have a higher ceiling than sponsorship, which is capped by inventory, categories, and market penetration. Another benefit of sharing digital revenue is that the teams and leagues can truly join forces to maximize sales for everyone’s benefit. This has proven difficult for sponsorship sales since the leagues and teams operate their own sponsorship businesses, and supporting each other’s businesses typically results in conflicting terms or rights. With digital content, we reduce those conflicts and can work together as a unified force to grow the overall pie.  

This new model also changes how we allocate and share digital revenue with team partners. Historically, only teams who competed in international events (MSI, Worlds) benefited from the digital content sales related to those events. That means only about 20-30 teams could participate in digital revenue in a season. We want this revenue stream to stretch further across the Tier 1 ecosystem. To do that, we’ll create a Global Revenue Pool (GRP) that aggregates digital LoL Esports revenue and allocates it to teams via three buckets: 

1. General Shares: 50% of the GRP goes into General Shares and is allocated to Tier 1 teams. 

2. Competitive Shares: 35% of the GRP flows into the Competitive bucket. These shares are allocated based on competitive performance and are split into two tranches: one based on regional league standings and the other based on international event placements. 

3. Fandom Shares: The remaining 15% of the GRP goes into Fandom Shares. This bucket rewards teams for developing strong fandom for their players, leagues, and team brands. 

We’re excited about the GRP. We believe it rewards teams for their partnership with the league while incentivizing them to be competitive and grow fandom and engagement for the sport. Most importantly, it puts us in a position to win together. 

To help bolster the GRP, we will increase the standard esports revenue share percentage and increase the quantity of LoL Esports digital content we release in a given season. The in-game LoL Esports content we’ve released the past two seasons (i.e., MSI/Worlds content, SKE emotes, Worlds Winner skins, etc.) has continued to set new engagement and revenue records, and we’re eager to continue that trajectory to support the GRP. We’ll have more to share about some exciting new digital LoL Esports products in development later this year. In addition to esports digital content revenue, we will contribute 50% of other direct revenues (sponsorships, media, etc.) once Riot recovers its annual investment in LoL Esports.
 

We’re In Esports For the Long Term

Our commitment to delivering unforgettable gaming experiences is steadfast, and our investment in esports will remain unmatched in the industry. LoL Esports is the #1 esport on the planet, has a passionate community, the most recognized teams, the best players, and an unparalleled legacy. We intend to grow that position and future-proof it for current and future players. There will be more changes and adjustments along the way, always with the goals of elevating our games, serving our players better, and achieving ecosystem-wide sustainability for Riot Games and our partners.