Esports Future Uncertain as Growth Comes to a Halt

Six years ago, the Madison Square Garden Company made a significant move by acquiring a majority stake in esports team Counterlogic Gaming, spending over $10 million in the process. James Dolan, owner of the New York Knicks and the New York Rangers, believed that professional video game leagues were on the brink of a significant change that would lead to significant growth. However, despite the hype surrounding the industry, investors have been skeptical, and the reality of esports’ profitability has emerged.

Unprofitable team owners have cut costs by laying off employees and terminating contracts with star players, while some companies have sold teams at a loss. Furthermore, sponsorships and partnerships to broadcast esports tournaments on sites such as YouTube and Twitch have dissolved. Concerningly, some viewers appear to have lost interest, with data company Esports Charts estimating a 13% drop in the League Championship Series’ viewership in 2023 compared to the previous year.

Esports and gaming analyst Rod Breslau believes that there has been too much hype and too little real value in the industry. Like traditional sports, star esports players earn seven-figure salaries, compete for championships, and attract sponsors and fans. Investors have bought stakes in teams participating in professional leagues in games such as League of Legends, Overwatch, and Call of Duty.

The League Championship Series, which is the largest esports league in the United States, generates millions of views and sells out stadiums. Still, it struggles to make money due to the costs of paying esports players’ huge salaries. Companies like Evil Geniuses have parted ways with many of their expensive League of Legends players, while others like 100 Thieves have laid off employees and senior executives.

The shares of esports group FaZe Clan, which went public last year, have dropped to just 50 cents per share. In March, FaZe received a delisting notice from the Nasdaq, warning it could be removed from the stock exchange if its share price did not return above $1. However, on Friday, FaZe announced it would furlough about 40 percent of its workforce after a series of layoffs in February. Cloud9 CEO Jacques Etienne has also pulled out of nearly half the esports leagues his organization participated in, citing cost-cutting as the reason.

One of the most valuable esports organizations, TSM, announced its intention to sell seats in the League Championship Series, causing a significant blow to the league. TSM CEO Andy Ding plans to buy a spot in one of League of Legends’ top leagues elsewhere in the world after selling the slot in the United States, citing his ambition to become a world champion.

Riot Games, which developed League of Legends, has long been losing money from its esports leagues’ operations worldwide. Riot is owned by Chinese internet giant Tencent and has promised to invest at least $10 million in league slots and eventually become profitable. Still, that prospect is increasingly at odds with the esports team owners who paid for it. In response, Riot introduced a requirement to join the League of Legends evolutionary league, which could save teams money.

Madison Square Garden Group was unable to find a buyer for esports team Counter Logic Gaming, leading to the laying off of dozens of employees and the merging of its remaining assets with another esports organization, NRG Esports. This deal will leave Madison Square Garden with no cash but maintains the company’s foothold in the esports industry. Despite the recent challenges faced by the industry, some have seen the departures of big names as an opportunity, including NRG Esports chairman Andy Miller. However, the future of esports remains uncertain.

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