Six years ago, the entrance of the Madison Square Garden Company into the world of esports brought with it promises of significant growth and a thriving industry. However, the reality has been quite different. As esports revenue fell short of expectations and investor skepticism grew, team owners are now facing economic realities that have led to cost-cutting measures, employee layoffs, and even the sale of teams at a loss.
The Decline
One concerning trend is the apparent decline in viewership. The 2023 spring season of the League Championships Series, the largest esports league in the United States, saw a 13 percent decrease in hours watched compared to the previous year, and a significant 32 percent drop from 2021. These numbers highlight a need for introspection and reevaluation within the industry.
Rod Breslau, a gaming and esports analyst, emphasizes the importance of addressing this issue, stating that there has been an excess of hype without the corresponding delivery of value. It is clear that the esports industry must engage in soul-searching to better understand and address the factors contributing to this decline.
Despite the potential for high earnings and championship competitions in esports, teams and leagues have struggled to generate profits. Partnerships with streaming platforms have faltered, sponsors are reducing their advertising budgets, and team owners are operating at a loss while paying substantial salaries to players. This challenging financial landscape has led to the departure of expensive players, layoffs, and even the sale of valuable team slots.
FaZe Clan, a prominent esports organization, saw its stock price plummet and received a delisting notice from the Nasdaq. The company has been forced to lay off a significant portion of its employees. Other teams, like Cloud 9 and TSM, have also implemented cost-cutting measures and reduced their participation in leagues. TSM, in particular, is selling its slot in the League Championship Series, dealing a blow to the league’s prestige.
The Finance Burden
Riot Games, the company behind League of Legends, now faces pressure to address the financial challenges faced by teams participating in their leagues. While Riot has used the leagues to drive interest in the game, team owners who invested substantial sums are seeking profitability. Riot has responded by removing a requirement for teams to participate in a developmental league, potentially reducing costs for teams.
In conclusion, the struggling state of the esports industry in the United States necessitates a reevaluation of its current trajectory. The decline in viewership and financial challenges faced by teams and leagues indicate a need for significant changes. Only by addressing these issues and finding new avenues for growth can the esports industry regain its promise as a flourishing entertainment sector.