Kotaku's Cecilia D'Anastasio takes a long look at the state of esports in 2019 and finds that increasingly, the multi-million dollar competitions and leagues popping up around competitive PC games looks more and more like the excesses of the dot-com bubble from 20 years ago.
The mainstream narrative of esports has been lovingly crafted by those who benefit from its success. There’s big money in esports, they say. You’ve heard the stories. Teenaged gamers flown overseas to sunny mansions with live-in chefs. The erection of $50 million arenas for Enders Game-esque sci-fi battles. League of Legends pros pulling down seven-figure salaries. Yet there’s a reason why these narratives are provocative enough to attract lip-licking headlines in business news and have accrued colossal amounts of venture capital. More and more, esports is looking like a bubble ready to pop.
“I feel like esports is almost running a Ponzi scheme at this point,” Frank Fields, Corsair’s sponsorship manager, told an audience at San Francisco’s Game Developers Conference last March. He smirked. The crowd laughed uncomfortably. The smile dropped from Fields’ face as he continued. “Everyone I talk to in this industry kind of acknowledges the fact that there is value in esports, but it is not nearly the value that is getting hyped these days.” Later, Fields would clarify that this value, and future value, “as of now, is optimistic at best and fraudulent at worst.”
Fields is not the only longtime esports veteran who is worried the industry is a bubble, or more accurately, an industry comprised of several bubbles. Seventeen other experts on the North American esports industry shared similar concerns with Kotaku, some describing it merely as “inflated” and others as “completely unsustainable.” Several spoke on the controversial topic because they love esports and want to see it succeed organically, in a sustainable way. There is, of course, a genuine love shared by thousands of people for playing games competitively. Right now, many who spoke to us for this story said, the stuff that makes the esports industry seem like a tantalizing investment rests on unsubstantiated claims—or blunt-force lies.
As investors pour hundreds of millions of dollars into the ballooning esports industry, many feel their way forward with statistics that indicate that paydirt is just around the corner. “League of Legends Gets More Viewers Than Super Bowl,” reads one 2019 headline from CNBC, glossing over the fact that they’re comparing apple viewership metrics to coconut viewership metrics. A 2017 Morgan Stanley report leaked to Kotaku claimed that, in its first year, the Overwatch League could conceivably generate $720 million in revenue, about the same as World Wrestling Entertainment. By 2022, says Goldman Sachs, viewership of pros playing competitive games like League of Legends, Dota 2, Overwatch or Counter-Strike: Global Offensive may be on par with the National Football League’s viewership today. But according to many people Kotakuspoke to with knowledge of the industry, a lot of these statistics are at best rosy-eyed and, at worst, inflated, unverified, or misleading.
For 12 years, Twitter never posted a profit, and until it went public, Uber lost $4.5 billion in one year. One quirk of the world of startups is that investors love investing in unprofitable companies or industries. Yet longtime esports professionals don’t want to see their beloved livelihood go the way of the dotcom bubble. The esports industry is held together with wax and string, which, sources say, hasn’t stopped it from flying too close to the sun.
Frank Fields is, to put it lightly, skeptical of the numbers that supposedly show how big the esports industry is. With an increasing sense of unease, Fields has seen stranger and stranger numbers come across his desk at the hardware manufacturer Corsair, where he handles several million dollars’ worth of outbound sponsorships. As he watched investors dump tens or hundreds of millions at once into the esports organization du jour, Fields has become concerned they’re “jumping the gun.”
“It doesn’t make sense to put that much money into an industry that’s not making that much,” he said. “The sooner we recognize that we’re fooling a bunch of non-endemic people, the better off we’ll be long-term. We’ll be able to fix this bubble before it pops.”
He’s already seen an esports bubble inflate—and burst. At 32 years old, Fields has been in esports for over half of his life, which is most of the history of esports’ existence. Speaking over the phone after GDC, Fields recalled hauling his gaming rig on a 17-hour drive from Ohio to Dallas for a Dota side event at a 2006 Counter-Strike tournament. The prize pool was $1,000, a pittance compared to last year’s $25.5 million prize pool for Dota 2’s biggest tournament, The International. It was at that event, however, that Fields noticed that entire hotels had been rented out to house Counter-Strike pros. For the first time, he could fathom the growing infrastructure of the esports industry. Prior to that, esports events were empowering conferences of high-skill fans, but undoubtedly smaller in scope. Tournaments for PC games like Quake and Starcraft were held in computer cafes in North America and Asia, especially South Korea; fighting game tournaments for games like Street Fighterwere largely held in arcades.
It was also around the mid-2000s that the first bubble of esports began to bloat. David Hill, a former president of Fox Sports, had caught a whiff of competitive gaming fever after noticing his grandson’s fierce fandom for it, according to a Dot Esports feature. Two years after joining DirectTV in 2005, Hill launched the Championship Gaming Series. It was a worldwide sports league, but for video games—a pretty cutting-edge idea at the time. This level of organization for esports was unprecedented, as was its tremendous funding. Rupert Murdoch’s News Corp. injected it with a huge $50 million investment in 2007, Dot Esports reported.
As it turns out, it was a little too huge. According to Dot Esports, one commentator for the first-person shooter Quake received a $300,000 salary in exchange for live commentary that was poorly received. Counter-Strike players received a reported $2,500 a month plus housing in Marina Del Rey. That added up to about $1.8 million in salaries per year. “I know from firsthand experience running a team that a lot of these teams have never even made that much in revenue,” Fields said.
The Championship Gaming Series burned bright and fast, only lasting until 2008, around the financial crisis. “We invested wholeheartedly in the venture and presented viewers with a top-notch production, but the economics just didn’t add up for us at this time,” it said in an announcement posted to its website. Investor confidence in esports plummeted.
“This was the first bubble of esports,” Fields says. “Players couldn’t get jobs, because the companies supporting them went bankrupt.”
And it looks like we're headed that way again, only this time there's a few more zeroes at the end of the numbers, and when it blows, it's going to be ugly. I'd like to see esports saved from itself, I enjoy playing PC games like Overwatch and League of Legends with my friends and watching really good players compete, but the level of money thrown around has me convinced that it's going to take a major meltdown to get people to be serious.
I was just starting my IT career when the first dot-com bubble blew and I recognize the signs. I hope Fields is right about fixing the industry.
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