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 $US50 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 tantalising 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 $US720 ($1,047) 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 Kotaku spoke 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 $US4.5 ($7) 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, sceptical 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 organisation 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 recognise 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 $US1,000 ($1,454), a pittance compared to last year’s $US25.5 ($37) 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 Fighter were 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 organisation for esports was unprecedented, as was its tremendous funding. Rupert Murdoch’s News Corp. injected it with a huge $US50 ($73) 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 $US300,000 ($436,292) salary in exchange for live commentary that was poorly received. Counter-Strike players received a reported $US2,500 ($3,636) a month plus housing in Marina Del Rey.
That added up to about $US1.8 ($3) 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.”
Fields’ career took him to jobs at Blizzard and Riot Games, the companies that publish Starcraft and League of Legends respectively. These games revitalised esports as an industry around 2011 with their championship series, their sails catching the winds of millions of registered players. He’s watched on as bigger and more mainstream sponsors have pushed their stacks of chips into the esports industry, which, since Twitch launched its streaming service in 2011, has ballooned.
Twitch solved the big issue that caused the last wave of investor enthusiasm to come crashing down: reaching viewers. According to data from NewZoo—which Kotaku cannot independently verify—the global esports market will reach $US1.1 ($2) billion in 2019. (Kotaku cites NewZoo several times in this report in lieu of other data, although it is difficult to trust much public data on the esports industry, and several of our sources have issues with NewZoo’s numbers, with some saying that NewZoo’s calculations are too opaque to be reliable.)
Fields said we’re in a different era of esports, which he calls the franchise era. Following the lead of traditional sports leagues like the NFL and the NBA, game publishers like Riot (League of Legends) and Activision Blizzard (Call of Duty, Overwatch) are offering team slots for their official leagues to well-moneyed investors. In some cases, these team slots reportedly cost up to $US60 ($87) million.
Last year, again according to NewZoo, angel investors, venture capitalists and sponsors—including those from traditional sports—injected $US682 ($992) million into esports. A lot of that money filters up to game publishers, who own the IP and receive chunky franchise fees. The ecosystem of esports organisms vying for resources consists of esports teams and tournament organisers, who shell out money for player salaries and flashy events with cash from investors and sponsors.
Kotaku asked sources with knowledge of esports teams’ revenue about what sort of deficits they run, but most seemed reluctant to answer. One, speaking anonymously, believes a lot of teams are operating on million-dollar yearly deficits. The CFO of Complexity Gaming, one of the only team representatives to respond to Kotaku’s inquiries, declined to say if the team is profitable. Although it’s early on in the industry’s new life as a sexy investment, there’s only so long organisations can remain unprofitable before they’re deemed duds.
NewZoo analyst Jurre Pannekeet, who sees the revenues for 14 esports teams, says the majority of teams are operating at a loss, but declined to say how much on average, citing nondisclosure agreements. When pressed whether that majority was closer to 51 per cent or 90 per cent of teams operating at a loss, he said: “If you looked into it, it’s probably closer to 89 per cent than 50 per cent.”
Much of that is likely due to players’ salaries, which Fields describes as being “at completely unsustainable levels.” Some reports indicate that North American League of Legends pros earned $US105,000 ($152,702) a year on average in 2017. After the league franchised in 2018, the average went up to $US320,000 ($465,379). Some players have made closer to a million dollars per year.
“The revenue has not yet equaled what the salaries demand,” Fields said. Esports organisations have to pay those salaries, on top of the $US10 ($15) to $US13 ($19) million that they pay to Riot Games to be in the league at all.
For Overwatch, teams are paying between $US30 ($44) and $US60 ($87) million to participate, ESPN reports. And a lot of these organisations have teams for multiple games at one time.
In other instances, like Dota 2, player salaries are on the lower end, but tournament organisers must compile hundreds of thousands of dollars for prize pools in order to put on “official” tournaments.
“There’s a lot of money going in,” said Fields, “and not a lot of money going out.”
Kotaku asked over a dozen esports professionals if they believe there is a path towards making money that is on par with the level of investment going into esports right now. Most of them said they really don’t know. “No one’s solved it yet,” said Daniel Herz, the chief revenue officer of Complexity Gaming. “We’re all racing to figure out how we can solve it.” (Complexity is funded by a large investment from Dallas Cowboys owner Jerry Jones.)
One Riot employee with knowledge of League of Legends’ esports revenue, when asked whether the League Championship Series makes money, laughed. Its current goal, they said, is to prevent it from losing money indefinitely.
Despite the huge amounts of cash pouring into the industry from sponsors and investors of all types, the hard truth is this: investment is not revenue, nor is it earnings. If an esports org does make profit, according to Fields and others interviewed, it’s on a thin margin. Most appear to be burning through their main source of cash—their investors’ capital.
Investors believe esports could be the next NBA or, optimistically, NFL, and they’ve poured hundreds of millions of dollars into realising that vision, even while esports businesses are struggling to stay out of the red. Over the last couple of years, a slew of esports organisations have run clean out of money and slunk off with their tails between their legs: Circa Esports, Allegiance, the Moviestar Esports Channel, and Millenium, not to mention a huge number of journalistic publications covering esports.
Layoffs are relatively common, including at organisations like Echo Fox, the ESL, and Infinite. Entire leagues have shuttered, too, including Blizzard’s Heroes of the Storm esports and the H1Z1 Pro League, which suffered from delayed payments and, in the end, owed 15 teams a reported $US200,000 ($290,862) each. Several professionals interviewed by Kotaku privy to the financials of esports organisations say they do not know what their organisations’ long-term revenue plans are. (Several top teams declined Kotaku’s request for an interview about the sustainability of the industry.)
“When you’re seeing teams right now raising over $US300 ($436) million valuations on revenues under $US25 ($36) [million], you’re kind of like, what?” said Complexity Gaming founder Jason Lake in an interview with Sports Business Journal. Like Fields, Jason Lake has been a part of esports for a long time.
Complexity Gaming was founded in 2003, and the esport organisation’s Counter-Strike team competed in the ill-fated Championship Gaming Series. In other words, Lake has seen the bubble blow up before, too. (A “valuation” is not typically what is raised. Business owners raise capital, which allow them to calculate a valuation.)
“I try to choose my words carefully, because no one’s more bullish about esports than I am,” he said. “I just think good, old-fashioned common sense would go a long way here, because the revenue has still not caught up to the size of the demographic and eyeballs.”
How does esports actually make money? There are several channels. The smaller-scale ones include tickets for live events, tipping players money through Twitch’s software, or purchasing team merchandise. The portion for “merchandise and tickets” in NewZoo’s bar graph of esports revenue in 2018 is just a small, thin layer, like the foam on a latte. Esports diehards spent $US5.00 ($7) each last year on esports, according to NewZoo, with mid-level fans generally spending half of that.
Compared to traditional sports fans, that’s paltry; CNBC reported in 2017 that American fans spent an average of $US710 ($1,033) per year attending traditional sporting events.
There are also prize pools. In theory, teams can win millions in prizes at tournaments if they pick their players right and invest in their growth. But those millions in prize dollars come from investment in tournament organisers, and would evaporate if the bubble burst. Also, there are media rights, which Newzoo says are the “fastest-growing revenue stream in esports.”
Companies like Facebook, Twitch and YouTube gaming are paying millions for exclusive rights to air certain esports tournaments. For exclusive rights to air the Overwatch League for two years, Twitch paid a reported $US90 ($131) million.
Disney inked a deal with publisher Blizzard, too, and has aired the league on ESPN, Disney XD and ABC. Mainstream exposure could bring in new audiences—if normies can wrap their head around the incomprehensible video game showing up on cable.
For game publishers, esports might have a benefit beyond the bottom line of the league itself. Often referenced is the immaterial value of generating enough hype around a game that keeps players continually interested and, potentially, spending more on the game, thus making up for the expense of the league. The idea is that a person would, say, watch enough professional League of Legends that they’d then be excited to play the game more themselves, maybe even buy some additional content for the game.
But two sources with knowledge of League of Legends esports’ operations told Kotaku that there has never been a study proving that players who regularly tune in to watch their favourite LoL esports team will play LoL longer than non-esports fans because they follow the league, a claim a Riot representative denied. “We have done studies in this area, and we have models towards how engaging with esports impacts a players’ in-game experience,” they said.
The biggest channel is advertising and sponsorship, the latter of which forms the majority of money flooding into esports, which totaled $US337 ($490) million in 2018 according to NewZoo (and is predicted to climb to $US460 ($669) million in 2019).
Contracts for esports team sponsorships range from about $US100,000 ($145,431) to $US3 ($4) million per year. And who’s investing? Gaming companies like Red Bull, Logitech, Corsair, and Intel appear in Twitch commercials during esports broadcasts, on stage at tournaments, and all over players’ merchandise. These tournaments supposedly pull in hundreds of thousands of engaged viewers who, advertisers hope, might go on to buy a $US2,000 ($2,909) gaming PC and/or a Red Bull from the checkout line mini-fridge at Best Buy.
Coca-Cola, T-Mobile, and Toyota are all sponsoring the Overwatch League this year. The partnership announcement included this quote from Blizzard’s chief marketing officer: “Imagine doing a deal with a league, and that deal includes Lebron James, basketball, and courts. That’s the case with Overwatch League.” The comparison, to put it mildly, reads as a little pompous.
When investors are transferring their millions over to esports organisations, it’s unlikely they’re thinking about making money in the short term. “The best VC companies are wrong 95 per cent of the time,” said Sebastian Park, who runs the esports division of the Houston Rockets and previously worked at a venture capital firm.
“They might make 30 bets over the course of two to three years. What they’re hoping is that one or two of those bets returns 100 or 1,000 times.”
For team owners, the risk-reward assessment is just as Darwinian. “If esports is the next big thing, they don’t want to miss out on it,” said Sabina Hemmi, the CEO of esports analytics firm ELO Entertainment. “And paying $US10 ($15) or $US20 ($29) million for a team isn’t that much to ensure you’re there in a growing industry.”
To sponsors, advertisers, team owners, and the rest of the investors pouring money into esports, the industry has a great thing going for it: those supposedly massive viewership numbers, which are said to be packed with a hyper-specific and highly attractive consumer group: 16- to 24-year-old men. When Sebastian Park got into the industry after working in tech, he was excited about one thing in particular: “We were like, ‘We don’t even have to do targeting!’ Everyone is male and 18-34 in this community!”
The millennial and Gen-Z audience also has its own exploitable idiosyncrasies. They don’t watch as much television as their predecessors, and therefore, a lot of them aren’t watching the NFL or the NBA with the same gusto as their parents. For investors frantically looking for the next big thing that will replace dying traditions, esports seems like an obvious next step. But it’s not going to be such a simple transition.
For investors hoping for a return—with angel investors hoping for three to eight-year returns, private equity firms hoping for five-year returns and venture groups hoping for seven to 10-year returns—esports as an industry may fall short of expectations, in part, because the unbelievable numbers holding it up may simply be unbelievable.
Let’s look at this commonly-cited factoid: Last year’s League of Legends World Championship drew in more viewers than the Super Bowl. According to one publication, 200 million people watched the LCS last year from China alone. Meanwhile, 103 million people watched the Super Bowl.
“LoL World Championship draws more viewers than the Super Bowl,” went the headline It’s a good headline, if true. But it turns out that the original numbers, which were drawn in part from Chinese streaming platforms, were unverifiable. Also, a Super Bowl viewer needs to watch for six minutes to register with Nielsen’s tracking.
For esports, someone can be briefly browsing Twitch’s front page, where the livestream is playing, and count toward its viewership. League publisher Riot Games later published the real numbers: 99.6 million unique viewers.
In an email to Kotaku, Riot said that it is “actively working with a number of entities in the esports and measurement industries to establish standardised data and measurement systems,” including Nielsen. Beginning last year, Riot started reporting a figure called Average Minute Audience, or AMA—the average viewers at any minute of programming—and “can be accurately compared to traditional sports.” Blizzard is using this stat now, too.
On television, the NFL and the NBA aren’t responsible for telling people how many people watched a given game. A third party like Nielsen is, and those third parties have built decades’ worth of trust.
Yet in esports, those numbers are reported either by the game publishers, the esports teams, or the streaming platform. That’s a pretty huge conflict of interest, especially since each of those organisations has something to gain from reporting attention-grabbing numbers.
The promise of future payout is strung along by the numbers, which are immaterial, delicious extrapolations. The clerics who channel those numbers are analytics firms like NewZoo. These companies’ methods are black boxes. Speaking with Kotaku, Jurre Pannekeet, who puts together NewZoo’s annual reports on the industry, gave some insight on his methods.
He says he receives revenue data from 14 teams and surveys 70,000 people across 30 countries about esports, which he balances against historical data. Pannekeet says he cannot fact-check the data sent to him by teams to one hundred per cent accuracy, but he can compare it against other teams’ data. NewZoo does not have visibility into the data of game publishers, which, crucially, makes it difficult to discern the financial realities of the esports industry from the gaming industry at large.
If esports will be worth $US1 billion in 2019, as NewZoo has forecast, players buying in-game cosmetics rooting for their favourite esports team might look the same to NewZoo as players buying a run-of-the-mill loot box.
One Fortnite esports insider referred to reports from these companies as “pure speculation” and “an educated guess.”
“Most of this stuff is based on speculation and a mixture of publicly available information and guesswork. Sometimes pulled from thin air, sometimes based on trying to come to conclusions about the unknown based on precedent,” they said. “As far as we’re concerned, we’re a private company that doesn’t share any financial details and few details on player counts, so almost everything you see out there is guesswork.”
A Blizzard representative told Kotaku that it only shares its viewership data with Nielsen.
Although more and more game publishers are partnering with Nielsen, NewZoo remains the most-quoted analytics firm in the esports space. It is unclear how NewZoo gets some of its funding; they say they get it from sales of their reports to esports industry hopefuls.
“Our esports numbers have previously been criticised as overinflated, as we have seen the $US1 ($1) billion figure taken out of context without diving into the region and business model splits to understand how we come to that number,” a NewZoo representative told Kotaku.
“Inflating the market would be counterproductive to our own interests, as our core business depends on deeper data services from these key industry stakeholders—we would risk our reputation and client base by publishing numbers we can’t defend.”
“When I read a lot of these papers, especially the NewZoo papers—great headlines, picked up basically by everyone—I don’t know where they derive 50 per cent of those numbers,” said the Houston Rockets’ Sebastian Park, speaking at a sports analytics conference held in 2019 at the MIT Sloan School of Management. “How are you separating one thing from another? It’s just thinking critically.”
One Riot Games insider with access to League of Legends’ esports data referred to reports from organisations like NewZoo as “garbage,” saying that the analytics firms are “all in a giant inflationary dance with each other to make esports seem big.”
An Overwatch League insider put it more bluntly: “Fuck NewZoo. We all know NewZoo is bullshit.”
The esports industry’s revenue has fallen short of NewZoo’s estimates by NewZoo’s own measures for several years now, although those guesses are still within prediction parameters that are common for new industries. In 2017, they predicted the industry would make $US696 ($1,012) million in revenue in 2018, when in fact, they measured $US655 ($953) million that year; in 2018, those same numbers were $US906 ($1,318) million and $US865 ($1,258) million.
“Despite a slew of non-endemic brands entering the industry, sponsorships grew slower than expected, especially for esports teams. We adjusted numbers downwards to correct for this reality,” NewZoo said in an email to Kotaku.
On top of all this, there’s the Chinese esports economy, which, according to NewZoo, will be made up of 75 million “enthusiasts” in 2019—over a quarter of the entire U.S. population. Although it’s a huge portion of the industry’s total supposed fans, analysts say it’s difficult to gather insight on them since Chinese streaming platforms are opaque about viewership data, too. Much of China’s esports fandom is attached to mobile games, which a typical North American esports fan might consider completely distinct from their hobby.
Nielsen, the company that has been measuring television viewership since the 1950s, said it recently saw a big opening to deliver better tallies on the esports industry. “We knew there was interest and an active reason to be involved,” said Nicole Pike, who manages a new division, Nielsen Esports, launched by the company in 2017.
Since then, Pike, who calls esports revenue “a big question mark,” has been grappling with the many unknowns of esports data, including revenue measurement.
Nielsen Esports hasn’t put out any revenue data yet because of this. “It can be really hard to know if an incremental dollar is going to the esports bottom line or the general gaming bottom line and what the origin of it was in the first place,” Pike said. “My overall impression is that a lot that have put out data have erred on the side of being overly aggressive, putting things toward the esports side of things. There’s an overstatement.”
Esports viewership metrics are even messier. A television view won’t register for Nielsen unless the viewer has been watching a show for six minutes, but for esports livestreams, Pike said that a view “can be counted multiple times across multiple people if their browser gets closed or their session restarts.”
As a result, viewership numbers for these tournaments’ unique viewers now are bigger than what Nielsen might calculate, although Pike demurred when I asked by how much. She was clear on this, though: “When there’s a standardisation around esports viewership, those numbers will be brought down.”
“It’s beneficial for organisations on the sponsorship and team front to say, ‘Hey, we’re destroying the Super Bowl. We’re destroying the World Series in terms of viewership,’” said Sebastian Park. “And that creates an expectation that may not hold up when we go back and drill into the numbers.”
“We’re not comparing the right things to each other,” he said. “In our industry, the reporting numbers generally come from publishers themselves or from teams or organisations who are self-interested. Those incentives may cause issues.” Last year, he said, one analytics organisation was reporting that the Houston Rockets’ mid-season invitational viewership numbers were 126 million at their peak, which was 6.5 times higher than what they actually were.
“We had to immediately go out there and refute that. That’s 6.5 times higher than what we actually saw. The number we saw at peak. We were proud of it. We went up 22 per cent every year.”
“A lot of people who want a sustainable, healthy esports environment want it to be an honest one where we aren’t using fake numbers,” said Sabina Hemmi, the CEO of the esports analytics firm ELO Entertainment. Hemmi counts herself as a member of that group, as an esports enthusiast for the past 20 years.
With unsure numbers to bet on, who can say whether esports ventures will return on hopefuls’ investments? And if they don’t, surely some portion of savvy investors will pull out, directly impacting those organisations’ finances.
Andreas Thorstensson feels similarly, and he’s had every vantage point on esports: he’s a former Counter-Strike pro who has run the esports team SK Gaming, worked in venture capital and esports analytics, and also co-founded esports tech company Popdog.
He told Kotaku that when he was working in venture capital he looked into a lot of esports investments but didn’t end up putting his money in there despite his personal history in the field. He didn’t see any revenue models he found solid enough to invest in, and on top of that, he couldn’t trust the data he was receiving, especially the data about viewership numbers.
“I saw a lot of hype and not a lot of substance,” Thorstensson said.. “The biggest red flag I saw was that many of those pitch decks had the same vanity metrics when it came to viewership. I think many people understand those numbers are inflated.”
“I’m confident that esports as a whole is going to be bigger than traditional sports longer down the line, but when you read some of the headlines today, when you see that the LoL finals are bigger than the NBA finals, that is not true,” he said.
“If we use the inflated numbers over and over, investors are going to be deterred.” He added, “I think it’s gonna be hard to hit those VC expectations.”
When better numbers surface and filter down to investors, said Nielsen’s Pike, there may be a market correction. “The biggest impact of a correction is going to be the trust factor,” she said—if the investors keeping this industry afloat decide its biggest actors and platforms aren’t trustworthy, they might look for the next NFL somewhere else.
On the other hand, as better standards begin to roll out, there will always be loopholes for desperate actors. Last month, Magic: The Gathering put on its biggest esports event yet to debut its brand new pro league: a $US1 ($1) million tournament at Boston’s PAX East convention.
At first, viewership on Twitch hovered at around 20,000—a pretty typical amount of viewers for a pro Magic tournament on a weekday. Suddenly, in the afternoon, something miraculous happened: viewership quadrupled to a remarkable 88,000.
According to a source with knowledge of publisher Wizards of the Coast’s sponsorship strategy, that huge jump in viewership wasn’t a surprise. “Wizards has been pitching the Mythic Championship to potential sponsors for the future and was very confident they would get close to 100,000 viewers,” the source, who asked to remain anonymous for fear of professional repercussions, told Kotaku. “We thought it was weird given the historical viewership of the game.”
It was weird. Weirder still, the number of people logged into Twitch chat did not meaningfully increase, according to stats obtained by software from TidyXgamer. What accounted for the enormous boon in “viewership”—a boon that Magic itself advertised in its post-mortem blog on the event—was not a stadium’s worth of people suddenly realising that the tournament was live. It was something a little sketchier.
The tournament’s stream could have been embedded in hundreds of websites across the internet affiliated with the company Curse, a network of websites that also sells ad tools, data from Dhruv Mehrotra, a technologist at Kotaku’s parent company, G/O Media, indicates. Curse’s websites, including the gaming wiki Gamepedia, receive one billion views a month, according to internet software company CloudFlare. Users scrolling through a wiki about video game weapons or browsing a gaming forum might suddenly be confronted with an embed of the livestream, which would play when they view it, even briefly.
Once Curse turned on the embedded stream service for Magic: The Gathering’s recent tournament, viewership skyrocketed, according to data reviewed by Kotaku and Mehrotra, resulting in what the game publisher described as “the biggest Magic event ever—it’s not even close. There were over 8.1 million views of Magic content on Twitch over the weekend and we hit a peak of 157,000 people tuning in on Finals day.”
It’s questionable whether tens of thousands of those views truly represent engaged humans watching the stream. Publisher Wizards of the Coast did not respond to Kotaku’s request for comment.
Kotaku has attempted several times to verify how exactly Curse’s technology contributes to view inflation. Five sources who have worked with Curse, Twitch (who previously owned Curse Media), or an esports org using Curse’s services confirm that Curse offers reach for livestreams through its network and ad technology that guarantees views. Last year, Kotaku reported on what looked like a furtive view inflation method born of Curse’s ad tech.
We found that some of these embedded livestreams lived on the very bottom of long, encyclopedic wiki entries on the website Gamepedia, where they were not immediately visible. One theory is that this contributed to hundreds, thousands or tens of thousands of views that looked illegitimate, or, generously, questionable.
Embedded livestreams on Gamepedia seemed to have disproportionately inactive chats, indicating that the viewers weren’t as engaged as viewers intentionally seeking the livestream might be. It looked like a lot of those viewers may not have known they were looking at the stream.
It has been impossible for Kotaku and a G/O Media technologist to definitively confirm that these views are junk. One former Twitch employee with knowledge of Curse’s operations told me that “I can tell you with 100 per cent certainty that a ton of that is junk views,” which he defined as “someone who’s logged in but not engaged with the content,” a view that “only exists to increase a metric for somebody in sales or business development.”
Three other Twitch experts or former employees interviewed by Kotaku were pretty sure the views are junk, too—an allegation Curse and a former Curse employee have previously denied. One former Curse employee who worked closely with this technology says that there are, in fact, real people behind those views.
He thinks that the people stumbling upon these embedded livestreams clicked through and watched the stream. When I asked why those viewers weren’t participating in Twitch chat, he responded, “The only opinion I have on that is you just have spectators who are checking something out but don’t want to participate on that level.”
The former employee then said that anyone who believes the views are artificially inflated has been misled by how confusing the measurement of online viewership actually is, a claim that doesn’t line up with what the viewership data for these embedded streams indicates.
Esports organisations have been inflating viewer counts ever since the beginning of big money in esports. A source with knowledge of the IGN ProLeague told Kotaku that in 2012, operations officers would take the number of tickets sold and multiply it by the number of tournament days. That was the “live viewer” count they gave to sponsors.
“At IPL 4 in Vegas,” he said over the phone, “we reported that live viewership—attendees—was over 10,000. There weren’t even that many seats.” Laughing, he continued, “Over three days, we had 10,000 people. You’re just counting the same people multiple times.” It wasn’t an explicit instruction, he said. “It was understood.”
“We were teetering on the edge of whether or not we would work, which is why we inflated our numbers,” he said. Every event’s marketing goal was to justify a press release afterward reporting bigger, better numbers than anything they’d done before or whatever their competitors were doing, he said.
If they didn’t, they’d look paltry compared to their competitors, whom he also said were counting attendees in the same way.
“The whole industry needed these numbers,” he said. “We were starting out from a position of disadvantage and having to show we were real and we were worth investing in.” Reached for comment, IGN says it divested in the IPL six years ago and no one who worked on it remains at IGN.
“The records and memories that remain don’t indicate such practice,” a representative told Kotaku. “IGN’s policy today, as it was six years ago, is to provide accurate audience reporting to sponsors.”
Last year, the Overwatch League grand finals sold out New York’s Barclays Center, a 19,000-seat venue. It was a good sign for the culminating event of Blizzard’s international, multi-million-dollar esports league’s first season. I attended the show myself, and I did notice that the seats were mostly occupied by enthusiastic fans. Online, however, something else was happening.
Across the internet, the Overwatch League grand finals’ livestream was embedded across the internet on Reddit, IMDB, Gamepedia, and other sites. A source familiar with Curse’s sales operations told Kotaku that the company was behind it. “We had never done a tournament that size,” he told me.
“We did some Gwent tournaments, Madden, Fortnite,” he said over the phone. “When we turned that on, we saw the livestream go from 100,000 to 300,000.” He noted that it was one of the most heavily promoted events in esports, even airing on ESPN, which could account for the substantial interest.
Blizzard did not comment on the record for this story.
Two sources confirmed that Curse charged $US15,000 ($21,815) an hour to embed streams across their network of sites. In the past, that number was $US10,000 per esports tournament. Until late last year, Curse was owned by Twitch. Now, Curse has been split into Curse LLC, which Twitch still owns, and Curse Media, the umbrella for Curse’s network of sites. A gaming content company called Fandom, which has its own gaming wiki network, now owns Curse Media.
Twitch and Curse were each sent point-by-point synopses of this article’s references to their business practices as well as several questions. Twitch had a short response: “Twitch has been the go-to destination for esports content for years. We’ve been at the forefront of the industry’s growth and success, and we will continue to invest in esports and competitive gaming as a component of our overall content strategy.”
“We believe the rapidly growing popularity of esports is the natural result of technological progress,” Curse responded. “The relationships and communities that have formed as a result are genuine and passionate, and we are proud to support them.”
Curse advertises “livestreaming & influencer units”—“attention-grabbing billboards with live streaming content embedded into unit” for “guaranteed video views” on their sites. Lots of esports organisations seem to have indulged. An individual with knowledge of Red Bull’s operations told Kotaku that it was something they did in 2016: “We’re all competing for the same small group of sponsors. How do you show the competitive advantage? By showing your inflated view numbers are bigger than their inflated view numbers.”
Late last year at a Red Bull Tekken and Street Fighter tournament, weirdly high viewership metrics struck viewers as confusing. According to data published by esports reporter Rod Breslau, hours into broadcasting, the Tekken event’s Twitch viewership spiked from 6,000 to over 50,000 within the course of thirty minutes.
Red Bull did not respond to Kotaku’s request for comment.
Twitch too offers paid promotion for livestreams on its front page, says a former Twitch employee familiar with how its front page works. Employees organising the much-viewed front page were given directions to place the Overwatch League’s livestreams in a prominent location to boost viewership and match a sales directive, he said.
As esports professionals scramble to find the foundation for an industry that, on paper, is looking like a mid-construction skyscraper, many are looking toward business models for traditional sports. It makes sense to take inspiration from a preceding industry when searching for one’s footing.
There’s competition, there are fans, there are branding opportunities and merchandise. Yet for all the reasons it’s an intuitive line of thinking, esports experts say, it might not work out all that well in the long run.
In addition to a robust, third-party system evaluating and publishing sports viewership data, traditional sports have built-in audiences of people who have grown up with the games that athletes pursue professionally. Anyone stumbling into a bar could pick out who’s on what baseball team or what a home run looks like.
But strategy games like League of Legends and Dota 2, two of the biggest esports games, are hugely difficult for newcomers and even seasoned gamers to comprehend when they’re being played on a pro level. To less trained eyes, they appear to be a blur of characters and colours, moving at a more rapid clip than any traditional sport.
Sports also take a long time to go out of fashion. Nobody’s made a league for Soccer 2. Professional baseball has been popular for well over a century. By contrast, gamers can tire of a game, no matter how new and shiny and addictive it may seem at first, in a matter of weeks or months. Games are a commodity; soccer is not. (Cleats, balls and nets are.) The gaming market is constantly flooded with top-tier entertainment.
It’s enormously optimistic, in a way, to take the time to build a league around any competitive game. In a matter of two years, the survival shooter PlayerUnknown’s Battlegrounds, one of the most popular games of all time, got its own league, filled it out with pros and big-money tournaments, and then lost much of its momentum. Last year, a PUBG esports tournament run by ESP Gaming was embedded in Curse’s network, too. One day’s concurrent viewership was around 5-10,000; the next spiked to 88,000. (Reached for comment, PUBG reiterated that they were not involved in the tournament. ESP Gaming declined to comment.)
In a race to discern stable sources of profit, esports leagues and orgs are investing in physical arenas. These churches of competition will be furnished with stands, top-of-the-line screens, and a stage on which pros will sit behind computers and battle it out.
The thrill is seeing the players in real life and celebrating the esport together with like-minded fans in person. That thrill shouldn’t be underestimated, either. Since a lot of esports fans are accustomed to watching their heroes game in isolation from their bedrooms, the novelty of seeing these beacons of e-athleticism up close is a huge pull. Hearing other fans cheer in person is a whole new level of hype that goes way beyond spamming emotes in chat.
Esports stadiums are cropping up around the country, the most notable of which is Philadelphia’s $US50 ($73) million arena for its Overwatch team, the Fusion. By 2020, all Overwatch League teams will be playing from their hometowns, where team owners will presumably be constructing, renting or repurposing venues.
Hopefully, fans will flock to see their esports heroes game right before their eyes. Last month, the Overwatch League had its first game in Dallas, home of the Dallas Fuel. 4,500 fans showed up, selling out the Allen Event Center. It was a good sign that the League’s optimistic vision for itself could come to fruition.
On the other hand, the already-existent Blizzard Arena in Burbank, California regularly fails to fill its 450 seats. Overwatch’s popularity in 2020 is still an open question. According to data from NewZoo, merch and ticket sales will form a smaller and smaller piece of the revenue pie for the next four years.
To understand the potential value of esports’ leagues forays into brick-and-mortar atria, Kotaku spoke with Neil Demause, a watchdog sports journalist who has written a lot about the financials of traditional sports stadiums. He said that, until the 1980s, it wasn’t expected for traditional sports teams to have their own stadiums.
Baseball and football teams would share a field, as would basketball and hockey. When Kotaku asked him how today’s stadiums made money, he responded, “They don’t.”
“When you factor in construction costs, they absolutely don’t” turn a profit, he said. “A few of them do—you cobble as many revenues together as you can. You sell tickets, access to clubs, advertising, naming rights. If you put that all together in a big enough city, maybe you’ll make enough to pay off the construction costs, but most of them never do and barely even break even on operating costs.
Construction costs are never touched.” A lot of the time, state and local governments subsidise these fields. Will they do the same for esports?
“It’s expensive to build a space. I’m gonna rent in my first year. I’m not gonna buy,” said one esports professional who works with the Overwatch League. “But as someone who is an expert in running esports events, probably the only way you’ll make money is if you own the venue.”
On top of that, he said, it’s expensive to go into an already-existing space to run an esports event. You need power, exceptional internet, seats, and screens, which a lot of big spaces don’t have.
Andreas Thorstensson of SK Gaming has spent a lot of time analysing the differences between traditional sports teams’ business models and esports teams’ models. He thinks that, contrary to intuition, it isn’t a good comparison. Esports are online. They don’t need a stadium. “You spend a lot of money on tickets with traditional sports,” he said.
“That’s why you’re creating arenas in esports. I don’t think growth lies in traditional spaces to get incomes on the fan side. I think you can do a lot of other interesting things to get to that number, but its not mimicking traditional sports.” Thorstensson is confident that, one day, esports will be bigger than traditional sports. People in the business just need to figure out how to grow it organically and capitalise on Twitch, YouTube and other huge platforms to monetise fandoms, he said.
With questionable numbers and hazy revenue models, it can seem as if the esports industry is built on simple hope and immaterial money. Underneath all this is something more concrete: the fact that people love to play games and love to watch players who are better than they are. The esports industry experts who spoke to Kotaku don’t think that’s going to change any time soon. However, the market may be in the process of making a swerve toward another form of entertainment that scratches the same itch.
“Streamers and influencers have short-circuited esports,” says ELO Entertainment’s Sabina Hemmi. Twitch celebrities like Ninja seem able to get more viewership than entire esports tournaments, with significantly lower costs, streaming their favourite video game from their bedrooms.
A relatable, attractive, and charismatic gamer taking a sip of a Red Bull between Fortnite matches might have more impact on Red Bull as a company than a couple of esports pros wearing a jersey with the company’s logo.
“With esports as a whole, a significant portion of revenue is sponsorships,” Hemmi continued. “But influencers looked at that and said, ‘Let’s make a better sponsorship package.’”
“Esports may be a bubble, but it’s correcting itself toward influencers,” said one longtime esports professional, who spoke anonymously for fear of career repercussions, and who now works in the influencer industry. Fans prefer to follow their favourite pro player rather than a whole esports team, another deviation from the traditional team sports model. And successful streamers can make a lot more money from fans and sponsorships on Twitch than they can grinding away for an esports team.
“I’m sure [League of Legends streamers] Tyler1 or Yassuo make more money than a pro,” he said. “That’s a reason why LoL salaries are so high.”
Inflation, optimism, whatever you call it—it’s a structural problem that’s coursing through the veins of the esports industry. Whether poison or steroids, sources say, these injections of money, data and viewers are altering the industry’s growth in a big way.
Even if the bubble bursts, esports isn’t going away. “I don’t fucking care about the bubble topic,” said one source deeply involved with Overwatch League. “Let’s say its a huge bubble and it’s gonna burst and all the money goes away tomorrow. Will people still play games? Fuck yeah they will. Will people still get together to compete? Fuck yeah they will. Will people watch? Fuck yeah they will! If there’s a bubble, let it pop, and let’s get back to a place of sustainability and build from there.”