Six years ago, the Madison Square Garden Company, a business group that included New York Knicks and Rangers owner James Dolan, announced its successful entry into the next frontier of sports: a professional video game league.
New York investors spent more than $10 million to buy a majority stake in Counter Logic Gaming. declared Playing video games professionally is „now on the brink of a major shift that we believe has the potential to generate significant growth.”
But, that growth stopped. With sports profits falling below expectations and investors skeptical of the industry, last year the owners of Madison Square Garden tried to find a way out of the business by selling their legendary team.
After years of excitement, sports in the United States are coming to terms with economic realities. With no profits, team owners cut costs by laying off staff and terminating the contracts of their star players. In some cases, they sell their equipment, sometimes at a loss, providing a glimpse of a stark reality for people who believe sports are the next big invention in entertainment.
So dangerous that some viewers seem to lose interest. Fans watched 14.8 million hours in the spring of 2023 for the League Championship Series, America’s largest sports league, down 13 percent from 2022 and 32 percent from 2021, according to estimates from data firm EsportsCharts. .
“We’re at a time when everyone needs to do some serious soul-searching,” says video game and sports analyst Rod Breslau. „There’s a lot of expectation and very little real value.”
Like traditional sports, sports stars earn seven-figure salaries and compete in championships, attracting sponsors and fans. Over the past decade, investors have bought shares in teams that participate in professional video game leagues League of Legends, Overwatch Y Call of duty.
The largest of these is the League Championship Series, a ten-team league established in 2013 and operated by developer Riot Games. League of Legends. In that league, teams play against each other League of LegendsA fantasy-themed video game that can attract millions of viewers and fill stadiums.
However, the leagues struggled to make money. Partnerships to stream esports matches on platforms like YouTube and Twitch have crumbled, sponsors are cutting their advertising budgets, and owners are running teams at a loss while overpaying esports players.
Some sports teams said goodbye, including Evil Geniuses Many of his expensive players League of Legends. Others, like 100 Thieves, They are firing senior staff and executives.
The share price of esports group FaZe Clan, which went public last year, has fallen to just 50 cents a share. In March, FaZe received a delisting notice from Nasdaq, warning it could be delisted if its stock doesn’t rise above a dollar again. FaZe said on Friday it was laying off 40 percent of its staff following a round of cuts in February. That message was there First reported by Digiday.
Jacques Etienne, chief executive of sports group Cloud9, said his organization had cut costs by withdrawing from nearly half of the sports leagues it participated in, now only eight of the 15 it participates in.
TSM, one of the most prestigious esports companies, announced on Saturday that it is selling its spot in the League Championship Series. It’s a league-impacting move comparable to a major franchise leaving the NBA or NFL, as TSM is one of the oldest and most important brands in North American sports.
TSM began talking to interested groups three weeks ago, narrowing its list of potential buyers to about a dozen companies, mostly traditional from the media and sports worlds, according to a person familiar with the negotiations. The asking price is in the $20 million range, the person said.
Andy Dinh, TSM’s CEO, said in an interview that his departure from the US league was related to his desire to compete for the World Championship, rather than dealing with financial issues. Most of the best teams League of Legends They come from places like South Korea or China, and the North American region has long lagged behind those regions in competitive strength.
Dinh assured that he plans to earn a spot in one of the league’s most important leagues. League of Legends anywhere in the world after selling its American shares.
Riot games are now under pressure. League of Legends It has generated billions of dollars in sales throughout its history, but the sports league surrounding the title has long lost money. This worked well for Riot, which is owned by Chinese internet giant Tencent, because it could use the league to build interest in the game.
But that formula has increasingly pitted her against sports team owners who pay at least $10 million for a spot in the league and promise long-term profits. This month, after the teams requested, Riot agreed Remove the requirement that teams participate in leagues League of Legends In development, the league is one level below the championship series, which helps teams save money.
Last month, Riot was released A long blog post In it he admitted his mistakes and tried to reassure investors. Esports optimists point to two positives: the youth of the esports audience, which attracts advertisers, and the promise of making money by selling in-game merchandise related to esports events. Last year, sales of those items in Valorant, another of Riot’s games, generated $42 million, half of which went to teams participating in Valorant’s esports league, Riot said.
John Needham, head of sports at Riot, admitted the industry was in trouble.
In an interview, Needham said: „A lot of the dreams we’re selling are the long-term future of the sport. And when we lose a team and they can’t build on that dream, we see it as a failure. So, really, we feel the pressure.”
For Madison Square Garden, the sale of its sports arm, Counter Logic Gaming, is an attempt to avoid further losses. However, the company has been unable to find a buyer that will pay enough to cover its costs, according to four people familiar with the situation.
Instead, the Madison Square Garden team laid off several dozen Counter Logic Gaming employees and Last month An agreement was reached to merge his remaining assets (his group). League of Legends) with sports organization NRG Esports.
Madison Square Garden did not receive a cash settlement. Instead, NRG paid several million dollars to cover CLG’s facility costs and the salaries of the remaining 25 employees, three people familiar with the transaction said. Some aspects of the deal were reported first Report by Jacob WolfA sports news publication.
Madison Square Garden Group acquired a minority stake in NRG’s parent company, Hard Carry Gaming, allowing it to maintain a stake in esports. Dan Fleeter, a senior vice president at Madison Square Garden, was named to Hard Carry Gaming’s board of directors as part of the deal, the people said.
David Hopkinson, president of Madison Square Garden Sports, said in a statement announcing the deal that it „will allow us to continue to be a significant investor in the esports industry.”
Some see leaving as an opportunity. Andy Miller, president of NRG Esports (which bought the team League of Legends of Madison Square Garden), noted that he sees an opening in the industry as big names move away.
„It’s a tough time, but it’s our time,” said Miller, a former technology executive and co-owner of the NBA’s Sacramento Kings. „I think we have a chance to attract a lot of fans.”
Kellan Browning is a technology journalist in San Francisco, where he covers the platform economy, the gaming industry, and general technology news. @kellen_browning