E-sports teams and their owners are eager to join the big leagues

For e-sports, outside funding comes with some tough questions “You need to be able to spend money to catch up”

The two teams of five baby-faced young men look tense in their hoodies and T- shirts. When the battle begins, they go on the attack—with staves, swords, and giant spiders. In West Los Angeles, it’s opening week for the North American branch of the League of Legends Championship Series (LCS), the world’s best known league for competitive video gaming.

As competitive gaming grows more popular, LCS is setting the pace. More than 330 million people watched some part of the league’s four-week world championships last fall through channels like Youtube and gaming-video site Twitch. Thirty-six million saw the $1 million championship match, held on Halloween at the Mercedes-benz Arena in Berlin. Bigger audiences and prizes are drawing a wave of outside investment, setting up a showdown between the league’s past and its future.

The Jan. 17 match in L.A. is one of the first for the Immortals, an all-star squad formed in October with rich backers. They’re up against Team

Impulse, a struggling group that tried and failed to sell its LCS spot in the offseason. The match ends in record time. The future cleans the past’s clock.

Competitive gaming is in its Cambrian explosion phase. The landscape is awash with game publishers, tournament organizers, teams, and streaming platforms that attract millions of viewers, but most have no unified strategy or business model to speak of. The match in L.A. offers a glimpse of what the future could look like for a pro e-sports league, albeit one in which the playing field has tilted.

Riot Games, which publishes the popular arena-battle game League of Legends, runs LCS competitions with relatively strict control over the fixed number of slots for its pro tournaments. This separates Riot, a subsidiary of Chinese Internet conglomerate Tencent, from most of the early competitive gaming leagues. It also creates a market for the entry slots, which LCS allows to be bought and sold.

Since the fall, the money coming from outsiders, including veterans of the U.S. pro sports industry, has begun to professionalize the league in ways big and small. The changes have rankled team owners who don’t have access to that kind of cash, but the new money is also forcing tough conversations about how to run a pro league in which many players are teens.

“The guys who are buying teams want there to be an NFLstyle ecosystem,” says Michael Vorhaus, president of Magid Advisors, a consultant that’s worked with e-sports businesses. The investors are looking for a tenfold rise in their teams’ value someday, he says, “and no one thinks that someday is next year.”

Three deep-pocketed groups of investors bought teams in LCS’S 10-franchise North American league in the months before the new season’s kickoff on Jan. 16. Among the notable are Memphis Grizzlies co-owner Steve Kaplan; former NBA star Rick Fox; and Andy Miller and Mark Mastrov, who have stakes in the Sacramento Kings. Kaplan was the first, as part of a consortium that includes a small army of tech executives. In October the group bought the LCS slot of struggling franchise Team 8 and put 21-year-old pro gamer Noah Whinston in charge.

Whinston, a Northwestern dropout, hired staff to devise training and nutrition regimens to make sure his teenage squad wouldn’t damage their reflexes by subsisting on Red Bull and junk food. Then, in a matter of weeks, he filled the roster with stars from Europe and veteran local free agents. “You need to be able to spend money to catch up” with North American favorites Cloud9 and Team Solomid, Whinston says.

Two more investor groups bought LCS teams in December: Miller and Mastrov helped fund NRG, and Fox put money into Echo Fox. (Representatives for the other new squads either didn’t respond to interview requests or declined to comment.) The influx of money for a few teams has made it tougher for some of the other owners, mostly young ex-players, to compete.

By some accounts, player salaries have as much as quadrupled in a single year and in some cases are now in the low six figures. “Teams are almost being forced to take on outside investment on unfavorable terms,” says Stephen Ellis, a 24-year- old former pro gamer who advises several e- sports startups.

The worries of poorer owners played out in a recent online debate about whether teams should publish player salaries to prove they aren’t exploiting anyone. In the NFL and NBA, salaries are public and heavily regulated through systems of salary caps and revenue sharing. Nothing like this is in place in e-sports leagues. Whalen Rozelle, Riot’s director of e-sports, says the company isn’t inclined to intervene at this point. “We can’t just decide on a whim that it works in basketball, let’s apply it one-to-one” he says.

On Christmas Day, newly formed squad Ember published a list of annual salaries ranging from $70,000 to $92,000, not counting free housing and health care, for the equivalent of a minor league team. Team Elemental, Ember’s parent organization, has raised $2 million from investors at Silicon Valley firm Signia Venture Partners. Whinston immediately supported disclosure, though he hasn’t published

salaries. Other owners argued that transparency disadvantages teams without venture funding. “This ecosystem broadcasts one message: Money wins,” Devin Nash, chief executive officer of LCS team Counter Logic Gaming, wrote in an online essay. He predicts that in two years it’ll be “impossible to have an e-sports team unless you’re a behemoth.”

In this case, the term “behemoth” is relative. The typical LCS team sells for about $1 million, say people with knowledge of the deals—what the New England Patriots’ Tom Brady would call two weeks’ pay. LCS streams online but hasn’t signed any long-term deals for exclusive broadcast rights, the primary means by which pro sports leagues make money. Riot has only so much incentive to do that, because e-sports isn’t its core business. Game publishers have traditionally seen competitive gaming as a marketing expense that pays off through added sales.

The audience for competitive gaming is getting big enough to change that equation. Twitch’s audience has doubled, to more than 100 million monthly viewers, in the year and a half since Amazon.com bought it for $1 billion. On Jan. 14, ESPN unveiled a newsgathering operation to cover e-sports. LCS’S head start on professionalization won’t last long. Turner says it plans an e-sports league, and on Jan. 4, Call of Duty publisher Activision Blizzard bought Major League Gaming, an online network for e-sports events, for $46 million.

Selling broadcast rights would be a major sign of maturation for e-sports leagues, says Dennis Fong, a former pro player who runs Raptr, a social network for gamers. New LCS owners and their investors are surely going to push Riot to secure more fees and set up revenue sharing, says Bryce Blum, a lawyer who represents e-sports teams.

The arrival of mainstream investors should make the industry seem safer to big advertisers, says Steve Arhancet, co-owner of the LCS squad Team Liquid, adding that he’s unconcerned by the prospect of new money changing the league. “There’s a massive opportunity right now,” he says. If more money starts flowing, Arhancet says, smaller teams like his can deal with the inequality.

The bottom line LCS is the early leader among pro video game leagues but needs to act quickly to build a sustainable business model for owners.

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