This article is the second of a three-part series on The Evolution of Esports that explores how the industry began, what keeps the wheels turning today, and where the future could take us.

Part 1 | Part 2 | Part 3

In the first article we focused on the historical aspect of esports, specifically from the lens of what makes the great games that have been foundational to this era of competitive play. Here we’re going to look more specifically at the systems used by individual games to build their competitive ecosystem.

One of the biggest differences between esports and traditional sports is that esports titles are usually owned by a game developer that has complete control over the underlying intellectual property (IP) of the game itself. The developers hold the keys to the castle and get to decide how much of the ecosystem they want to operate and how much they want to hand off to third parties.

Like most things in life, theses systems largely come down to incentives.

Dilemma for developers

Over time the goal for most esports is to eventually reach an economy of scale where the ecosystem is propelled forward by its own momentum. When executed successfully, esports systems can realize a tipping point where players, teams, fans, and event organizers are all trading value amongst one another and become sustainable through outside capital from advertisers. 

Modern day game developers that plan to utilize esports as part of their core business model don’t have much of a choice in whether or not they want to financially support their competitive ecosystem; they only have a choice in how to distribute the financial support necessary for these systems to thrive.

A great example of this choice spectrum exists in the MOBA genre with Dota 2 and League of Legends on opposite ends. They are both very successful esports, with many game design similarities; however, they operate under totally opposite conditions.

Riot has utilized a highly centralized, fully hands-on franchise model for League of Legends where they own the lion’s share of the ecosystem as a developer. They run the primary leagues where the best teams compete and sell slots to teams that have to follow strict guidelines to participate by signing players. This has the great upside of creating more stability for players and a better business environment for major teams, but comes at the cost of reducing entrepreneurial opportunities for small teams and third party event organizers.

Fans have a great experience through out the year, as they know exactly where to find the best teams and when they will compete. But unless you’re working directly with Riot or are officially sanctioned as a part of the franchise, running independent events and working with the franchised teams is nearly impossible. The system is rather rigid.

Valve, on the other hand, has utilized a highly decentralized model for Dota 2 that relies largely on third party tournament organizers and free market economic principles to guide the ecosystem. The model has evolved and gone through many iterations over the last 10 years, but historically Valve has supported key events dubbed worthy of the Dota Pro Circuit (DPC) with direct financial subsidies.. usually 50% of prizing, which could be as much as $500,000 for major tournaments. Rather than owning the entire ecosystem, Valve focused most of their efforts on maximizing a yearly Superbowl-like event called The International through massive crowdfunding and prestige.

Valve’s model has the great upside of being open to any entrepreneur with funding to host tournaments and access the best players in the world; however, the seasons have been often riddled with scheduling chaos, overlapping events, and too many events fights over prime time.

Today we see more developers are innovating hybrid models that are more effective in finding ways to enable third parties within a framework that still benefits from being more centralized in nature.

One example comes from Ubisoft, who has broken the mold with Rainbow 6 by implementing a relegation and promotion system that provides more mobility around the top league. Every season the amateur teams have a chance to knock out the under-performing professional teams, which is in stark contrast to the rigid franchise models where teams get more permanent ownership. New blood gets to cycle into the system without losing the prestige of a centralized league for professional players.

Even more recently, Riot is expanding upon the franchise model with their new FPS, Valorant, now prioritizing domestic leagues and mobility for more amateurs to become professional competitors. They are enabling regional organizers to own aspects of the journey, while still ensuring stability and consistently at the high levels of international play.

Similarly, Riot has also been revamping their academy system for the League of Legends LCS league to create more mobility for young prospects that can compete in promotion tournaments.

The balance of powers

As games start to find competitive traction, developers begin the struggle of balancing subsidies to maximize for a trilemma scenario that intersects with three parties that have competing interests: professional players, fans/casual players, and event organizers.

Especially in more decentralized esports systems, all three of these parties are crucial for success. No one group is inherently more valuable than the others, yet none of them can be neglected entirely for very long without risking a systemic failure.

Fans rely on professional players as the backbone of the system, as their participation is fundamentally what gives them something to enjoy. Without big plays, there wouldn’t be much to appreciate or watch.

Players rely on tournament organizers to host events where they can compete to win valuable prize dollars and service their fans that are hungry for more content. Prize dollars are a key part of what make it worth it for players to commit their time to training and competition.

And, although they do also rely on players to participate in their events, tournament organizers rely mostly on fans and casual players to watch their events and engage with their advertising sponsors. Fan engagement is what tournament organizers actually monetize.

Developers have to find a way to balance these forces without breaking the bank themselves, as these ecosystems are predicated on games that are financially health and have an assumed longevity to them.

It would be nice if we could just leave it up to market forces to keep the wheels turning, but unfortunately it doesn’t often work out that way in practice. The reality is that all three of these parties need to grow in tandem for the system to scale; it’s a revolving door of support as demands change and gameplay evolves.

Fans need to feel valued and stay engaged; players need to stay hungry and motivated to compete; and, tournament organizers need to be able to operate within a profit margin.

Commonality amongst the best

Taking a step back, we can observe commonalities between the most successful esports. We are so often are caught up in exploring our differences that it becomes all too easy to lose sight of how much common ground is usually shared.

Individual genre aside, there appear to be four main buckets that the best systems prioritize:

1. Skill-based Meritocracy

There is an emphasis on creating an objective ruleset that is fairly enforced to all competitors. These systems are egalitarian in nature and driven by a clear mantra: the best player should win.

2. Attention-grabbing Content

Highly entertaining content that doesn’t sacrifice competitive integrity. Esports should be a funnel for engagement that enables more user generated content, sharable moments, and captivating storytelling.

3. Sustainable Financials

The fandom around players and competition should drive monetization, both through direct in-app purchases and advertising sales based on engagement. Money needs to flow through the system and take care of all participating parties, instead of just floating to the developer.

4. Democratization

Competitions should stimulate excitement and unlock more pathways for fan participation. Professional players have value insight and perspective that should be utilized to keep the system moving in the right direction.

There is no one-size-fits-all strategy that works for every game and every community; however, all four of these priorities contribute to creating a system that can provide value greater than the sum of its parts.

If scale can be achieved, esports becomes a platform that incentivizes every day players to hone their skills, create content around their training, and share progress updates as they reach new ranks. Suddenly players become content creators, and in aggregate they morph into a powerfully organic marketing tool rooted in user generated content.

This is when the cycle starts to feed itself and the full benefits of the system come to fruition. The collective reach of community content and tournament broadcasts engage a new generation of players to enter the ecosystem.

This is key for longevity, as new entrants are required to maintain liquidity player- the currency that keeps these games alive.

Part 1: A Historical Context on the Modern Era of Esports

Part 2: Incentives & Values Driving Successful Esports Systems

Part 3: Esports & Blockchain: A Forward Look at Next Cycle