The esports salary market is heading for a correction

The current economic downturn continues to reveal the fragility of esports’ finances and the urgent need for reforms. Now, the high salaries of top players—once considered the cost of doing business for successful teams—are a cause for concern.

This is a concern making the rounds among esports circles these days. And those insiders may have a point. The money that largely fuels the salaries of players in esports – that is, from venture capital investors and advertisers – is drying up as the economy becomes even heavier. The scarcer this money is, the more difficult it will be for esports organizations to secure (and retain) the best talent.

Look at what happened to teams in the Overwatch League and Call of Duty League, as examples. Difference They reportedly owe around $400 million to publisher Activision Blizzard, which agreed to defer franchise payments when the COVID pandemic hit. It seems likely that these payments will be deferred even further. Activision Blizzard did not respond to a request for comment.

“We’re watching [venture capitalist investors] “Expectable VCs,” said Ryan Morrison, CEO of talent management firm Evolved Talent [team owners] to 10x their business model, and they’ve done it by paying really good players ridiculous salaries to try to win and build their brand. But you can’t create a 10x esports organization like that, so those team owners are in a place where they’re hemorrhaging money right now without success.”

Esports teams agree that they need the best players to succeed, and because esports salaries operate on an open market system (there is no federation in esports leagues and therefore no collective bargaining agreements that determine what teams can spend), the only thing limiting team spending is its owner. Rich teams pay big for the players they want, which has shaken salaries across the board as it boosts player expectations.

Some valiant pro earns close to $40,000 a month—more than $480,000 a year—according to two current A-level players and confirmed by an executive who negotiated player contracts at Valorant. Many other players, some of whom play for themselves Partner teams And some do not earn 20,000-40,000 dollars a month. The average Valorant team consists of five players. These costs start to add up quickly.

Such spending is a slippery slope that many team owners have been on for a while.

In 2020, League of Legends player Perkz agreed More than 2 million dollars a year for three years As a Cloud9 player; Jensen agreed to a three-year, $4.2 million deal with Team Liquid; and SwordArt Occurred A two-year, $6 million contract with TSM. Both of these deals were in the North American LCS. League of Legends publisher Riot Games declined to comment for this story.

Even then, it was clear that inflationary pressure was already affecting player salaries in the major electronic leagues.

Hal Biagas, Executive Director of the NALCS Players Association, claimed The average annual salary for players in the LCS – North America’s top-tier League of Legends competition – was more than $410,000. In 2021, LCS player salaries have risen to an all-time high, a league source told Digiday. Salaries then remained flat from 2021 to 2022. On top of player salaries, organizations also spend on coaches and support staff such as psychologists, training camp facilities, and more.

The more popular esports becomes, the more severe these issues become.

“[When teams] Need a foothold… They don’t care if they double the salaries of a few players,” said Dave Martin, director of investment and advisory firm Esports Global. “But in reality, it really does matter. … Then everybody looks across at them and says, “What is he or she worth? What do I deserve? If they’re getting £10,000 a month right now in Rocket League, I should be getting £10,000 a month.”

Salaries tend to destabilize in this way when they are not controlled, as other sports have shown.

In the ‘Championship’, the second tier of English football, there is a scramble for the Premier League, where promotion takes place Winning the lottery. In spending their last dime on expensive players and exorbitant salaries, many teams, such as Derby County – As of 2020 160% of all revenue is spent on player salaries – struggled. In fact, in the tournament, The average wage to revenue ratio is 125%..

This kind of wild spending is not a problem during boom times because the owners and investors are eager to grow at any cost; However, in an economic downturn, return on investment becomes more important. This is especially the case in electronic sports. Blame a a bunch of reasonsbut in the end, stakeholders exit the space because there is simply less opportunity to gain from esports competition than there is traditional sports competition.

Esports organizations are not money-spinning machines. Monetary sources are few and far between, and even some of the current ones, such as tournament winnings and skin sales, are largely shared among players.

Unlike traditional sports teams, esports teams, many of which spend about 100% of their turnover on players’ salariesDoes not have a Media rights revenue to benefit. Nor do they have the strong foundations needed to make money from merchandise sales and sponsorships. Very often these teams resort to performances White label production servicesAnd Selling street clothesand step up content creation to make money.

The Overwatch League’s objective failure and [Call of Duty League] It led to an increase in the intelligence of investors [esports investment]said Devin Nash, former CEO of Counter Logic Gaming and co-founder of NOVO. “From their point of view, they already know this is not the play they thought it was.”

As the industry goes through its first (potential) recession, so does the risk of salary inflation. Esports must find a way to tame player salaries, or find other sources of income to supplement the competition — which, in this case, must be found along with a reason to continue esports at all if it continues to burn cash.

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