Note: The opinions expressed by this article do not reflect the official position of TeamLiquid.net or its staff (other than MoonBear).
So, various franchsing outcomes have been leaked to the press and it's created a big stir on a lot of parts of the internet for many reason. I've stopped actively writing things for League, but there were a few things that piqued my interest as I sifted through some of the comments I've read.
Most of the "hot takes" have already been done. So I'm not here to argue any particular position or try and crusade for a team's inclusion or exclusion. But there are a few things I think are worth raising and mentioning which might help provide some context and some food for thought.
I'm going to talk about three things.
- Why franchising is probably a bigger deal than most people realise
- Why financing matters
- Why eSports teams being active in other eSports probably isn't a big deal for franchising applications
Franchising is a big deal
Like thiiiiiiiiiis (stretches arms out) big
Everyone knows franchising is a big deal for the NA LCS. Multitudes of ink and emotions have been spilt over this issue.
At the risk of sounding like an insufferable contrarion though, I think people are actually understating just how big franchising actually is.
Franchising is perhaps the one of the biggest pivot that Riot Games has decided to undertake in the history of the company to date. Arguably it's even bigger than the establishment of the LCS system itself.
The reason I say this is because franchising is the first time Riot will no longer have full control and ownership of its operations. It is also the first time where it's not going to have control over the financing of the league.
This is a big deal. One of the most consistent things about Riot Games over the past decade has been the fact Riot likes having control over everything. It was in fact one of the driving factors for Riot to create the LCS and develop its own studios and in-house production teams. Contrast this approach with other eSports games where it is not uncommon to see production outsourced to providers such as ESL, Starladder, Beyond the Summit, etc.
It is somewhat unlikely that Riot Games will go full NFL, giving the team owners significant discretion over how operations of the League will run. But the NFL still offers the best model for how a franchising operation will work.
And that means Rules & Bylaws and all the dense legal-ese that comes with it.
While it only affects North America for now, this is more than just an issue of revenue and relegation. This is a fundamental shift in the balance of mentality and culture around control and ownership.
That's why, if anything, people are understating just how big this actually is.
Money talks (here comes the money)
A lot of people probably aren't familiar with provate equity and venture capital financing. And that's okay. Most people will never need to know anything about corporate financing and they will have happy lives. (For those that do, it's totally WACC)
The issue of whether a team has sufficient sponsors or not, and whether they are venture capital (VC) or private equity (PE) backed has become rather hot button this week. When talking about VC and PE firms, it's useful to understand how they operate.
A VC or PE firm in and of itself doesn't actually "own" the money it invests, so to speak. Rather, these firms instead create funds through which they raise money in from both external investors (called Limited Partners) as well as funding part of this themselves (contribution from a General Partner).
To raise this money, VC and PE firms have to go around trying to convince people it's a good idea to trust them not to set it all on fire. This is called the marketing period. At this point, your external investors will offer to give the fund money. However, they don't actually sign any checks yet. This doesn't actually occur until something called the commitment period. This is when the fund actually starts making investments and makes "call" to the LP asking for the actual money. This is when the fund goes through 'closing".
And this is a very important thing to note. Because VC and PE funds have a limited lifespan called the "term".
After the fund has closed, the LPs will have a signed agreement that says after a certain number of years, the fund will wrap up and give back all of the money to the investors. For VC funds this can be about 10 years, while PE fund have a slightly shorter outlook and wrap up in around 6 years.
(This is a major generalisation. Funds will have bespoke terms. I'm also going to pretend evergreen funds don't exist.)
The fact funds have a term is incredibly important. Because it means once the VC and PE investors have made calls to their LPs and started investing, they start the ticking clock to actually generate returns, and then divest (i.e. liquidate or sell) their investments before the fund wraps up.
Whether this is a good or a bad thing depends on your time horizon. If you have a 5-year outlook, this might not be a bad thing. If you have a decade long outlook however, this form of capital can seem flighty.
Cheating on LoL is (probably) fine
Flirting with other games isn't a big deal
If you're looking for a "strong and stable" business partner, them cheating on your with other investments isn't always a big deal. This is especially so in eSports.
eSports is a really fickle industry. Games in many ways are a culutral fad. And that means what's new and popular today could be two-thousand-and-late-teen tomorrow. In otherwords, you have idiosyncratic risk - risks that are very specific to that game and that game alone.
The best way to deal with idiosyncratic risk is diversifying. If you're spread out across lots of games, the failure or troubles of a single game become much more managable.
The franchising and buy-in to the NA LCS is a two way street. Teams will benefit from the shared revenue and partnerships. But there's also an implied agreement that even if League takes a hit, teams are still expected to stay fully committed no matter what including paying their dues into the NA LCS.
For most eSports teams, one of the big drivers of revenue is sponsorship deals. Think of eSports teams less as gaming squads that have brand deals, and more as advertisers and influencers who also play video games.
If you want to advertise and influence people, you need people to care about you. If you do poorly in one video game, you reputation (and implicitly influence) takes a hit. And if you only focus on one video game, then your potential reach is only ever going to be as big as the playerbase for that video game.
So if you want to have a strong and stable team, you want to have your fingers in every single proverbial eSports pie there is. It's just common sense.
While Riot has shown themselves to be fairly sensitive about teams and players being associated with other games, at a certain point you have to compromise on something. Having teams be 100% dependent on you is risky. Because when you're feeling down, they're going to be down and clinging onto you too.
In this case, cheating on Riot is okay.
Even my HTC phone said so.