Riot Games’ League of Legends Championship Series is well known across the world as the most-watched esports tournament, exceeding the viewership of many traditional sports. But it begs the question of how much money Riot Games must be made from the LCS. How much money does the LCS make?
The LCS is currently operating at a loss of revenue with negative cash flow. The event has been used as a marketing expense for their primary game, League of Legends, to continue to grow its popularity and make money through microtransactions. Recently, Riot Games has officially told The Washington Post that they project the LCS to net profits “within the next year or two”.
Yes, that’s right, Riot Games doesn’t make money from the LCS, at least not currently.
In this article, we will go through exactly how we know that Riot Games is doing this and how exactly this makes any sense.
The Revenue and Losses of the LCS
According to an interview with Polygon in 2016, Riot Games are “still investing millions into esports without profit.” But that was a long time ago, so you may have wondered how the incorporation of franchising slots (not worth millions) and the overall increase in viewership may affect the revenue streams.
Well, the truth is that the LCS is still netting an overall loss and Riot Games is still looking at this as a marketing endeavour for the game it represents, League of Legends, and as a long-term investment.
That said, Marc Merrill has actually officially told The Washington Post that he projects that the LCS will start netting a profit “within the next year or two”.
With that being stated, it may leave the question to you as to why Riot Games would host such an extravagant expensive event instead of investing that into traditional marketing?
Why Does the LCS Net at a Loss?
Riot Game’s League of Legends finals has the largest viewership in all of esports (and of many large sport tournaments). They have major sponsors such as Mastercard. Not to mention the fact that Riot Games charges around $20 million fees to teams for a franchise spot.
With all that, surely you’d assume Riot Games must be making a pretty big cash flow. Well, we know from the quote mentioned in the previous section that they don’t but let’s talk about why.
First off, the venues they obtain are massive, extremely expensive and I’m fairly certain that the low spectator ticket prices don’t cover the cost of the venue as a whole, let alone exceed it for a profit.
Typically tournaments rely heavily on sponsorship to pay for the venue, although I can see why a tournament like the LCS could make a profit off of their overall sheer number of spectators, this isn’t typical in esports.
Next, we also have to think about their opening ceremony. Their production is the best of the best, with the highest level technology esports production has ever seen. Also consider that employees have been working about 8 to 10 months planning it out, all of which is coming as an overhead for the LCS.
Lastly, we cannot forget the massive prize pool they have at Riot Games. A crazy minimum prize pool in the millions, with 2019 having a minimum of $2.5 million in prizing.
Why Would Riot Games Host the LCS at a Loss
Riot Games has openly stated that the LCS is not actively striving to be profitable in a interview with Polygon.
“Because the LCS isn’t supposed to make money, it isn’t treated how an actual business should be treated.”
To best explain this, let’s talk take another example
Let’s look at a small tournament at your local college. Let’s say the tournament was being run by the local college club, and let’s say they ran a free tournament.
Let’s also say they have no sponsors and they even booked out your local pub for the night. I’m sure for this instance, you aren’t asking why they would run such an event.
If you are, the endeavour goes to serve more than just making money. For one thing, students now have the opportunity to host an event and learn, making the students happy.
Also, now the pub may be getting new customers that would have otherwise been crammed up in their room playing, making the pub happy. Plus, now the participating students can further enjoy their college life and socialize, which makes the college happy. It’s a win-win-win situation.
So perhaps the pub gave the venue to the students for free or a small fee since the pub was getting more business. All costs likely came out of the student’s club budget, which is provided by the college to enhance students’ lives inside and outside the club. And the students were willing to put in the work for free to learn and add it to their portfolio.
Now, let’s look at Riot Games. What do they gain from hosting worlds? Well, it is the most-viewed esports events, which provides credibility. It also provides new eyeballs attached to the game. These two factors result in more people wanting to play their game.
In addition to that, Riot Games’ main revenue stream, in-game purchases, has more optionality with the addition of world skins. The teams want to pay the franchise fees for the chance at that massive prize pool and all the eyeballs as well.