In sports and esports, monetization is an important issue. Just having teams in a league and lettings them play against each other doesn’t automatically bring in the big bucks. So how do you make money off of these competitions? The answer is easy: Franchising.
Franchised leagues are the norm in many traditional sports, particularly in North America. These structures allow for organizers and teams to work hand in hand, which creates more opportunities for making money. In recent years, esports competitions have gradually started adopting this system. First came the League of Legends Pro League (LPL) in China. After that, the League of Legends Championship Series (LCS) and Overwatch League followed.
How Franchising Works
In order to understand how franchising works, we first ought to explain how franchising doesn’t work. Take the German football championship, Bundesliga, as an example. It is an entirely open circuit, from the smallest regional tournament up to the highest division, where the seasonal champions are crowned.
This means that any team good enough to make the top will get the chance to advance through the divisions. Conversely, this also means that first division teams can lose their spot if their performance isn’t up to par. Overall, this approach ensures that the top always stays competitive. Generally, this promotes competition, keeping the players and teams always hungry to perform.
Franchising, on the other hand, doesn’t have relegation. If a team in the American National Hockey League (NHL) were to lose all their matches, they would still have their spot in the next season. The teams enter into a contract with the league. This of course binds them, but it also guarantees them safety in the competition. On the other hand, this prevents any other squad from entering into the league and lowers the stakes for all teams involved.
As of 2020, a lot of esports have converted their highest competitions into franchised tournaments. In League of Legends, all regional leagues now have a set list of competing teams, which also partake in revenue share with the tournament. In CSGO, ESL Pro League has recently transformed into a semi-franchise, where a couple of teams are partnered as stakeholders and are safe from relegation.
Franchising Supports Financial Stability
It should immediately be obvious as to why this structure is appealing to professional teams. Most make their money almost entirely from sponsorships, which usually last for a set amount of time. After that, the contracts have to be re-negotiated. If teams can guarantee their participation in important events for entire years up front, sponsors are much more willing to write big checks and commit to long-term partnerships. Adding revenue share into the mix is yet another incentive for teams to sign up for those franchises. Uniting the teams and the leagues also encourages the teams to promote the league. This cultivates an atmosphere in which all the parties involved are pulling on one string.
But it also dulls the experience for the viewers if they know that their favorite team doesn’t have to worry about being thrown out. This lowers the stakes. Teams and players are not directly punished for getting lazy. This strikes at the heart of what makes franchising difficult from a competitive standpoint and these teams won’t necessarily feature the best players, simply because they don’t have to.
Franchising Impacts Competition
Open circuits grant much more opportunities to smaller teams and organizations. Skill is rewarded directly and players have a straightforward path to professional esports. Since every stage of competition depends on the next, they don’t have to wait to be discovered. Instead, they can proactively make their mark. In franchised leagues, their futures depend on the organizers providing enough opportunities. Developmental leagues are supposed to create these opportunities for players. But unless they provide an amateur starting point, players will have a harder time reaching these levels.
How Esports organizers approach this topic will decide the competitive value of their franchises. For instance, Overwatch League pays little attention to the semi-professional scene. Their “Path to Pro” features a Contenders League. The professional teams are supposed to field academy rosters, but few actually still do this. Low viewing figures and virtually no exposure on the organizer’s end mean that there is just commercial interest in Contenders. The other teams are either semi-professional or amateurs. In any case, they can’t ever have professional aspirations as they are stuck in eternal limbo just outside the highest competition.
RIOT Games, on the other hand, have built an entire network of regional competitions for the European region. National leagues with multiple divisions feed their best teams into a smaller European league. RIOT is proactively raising these events up to a professional level. They work hard to make them appealing and viewers have responded positively. The amateur and semi-professional scene is booming, since these leagues are entirely open-circuit. In theory, an amateur team could fight their way up into the pro divisions through skill alone. However, this still doesn’t grant any teams entry into the League of Legends European Championship franchise.
No New Faces
There is no room at all for new organizations, unless they want to perpetually serve as talent farms for the bigger teams. This is why the developmental leagues usually feature the franchise partners’ academy teams and not a lot of separate organizations. But esports has far too many historic teams to cram them all into a few franchise spots. Especially in an ecosystem where so many teams have already built legacies in the pre-franchise era, this puts a lot of reputable organizations on thin ice. Many teams are not able to pay the ridiculous buy-in fees of the franchised leagues and are thus left out of the loop.
For instance, former EU LCS mammoths H2k-Gaming were denied as partners and had to drop out after the league was announced to transition to being a franchise. In a system like this, we would never have witnessed teams such as Evil Geniuses, fnatic or G2 Esports rise out of nothing. Apart from blatant mismanagement, there is no reason for any of the partner teams to ever leave their respective franchises. v
Do Esports Need Franchising?
The short answer is… kinda. As it stands right now, lots of teams and organizers have not figured out how to monetize their fans and their success just yet. Especially with buy-in franchises like LCS and OWL, the tournament organizers have found an entirely new revenue stream. Most importantly, fixed partner teams raise the value of the league. This allows organizers to strike more broadcasting and streaming deals under better conditions.
For many teams, franchising comes as a saving grace. With ever-growing player salaries, one small sponsorship fallout could spell their doom. Franchising guarantees the teams visibility and attention, which translates into more and better sponsorship opportunities.
For players, franchising offers benefits as well. Most leagues have standards outlining payment and conditions for the players. Since the teams subscribe to the franchise, they can be charged for breach of rules. This gives them yet another reason to honor their obligations regarding player treatment.
It is certainly true that an open circuit makes teams more vulnerable. On the other hand, this promotes healthy competition. Organizations have to fight for their place at the top of the esports food chain. But maybe this won’t matter if these organizations will have to close due to lack of financing – and franchising certainly helps with balancing the checkbooks. Maybe esports needs stability more than perfect competition.