Six years ago, the Madison Square Garden Company, a group that includes James Dolan, the owner of the New York Knicks and the New York Rangers, announced the opportunity to succeed in the next line of sports: video games.
New York investors spent more than $10 million to buy a majority stake in Counter Logic Gaming, an e-sports group, and he said The professional video game “is now on the verge of a major change, which we believe will lead to significant growth.”
In fact, that growth has progressed. Like e-sport games it fell below expectations and investors became skeptical of the industry, the owners of Madison Square Garden last year tried to find a solution to the business by selling their marquee team.
After decades of gaming, video games in the United States are taking over as an economic activity. Unable to make a profit, team owners are cutting costs by laying off staff and terminating contracts with star players. Sometimes, they sell out their teams and sometimes they fail, giving a reality check to people who believe that e-sports could be the next big thing in entertainment.
Worryingly, some viewers seem to be losing interest. They watched 14.8 million hours of the spring season of the 2023 League Championship Series, the largest US e-sports league, down 13 percent from the previous year and down 32 percent from 2021, according to estimates by data company Esports Charts.
“We’re in a time where everyone’s interested in doing it,” said Rod Breslau, a sports and e-sports analyst. “There’s been a lot of hype and it’s really cheap.”
Like traditional sports, e-sports star players can earn seven salaries and compete in tournaments, attracting sponsors and fans along the way. Investors over the past decade have bought shares in teams that participate in professional sports such as League of Legends, Overwatch and Call of Duty.
The largest of these is the League Championship Series, a 10-team league that was launched in 2013 and is run by Riot Games, the company that created League of Legends. In the league, teams go head-to-head in League of Legends, a fantasy game, in matches that can attract millions of viewers and fill stadiums.
But the leagues have been struggling to raise money. E-sports advertising contracts on sites like YouTube and Twitch have expired, sponsors are cutting their advertising budgets, and owners are running loss-making teams. and paying high wages to e-sports players.
Other computer game groups, such as Evil Geniuses, have diverged most of their expensive League of Legends players. Others, such as 100 Thieves, they are laying off employees and senior officials.
The price of FaZe Clan, an e-sports group that went public last year, it has dropped to just 50 cents a share. In March, FaZe received a notice of withdrawal from the Nasdaq, warning that it could be removed from the market if its shares do not rise above $1. And on Friday, FaZe said that it is laying off about 40 percent of its employees, after cutting it in February. The story was was previously reported by Digiday.
Jack Etienne, CEO of Cloud 9, an e-sports group, said he cut costs by eliminating about half of the sports his organization was involved in, which is now eight from about 15.
TSM, one of the most important organizations in e-sports, said on Saturday that it is selling its place in the League Championship Series. It is very difficult for the league, as a marquee franchise to leave the NBA or NFL, because TSM is one of the oldest and most popular North American e-sports.
TSM began talking to interested parties about three weeks ago, according to a person familiar with the discussions, and has narrowed the list of potential buyers to about a dozen organizations, mostly in media and traditional sports. The asking price is in the $20 million range, the person said.
Andy Dinh, the head of TSM, said in an interview that his exit from the American league was related to his desire to compete in the world championship, not financial problems. Most of the best League of Legends teams come from places like South Korea or China, and the North American region is about to lag behind those places in terms of competitive power.
Mr. Dinh said he wanted to buy a place in one of the top League of Legends games elsewhere in the world after selling his place in the United States.
Riot Games is now under pressure. League of Legends has generated billions of dollars in sales throughout its history, but the e-sports league surrounding the title has lost money. This has worked well for Riot, which is owned by Chinese giant Tencent, as Riot can use the league to generate interest in the game.
But the plan has been very controversial with the owners of e-sports teams, who paid Riot at least $ 10 million to enter the league and were promised that they would get a profit. This month, after the teams requested, Riot agreed eliminating the requirement for teams to participate in the League of Legends development — one under the League Championship Series — which would help teams save money.
last month, Riot published a long blog post to admit his mistakes and want to reassure investors. Proponents of e-sports cite two main advantages: young people who watch e-sports, which attract advertisers, and the promise of making money from the sale of e-sports products. Last year, the sale of such products in one of Riot’s games, Valorant, generated $42 million, half of which went to the teams participating in the Valorant e-sports league, Riot said.
John Needham, Riot’s president of e-sports, admitted that the industry had problems.
“A big part of what we’re selling is the dream, and the long-term future of e-sport. And when we lose a team and they can’t make money based on that dream, then we see it as a failure,” Needham said in an interview. “So we feel the pressure.”
For Madison Square Garden, the sale of Counter Logic Gaming, its e-sports division, was an effort to reduce its losses. But the company was unable to find a buyer for the team who would pay enough to recoup its money, said four people familiar with the matter.
Instead, the Madison Square Garden team let go of several Counter Logic Gaming employees and entered into a partnership. last month combining its remaining assets – its League of Legends team – with NRG Esports, another e-sports organization.
Madison Square Garden received no money from the deal. Instead, it paid NRG several million dollars to take over CLG’s office space and salaries for the remaining 25 employees, three people familiar with the process said. Some of the deals have already been reported and The Jacob Wolf Report, e-sport news.
The Madison Square Garden team received a minority stake in NRG’s parent company, Hard Carry Gaming, allowing it to continue its e-sports business. Dan Fleeter, a vice president at Madison Square Garden Company, was also named to Hard Carry Gaming’s board of directors as part of the deal, the people said.
David Hopkinson, president of Madison Square Garden Sports, said in announcing the deal that it will allow the company to “remain the dominant player in the e-sports industry.”
Some see it as an opportunity to leave. Andy Miller, chairman of NRG Esports – which bought Madison Square Garden’s League of Legends team – said he saw an opening in the industry as big names left.
“It’s a tough time, but this is our time,” said Mr. Miller, the former chief technology officer and owner of the NBA’s Sacramento Kings. “I think there’s an opportunity to steal from the existing fan base.”