One of the leading teams in the League of Legends' esports scene has said it will leave the European League Championship Series unless Riot Games creates "a new financial and operating structure."
In a joint statement published last week, H2K chairman Richard Lippe and CEO Susan Tully said that, although the team has been US owned for two years, its, "roots are in Europe and we are committed to the EU region so long as we continue to compete in the League of Legends."
The statement continues with praise for the League Championship Series as a competition, League of Legends as an esport, and an acknowledgement of Riot's entitlement to, "very substantial financial benefits for the risks it has taken." However, H2K appears to have a significant problem with the imbalance in how much money goes to Riot, and how little is earned by its European LCS teams.
"In essence, team losses are subsidizing the marketing activities of a multi-billion dollar company"
"From a business perspective we consider it irrational to continue in a partnership where our partner earns very substantial annual profits while, by contrast, we incur annual losses of over €1,000,000. The financial arrangement between Riot and the teams is unfortunately backward and upside down.
"The fact is that most League of Legends teams lose money. Operating costs continue to increase dramatically and Riot's team compensation only covers a small fraction of those costs. In essence, team losses are subsidizing the marketing activities of a multi-billion dollar company."
H2K stated its case very plainly, and argued that it is justified in doing so due to the importance of pro teams to, "the fundamental foundation of the League of Legends' food chain." The teams find and support pro players, they attract more fans to the game, and they promote the Riot and LoL brands constantly through their activities.
"Without H2K and the other teams in the professional leagues, there would be no games for fans to watch, Riot's $2 billion in annual in-game sales would decline dramatically, Riot's streaming/broadcasting revenues (which will exceed $ 50 million annually) together with in- game ads and major league worldwide sponsorships would disappear."
"The financial arrangement between Riot and the teams is unfortunately backward and upside down"
H2K estimated that, since January 2017, its losses equate to a subsidy for Riot of more than €2 million, a situation it described as "neither rational nor fair" when financial stability for teams should be one of Riot's responsibilities as a partner.
"Accordingly, H2K ownership has made the decision that we will no longer financially subsidize Riot and will not continue in the EU LCS beyond the 2017 season unless Riot creates a new financial and operating structure.
"Riot must provide the EU LCS teams with the realistic opportunity to earn, through subsidies and revenue sharing, minimum compensation of at least €850,000 per year. Recognizing that as teams we must perform and contribute to the success of the league, we accept that a portion of the revenue sharing should be based on competitive performance, viewership, effective branding activities and other reasonable metrics.
"Also, critically important to the teams is that any planned changes to the EU LCS structure planned by Riot for 2018 and beyond must actually increase the value of the legacy team slots and not diminish them."
This is not the first time that Riot has been publicly called out for overlooking the financial difficulties many LoL teams face, despite earning huge amounts of revenue. Last year, Team SoloMid owner Andy Dinh raised similar arguments to H2K, rooted in the fact that, "most LCS teams lose money." Riot co-founder Marc Merrill initially pushed back, but the company soon retreated and committed to several forms of revenue sharing to address, "short-term pain felt by many of our partners."
H2K's statement indicates that those measures have failed to address the problem, at least in Europe. However, ESPN reports that the European LCS will have a new format next year, one that will eliminate relegation from the domestic leagues within each country that feed the larger tournament. The financial impact of relegation has long been a concern for LoL teams, and Riot eradicated that in North America this year by introducing a franchising system.
A franchise system was the choice of Activision Blizzard for The Overwatch League, which has emphasised financial stability for teams and players since its inception.