The Esports Compensation Market Is Destined For A Correction.

Esports Market Compensation Status

The present economic slump continues to reveal the financial instability of esports and the crucial need for reforms. Once considered a cost of doing business for successful clubs, the sky-high pay of the finest players is now a source of concern.

It is the concern circulating esports circles currently. Moreover, these insiders may be correct. As the economy worsens, venture capital investors and advertising, who provide most of the funding for esports player salaries, are pulling back. The greater the scarcity of finances, the more difficult it is for esports organizations to recruit (and retain) top talent.

Consider, as instances, what transpired with Overwatch League and Call of Duty League teams. Reportedly, teams owe approximately $400 million to producer Activision Blizzard, who agreed to delay franchise fees when the COVID outbreak struck. These payments will likely be delayed further. Activision Blizzard declined to comment in response to a request.

The only thing that limits a team’s expenditure is its owner. Esports salaries are based on an open market system. There are no unions in esports competitions and hence no collective bargaining agreements dictating what teams can spend. Rich teams pay a premium for the players they desire, destabilizing compensation by raising players’ expectations.

According to two current players with tier-one expertise and a manager who has negotiated player contracts in Valorant, certain Valorant professionals earn more than $40,000/month or more than $480,000/year. Other players, some of whom play for partnered teams and others who do not, earn between $20,000 and $40,000 per month. The average Valorant squad has five members. These expenses can mount up.

It is a steep slope that many team owners have been on for some time.

In 2020, the League of Legends player Perkz signed a three-year, $2 million-per-year contract with Cloud9, and Jensen inked a three-year, $4.2 million contract with Team Liquid. Sword art signed a two-year, $6 million contract with TSM. Each of these transactions occurred in North America’s LCS. Riot Games, the publisher of League of Legends, refuses to comment on this topic.

Even at that time, it was evident that inflationary pressure had already impacted player compensation in the leading esports leagues.

The former executive director of the NALCS Players Association, Hal Biagas, stated that the average annual wage for players in North America’s premier League of Legends competition exceeded $410,000. In 2021, LCS player salaries reached their greatest levels ever, according to a source from the league. Then, salaries stayed unchanged from 2021 to 2022. In addition to player payments, organizations also pay for coaches, support staff such as psychologists, boot camp facilities, and other expenses.

The greater the popularity of the Esport, the more severe these issues become. As other sports have demonstrated, without regulation, salaries tend to collapse in this manner.

During economic expansion, when owners and investors are eager to grow at any cost, this unrestrained spending poses less concern. During recessions, however, return on investment becomes more crucial. It is particularly true in esports. Attribute it to various factors, but in the end, stakeholders are abandoning the industry because esports competition offers fewer opportunities for profit than traditional sports competition.

Esports organizations are not profit-making machines. Even the little cash streams that do exist, like tournament prizes and skin sales, are generally distributed among players.

Unlike traditional sports teams, esports clubs have no media rights or revenue to monetize. Many esports teams spend around 100 percent of their earnings on player salaries. They also need a strong fan following to generate revenue from goods sales and sponsorships. Typically, these teams provide white-label production services, sell streetwear, and increase content creation to generate revenue.

As the industry enters its first (potential) recession, the possibility of salary inflation undermining teams increases. Esports must find a means to rein in player compensation or find other sources of cash to augment competition. If esports continues to be a money-burning operation, it must also find a reason to continue.