Each of the participants acquires a starting spot in the European “League of Legends European Championship” (LEC) for five years. According to market observers, the teams pay ten million euros for the license – with a discount for teams that were already in the predecessor league “European League of Legends Champion Series” (EU LCS), which has been in existence since 2013.

The US company Riot Games has already had good experience with franchise operations. The most prominent investor in the USA is basketball legend Michael Jordan. Partners include the Chinese Internet giant Tencent.

According to market observers, the game provider’s annual revenue with “League of Legends” is around two billion dollars. The last official user figures to date were from 2016, when there was talk of 100 million active players per month. In the meantime, there are said to be between 80 and 90 million, and around 27 million every day. This makes “LoL” one of the most successful online titles ever.

The strategy game is Riot’s only product – and it makes money without players having to pay for it. The business model: Users spend money on visual customization of the game characters, which has no effect on success.

This goes down well with young users, and the entry threshold is low. Many try out the game, many stick with it. The road to becoming a full-time professional with salaries of up to $320,000 a year is long. But there will not only be room for the best in the future.

“In 2019, we will have two different ecosystems,” Schnell says. The LEC will be newly introduced as the new top division, while the existing regional league system will provide the underpinning. From this, junior players and teams should be able to recommend themselves for the top league. The most important point for Riot is that the teams must all be self-supporting. “The applicants must have an interest in building up an e-sports team and supporting it in the long term,” says Marc Schnell.

This includes their own marketing, which is left to the teams, as well as leveraging synergies. A common pot is to ensure a fair distribution of the basic income. Riot will contribute all of its own revenues to this pot, while the teams will contribute a certain percentage of their earnings. The league and the teams will each receive one-third of the money, with around 35 percent going to the athletes.

Hundreds of millions of viewers online

Accordingly, the franchise league is a decisive step towards turning viewer interest in e-sports into money – practically the Champions League of e-sports. In the market, this could create a new lever for maximizing revenue. “We definitely have to catch up on the business side,” says Marc Schnell, “monetization didn’t enjoy priority in the early years.”

Accordingly, Riot Games was concerned with quality assurance and a stable environment for the game. Now the next stage of marketing is being ignited. The rival product “Overwatch” from the US manufacturer Activison-Blizzard recently sold the broadcast rights of the game to the streaming service Twitch. Cost: $90 million for two years.

These sums are made possible by massive changes in the media behavior of younger target groups. Studies show that among 14- to 19-year-olds, only around one-third of media consumption is now accounted for by television. In October, a total of 108 million hours of “League of Legends” material was viewed on Twitch. A gigantic potential, especially in the marketing and advertising market. And the trend is rising.

There are no exact estimates of the market potential before the start of the franchise league. Kim Lachmann, an e-sports expert at business consulting firm Deloitte, sees both opportunities and potential pitfalls in the move to a closed professional league. “The franchise model offers the opportunity to market the product in a much more centered way and to establish a more stable, sustainable system,” Lachmann said.

He also sees the spreading of risk through revenue pools and the long-term planning capability due to the lack of relegation as positive factors. “A brand can no longer be associated with the event of relegation,” says the Deloitte expert.

It still has to be proven whether the amount of the entry investment in the millions is justified. “The franchisees first have to refinance the entry sum,” says Lachmann. In addition to the income from the league’s central marketing, only income from sponsorship and merchandising could be considered.

It will be some time before e-sports reaches the level of soccer in economic terms. But Deloitte currently expects growth of 27 percent annually. Within the past four years, the industry has nearly doubled its revenue. In the coming years, both Deloitte and its competitor PwC expect annual sales of 130 million euros in Germany alone. Worldwide, experts expect the market to reach billions in the long term.

That’s a lot of potential. That’s why an actual Champions League contender has every confidence in the development of e-sports: FC Schalke 04. “For a club to invest in e-sports in the high single-digit millions, it has to justify its core business of soccer,” says Alexander Jobst, head of marketing at the Bundesliga club from Gelsenkirchen. “And the investment has to pay off in business terms.”

The club, whose e-sports department was bundled into “FC Schalke 04 Esports GmbH” in the summer, knows what he’s talking about. Jobst expects ten percent of marketing revenues from the business in the future, and the business plan for the division has been over-fulfilled. Arguments that stung in the internal discussions.

“It’s bearing fruit economically, and we’re convinced we’ll continue to be profitable,” Jobst says, defending the million-dollar investment: “Investing in the franchise is a massive investment in the future.”

G2 Esports gathers prominent investors

The spin-off offers the club the opportunity to work with strategic partners and investors. Schalke has now landed eight sponsors for the e-sports division, who are involved exclusively or in addition to the classic day-to-day business.

“We are increasingly finding that sponsors from the core business are showing strong interest in e-sports,” adds Jobst. “Companies that are not associated with e-sports at first glance are visibly making greater efforts to get involved,” he continues, “we predicted this development from the outset.”

The Schalkers talk a lot about the charisma that the brand brings from soccer. Conversely, the brand reach of the “Knappen” also benefits: due to the recent successful “League of Legends” – Season , the growth of social media reach, especially internationally, pulled in around 40 percent year-on-year.

In fact, that may have been one of the reasons for Riot to make the Gelsenkircheners founding members. However, as both teams and the game developer emphasize, the balance of economic viability and sustainable overall concept were critical to any successful bid. “Which teams harmonize and can create synergies?” is how Marc Schnell describes one of the fundamental questions.

To secure the long-term commitment, he says, it was necessary for the teams to “exceed a certain economic threshold.” As counter-collateral, the rights to the franchise go to the teams: Those planning the exit can sell their license – at a profit, according to the calculation.

The overall package did not only look attractive to Schalke. Among the ten starters is also the Berlin-based team G2 Esports. “League of Legends is the biggest game in the world, and as an organization that has thrived on competition, we really wanted to be in the league,” says team boss Carlos Rodríguez, who as “ocelote” was himself one of the best LoL players until 2015.

The Spaniard is certain that the LEC will grow to become the “most important league in the world” – even ahead of its US counterpart. “Perhaps the biggest advantage of the franchise system is that short-term thinking will stop,” Rodriguez explains. Previously, he says, each team struggled to survive on its own. Now, franchisees could work together on the long-term success of the product.

G2, founded only in 2014, brings with it several strategic investors who made the commitment possible. They are illustrious names: André Gomes, for example, midfielder of FC Barcelona. Then there is Everblue Management, the investment company of former Goldman Sachs partner and hedge fund manager Eric Mindich. Also on board is Brazilian Marc Lemann with his investment firm Go4it – he is the son of Brazil’s richest man, Jorge Paulo Lemann, co-founder of the investment group 3G Capital.

“Our success in the competition, our business practices, and our goals as a team have made us one of the best candidates for the league,” says Rodríguez: “As a team owner, it’s great to see everyone sitting at the same table with the same interests.”

For now, the losers of the new franchise system are the teams that can’t afford the entry amount or are too small for a sustainable overall concept. Riot justifies the decision against a system with promotion and relegation options, which has been strongly criticized in the scene, primarily with the fact that a substructure that has grown over decades is missing. It would have been almost impossible to compensate for the fall from the top league.

The world market leader in e-sports leagues, ESL, has also lost a spectator magnet. Given the wide range of e-sports titles on offer, the latter is far from worried about its own future or taking a shot at the new competition. But the signal regarding the introduction of professional leagues by publishers has also reached the German league organizer.

“It’s still a bit of the Wild West,” ESL spokesman Chris Flato comments on the market’s evolution. “There is no blueprint for e-sports, it has to be seen which model will prevail – that also applies to the franchise.” If a game manufacturer takes league operations into its own hands, he says, it must be prepared to no longer be able to offer major events with this title in the foreseeable future.

Meanwhile, at the national level, the ESL does not have to do without League of Legends. “Games come and go,” says Flato, “Our biggest advantage is that we have very few restrictions on what we do and with whom.”