League of Legends firm Riot Games has not broken even on its esports investment - not even close.
That's according to the company's pro-gaming chief Derrick "FearGorm" Asiedu, who posted on Reddit saying that the company splashes out in the region of $100m each and every year on esports - but that it is "not even close" to making this money back.
This is somewhat surprising news given that League of Legends is one of the biggest games in the world both in terms of playerbase and revenue. The title is a constant feature in the digital revenue charts from SuperData and has been one of the highest profile success in the esports scene.
But this surely a loss-lead for Riot. Pro-gaming - for most games developers and publishers in the sector - is simply a marketing spend; a loss lead. They spend massive amounts of cash on tournaments as a way of engaging the massive League of Legends audience even more and will make them even more likely to splash cash in the smash hit MOBA.
This isn't just Riot either - Activision, Blizzard, Valve, Epic... all of this operates on the same principle. This does have the knock-on effect of giving the illusion of there being huge sums of money to be made in the esports space, leading companies from around the world to invest with the potential for high levels of disappointment.
That being said, this loss lead model clearly isn't profitable enough for the Los Angeles game maker, and it wants to be even more profitable - especially as reports point to the League of Legends' playerbase dipping.
Right now, the plan is to increase revenue through "digital experiences" as well as traditional sponsorship. "Digital experiences" is likely a similar model to Valve's operation with Dota 2.
"Now we're out of 'startup' mode in a sense for esports: instead of just making esports happen and be awesome, we also want to focus on making this a financially sustainable endeavor that can last decades or more," Asiedu wrote.
"We're ok with costs continuing to be high, because we think the value esports provides to everyone who plays LoL is worth it. But we don't want to continue to be in startup mode - we're now a mature business and costs need to be more in line with revenue in the future: Now that we've built something awesome, we're going to start exercising more discipline around holding ourselves to financial constraints as revenue continues to pick up.
"This means that we're holding ourselves more accountable to net income targets (as in revenue minus cost) than we have historically. We're a long way from breaking even (revenue minus cost equaling 0), and are trying to see if on the cost side, there are things we can cut or scale back that fans don't care about, while continuing to invest in the areas fans do care about.
"Regardless, we think increasing revenue will get us much closer to breaking even than simply reducing costs, so worldwide we're focusing on increasing revenue (hiring key business development personnel, etc.).
"To be clear, the goal isn't to decrease our investment in esports: we want to invest even more than what we do now in the future, but only if it makes sense for the business (and if revenue continues to increase)."
