The excitement around esports is growing. But where are the profits?

It had been more than three hours of tense, back-and-forth combat — projected across the massive Jumbotron at San Francisco’s Chase Center — when the sellout crowd, thumping together inflatable thundersticks and yelling with excitement, sensed victory was at hand.

A South Korean esports team, DRX, guided their video game characters into the home base of the rival T1 squad and smashed its Nexus, a blue gemstone, to pieces, clinching this year’s League of Legends world championship.

Fans roared their approval, fireworks flared, the winners embraced, and the losers sobbed into their keyboards. Executives from Riot Games, the League of Legends publisher, presented DRX with diamond rings sponsored by Mercedes, celebrating the pinnacle of the professional video game scene.

It was a perfectly choreographed event, the kind of spectacle gaming publishers had promised investors from the traditional sports world when they first pitched them on putting their money into the rapidly growing esports industry in the mid-2010s.

“I remember seeing a team come out, and the fans were going crazy and asking for autographs. I thought, ‘Oh, my gosh, this is just like our experience,’” said Zach Leonsis, the son of Ted Leonsis, who owns the NBA’s Washington Wizards and the NHL’s Washington Capitals. The younger Leonsis invested in an esports team in 2016.

But despite the industry’s growth and appeal to the young consumers traditional sports owners are desperate to attract, the money has not followed. Some sports owners have soured on the industry’s short-term prospects after discovering that the methods that make money in traditional sports — like building fan bases in specific cities and striking lucrative deals with television networks — don’t always apply in esports.

Most have not yet turned a profit or seen a return on their investments, and the gaming publishers that control the biggest competitive leagues in North America, like Riot and Activision Blizzard, are operating those leagues at a loss or just beginning to break even.

Although major esports events sell out buildings like the Chase Center and attract tens of millions of viewers in China, tickets cost less than for traditional sports games, and far fewer Americans are watching esports than the 12.4 million who watched the 2022 NBA finals or the 17 million the NFL averaged for 2021 regular-season games, a difference that means less interest from advertisers.

Most critically, leagues like the NBA and NFL earn billions of dollars each year through broadcast deals with television networks, while many esports are streamed for free on sites like YouTube and Twitch. Some early revenue projections included anticipated broadcasting deals with Twitch and YouTube that were less lucrative and consistent than expected.

Of course, esports investors did not expect the industry to supplant traditional sports in just a few years. But some have still been underwhelmed by early returns.

“They certainly pitched us that the growth of these leagues would be meteoric, and we all drank the Kool-Aid,” said Ben Spoont, CEO of an esports organization called Misfits Gaming, whose backers include the owners of the NBA’s Orlando Magic and the NFL’s Cleveland Browns. “What has happened is that growth has not materialized as fast as we had hoped.”

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