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ESL against FACEIT: fight for exclusivity

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January 28, 2020 7:32 pm

ESL against FACEIT: fight for exclusivity

The year 2020 has not yet really picked up speed, and yet a big battle is already looming on the horizon. Tournament organizers and organizations want to redefine Counter-Strike.

Counter-Strike is not profitable. Neither for organizations that own a CS:GO team, nor for tournament organizers like ESL, FACEIT or RFRSH. This thesis is not new, and yet it is hotly discussed these days. The reason for this is the current arms race, as well as the wooing for exclusivity.

Losses in the millions

In an interview with Jarek ‘DeKay’ Lewis, Dan Fiden, President of Cloud9 Esports Incorporated, gave interesting insights into the financial dilemma that many organisations with their own CS:GO teams are facing:

“Let me get this straight: Cloud9 loses about one to two million US dollars every year with the CS:GO business. And I would challenge any top 20 teams in CS to prove to me that they’re not losing a similar amount.”

As a former board member of Cloud9 and former Chief Strategy Officer of the Chinese game developer FunPlus, Fiden played a decisive role in making Cloud9 one of the financially strongest Esport organisations worldwide. Finally, he initiated an investment deal between C9 and FunPlus worth one billion US dollars. Nevertheless, according to his statements, a CS:GO team is not worthwhile financially at all.

In 2019, Cloud9 was said to have raised just 70,000 US dollars for participation in the ESL Pro League. That is about as much as the Los Angeles-based organization spends on its CS:GO, team, each month. Most of the money comes from investors and sponsors, but in the coming years, they could get even further away from Counter-Strike than they already do.

In the area of sponsorship, we have had and continue to have requests from our partners that we leave CS out because the content is provocative. This probably says it all about the fact that the economic aspects are not good for CS teams.

But not only the organisations complain about the negative business of Counter-Strike. ESL is also struggling with a loss of sales – and has been doing so for years. According to a Games Wirtschaft report from September 2019, the Cologne-based company has been in the red since 2009 – with the exception of 2013, when ESL posted a sales deficit of 7.5 million euros in 2016 and 17.7 million euros the following year. These losses could only be offset by the Swedish parent company MTG (Modern Times Group).

Because of these losses on all sides, it is quite astonishing that CS:GO has been able to establish itself as one of the most popular Esport titles in recent years, and that the investments have also been steadily increasing. But in the long run, this will no longer be possible, and many are aware of that.

Between solutions and profit

Whether the game concept with its terrorist image per se must change is another matter. In order for CS:GO to become more profitable in the future, it needs new financial possibilities. And these should now increasingly come with revenue sharing, which the tournament organizers (must) offer in various versions.

CS:GO 2020: The year of the super leagues

An indication that the organizations also see great potential in this are the numerous new CS:GO teams that have been established in recent months: the Evil Geniuses, the 100 Thieves, the MAD Lions, OG, Gen.G, Dignitas, c0ntact. These are names that are already well known from other Esport titles and who now want to conquer or at least help shape the Counter-Strike market. After all, they all have the financial means to be able to pay the two million US dollars for entering the “B Site” league, for example.

Dan Fiden, who is working with Cloud9 on the development of “B Site”, by the way, did not consider cooperation with ESL, because the Cologne-based company insists on its own leagues and tournaments, its own ranking system and its own ESEA platform. At the same time, teams are to cede the exclusive rights to all this to ESL for at least four years. This is not acceptable for Fiden, so he prefers to invest his millions in his project. A fight against the monopoly development of the ESL.

“The terms of the contract with the ESL would not allow Cloud9 to stay in the black until the ESL itself makes a profit of around 20 million US dollars a year. This corresponds to a profit margin of more than 50%. In my opinion, a partnership where one partner makes more than 50% profit each year, and we don’t even break even, is not a partnership.

Even CS:GO developer Valve does not want to allow this monopoly position. The recently often quoted statement called “Keeping Things Competitive” makes this clear: Valve does not want (exclusive) licenses to be granted for events that would restrict the teams from participating in other events. It sounds almost as if everything should remain the same.

The Valve Corporation, based in Washington State, USA, is a publisher of CS:GO and earns money at every event. So it was the only winner in the past years. But unlike Blizzard or Riot Games, which market their games mostly themselves, Valve gives tournament organizers a free hand. And according to statista.com, the sales figures of recent years seem to be correct even without exclusivity: In 2018, CS:GO flushed over 400 million US dollars into the Valve cash box.

FACEIT wants to skilfully circumvent the problem of exclusivity with the help of the franchising system. They want to make the CS:GO business more lucrative again, promises revenue sharing for players and teams in the millions. And one sets on the show factor with well-known faces in the talent lineup.

Obviously, a serious competitor for the ESL and their monopoly plans. Although it owns the most prestigious individual events, ESL One Cologne and IEM Katowice, the mystery surrounding the ominous LANXESS agreement and the new ESL Pro League Season is far from over. Not to mention the contractual conditions that go with it.

In the end, everyone tries to push through their own interests. After all, ESL, FACEIT, and the organizations themselves are profit-oriented companies and want to make profits. Profits that the tournament organisers are even prepared to share with their (exclusive) partners.

ESL Pro League should distribute at least 16 million US dollars

Where are you headed?

Which of the various league concepts will prevail in 2020 is eagerly awaited. If you take a look at the history of traditional US sport, which is often used as a model for other sports, it has had to struggle with similar challenges. Before the big leagues could claim their supremacy, they had competitors: the NBA and the ABA, the NFL and the AFL, the NHL and the WHA. The supposedly best teams could, therefore, never be seen playing against each other, as they were in different exclusive leagues.

This is a prognosis that one certainly cannot wish for the CS:GO sport. But after 20 years of Counter-Strike and the rapid mainstream development of the past years, we can’t avoid changes anymore. And so the year 2020 is likely to be both a highly competitive and a trend-setting one.

And the viewers of the whole spectacle are also in demand: Do we want to continue to insist on free content and at the same time expect ever-better quality? Or will we, at some point, be prepared to consider pay-TV, pay-per-view, or even league passes for CS:GO?

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