As reported by Slingshot Esports, the owners of North American and European League of Legends Championship Series teams sent Riot Games a letter outlining their concerns and proposals to alleviate those concerns. A copy of that letter was obtained by Slingshot.
The letter, addressed to Marc Merrill, Whalen Roselle, Jarred Kennedy and Jason Yeh, contained three main sections: a list of concerns, Riot’s proposals, and the team’s proposals. This comes after months of debate surrounding how Riot operates the LCS.
Problems to be Solved
The goal of the ongoing discussions held between the teams and Riot were meant to solve a number of serious problems, including:
- The lack of job security, fair compensation and longer careers for players caused by insufficient compensation and relegation.
- The damage to the teams’ ability to invest in LCS players caused by insufficient compensation and relegation.
- The weakening relationship between fans and LCS caused by relegation.
- The harm to team sponsorships caused by relegation and LCS’ restrictions on sponsors.
The effective elimination of the path to pro caused by the teams’ need to redirect resources from LCS to Challenger as a result of insufficient compensation and relegation.
- The financial hardship suffered by the teams caused by insufficient compensation paid to the teams.
Riot Proposals to Date
Unfortunately, Riots’ proposals to the teams have done little to address these problems. As we understand it, Riot’s position is now as follows:
1. Elimination of Relegation
- In NA, changes to relegation are off the table until the commencement of Charter Membership in 2018 and Riot is not sure that the current NA teams are desirable longterm partners.
- In EU, Riot has now stated that Charter Membership is not currently being considered and is off the table at least until 2019. Riot is exploring options for local regional expansion. Relegation continues.
- Riot shall not provide the teams with the standards or criteria by which it will select Charter Teams for NA and has refused to provide for auto-renewal and elimination of relegation in the EU.
- Riot shall not commit to provide the NA teams with a date by which it will provide the Charter criteria.
2. Financial Enhancements
- Riot wants partners who will continue to lose money with the expectation of making money in the long-term, but offers no long-term commitment to any team. The teams have been advised that operating a business at a loss is our choice.
- Riot will concede the following digital-item financial incentives:
- 2017: Digital Item Revenue – Minimum Guarantee (“MG”) of $100K/€100K per team, to be split 50/50 with players. Payment terms and recoupment terms have not been disclosed other than the MG includes Summoner Icon revenues (already earned by the teams).
- 2016/2017: 25% of the championship team’s skin revenue will be shared between all of the teams and players in the champion’s region (splits TBD);
- 2017: Summoner icon rev-share will be tweaked so that teams will receive 100% of 2017 revenue up to the total amount of 2016 revenue, then 50% thereafter;
- 2016/2017: Worlds Summoner icons – an additional 10% of total revenue will be distributed equally among all teams participating in Worlds.
c. Merchandise Revenue Enhancements – TBD.
d. Sponsorship Revenue Sharing – Off the table until 2018.
e.. Media Revenue Sharing – Off the table until 2018.
f. Minimum Guarantee of Total Compensation – Off the table.
g. Guaranteed Promotions – Off the table.
The Teams’ Response
The digital-item revenue concessions alone clearly will not solve the problems described at the beginning of this letter, especially if no action is taken on relegation, revenue-sharing or the establishment of an overall MG in 2017. Riot’s terms simply will not fix the instability and financial losses which the teams have articulated to Riot in detail. In an attempt to close the gap between our positions, the teams are willing to consider the following compromise solution for 2017:
1. Relegation / Charter Membership
- Given the uncertainties of Charter Membership and other revenue sharing growth opportunities, there should be a moratorium on relegation in 2017. This would be a public recognition of 2017 as a “bridge year.” The business model for Charter Membership for NA, including the criteria for membership, will be disclosed to teams before December 1, 2016.
- Auto-renewal provisions must be granted to EU Teams and relegation must be eliminated permanently.
2. Team Compensation
- The teams cannot accept the proposition that they should silently suffer another year of losses. Given that the teams’ purpose now is to promote the LCS without any meaningful revenue sharing or commitment on future Charter Memberships, Riot should fairly compensate the teams for their participation in LCS, dedication of team-funded resources for promotional activities and use of the teams’ IP at an annual rate of $700K/€700K. The NA teams will guarantee their players a minimum salary of $100K. Riot has advised the EU teams that minimum player compensation (“MPC”) will be eliminated in Europe effective 2017. Accordingly, minimum player salaries will not apply. The increased compensation to EU teams will offset operating costs including player salaries, German social security payments and other more expensive regional operations attributable to German labor and tax laws.
3. Merchandise Sales
- Riot and the teams will work together diligently in good faith to determine a mutually acceptable solution by no later than December 31, 2016.
4. Digital-Item Revenue
- In conjunction with the terms above, the teams accept Riot’s approach, but rev-share should be 50% with respect to any items using team IP or which are esports-themed.
5. Sponsorship Revenue Sharing
- Off the table for 2017.
6. Media Revenue Sharing
a. Off the table for 2017.
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