$400M in Media Value – 5 Key Findings from the Tencent/Riot Games LoL China White Paper

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China’s League of Legends Pro League (LPL) is an industry-standard example of how a franchise competition model can work in esports. Since it began in 2013, the LPL has become the most successful esports tournament series in China, in terms of sponsorship and media rights. According to Dai Bin, vice general manager of Tencent Interactive Entertainment’s marketing department, Tencent generated ¥460M RMB ($66M USD) revenue in media rights, and ¥440M ($64M) in sponsorship deals for all Tencent related esports tournaments in the first half of 2019. 

On June 20, Tencent Holdings and the Hainan government held the Tencent Global Esports Annual Summit in the Chinese city of Hainan. At the event, TJ Sports, a joint venture of Tencent and developer Riot Games, released the League of Legends China White Paper to the public. The document describes the history and current situation of League of Legends esports, and TJ Sports’s mission for the future. 

The Esports Observer has summarized five key points from the paper, in order to better understand the League of Legends esports business value and milestones so far for Tencent and Riot Games.

 

1 – $436M Media Value for the 2017 LPL Summer Split 

Pictured: 2017 LPL Summer Split generated ¥3B ($436M) in media value for itself and six partners Credit: LOL China Esports Whitepaper

The paper pointed out that the media value brands receive are significantly higher than the sponsorship fee provided. For the 2017 LPL Summer Split, the LPL generated ¥3B ($436M) in media value for itself and its six official partners, including Jeep as the title sponsor, Intel, DxRacer, energy drink War Horse, hardware brand Dareu, and China Merchants Bank Credit Card. For Mercedes-Benz, the brand received approximately ¥600M ($87.2M) in media value, acting as the 2017 League of Legends World Championship Chinese official partner (source: Riot Games & Nielsen co-branded report). 

Pictured: 2019 LPL partners and sponsors list. Credit: LOL China White Paper

From 2017 to 2019, the LPL increased its partner count from six to 13. The list now includes Mercedes-Benz, Nike, Harbin Brewery, KFC, Intel, War Horse, HUPU, Alienware, Doritos, L’Oreal Men Expert, Yili Guliduo, Red Magic (a Chinese phone brand), and DXRacer. This is currently the highest number of sponsors and partners of any regional League of Legends competition. 

2 – 30.4% of Chinese People Strongly Agree Esports is a Legitimate Sport

Pictured: 2017 League of Legends World Championship Final at the Beijing Bird Net Arena. Credit: LOL China White Paper

In November of 2010, esports organization EHOME established the first Chinese League of Legends professional team – Ehome.LOL. As of 2019, there are now 16 esports professional teams competing in the LPL, with one-to-two more teams to join in 2020.

Ren Yuxin, COO of Tencent Holdings said that esports has become an emerging industry with great business value and cultural influence, just like soccer and basketball. 

According to data from Penguin Intelligence Database, 30.4% of Chinese people strongly agree that esports is a sport. Comparatively, 5.6% of Chinese people disagree and strongly disagree that esports is a sport. According to the research, people who did not feel strongly either way, who disagreed, or strongly disagreed with this statement are mostly over 40-years-old, and are non-esports/gaming users. 

3 – 2018 LPL Revenue: 57% Media Rights, 27% Sponsorships, 8% Tickets Selling, and 8% Peripherals Selling

Pictured: Media partners of LPL. Credit: LOL China White Paper

The paper states that the LPL media rights revenue increase comes from five areas including steady viewership, developments in the livestreaming industry, exploratory deals in exclusive media rights, more media platforms selling media rights, and signing deeper partnership deals. For example, the LPL has signed media right deals with livestreaming companies Huya, DouYu, Penguin Esports, Bilibili, WeChat Live, social media Weibo, online video platform Tencent Video, Tencent Sports, local TV channel Great Sports, and Guangdong Sports. In comparison, Tencent signed a five-year Chinese exclusive media rights deal with the NBA, for $1.5B, according to Lanxiong Sports

Credit: LOL China White Paper

In February, Nike signed a four-year exclusive apparel sponsorship deal with TJ Sports for LPL. The deal includes all LPL players, coaches, referees, and team managers exclusively wearing Nike branded clothing and shoes on game days. For LPL, it’s not only the sponsorship revenue, but also the peripherals revenue when Nike and LPL released their co-branded “Gamer” t-shirt to public. The t-shirt was made available for purchase at the League of Legends online store.

Pictured: Nike X LPL co-branded t-shirt. Credit: Nike/LPL

4 – Top LPL Teams Valued at $180M 

 

The LPL uses a franchise-style tournament system. In exchange for franchise fees, teams are entitled to revenue sharing. Sources told The Esports Observer that the bid price of a spot would be a minimum of ¥80M RMB ($11.63M) for 2020, and that the buyer would need a strong reputation and business background.

According to TJ Sports’ research on esports organizations and the League of Legends market based on data before the end of 2018, the top LPL teams had an average value of ¥1.25B ($180M) and were still at the low end from a team investment perspective. It should be noted that TJ Sports said that the valuation was not based on teams’ brand influence, societal acceptance, or fluctuations in competition results.

5 – $4.36M Cost of Building LPL Home Venues, Minimum Usage rate: 30 Days Per Year.

Pictured: LPL home venue distribution. Credit: LOL China White Paper

In traditional sports, a home-away venue system is a mature business model, such as the NBA (basketball) or the Premier League (soccer). After six-years of esports development for the LPL, six esports organizations already have their own home venues in five different Chinese cities. Esports organization Royal Never Give-Up (RNG) and JDG have their own home venue in Beijing; Team WE in Xi’an; LGD Gaming in Hangzhou; LNG in Chongqing; and OMG in Chengdu. 

According to the white paper, the cost for LPL teams to set up their home venue is high, and the usage rate of LPL home venues is low. Basically, the cost of building a venue will be ¥30M ($4.36M), including land costs at ¥15M ($2.18M), equipment costs of ¥10M ($1.45M), and operations costs of  ¥5M ($730K) per year. The minimum usage rate of a home venue is 30 days per year, according to research.

Credit: TJ Sports

In order to help the LPL team to deal with the cost issues, TJ Sports and Tencent detailed a short term and mid-term plan. The short term plan is for TJ Sports and Tencent to provide financial and marketing support for LPL teams which have home venues, to decrease costs. In the mid-term plan, TJ Sports will use Asia’s largest esports streaming facility center, which was established in Shanghai in May of this year, to conduct long-range broadcasting of LPL events in order to decrease the cost for equipment and operation fees. For home venue usage rates, it will face more challenges. TJ Sports will provide more esports related content opportunities for teams including offline activities like music festivals, team open days, and public service activities.

Conclusion

 

The League of Legends China White Paper shows that the League of Legends competitive scene has developed significantly in the last eight years, and has made major breakthroughs in the Chinese esports industry after the LPL was formed. The Chinese esports industry, as a world-leading esports market, has made achievements on federalization, home and away localization, and industrialization. Despite the industry still facing many challenges including ecosystem building, capitalization in teams and tournaments, and creating a positive impact on society, Tencent, Riot Games, and TJ Sports are willing to improve their part of the sector with short- and long-term solutions.

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