Corrections on article: “Dota 2 Majors are not guaranteed profitable events”

In my previous article: “Dota 2 Majors are not guaranteed profitable”, I highlighted the costs and challenges that Dota 2 majors face when seeking profitability for their event. The article was intended to be an information source for those interested in the business behind your favourite esports events as well as those looking to be more involved.

That said, during my recent travels to Major events, I had a wonderful time talking and receiving feedback from Major tournament organizers. We agreed on many aspects that I had previously explained but they also clarified some areas that were not true for all organizers (naturally as a lot of costs are dependent on the region and agreements between two parties).

This article hopes to display my humility in being open on what I’ve learned but also to correct the record for the sake of clarity. For the most part, the article remains accurate and reflective of how the majority, if not all, tournament organizers feel when considering the value of hosting a Dota Major.

Corrections and Clarifications

  • Uncertainty of Major Status: in my piece, I wrote about how Major status is not approved up to 3 to 6 months before the event-date. During my discussion with colleagues, they had indicated to me that, in reality, this is not as big of a challenge for tournament organizers as I may have (unintentionally implied). My intention was to highlight all potential challenges that tournament organizer’s face but did not do a decent job in prioritizing which were of major concern (beyond costs and diminishing returns year-over-year).
    • Additionally, it was not evident to me but it appears that every first DPC Major are run by PGL. This could be due to the close relationship between PGL & Valve. If the first major is communicated to PGL ahead of time and guaranteed, then the next major would be in January, plenty of time from the application date (May 1, 2019).
    • Additionally, reserving a venue does not have much or any (depending on the relationship) standing problems for a recurring tournament organizer.
    • Lastly, the concern was more towards incoming new brands to apply for Majors when they do not know if they will be considered. This is something that has been confessed to me by Western tournament organizers in the past year. That said, E-League has applied, was granted and dropped out of the DPC season, so this concern can be relatively small (for this year, they were replaced by the DreamLeague Season 11 Finals).
The upcoming dates for the DPC Season of 2019-2020 display an open slot in November then January. Last year, the PGL Major in Kuala Lumpur was the first Major. The year before was the PGL Bucharest Major.
  • MDL Major Example: In my article, I noted that Flights, Housing & Accommodations can take up to 27% of a tournament’s costs. I cited an example with the MDL Major in Paris, Disneyland. That said and despite my parenthesis that costs can vary depending on the organizer (and before group discounts and negotiations). I was not being faithful in that the MDL Major cost was much higher than traditional Dota Major events:
    • For starters, the MDL Major has an attached cost of about 4 to 4.5 million dollars (including prize-pool) – more or less double than other Majors.
    • Secondly, in partnership with Disneyland, a portion costs were covered which helps off-sets some cost concerns.
      • Majority of costs, including hotels and accommodations, were covered by MDL with no discount.
    • Thirdly, the breakdown of costs is still accurate in how they’re split. The costs, as noted for a third time, is dependent on the location and the organizer. An event in Russia or Ukraine is much, much cheaper than in Western-Europe or North American countries.
    • Lastly, Mars Media took a significant risk to deliver their event to Paris as opposed to their traditional country of China. That risk was not mitigated by Disney’s minority involvement.
Disney covering a portion or most of the costs for the MDL Major is something we touched upon by other organizations.

Reception

Reception of this article overall was very positive. While many friends and colleagues who run DPC events or are involved with Dota 2 have come forward to discuss further about this subject and changes they’d like to see or do for next year. The public has been mixed where people misunderstand healthy skepticism with cynicism and a personal vendetta. When it comes to writing these kinds of pieces, I should have done a better job highlighting my credentials, work in esports and in Dota 2 (my LinkedIn is publicly available). I was naive to assume that this would be received well by all parties but am relieved to see that the people who I respect in esports, have welcomed my article for its openness and interest in bringing the discussion to the public light.

Though under-reported in Western media, the article has been picked up by large media CIS hubs such as Dota.ru & cyber.sports.ru. I thank them for their coverage.

Though it was impossible to display everyone who spoke to me privately, publicly or simply acknowledged the article. It gave me great validation to see friends I regularly speak with openly (admittedly, on LinkedIn, which means a varying amount depending on who you are) enjoy my work. Thank you.

Conclusion

This will be my last public commentary regarding the current subject of Dota 2 Majors. The discussion regarding value of an event, risks to start a new team or considerations in a commentary career are always spoken in circles, from advocates and so-called consultants without any actual numbers behind it. This is either due to the fact that they do not know them, unsure if they can openly talk about it or if they feel secure about where their information is coming from.

In the future, I am hoping that more publicly-recognized members of this industry will speak up about how much money is truly being invested in esports and the short and long-term values that can be comfortably projected.

Dota 2 Majors are not guaranteed profitable events

The most important aspect in esports is the pro-players. Without the players, there would be no competitions, teams, sponsors, industry, etc. The second most important entity in esports are the tournament brands.

Around since the late 90s, tournaments have been a public stage to display the popularity, growth, interests and brands in esports. Tournaments are how an esports game showcases their value and opportunity. Tournaments provide a/an:

  • physical gathering for fans
  • public stage to market teams
  • direct reach to consumers for sponsors
  • majority of livable income for commentators & talent
  • display of popularity for a game developer’s product
  • platform for players to compete for major prizes
  • entertainment for viewers at home

With that said, the public discussion about tournament brands earning a profit on their events has been troubling in recent years. This article seeks to reveal the range of costs and revenue for tournament brands as well as the challenges they face.

How much it costs to run a Dota Tournament

Regarding cost, there are a lot of factors to consider. In this piece, we take on the assumption that this tournament is a Valve-sponsored Major (which means that Valve only provides you with half the prize-pool)

Depending on the region, a Dota Tournament can cost approximately 2 to 3 million U.S dollars including the prize-pool of $500,000 (Valve provides the other $500,000). The largest costs being technical production and accommodations which is about 50+% of a tournament’s costs.

Split may vary depending on the organization, where the event is hosted and negotiation. The range can be severe so take this with a lot of consideration.

As you can see, the largest costs are not paying for talent or even the prize-money but rather producing the entire event and hosting the players/talents coming in (travel & accommodations). For Dota tournaments especially, this cost is harrowing as Valve forces 16 teams to attend which is approximately 112 people who need flights, rooms, training facilities, shuttles, visas, three meals a day for 12-13 days (teams need to arrive before group-stages begin).

To take an example, MDL DisneyLand hosted players at the Newport Bay Club Hotel which is about $325 to $450 a night (before group discount/negotiations): ~$580,000. An alternative example is 2018 ESL Katowice, which had talent and players staying at the Atlus Prestige for $150 a night (some players/teams may have been at other hotels due to lack of rooms): ~$218,000. This doesn’t include talent, cheaper hotels for working staff or all other costs needed to accommodate.

The cost to run an event is incredibly high because of the number of players attending as well as the forced number of days an event must be held for.

How do tournaments make their money back

Before we talk about revenue, we should note that some tournament organizations have long-standing deals with small towns like Katowice and ESL where the venue may be discounted (or free) as these events drive a lot of tourism to a city that most people would likely never visit.

The revenue streams for event organizer’s is relatively straight-forward, it’s just the values that shift depending on the event: please note that each event is different and these are only approximations to help give you a sense of ratios between costs and returns.

  • Sponsorships/Advertising
    • The largest revenue stream for a Dota tournament is sponsorship/advertising sales.
    • Depending on your largest (title) sponsorship, it can be approximately equal to your consumer ticket sales.
    • Sponsorships have decreased over the years from $700 to $800,000 to now more $400 to $600,000 (maximum).
      1. Some events like to load up on a lot of sponsors at lower prices while others like to sell minimum packaging for high-prices but cover a lot of areas (branding, advertising, on-site booth, etc.).
    • Depending on how you package your sponsorship deals (per-event level packages, annual multi-event agreements, etc.), this number heavily fluctuates.
  • Media Rights Sales
    • Media Rights are a tricky business and the numbers range depending on the region you are selling rights to.
    • China is the most valuable region and sales go at approximately $200,000 (maximum). Other regions can earn up to $100,000 but it’s rare.
    • Some broadcasting sales are fixed fees or performance-base
    • I’ve opted to not talk about the Facebook deal amount, Twitch negotiations and more because it’s a much larger subject.
Huomao, IMBATV, Douyu and Huya are among the many competing Chinese brands who negotiate broadcasting rights for international tournaments for Chinese audiences and platforms.
  • Consumer Ticket Sales
    • Consumer ticket sales heavily fluctuate depending on the region and experience of the organizer to advertise and push sales.
    • Typically Majors are announced a few months in advance, very little time for many attendants to afford and make travel plans to attend. This affects # of tickets sold.
      1. Additionally, this is why many tournament organizers apply for next-year event dates: to ensure proper leeway to plan and advertise their event.
    • At the MDL Disneyland Major, a lot of factors were stacked against them that made their event challenging (and thus even more impressive they pulled it off):
      1. They began selling tickets much later than the usual, meaning promotion/advertising to get people aware and interested in the major is much harder (flights/hotel costs go up, closer to the event’s launch)
      2. They launched an event in a country that is not known for its Dota player-base. League has been hosting major events in Paris for almost 5 years.
      3. They chose a venue location very far from Paris at a much higher cost than other events. This can turn many people off who are not financially comfortable spending that much money for a Dota event (yet they are your target demographic)
  • Merchandise and misc.

We should also consider B2B convention sales such as what ESL achieves with Katowice (conventions), however this is not common for most Dota tournament organizers and heavily affects the variable venue rental costs, resources and human resources to manage this aspect. For the sake of brevity, I’ve excluded ESL events (though anyone could write a whole lot about ESL and its business history and relationships).

Image result for katowice
As lovely as Katowice is, it as not a worthwhile city to visit for many of its years. Only recently has it developed a modern town center and area that makes it more attractive for tourists to regularly visit. That said, ESL Katowice has been a strong promoter for the city for many years and continues to be each year to this day.

Challenges

Beyond the obvious challenge of keeping costs low versus improving your revenue streams, the involvement of a Valve’s “rules” to run a Major have become increasing leaning towards the player & viewer experience. This is not to say it is right or wrong, but depending on the perspectives – this heavily affects a TO’s costs and revenue. Some of these “rules” include:

  1. Nearly a two-week long LAN event
    • as mentioned before, this multiplies several costs to run an event.
  2. Must have all 16 attending teams go through qualifiers
    • Tournament organizer’s can no longer invite popular teams to their events, reducing viewership and increasing administration costs, time and human resources to manage these qualifiers.
  3. Non-exclusive viewing options
    • Non-tournament affiliated user brands can re-stream the event – re-streams do not help the event organizer in any way and heavily affects its bottom-line by reducing its future market-value for sponsors and media right broadcast sales.
    • Fans can view matches in-game
      • previously, digital tickets provided a valuable alternative revenue streams for tournaments (since their Twitch agreement may exclude any possibility of channel-subscription sales).
  4. Uncertainty of a Major status (this affects sponsorship sales) Major status approved 3 to 6 months before your event.
    • This affects venue rental options
    • Some tournament organizers pay to hold a venue on the dates they proposed to Valve, uncertain if they will be approved for those dates until a much later point in time (in which they are paying for that waiting period)
  5. No gambling or betting sponsors
    • Side-note: betting sponsors are approx. 30 to 50% greater than current sponsor sales depending on the size of the event.

Many of these factors are for the benefit of the viewer but disempower the tournament’s business and ability to stay in the black.

It’s not ever mentioned but it goes without saying that event attendance and viewership is heavily affected by which teams are competing. Na’Vi may not be performing very well but their brand power influences up to 10-15% of CIS viewership.

Conclusion

At the moment, there are many flaws and concerns about the Dota Major system for all parties:

  • Tournament brands are facing increasing costs with diminished potential returns.
    • The more Majors per year, the less value each Major is as sponsors now have more choice.
  • Players are feeling mentally and physically exhausted from too many events
    • May lead to a new Major tournament system, perhaps at the expense of tournament opportunity.
  • Talent are being negotiated down their previous rates as tournament businesses seek to cut costs to accommodate increasing expectations
  • Valve permitting re-streams provides more eyes on their product/game;
    • however this reduces the tournament’s viewership and marketable value for tournament brands.
    • Tournament brands must then re-invent their event to provide more than just games, but is challenged by the cost to do it.
    • Additionally, re-streams hurt a tournament’s revenue stream as it means less viewers, thus less value for sponsors as well as media rights sales to other broadcast companies.

In short, tournaments are a business above all but they are a source of human resources to market a product for a developer, income for many talents and commentators as well as a platform for teams and pro-gamers. As of right now, profits to run Dota events is tightening with each Major system iteration. Over the course of Dota 2, the cost to run events has increased but the actual returns have decreased over time. Once a developer becomes involved in an esports eco-system, there is no turning back, the environment is forever changed and that involvement must be kept and maintained. Valve’s involvement has created a consistency and opportunity at the benefit for the players and spectators, but it may be time to consider balancing the other end of this industry: ensuring the longevity of tournament organizer’s involvement with Dota 2.