For most esports purists, Counter-Strike is the pre-eminent game. It has been a bastion of competitive gaming since 2000, retaining its position as the first-person shooter genre’s gold standard throughout the 21st century.
Its latest iteration, Counter-Strike: Global Offensive, has some of the largest prize pools and the biggest salaries in esports. But globally, CS:GO events don’t command the media rights fees or sponsorship income of titles like Overwatch or League of Legends.
Counter-Strike esports is not centrally organised and operated – there are several tournament and league operators in direct rivalry, each competing for a bigger slice of the media and sponsorship pie. This has made Counter-Strike something of a buyer’s market for brands and streaming platforms, and most Counter-Strike tournament operators and teams are losing money in the hope of being one of the last men standing.
The idiosyncrasies of the CS:GO esports business are largely due to the laissez-faire philosophy of the game’s developer, Valve.
Valve has allowed independent tournament operators, teams and players to run the Counter-Strike esports scene with little interference since the original game’s release 21 years ago. The developer has faith in Counter-Strike’s hardcore fanbase – which isn’t afraid to unify and boycott anyone or anything that doesn’t meet its standards – to be the invisible hand that moves the market.
Valve only intervenes in Counter-Strike esports to prevent a single tournament operator from creating a monopoly. It believes that competition must always exist in the marketplace and that if an operator became too powerful to bend to fans, it could drive players away from the game.
After all, it’s players that butter Valve’s bread. CS:GO is free-to-play and tournament operators pay nothing to license the game for their events. The $400m-plus (€365m) Valve earned from Counter-Strike in 2018 came entirely from in-game items purchased by its fiercely loyal player base.
For tournament operators and teams, viewership is everything. Greater viewership means more sponsorship income, which continues to be their most important revenue stream. It also means greater income from advertising, as most media-rights deals agreed with streaming platforms include a share of ad revenue.
For the past two years, four major tournament operators have been in cut-throat competition: ESL, Faceit, Blast and Starladder. Each spends between $5m and $20m per year hosting Counter-Strike tournaments as they vie to fill more arenas and attract more viewers than their rivals.
ESL is understood to spend at the high end of this range, offering over $5m in prize money during 2020 and putting on huge events in arenas around the world. Faceit and Starladder spend on the lower end of the scale, while Blast is offering a $4.25m prize pool for its tournaments and series in 2020. Industry experts say this will push Blast’s overall costs to between $8m and $10m this year.
The leading CS:GO teams also struggle to make ends meet, with some losing over $2m each year. The top 50 teams in the world are understood to each spend between $1m and $3.5m per year on player salaries and team operations. Counter-Strike players also keep a huge portion of any prize money they win as competition for their services is fierce. As a result, the teams’ share of tournament operator revenues is often miniscule, forcing them to instead monetise Counter-Strike through sponsorship deals that rarely come close to covering costs.
Unable to form a single, exclusive franchise league in the vein of Overwatch, League of Legends and Call of Duty, teams and tournament operators have grown sick of fighting for survival with no opportunity to win.
Both agree that a single, top-tier Counter-Strike league would have a great chance at profitability. But with Valve refusing to act as a unifying party – and stepping in to maintain competitive dynamics – those teams and tournament operators are taking things into their own hands, deepening battle lines in the process.
Battle lines drawn
ESL, which operates the market-leading ESL Pro League and ESL One tournaments, is seeking to solidify its number-one status by signing teams to its ESL Pro Tour, which includes both competitions in a year-round circuit. Deals signed with teams are understood to be for four years, from 2020 to 2023, but there is controversy over whether they will allow teams to compete in other leagues.
An initial draft of ESL’s team agreement proposed that teams could not play in any other tournament that spanned more than 14 consecutive days – de facto making the ESL Pro League the only league competition in which these teams can compete.
ESL’s proposal offers teams a 21.25 per cent share of the Pro League’s gross revenue, with a 60 per cent share of profit in 2020. This share rises to 65 per cent in 2021. As in its previous deals with teams, ESL’s in-house agency, WESA, will take a 15-per-cent cut of all media and sponsorship revenue.
Dan Fiden, president of Cloud9, tells SportBusiness: “Valve doesn’t take any money from Counter-Strike esports, so there’s a lot more opportunity for a profit margin to exist. And I think that through the WESA agency structure, ESL will be able to capture their margin off the top and act as though that margin doesn’t really exist.”
Several teams are unhappy with ESL’s offer and believe the only company set to make a profit from such an arrangement is ESL.
As a result, a group of esports organisations including Cloud9, Dignitas, Immortals and OverActive Media – all of which own teams in at least one franchise league – have banded together to create Flashpoint, Counter-Strike’s first-ever team-owned franchise league.
Fiden, whose Cloud9 organisation is a key founding partner of Flashpoint, continues: “Because of the way the esports ecosystem has evolved, the tier-one team organisations have aggregated the majority of the investment dollars, that’s just the reality. We have the money to spend on Counter-Strike so we’re going to spend it and fix the economics in a way that we think makes sense and we think is much more sustainable.”
The 10-team league will replace Faceit’s Esports Championship Series, which had run for five years and 10 seasons but consistently lost money. Faceit will continue as the league’s operator and take a small minority stake.
The buy-in, at $2m, is a fraction of the amount charged by other esports franchise leagues. Activision Blizzard’s Call of Duty League charged franchise fees of up to $25m, while a slot in the Overwatch League costs well in excess of $20m.
Most of the teams guaranteed to take part in Flashpoint are multi-esport giants backed by venture capital, but only two of them are ranked in the world’s top-20 Counter-Strike teams. Counter-Strike fans know the difference between top-tier and B-tier competition, meaning the league will rely heavily on its marketing for at least its first year.
Provocatively, Flashpoint’s two seasons per year will take place at the same time as the ESL Pro League’s own two seasons – a direct response to ESL’s attempts to tie teams down to partially-exclusive deals.
Ralf Reichert, chief executive of ESL, is naturally sceptical of Flashpoint’s aims and methods: “What I don’t understand is how an additional league, which is taking place at the same time as another one, will actually create more money and improve the economics. The logical thing would be to assume that it’s going to create less overall value. Trying to put out a fire with oil doesn’t sound like a smart idea to me.”
Fiden has heard this argument before: “I’ve heard a perspective from both team owners and CEOs where they’ve asked why we need to split all of this up. They’re saying: ‘Don’t compete with us. Let’s just do this with ESL because even if it’s a crappy deal, it’s better that we all do one crappy deal, we don’t fight amongst ourselves, we don’t drive up player salaries and we don’t divide the media rights. And I get that, those things will probably be a short-term by-product of this.
“Player salaries are probably going to go up as a result of competition in the marketplace. But my view is that if the only way to make Counter-Strike viable is to reduce costs, or to agree to a crappy deal that doesn’t have any potential to make us profitable, it’s not a business that we can be in.”
Despite a lower standard of initial competition, Flashpoint hopes to capture the hearts of Counter-Strike’s hardcore audience by becoming an edgier alternative to competitions like ESL and Blast. In an attempt to appeal to non-endemic sponsors, these operators have sought to sanitise the game’s politically-charged theme (terrorists attempt to plant a bomb, counter-terrorists aim to stop them) and produce Counter-Strike content as if it were a traditional sport.
Flashpoint mentions the UFC as a key influence for its content, indicating its production will be grittier and perhaps accentuate Counter-Strike’s inherently violent gameplay.
“One of the challenges many of those folks have had is with Counter-Strike content. It is a game about shooting people,” Fiden says. “We think we’re going to bring something to market that has a different tone and is going to appeal in a deeper way to the core of the Counter-Strike fanbase. And over time, we think that differentiation is going to allow us to monetize this product.”
ESL has no such qualms about making Counter-Strike a friendlier product for mainstream consumers, hiring its executives accordingly. Ex-Team Marketing managing director Thomas Schmidt was appointed chief commercial officer in April 2019, while former WWE media rights executive Frank Uddo arrived as senior vice-president of global media in October 2018.
“I think that Counter-Strike is a team sport and should be treated like a team sport, not like something that is based on individual fighters,” Reichert says. “But it’s a sport, and you can produce it in a more entertaining way, or you can make it more serious. Counter-Strike is such a beautiful place because people can try this out. If people want to be the UFC of Counter-Strike, I think that’s a great idea to try out. Go ahead.”
Amid all the competition, rivalry and in some cases bitterness, teams and tournament operators believe in Counter-Strike’s potential as a mainstream esport above all else. They may not agree on the path to success or who should be paving it, but the continued belief in its potential keeps teams and tournament organisers in the space, despite most of them losing significant amounts of money each year.
As teams and tournament organisers toy with formats, content, revenue shares, franchise fees and exclusivity, a profitable model should eventually be found – if they are left to their own devices. Counter-Strike viewership hit new peaks in 2019 as competition between tournament operators reached boiling point, and teams and tournament operators are now focused on converting that popularity into something tangible.
Sooner or later, God will cut you down
Sensing that Counter-Strike’s esports scene could be heading toward a team-operated franchise league model, Valve is watching proceedings closely. The publisher released a warning shot statement last September, gently reminding tournament operators that signing exclusive participation deals with teams could lead to a withdrawal of the Counter-Strike tournament licence.
The statement read: “Recently there have been steps toward a broad form of exclusivity where teams who compete in a particular event are restricted from attending another operator’s events … at this time we are not interested in providing licenses for events that restrict participating teams from attending other events.”
The statement also warned teams against forming their own leagues, which Valve perceives to be a conflict of interest when those teams compete against one another: “We consider a conflict of interest to be any case where a tournament, team, or player has a financial relationship with any other participating team or its players. This includes multi-team ownership, leagues with shared ownership by multiple teams, or essentially any financial reason to prefer that one team win over another … this requirement isn’t new, but we felt it was worth reiterating given the conversations we’re hearing.”
On the subject of conflicts of interest, Valve later cooled its stance, stating that it would allow a team-owned league in 2020 “so that public conversations can be had about the value that leagues and other entanglements offer, versus the risk that they pose”.
Exclusive deals and team-owned leagues suit the teams, but Valve’s interest lies in the long-term health of Counter-Strike. Its position is in keeping with its libertarian philosophy, but also protects its bottom line.
Given how much money has been lost in the pursuit of its success, it’s a minor miracle Counter-Strike esports has made it this far in this form. As the esports world shifts toward models of guaranteed revenue, centralised leagues, franchises, geolocation and team-publisher partnerships, Counter-Strike remains the dog-eat-dog, free-for-all it always was; a money drain for all but those at the very top of the food chain.
While ESL, Flashpoint and Blast fight each other for what they see as top spot, a look further up that food chain suggests a little co-operation would go a long way. A much bigger battle with Valve is lurking around the corner.