Inside the breakdown of EA’s revenue share deal for Apex Legends esports

esports gamers

Times are hard in the esports industry, particularly for teams. Through such a barren spell, the biggest teams are leaving behind the publishers that chose not to share their spoils when times were good.

Apex Legends has faced such an exodus of teams after EA, which together with the game’s developer, Respawn, halted plans to introduce a revenue-sharing initiative for in-game item sales with 20 esports organizations, according to six sources who spoke exclusively with Digiday.

Esports organizations have been unwilling to say too much; game publishers are the power players in esports, given that they own the underlying IP of the sports themselves. They make the final call on just about everything. As such, orgs want to avoid their bad side. What follows is a signpost for teams: esports titles with engaged publishers, pitching fair economic models, are far more inclined to attract and retain esports teams.

EA shut down talks of esports revenue-sharing from in-game item sales on Sept. 16, 2022, according to email correspondence to executives at two of the esports orgs that were involved with talks with EA. Specific details of the failed rev-share project have not been revealed or verified until now as the esports organizations were cautious to avoid ruining relationships with EA.

In esports, publishers rule the roost, given that they own the underlying IP of the sports themselves. EA, which owns Respawn, declined to comment on this story.

Since then, at least five tier-one orgs — Team Liquid, G2 Esports, Cloud9, NAVI and Spacestation Gaming, all of which were involved in these revenue-sharing talks for Apex Legends’ ALGS — have let go of their rosters and left the the esports title for good. While the first of these teams began to leave in September last year, executives involved have been reluctant to talk about it until now.

For months, EA and Respawn explored several revenue-sharing models of different scales for ALGS — or Apex Legends Global Series — according to several team executives. And while these talks were promising, a deal was never inked.

“It was more of a ‘trust me bro’ situation,” one executive said; “Rev-share for digital goods was always the context for all discussions there,” said another.

Re-negotiating efforts

EA and Respawn eventually decided against this. Instead they offered teams $60,000 each as a flat licensing fee — far below what teams felt was fair. For context, tier-one orgs, particularly in North America, can make $1 million or more per sponsorship deal per year. “I make that [$60,000] in one quarter in [game name redacted], times two,” said one senior executive at an org involved in the discussions with EA, in reference to a revenue-sharing arrangement at another title. 

In response to EA’s offer, the teams collectively drafted a letter — led by TSM and Team Liquid — rejecting it.

“We are not comfortable with the proposed licensing offer, nor do we believe that the decisions made around it have been done so in good faith,” the letter reads, which was shared with Digiday. The letter was signed by executives from 14 of the 20 orgs involved in revenue-sharing discussions. They are as follows: 100 Thieves, Alliance, Cloud9, Complexity, DarkZero, Faze Clan, Fnatic, G2 Esports, NAVI, NRG, Sentinels, Spacestation Gaming, Team Liquid and TSM.

The execs offered a counter proposal of an uncapped 50/50 revenue split for in-game skin sales, as well as minimum guarantees.

EA came back with a revised offer based on sales performance instead of a flat licensing fee: the three orgs whose skins sold the most would get $160,000; the next three would get $120,000; the next six would get $80,000; and the bottom eight would get $60,000. There was still no revenue-sharing included.

The teams then responded with another counter-offer, imploring EA and Respawn to explore an uncapped revenue-sharing model as close to 50/50 as possible. “Our collective experience in dozens of esports titles and leagues can provide the ALGS with a different perspective in the pursuit of creating the world’s best esports league,” the email read.

After this counter-offer, EA shut down talks altogether, citing tight timelines and so it could “internally discuss how we can best work together with teams to build meaningful, mutually beneficial partnerships around Apex Legends and the ALGS.”

A dying esport

There have been rumors for months of insufficient financial proposals by EA, and of an unwillingness from Respawn to accommodate esports teams. There have also been leaks of esports team skins in Apex Legends from September last year, around the time EA and Respawn shut the initiative down. One team executive said design and development of the skins, in collaboration with developer Respawn, began as early as March 2022.

According to the emails sent between EA and the teams, team-branded skins were supposed to be in the Apex Legends marketplace in mid-October, but the two parties were still negotiating financial terms in mid-September with no guarantee in place.

Teams spent manpower developing the skins. When EA decided to “pause this particular sale” (as communicated to teams via email), executives felt they had wasted money despite not having a contractual agreement in place.

EA did throw the teams a bone in mid-2022 when team-branded ‘banners’, which are in-game items in Apex Legends, were released. But sales were modest. “It was really little money,” said one team executive. According to one team executive, some teams did not sell more than the $60,000 minimum guarantee in banners. Another executive said this was because teams were not involved in their design, and the items were less desirable than weapon or character skins. “In the first season, that was a very rough thing, because we weren’t involved in design. It was a product that nobody wanted.”

Because of the poor sales numbers, EA and Respawn determined that a rev-share deal on weapon and character skin sales would not be worth it financially. Some sources spoke of EA’s philosophy as a business, and how this affects its attitude toward esports.

“So [EA and Respawn are] like, OK, if we make $100 million from this bundle and we’re giving $20 million to the teams, we don’t feel like the teams are going to bring $20 million in sales’,” said one team executive. “From a P&L standpoint, sure, maybe that’s the case. But that’s the problem with them … other developers would say, ‘Maybe the teams are not going to push the sales 20% more than what it would have been, but you know, these teams invest in our ecosystem, they do free marketing for us with them being in an esports programme’. … Respawn and EA don’t think like that. If you look at the FIFA stuff [arguably pay-to-win Ultimate Team mode and loot-box mechanism, which has led to past bans in the Netherlands and Belgium], they’re just revenue-focused, they don’t care about marketing and stuff like that; they want everything in the green no matter what it is.”

Financial support from publishers, in the form of revenue-sharing and stipends, is a hot-button topic in esports. Teams, who are largely struggling financially, are heavily reliant on sponsorship revenue, and unlike traditional sports cannot look forward to significant media-rights revenue. A potential solution to this problem is for publishers to give teams a leg-up; in return, teams can focus more effort and resources toward promoting the publisher’s game. One part of this equation is revenue-sharing: publishers put purchasable esports-team-branded items in their game, and share the revenue generated from such sales with teams.

One team executive was critical of EA. They believe the publisher-developer relationship between EA and Respawn leads to laborious management of projects. “I’ll be honest, EA is the worst [publisher in esports]. It’s like, a giant step down from everybody else,” they said.

There’s room for finger pointing for these failed revenue sharing talks: EA was in charge of communication with esports teams, but according to at least two team executives, the revenue-sharing initiative was shut down because EA could not get Respawn, the company it owns, on board. Another executive told Digiday that their organization was told EA’s executive team was the one that didn’t want to go ahead with rev-sharing, rather than Respawn’s.

Most esports competitions have minimum guarantees. Riot Games has organized its Valorant ecosystem to emphasize favorable revenue-sharing for teams with no hefty buy-in, and like other competitions, it guarantees a yearly stipend to partnered teams. ESL guarantees that the Pro League in CS:GO shares 25% of total revenue with teams, as per the Louvre Agreement.

It is clear that for esports to thrive — or even to scrape by at the moment — some help from publishers is in order.

Mark ‘Cashflo’ Flood, founder of Disrupt Gaming and former Director of North American Operations at Astralis, said: “Let’s just say that all of esports as we know it, with the teams, and this, like, professional atmosphere, just totally got wiped away, and we went back to only grassroots, and maybe the publishers put in a million-dollar prize pool, but everything is run through Challonge [grassroots tournament platform]. I think there’s a strong case to be made that that version of esports is just as helpful to the publishers as this one that we’re currently in, which is this huge amount of production, and crazy salaries and professionalism.”

https://digiday.com/?p=502491

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