The Esports Contraction: What Happened to the Boom That Was Going to Rival Traditional Sports

There was a period, roughly 2018 to 2021, when esports looked like it was going to follow the trajectory of every other major professional sports category: expanding audiences, rising valuations, broadcast rights deals, stadium builds, and eventually mainstream cultural acceptance. Investment poured in from venture capital, private equity, and traditional sports franchises. Team valuations reached numbers that assumed the industry would continue on an exponential trajectory indefinitely.

It didn't. The post-2022 esports landscape is defined by a restructuring that has been painful, widespread, and in some ways clarifying about what esports actually is and what business models work within it.

The Overwatch League: A Case Study in Overreach

The Overwatch League was the most ambitious attempt to transplant the traditional sports franchise model into esports. Activision Blizzard sold city-based franchise slots for $20 million each (rising to $35–60 million for expansion teams), with the expectation that geographic identity, broadcast deals, and brand sponsorships would follow the NFL model. The league launched in 2018 with stadium events in Los Angeles and a YouTube exclusive streaming deal.

The Overwatch League officially closed on January 23, 2024 — approximately six years after its launch — when it became untenable to continue. By that point, the league had lost two-thirds of its original franchisees. Microsoft, which had acquired Activision Blizzard in 2023, agreed to pay $6 million in termination fees to each remaining team, totalling approximately $114 million in exit payments. The geographic franchise model never generated the local fan identity it was designed to produce. Viewers watched their favourite teams, not their city's team.

The League Consolidation Wave

Riot Games' esports ecosystem — built around League of Legends, VALORANT, and other titles — has been more durable than the OWL but not immune to restructuring. In 2024, Riot consolidated its sprawling tier-1 structure: the LCS (North America), LLA (Latin America), and CBLoL (Brazil) merged into a single Americas league. The VCS (Vietnam), PCS (Pacific), and LJL (Japan) merged into an APAC region. The objective was financial sustainability over geographic coverage.

The total number of tier-1 professional League of Legends teams was capped at a maximum of 61 globally in 2025, down from 80 the previous year. The restructured format shifted to three splits per year, designed to create a more coherent season arc and reduce the operating calendar burden on teams and production.

Team Organisations: Layoffs and Exits

The restructuring at the league level was mirrored by severe cost-cutting across team organisations.

TSM (Team SoloMid), once the most-recognised esports brand in North America and valued at over $400 million at its peak, exited the LCS entirely in late 2023 and by 2024 had fewer than ten full-time employees — a reduction from a peak staff of over 200. The company's ambitious media diversification strategy (TSM FTX's cryptocurrency naming rights deal, which collapsed with FTX's bankruptcy in 2022, was only the most visible of several failed ventures) depleted the capital needed to sustain competitive rosters.

100 Thieves, the lifestyle-gaming brand backed by Drake and other investors, executed significant layoffs in 2023 and again in 2024, reducing its content and social teams as it concentrated on its most commercially viable verticals. FaZe Clan, which went public via SPAC in 2022 at a valuation implying over $700 million, subsequently saw its stock price collapse and was acquired by GameSquare. GameSquare later sold Complexity Gaming (another esports org it held) to its founder for $10 million — a figure that illustrates how far valuations had fallen from the peak.

Team Liquid, one of the more financially disciplined organisations in the space, reported breaking even on EBITDA in 2024 — a genuine milestone given the industry's losses — but still executed a 6% workforce reduction in 2025.

The Economics That Were Never There

The investment thesis for esports franchises was based on an analogy to traditional sports that had several structural weaknesses. Traditional sports franchises own their league access permanently — once you buy an NFL franchise, you can't lose your place in the league. Esports teams operate on publisher goodwill; game companies can restructure or close leagues at will, as Activision Blizzard demonstrated. Teams have no IP: the game itself, the league format, the streaming rights, the intellectual property — all of it belongs to the publisher.

Sponsorship economics also underperformed. Non-endemic brands (car companies, financial services, consumer goods) entered esports expecting the same audience quality as traditional sports demographics. What they found was a younger, more ad-resistant, globally distributed audience that was difficult to reach through traditional sponsorship activations. BMW, which had sponsorships across major esports organisations, exited the sector entirely in 2023. Betting companies filled some of the gap — a shift that brought in revenue but raised regulatory and reputational concerns.

EV/Revenue multiples for the video game and esports sector fell from 5.9x in Q4 2020 to 2.2x in Q4 2022 — 35% below pre-pandemic levels — and haven't recovered to their prior highs.

What's Actually Growing

The contraction narrative obscures genuine growth areas. Saudi Arabia's Public Investment Fund, through SAVVY Games Group and the Esports World Cup initiative, has become the largest single new investor in competitive gaming infrastructure. The 2024 and 2025 Esports World Cup tournaments in Riyadh offered prize pools totalling hundreds of millions of dollars and provided a viable alternative competitive circuit for games whose publisher-controlled leagues have contracted.

Content-driven esports — content creators competing, rather than professional teams competing — has shown more resilient economics. Creator events (chess boxing, football tournaments, golf events with influencer participants) draw audiences that paid esports leagues increasingly struggle to match. Team organisations that have diversified into creator management and content production — a model Team Liquid has pursued with its Liquid+ platform targeting 30% of revenue from non-esports sources by 2026 — are better positioned than pure competitive esports plays.

PC gaming competition at the grassroots level — amateur leagues, LAN events, university esports — has continued to grow even as the professional tier contracted. The audience for watching high-level play remains large; the business model for monetising that audience at scale, outside of free-to-play game publishers who use their own leagues as marketing, remains unsolved.

The Structural Problem

The fundamental challenge is that esports is embedded in products (games) that have limited commercial lifespans. League of Legends is 15 years old — an exceptional case. Most games that generate esports interest are competitive for three to seven years before the audience moves on. Building a franchise business on top of a product you don't own, that will eventually decline, requires economics that are difficult to make work.

The esports organisations that survive the current restructuring will likely be those that have successfully diversified beyond pure competitive play — into content, creator management, training, and ancillary businesses — while keeping their competitive operations lean enough to be sustainable on realistic sponsor and prize money economics. The league-franchise model as conceived in 2018 is effectively dead. Something smaller, more diversified, and publisher-independent is what's emerging in its place.