The recent exit of the Echo Fox franchise from the “League of Legends” North American Championship Series drew negative publicity for league owner Riot Games Inc.

But the controversy may also shed light on bigger changes at Riot Games. After allegations that an Echo Fox shareholder made racist remarks to Rick Fox — the African American co-founder of the franchise and a former National Basketball Association player — League of Legends Commissioner Chris Greeley said Aug. 14 that the franchise would have to relinquish its spot in the 10-team league.

Greeley said Echo Fox’s removal from the tournament was part of Riot Games’ “zero tolerance” policy around diversity and inclusion.

“This was an opportunity for League of Legends to send a loud and clear message that they don’t want to be defined by this sort of behavior,” said Ryan Rogers, a media and entertainment instructor at Butler University.

Others see the move as a sign of a maturing culture at Riot Games, following allegations of sexism and discontent about prior franchise decisions.

Echo Fox’s departure might even be a “net positive for the league,” said “League of Legends” broadcaster Alberto Rengifo.

Riot Games is auctioning off Echo Fox’s place in the tournament, with bids due Sept. 15. Analysts say the winning bid could reach $50 million.

Billionaires who own traditional sports franchises may place a bid, knowing Riot Games holds exclusive rights to perhaps the world’s most popular esports game.

Echo Fox and nine other teams originally paid a franchise fee of $10 million each to join the League of Legends championship in 2017.

Rising valuation

Global revenue in esports is projected to more than double by 2022 to $1.8 billion, up from $865 million in 2018, according to Amsterdam-based market research firm Newzoo.

The principal beneficiaries of this growth, according to Newzoo analyst Jurre Pannekeet, will be companies that publish esports games or sell sponsorships and media rights for esports leagues — both core businesses for Riot Games.

Founded in 2006 by USC undergrad roommates Marc Merrill and Brandon Beck, Sawtelle-headquartered Riot Games’ business model is mostly monetizing “League of Legends,” a multiplayer video game that went to market to 2009 and today has 99 million worldwide spectators, according to Statista Inc.

The company was acquired by Chinese conglomerate Tencent Holdings Ltd. in 2015, a deal that came as Riot Games organized “League of Legends” esports tournaments across the world.

Riot Games officials declined to provide details on the league’s financial performance, but there are clear signs it’s growing. Nike Inc. and Mastercard Inc. are among the multibillion-dollar companies that signed up as tournament sponsors within the last year. And Riot Games self-reported that almost 600,000 viewers watched the “League of Legends” spring final in April, which was broadcast by Twitch Interactive Inc.

At the same time, the league’s expenses are also growing.

Riot Games announced its first guaranteed player salaries in 2013 after previously only paying athletes for outstanding tournament performances. Earlier this year, Greeley said, average player salaries exceeded $300,000.

Grown-ups in the room?

As Riot Games has grown, the company has faced various controversies, including allegations last year that female employees were passed over for assignments and endured a hostile, boorish work environment.

The company responded in part with public statements committing to a “culture of diversity and inclusion." On Aug. 23 Riot Games announced it had settled a putative class action lawsuit brought by current and former female employees for undisclosed terms.

In 2016, Riot Games banned owners of the Detroit Renegades from the “League of Legends” tournament for allegedly poaching players under contract with other teams. That move raised questions about Riot’s process for dealing with such practices among franchise owners.

But this time around, the company dealt with the controversy swiftly, said broadcaster Rengifo, a onetime contract employee at Riot. “There seemed to be a coherent collective effort to get to the bottom of Echo Fox’s operation,” he said.

That effort included the launch of a formal investigation by Greeley and the decision that Echo Fox’s owners would collect “a majority of the proceeds from the auction.”

“They handled it the best way they could,” said Anthony Borquez, a USC professor who is also an investor in the esports Overwatch League.

As for which team will replace Echo Fox, Borquez said the ownership group could be franchise owners from the Overwatch League, which is owned Activision Blizzard Inc. The league is the primary esports competitor to “League of Legends.” Many Overwatch League owners are billionaires who own teams in traditional sports leagues including the NBA.

“A lot of people want that Echo Fox spot,” Borquez said.

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