[Freedom Forum] Watching the Debate Over Introducing a Salary Cap in eSports

Since the endemic transition, pent-up demand for consumption has increased, the importance of leisure activities has grown, and interest in sports has been rising by the day. Like the K-content industry, which is loved around the world, sports also have the conditions to establish themselves as a high value-added industry. Recently, however, the e-sports industry has continued to face some controversy over profitability and the introduction of a price ceiling.

In July, League of Legends Champions Korea (LCK), Korea’s leading e-sports league, announced that after a guidance period during the offseason, it plans to fully implement a salary cap starting with the 2024 offseason. The main framework is to set an upper limit on the total salaries paid to each team’s five highest-paid players, and if a team exceeds that limit, it will be required to pay a surcharge, which will then be distributed to the other teams.

The profitability of e-sports has long been a recurring issue, and LCK teams have struggled with chronic operating losses. Despite a high average attendance rate of 93%, there are small arena sizes (an average of 500 seats), weak ticket sales revenue, and a relatively underdeveloped merchandise business compared with other sports. Although the popularity and scale of e-sports continue to grow, the financial burden on clubs has also increased.

Excessively inflated player salaries are also one of the causes. The average combined salaries of the five highest-paid players on each team rose by 71% in just two years. Many clubs now spend well over half of their operating budgets on player salaries. The LCK office explained that it introduced the salary cap as a way to secure financial soundness by focusing on discovering and developing franchise stars rather than engaging in excessive competition to recruit players.

Given the steep rise in spending and the lackluster improvement in profitability, reform for the sake of the “league’s sustainability” appears inevitable. However, there are still doubts as to whether a policy that restricts spending in the professional sports market—the very essence of capitalism—will lead to good results.

A salary cap is a system designed to keep each team’s player payroll at a sustainable level and promote balanced growth for teams, players, and the league. However, when a salary cap is applied in a sport where there are other leagues of similar competitiveness, it can weaken competitiveness by causing an outflow of players.

Leagues such as the NBA, MLB, and NFL, where salary caps are well established, have unrivaled competitiveness on a global scale, and because they do not engage in interleague competition with other leagues, they do not need to worry about losing players. By contrast, the LCK faces leagues of comparable scale such as the LPL (China) and the LCS (North America). In other words, it must compete for players not only within the LCK but also against overseas leagues. In the worst-case scenario, the LCK could be reduced to a “selling league,” where players debut there but move abroad as soon as they develop into S-tier talent, raising concerns about an overall decline in league quality. Resources for youth development systems and the LCK’s franchising structure could also decline sharply, creating imbalances.

That said, the claim that a salary cap produces nothing but adverse effects may be somewhat unrealistic. There are also cases in which a salary cap, suitably revised in light of a league’s own characteristics and surrounding conditions, has instead led to overall league growth. For example, Korea’s professional volleyball V-League, the Korean Basketball League (KBL), and European football’s Financial Fair Play (FFP) rules all revised or introduced salary-cap-type systems by appropriately taking broader conditions into account. As a result, the introduction of such measures became a stepping stone that helped secure both intense competition among clubs within the league and international competitiveness against other leagues. In the short term, it may provoke dissatisfaction among S-tier players, but from the broader perspective of overall league growth, it is not rational to reject the salary cap outright.

At present, the LCK is struggling to find its direction under the two banners of league sustainability and international competitiveness. The introduction of a salary cap is an attempt to ensure the sustainability of the LCK, and it can be described as an ambivalent system in which positive and negative effects coexist.

To overcome the crisis and preserve the strengths of the existing LCK, it is important to remember that sports leagues around the world have introduced various policy tools in different forms, taking into account their own national cultures, sporting characteristics, and unique traditions. One hopes that by refining a system suited to the league’s own circumstances, the LCK office can help e-sports achieve long-term development.

Eunjun Kim, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대]e스포츠 샐러리 캡 도입 논란을 보며...

Author: Eun-jun Kim

Date: 2023-12-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&idx=26306