Paper to be presented at DRUID19 Copenhagen Business School, Copenhagen, Denmark June 19-21, 2019 Esport Superstars Michael R. Ward University of Texas at Arlington (UTA) Economics [email protected] Alexander S. Harmon University of Texas at Arlington Economics [email protected] Abstract We analyze the careers of Esports professional players. The Esport industry has been able to monetize growing spectator demand to offer tournament prize money amounting to $113 million in 2017. A few hundred players, out of tens of thousands, earn enough to remain professional gamers exclusively. We examine three aspects of professional Esport player careers. First, a ?superstar’ effect leads to increases in the top prizes drawing amateurs into the professional ranks. Next, while age and experience affect player performance, player ability remains difficult to assess. Finally, career exits reflect a quick resolution regarding the uncertainty in player ability. Preliminary - Please do not quote ESport Superstars I. Introduction Esports refers to competitive video gaming at the professional level. Esports emulates traditional sports with player endorsements and sponsorships, spectators packing into arenas for tournaments, lucrative broadcasting deals, and recruiting from the college ranks. What had started as friendly competition and socialization events just over two decades ago, currently has a 226 million viewer global audience generating $696 million in revenue that is expected to reach nearly $1.5 billion USD by 2020.1 Total prize money across all games played totaled $113 million in 2017, with top earner Kuro Takhasomi (aka KuroKy) grossing $2.44 million. However, payouts are heavily skewed with a median annual earnings of less than $1,000.2 The size and skewness in earnings suggest a market for superstar talent (Rosen, 1981). Rosen posited that some labor markets that can be characterized by superstars have some distinct properties. In any profession, workers are heterogeneous with higher ability workers tending to be paid more than less able workers, however, the dispersion is distinctly larger in superstar markets.3 This can occur when higher quality for a service increases both the price and the quantity demanded. When coupled with ex ante ability uncertainty, these labor markets become a sort of “ability lottery.” Entrants are willing to accept much lower earnings to start, i.e., the price of a lottery ticket, if doing so makes them eligible for a chance at the top earnings. 1 http://www.businessinsider.de/esports-popularity-revenue-forecast-chart-2017-3?r=US&IR=T 2 (https://www.esportsearnings.com/history/2017/top_players) By way of comparison, the top male golfer in 2017, Patton Kizzire, won $2.96 million out of a total of $344 million in PGA prize money (http://www.espn.com/golf/moneylist). 3 The annual earnings at the 90th percentile-10th percentile normalized by dividing by the median annual earnings is less than one on average but exceeds four for actors and athletes. (https://www.bls.gov/careeroutlook/2015/article/wage-differences.htm) 1 Preliminary - Please do not quote We show that many of the features of the growing Esports labor market are consistent with Rosen’s model. We exploit earnings data available for nearly every professional Esport player for nearly every tournament they entered. This allows us to track entry into the professional ranks over time, by game and by country. It allows us to determine how earnings vary with player age and experience and how earnings affect the timing of player retirements. We show that, 1) while mean earnings are relatively unchanged, growth in top prizes has fueled entry, 2) a player will experience considerable earnings uncertainty conditional on age and experience, and 3) consistent with idiosyncratic uncertainty being resolved through play, retirements are postponed for top earners. Before we develop our tests of hypotheses, describe our data, and present our results, we first present a brief outline of the Esports phenomenon. Improvements in communications technology may create more winner-take-all outcomes through a superstar phenomenon. The key model requirement is that increasing worker quality generates ever greater increases in worker revenue. The typical example is better performers reaching ever larger audiences, all of whom are also willing to pay more for the performance. The digital economy has the potential to multiply audiences for a wide variety of products and services. University instructors are now reaching thousands of students per course through online instruction. “Killer Apps” are downloaded onto millions of smartphones. Previously unknowns have become YouTube, Instagram, and Twitter celebrities and are influencing pop culture. Given how quickly digital communication has evolved, it is difficult to imagine which industries will be transformed into superstar markets in the future. II. A Short History of Esports 2 Preliminary - Please do not quote Depending on your point of view, Esports may or may not be considered a “sport.” Hallman & Geil (2018) note that it is recreational, competitive, and has organizational structures similar to sports but requires little physical activity and is only slowly gaining general acceptance. Pizzo et al. (forthcoming) notes that Esports spectators appear to have similar consumption motives and attendance frequencies as traditional sports. We take no stand on this issue but instead exploit it as a laboratory for understanding economic phenomenon (Kahn, 2000). Video games emerged in the 1970s as coin operated machines in arcades that allowed only a single player to compete against a preprogrammed algorithm. With the decline in computing costs, console based games came into homes beginning in the 1980s. By the 1990s, games emerged in which two individuals could compete via dual controllers connected to the console operating movement on a single split-screen. With Local Area Networks (LANs), players gaming on proximate personal computers (PCs) could compete across separate screens. Gaming network developments on the Internet meant players could remain at home to compete against players virtually anywhere on the globe. Most games adopted this multiplayer, networked paradigm often pitting one squad of usually four players against another. One direction video game development took was the development of Multiplayer Online Battle Arenas (MOBAs) that have since become the mainstay of Esports. MOBAs typically have a standardized setting in which two teams, of usually four or five players, try to defend their base on a stylized map while destroying their opponents’ base. Different players take on different characters with different complementary roles. Individual matches usually last 20-40 minutes. The proliferation of MOBAs is due in part to their low graphical requirements and free-to-play marketing models. These games can be played on almost 3 Preliminary - Please do not quote any modern personal computer. Since game publishers earn much of their revenue from in-game purchases by players, they have become major sponsors of tournament series as a way to induce more players to adopt their games. The features that seem to make games more popular are: scope for creative strategy and tactics, the need for team cooperation, and an advantage for speedy reaction times. At the highest level of play, each player is making hundreds, if not thousands, of decisions and moves per minute in concert with his teammates. The Red Annihilation tournament for the game “Quake” in 1997 with 2,000 participants is widely considered to have been the first real instance of Esports. While the first tournaments featured “First-Person Shooter” (FPS) games, games based on “Real-Time Strategy” (RTS), such as “Starcraft,” “Dota,” and “League of Legends” soon came to dominate tournament play. Tournaments were often sponsored by game publishers but various leagues also formed that attempted to create continuity across tournaments. While tournaments were increasingly organized throughout the 1990s, and 2000s, the growth of Esports’s viewership and prize money accelerated tremendously after 2010. This acceleration in the growth of viewership and prize money was largely caused by the 2011 launch of Twitch, an online streaming platform routinely used to stream live Esports competitions. Twitch has also become a popular way for advanced players to upload their gameplay with tips and tricks in “walk through” and so gain a large following thus more firmly establishing a spectator base. Esports become more professional as it grew. Game makers sponsor leagues, various commercial enterprises sponsor teams and put players on salary. While model player contracts exist, the actual player compensation is subject to negotiation and is often not publicly revealed. It is reported that, typically, in addition to salaries, team players share prize money equally. 4 Preliminary - Please do not quote Some teams keep 10 to 20 percent to defray operating costs (Taylor, 2012, p. 176). The number of teams competing at a tournament can vary but a 16 team format is most common. As might be expected with such a new phenomenon, not much economic analysis of Esports has been conducted as yet. Parshakov and Zavertiaeva (2015) find strong country effects among the final standings of Esports tournaments. They further provide evidence that success is related to country tendencies toward masculinity, a long-run orientation, and the level of health and education. Coates and Parshakov (2016)