The most drastic sanctions in esports history could have a dramatic effect on big players getting into the industry.
Sunday's announcement by League of Legends publisher Riot Games that it had kicked out two professional teams and an amateur team from its leagues could slow down the wave of investors lining up to get into the industry.
"It should and would give buyers pause to make sure the diligence is really done," said one executive of a pro sports team looking to make the move into esports. "The diligence with these teams is a challenge."
In the first ruling, Riot kicked out two teams, Renegades and Team Dragon Knights. In a statement posted online, Riot director of esports Whalen Rozelle said, "Renegades management has been found to have knowingly violated the competitive ban against Chris Badawi, misrepresented their relationship with TDK, and compromised player welfare and safety."
Riot's latest penalty is based on findings that the Renegades' owner, Christopher "MonteCristo" Mykles, promised Badawi a 50 percent share in the team's return, a violation of the first ban put in place by Riot. The charge against TDK, a challenger team, is that the Renegades and TDK misrepresented their professional relationship, including housing and compensating players after trades.
Riot found that another League of Legends team, Team Impulse, didn't have signed contracts with most of its players and often missed payments to the players themselves.
Riot is allowing all three teams to try to sell their spots by end of the day on May 18, but that could prove difficult since the sale wouldn't include the players' contracts. Some Renegades players have already left the team, such as Aleš "Freeze" Kněžínek, while others have already announced that they're looking for new opportunities, such as Alexey "Alex Ich" Ichetovkin.
"At least one team told ESPN.com on Monday that the recent sanctions significantly slowed down their investment timeline, adding another complication to the quickly evolving space. "
In recent months, big names have come into esports, including Sacramento Kings minority partners Andrew Miller and Mark Mastrov, who bought NRG, which competes in the North American League of Legends (as did Renegades and Impulse). Shaquille O'Neal, Alex Rodriguez and Jimmy Rollins also purchased equity in the team.
Many sports teams are looking to make a move into esports. A representative for the Miami Dolphins told ESPN on Monday that the organization is preparing to jump into the fray.
"Esports is real, it's a fact," said Matt Higgins, co-founder of Stephen Ross' RSE Ventures and vice chair of the Miami Dolphins. "When you have tens of millions of people engaging online, eventually sponsors and rights buyers take notice. It's inevitable. We've been studying the space and plan to get involved very soon."
Since the space represents a disorganized Wild West for executives in the four major North American sports leagues who are used to structure and standard player contracts, those who want to invest are having to take a deep dive into how they'd profit before they sink their dollars into a team. At least one team told ESPN.com on Monday that the recent sanctions significantly slowed down their investment timeline, adding another complication to the quickly evolving enterprise.