The week of October 12, 2014

How a video game tournament raised a bigger prize pool than the Masters

By Jared Wynne

On an overcast morning in September, a scalper prowled a line of pro gaming fans curling around KeyArena in Seattle. The event had sold out in a matter of hours earlier that summer, and plenty of fans were looking to drop a couple hundred dollars just to get in. For many, however, this would hardly be the first time they’d put money into the event.

The prize pool for the tournament topped out at about $11 million—more than the world’s best golfers play for when they show up at the Masters. It was the biggest esports prize in history. But how did a video game company create a tournament that, in just four years, had grown a bigger cash prize pool than one of the proudest and most storied tournaments in golf? The answer is as simple as it is revolutionary: It turned to the fans.

There’s one major thing that separates Dota 2 from many other games: It’s free. To play, you’ve just got to download it and hit the play button. Free-to-play games are everywhere nowadays. Your average F2P game, as they’re often called, is a mobile app or some other relatively small title, both in terms of scope and development budget. But creating Dota 2 was an expensive venture for game developer Valve. And obviously all that money needed to be earned back somehow.

Thanks to its experience with other games—in particular, popular first-person shooter Team Fortress 2—Valve knew that if a game was popular enough, it could bring in continuous revenue. The money would come through something called microtransactions: small payments made in exchange for virtual goods.

In Dota 2, players take control of individual characters, called heroes, and then band together with other players to do battle with an opposing team. The number of heroes available is vast; 108 are currently playable, with more surely on the way. And each of those heroes has its own unique characterization, abilities, and style of play.

Valve’s bet was that its game would be good enough to inspire players to invest huge amounts of time in it, become attached to their favorite heroes, and then want to spend cash buying in-game items for them. Players are paying for a new look for their sage wizards and ghostly spirits. New robes, new armor, and even new hairstyles. None of these items even affect how the game is played. They’re all cosmetic.

Valve’s genius was to recognize that you could combine both worlds

Dota 2 also allows its users to buy virtual tickets to watch top-level pro competitions within the game client itself. So rather than watch the game via a stream online—controlled by someone else—you can have full access to the match as its happening. Money from those ticket sales, split between Valve and the tournament organizers, can also go straight into funding prize pools.

It turns out that fans are more than happy to open their wallets if it means making a big tournament even more exciting. Valve’s genius was to recognize that you could combine both worlds: An in-game client for watching the tournaments, and a suite of cosmetic bonuses.

Enter the Compendium.

Valve released the Compendium for the first time in 2013. And its purpose was solely to fund The International. Buyers get new looks for the game’s characters, new graphical effects, and new music—again, none of which actually affect gameplay. There’s one key feature, however: Each time a user pays the $10 price tag for a new Compendium, $2.50 is put toward The International’s prize pool. That first year, it provided just over $1.2 million. The game has since grown and the prize pool ballooned, topping out at the nearly $11 million prize this year— $9.3 million of which was generated just through sales of the Compendium.

In effect, Valve is asking fans of the game to crowdfund the biggest tournament of the year in exchange for some simple aesthetic rewards. And fans have proven very agreeable.

What Valve is doing with Dota 2 isn’t easy. To a great extent, it’s only possible because the rest of the company is so successful. Around the time Dota 2  was being developed, Valve had a total equity estimated at $2.5 billion. That gives you some wiggle room. Valve is also a privately held company, which means it doesn’t have to play to a group of investors or seek sky-high profits every quarter at the cost of customer satisfaction. In fact, under the stewardship of Managing Director Gabe Newell, the company has built a serious reservoir of trust with its audience.

That type of trust helps when it comes to asking gamers to fork over cash to, essentially, fund the game’s biggest tournament. And remember how the perks you get from the Compendium don’t actually affect gameplay? That also helps in building the relationship between gamer and developer. As soon as players have an in-game advantage because they spent more money than their competitors, trust between the gamers and the developer evaporates.

It turns out that fans are more than happy to open their wallets if it means making a big tournament even more exciting.

But for all of the success of Valve’s International events, they are not without their critics. Rival game developer Riot, who created hugely popular esports title League of Legends, has made it clear it doesn’t plan to emulate Valve’s model, even if it respects it. The implication Riot makes is that the model isn’t sustainable; it depends on fickle fan interest. And Dota 2 players are largely dependent on tournament payouts for money. Compare that to Riot’s League Championship Series model, which features tournaments with smaller payouts but also reliable salaries for all of its professional players.

The crowdfunded prize pool is a wild concept. Imagine a pro tennis tournament with a prize pool funded directly by the ticket-holders themselves. Or a major golf tournament preceded by a huge online fundraising drive. Esports is ripe for thinking up revolutionary ideas in sports, and then actually implementing them. That’s because there’s no model for the industry, no mold for it to grow into.

What’s fascinating is what this means not just for the future of esports, but the future of sports as a whole. What crazy ideas from the esports petri lab will make their way to the NBA or the NFL? That’s something fans of both esports and sports should look forward to.


Photos via Kenny Louie/Flickr (CC BY 2.0) and Keith Cooper/Flickr (CC BY 2.0) | Remix by Jason Reed