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Explaining the Esports Bubble for People in a Hurry
Publish Date: April 25, 2023
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Let’s talk economic theory.
It is the flavor of the month to say that the esports bubble has popped. Yet understanding what a bubble is, why it popped and the repercussions of said pop has somewhat floated under the radar.
The League of Legends Championship Series (LCS) is currently witnessing a potential fire sale with several organizations including TSM, 100 Thieves and Dignitas (along with the recently sold Counter Logic Gaming) looking to exit the franchised league for various reasons. The panicked craze over the future of the esport is palpable with fans worried about the future of their beloved team.
Yet in many ways, when understood, a bubble can be less frightening. Then again, in an industry that continues to struggle with public relations, it may be difficult to communicate what is actually going on. This is an attempt at doing so.
Here’s a simplified explanation of the economic term. An economic bubble represents a period of time when an asset greatly exceeds its estimated value. An item that is viewed, sold at $20 is actually only worth $1. There are two examples every business class is taught: the “dot-com” bubble and the “Tulip mania.”
Tulip mania dates back to the 1660s where the price of tulips skyrocketed to a point where people simply couldn’t afford them anymore. People continued to push the price of tulips to the point where buyers could no longer pay the high price and the market collapsed.
The “dot-com” bubble of the late 1990s, and early 2000s represents the period of time when internet companies became the hottest thing on the market. Valuations for the companies would skyrocket alongside the rise in the adoption of the internet. However, these companies simply weren’t making money, struggling to monetize. Suddenly, companies were out of business and venture capitalists were out of their investments.
A bubble is often times the misunderstanding of safety. Below is a once again very simplified yet pretty easy-to-understand example.