With H2K’s letters to Riot (number one and two), North America announcing enfranchisement in 2018, and four major European teams trying to join the NA LCS, discussions have flown back and forth about what exactly is going on behind closed doors and why so many teams are talking about huge losses. Although we don’t have the exact details – Riot isn’t willing to share those numbers – we have some facts that help outline what is going on.

The biggest thing to understand is that Riot has been running the esports division of League of Legends at a loss since its inception. This is difficult for many to believe, but it’s true, and if you look at the numbers, it even makes sense.

There are a lot of costs that contribute to this loss – facilities, sets, servers, marketing, event planning, staffing – all the stuff most people would think, but the biggest issue is that traditional sports have a much more reliable and profitable model which Riot – until perhaps 2018 – simply hasn’t had.

For Riot, and their teams, broadcast revenue has been the biggest hurdle to overcome. Because every League of Legends tournament from regionals to Worlds is broadcast for free through streaming or VODS, the most lucrative part of traditional sports has been entirely inaccessible to Riot. For example, the NFL made approximately $7.3 billion dollars in broadcast rights in 2016. Due to profit sharing regulations, that money is then distributed equally among NFL teams. It simply isn’t possible for Riot to both offer their tournaments for free and pay their teams in the same capacity that sports do.

It is also made difficult by the fact that the current arenas for League of Legends games are mostly held near Riot’s headquarters and can fit maybe one hundred people. Compared to the tens of thousands of seats at other stadiums and the cost for those tickets – tickets for a League game usually run $15-$30 – and all of the profit models that have functioned so well for so long for sports fall completely apart.

But things are looking to turn around. A partnership with Disney’s streaming company BAMTech was signed last year, and if Riot manages this deal properly, much of the proceeds of this deal should be available to teams (or at least a similar transition of proceeds from other avenues).

Additionally, many of the models used by other esports like Dota 2 are being adopted by Riot, including proceeds of championship and Worlds skins going to prize pools for numerous tournaments. Also like Dota 2, Riot is stepping up efforts to offer in-game jerseys which will translate into larger profits for teams.

The biggest takeaway is that if Riot is honest and on time with the changes coming, life should get much better for League of Legends team. Of course, unless they implement efforts to bolster the bottom tier teams – something Major League Baseball and other sports offer – Riot will end up with the issues many sports already struggle with, which is a focus on profits for the top teams while the bottom teams suffer. We’ll just have to see what other changes Riot has up their sleeves to bolster teams.