OPEN LETTER TO THE EU LCS COMMUNITY (NUMBER 3)

A lot has happened since our last open letter to the EU LCS community.  H2K has always sought to be transparent and we thought it was important to provide everyone with an update.

Today we are happy to announce that H2K has signed the RIOT Team Participation Agreement (“TPA”) and will remain in the EU LCS for 2018.  H2K remains committed and loyal to the EU region so long as we continue to compete in League of Legends.

We were pleased that the reported EU regionalization plan for 2018 was pulled back with RIOT then announcing a new plan including a franchised EU league in 2019. Had these changes not occurred, H2K would have sadly withdrawn from the EU LCS for the reasons we disclosed in our prior letters.

We are hopeful that RIOT will successfully launch the EU franchised league in 2019. We believe that H2K is well prepared and well suited for the franchised league given our (i) long history of competitive success, (ii) strong brand with video and social media content focused on H2K, the LCS and regional teams in EU, NA and Korea, (iii) a professional organization with a strong infrastructure, (iv) a stable financial plan identified by RIOT as critical for all applicants and (v)a team culture focused on the emotional growth and well being of its players which is respected both in the EU and elsewhere.

For 2018, taking into account the still inadequate although somewhat improved financial support provided by RIOT to the EU LCS teams, H2K has put together a young and talented team which we believe will emerge as the surprise success story in the EU LCS. We also have great confidence in our coach who has worked previously with H2K and with several of our players.

In an effort to bring financial stability in 2018, H2K has significantly reduced its operating budget to approximately €1 million by reducing player salaries and making other meaningful overhead reductions. With some luck, this should enable H2K to sustain a modest loss or perhaps even breakeven. In doing so, H2K will also satisfy RIOT’s franchising criterion requiring teams to demonstrate financial discipline and stability.  H2K has appropriately responded to RIOT’s messaging that teams who incur significant year over year losses, even if those losses are willingly funded by VC’s and other investor’s, won’t be considered financially stable.

To put 2018 into perspective, we knew going into free agency that our top EU players and coach were attracted to playing in NA as well as for other EU teams who were now competing with NA salaries.  To retain our top EU players, H2K would have had to commit to additional player compensation of at least €1 million in excess of 2017 player compensation driving the operating expense budget up over €2.5 million. This would have generated another year of significant losses. This is not something we were prepared to do nor would it have been responsible to do so.

RIOT cannot be expected to provide full funding for unlimited player salaries either within the current EU LCS structure or within a franchised league. There must be a balance.  As H2K has previously stated, however, the current financial structure of the EU LCS continues to be backward and upside down. The professional leagues and their players are the foundation of RIOT’s success and the EU LCS teams, even before franchising, based on their significant investment to date, should not have to subsidize RIOT and should participate at some level in revenues from in-game sales, skins, broadcasting, advertising, and sponsorships. With Overwatch taking the lead by providing teams with participation in these revenue streams, we are hopeful that RIOT will now adopt this approach for the 2018 EU LCS and in its future plans for the franchised league.

We enthusiastically look forward to what’s ahead and will continue to keep everyone posted on what’s going on at H2K and the EU LCS.

 

Richard Lippe, Co-Chairman H2K

Susan Tully, CEO H2K

December 7, 2017