A Friday night in Madison Square Garden.
The crowd was screaming for blood.
And the ushers and cotton-candy vendors had probably never felt so confused. In the center of the New York City arena, two teams of five indoorsy-looking men sat at computers, facing one another. With their headsets clamped on and swivel chairs pushed in, they resembled grandiose telemarketers--one side dressed in spiffy red-and-white varsity jackets, the other in long-sleeve black crewnecks with white tiger logos on the chest. As they typed and clicked, a chaotic scene unfolded on the gargantuan screens above them: A monk, an archer, and a swashbuckling lady assassin were closing in on a cyborg.
An instant later, bullets and arrows rained down. The roaring crowd was merciless. Gladiatorial. They wanted this cyborg's head. "That's gonna be a kill for Rox Tigers!" boomed the announcer. Thirteen minutes later, the red-and-white team's base exploded in a swirl of smoke and light--"Rox Tigers answer back with game 2!"--and the two sides retired to their locker rooms, each man rubbing hand warmers to keep blood flowing to his fingers.
Welcome to League of Legends, a team-based online game, and the raging, addicted, electrifying, vain, oddly beautiful, absurdly lucrative, and often bewildering world that swirls around it. If you've never heard of League of Legends or the company that makes it, Riot Games, you're not alone. You probably aren't a guy between the ages of 16 and 30, either. Every month, more than 100 million gamers play LoL, as its fans call it. While it's free to download and play, devotees can purchase extra characters--champions, in LoL-speak--and buy them virtual clothing, known as skins, and plenty of other decorative stuff. This year, those virtual goods will yield nearly $1.6 billion in sales for Riot, estimates SuperData, which tracks in-game spending. Riot also sells corporate sponsorships, real-life merchandise, and streaming rights for its professional sports league. In 2015, investors swooped in to buy stakes in teams and purchase slots in the league to build their own squads. Newly minted pro LoL team owners include Washington Wizards owner Ted Leonsis, Hollywood producer and Los Angeles Dodgers co-owner Peter Guber, AOL co-founder Steve Case, life coach Tony Robbins, and owners of the Philadelphia 76ers.
"One day, there will be a Super Bowl of e-gaming," says Leonsis, who co-owns Team Liquid, a portfolio of e-sports teams based in L.A. and the Netherlands. "Whenever I get the reports with the [League of Legends viewership] numbers, I almost do a double-take. In size and scope, it's mainstream media already."
Each December, Inc. picks a Company of the Year--one that defies the odds, remakes the status quo, and exemplifies a movement that's transforming its patch of the business world. In 2016, media fragmentation finally started wounding some long-impervious institutions. The National Football League's viewership fell by double digits. ESPN posted its biggest quarterly subscriber loss ever. Our attention spans are now so short that media successes are measured in brief spasms--Snapchats viewed, Pokémon caught. League of Legends provided a juggernaut of a counterexample. Each game demands 30 to 60 minutes of players' undivided attention. The average player spends 30 hours a month on the game--that's three billion player-hours each month.
Ten years ago, founders Marc Merrill and Brandon Beck started building a business based on improving an online game they loved. That business grew into a sprawling empire, brimming with creative potential and filled with salty and demanding fans. "Imagine we invented basketball," says Merrill, "but we own every basketball court on earth, we sell you the shoes, and we built the NBA." His comparison, while hardly humble, gets at the company's dizzying scope. Still, LoL is bizarre and unprecedented. It is beloved by a hundred million people. But it is not only unfamiliar to the rest of the world--unlike, say, basketball--it is also completely unintelligible to outsiders. After that Friday night's match, two LoL players joined a small crowd waiting to catch a glimpse of the pros as they left the arena. One, Preston Breedon-Glen, a 20-year-old student, said that he'd spent more than $1,300 on champions and skins in the past couple of years. How does he explain the appeal to nonplayers--or why, for him, spending more than a thousand dollars on virtual goods was worth it?
"That's really hard," he admitted.
LoL is not mass market. LoL is one massive niche. And as the world continues to fragment and consumers spend more of their lives online, more gargantuan niches will rise up just like it--with deeply passionate, demanding customers who devote large chunks of their lives to a world apart from everyone else. The next great challenge for business is understanding how to reach them and talk to them, and Riot is out on those frontlines. Its founders have made mistakes. They will make more. But that befits a company that's aggressive, flexible, and never cautious. Merrill and Beck meet their fans on their fans' turf, think constantly about what they want, hate, love--all the time honoring one key promise: They will match their fans' obsessiveness with their own. "It's not just about belonging," says Merrill. "It's our tribe, and it's about love." In fact, that's exactly why they started their company.
"We were those players who were willing to spend a thousand hours playing your game if there was a compelling competitive experience," Beck says. "But we often felt ignored.""One day, there will be a Super Bowl of e-gaming."
LoL fans speak their own language, and until you level up (get better) and stop being such a newb (novice), much will look and sound strange. But at its core, in League of Legends, five players take on five other players, each hoping to destroy the opposing team's base. Everyone begins as a weak little warrior at level 1. To win, the whole team must improve individually by killing monsters and other players' characters. Then the team attacks the other team's territory.
On a recent afternoon at Riot's 20-acre campus in Los Angeles, the founders met to do just that. A team was presenting the ultimate skin of a magician character named Lux. An ultimate skin is the character's superpremium attire--the new look costs much more than most wardrobe changes ($20 to $25 versus about $7) and comes with new animations and sounds. For players who have heard Lux exclaim "Illuminate the enemy!" and "Banish the shadows!" endlessly over hundreds of hours of game play, that's especially refreshing.
Beck, who wears the same gray hoodie frequently and a perpetual smile through unshaven scruff, loped over to a computer in the middle of the room. Merrill, a CrossFit aficionado who clips his hair as short as his beard, sat in the next row and began pulsing his leg restlessly. Beck started fiddling dreamily with Lux's spells and movements, inspecting the animations, listening to the sounds. But Merrill immediately began playing to win, killing Beck within a few minutes. So Beck, whose chillness should never be mistaken for apathy, promptly killed Merrill. The game stretched to 40 minutes. Then an hour. Then more. Neither talked much. Nor did any employees, aside from an occasional whoop or joke after a great play. A nearby staffer shook his head. "Who knows how long this is going to take," he muttered.
Beck, 34, and Merrill, 36, have long been very competitive gamers, very close friends-- and very different people. Both grew up well-off around Los Angeles, both attended the University of Southern California, both loved games like Dungeons & Dragons, and both had ambitious parents who worried their video game-addled sons might not amount to much. But the similarities stop there. Beck never finished high school--"I had gnarly ADHD"--instead passing a test to attend college early. Merrill was an Eagle Scout, an A student, and a captain on his high school football team.
At USC, Beck loved how Merrill made their nerdy hobbies seem cool. "Someone would talk shit and Merrill would be like, 'Dude, you don't play D&D?' " says Beck. "Suddenly, the jocks were considering it."
After college, they got jobs--Beck with Bain & Company, Merrill at a bank and then at a marketing firm--and an apartment in downtown L.A. They furnished their living room with back-to-back gaming rigs, with giant monitors and high-backed chairs for those hours of nonstop game play. There they fell in love with a game that would change their lives: Defense of the Ancients, a.k.a. DotA.
Even by the scattershot standards of online games in the early 2000s, DotA was a strange beast. For one thing, no one really owned it. In 2002, Blizzard Entertainment released the sprawling Warcraft III--a fantasy game pitting humans against orcs and other creatures--and included a function that let people tinker with the game as they pleased. This attracted a community of modders, fans who create their own versions. The most popular by far was DotA. In DotA, five players faced off against five others, with two bases in opposite corners of the map and three paths to get from one to the other. It had a certain tight elegance. DotA wasn't a game in which you beat level after level until it was over. And the DotA community was a world unto itself, with fans gathering on forums to suggest improvements, post stats, and share stories.
Beck and Merrill spotted an opportunity. What if a version of DotA smoothed all of the game's rough edges and continually introduced cool new features? Unlike typical video game companies, which followed a movie studio model and released one new title after another, the two could be stewards of one game, like the DotA community was now. Asian companies were then offering games for free, and charging for perks and items along the way. What if Beck and Merrill tried that in the U.S.?
The two leaned on skeptical family members and other angel investors for money, raising $1.5 million. Merrill and Beck had some experience with the video game business--in college they had helped raise money for another startup game studio, persuading their fathers and others to invest, and earned observer seats on the board. But neither Merrill nor Beck had ever built a serious game, and they had only tinkered with code. When they tried to gin up interest from publishers at a gamer conference, they didn't realize they were embarrassing themselves. "Brandon was like, 'Nicolo, look at this. I have a video of our prototype. We've done it in only four months,' " says Nicolo Laurent, who then represented a European game publisher. "He was so proud. And it was so sad, because it looked terrible." (Laurent joined Riot Games in 2009.)
But they kept refining the game, and wooed a round of venture capital--$7 million--by selling investors on the idea that they would make a different sort of video game company, one rooted in e-commerce. ("That kind of model made sense," says Rick Heitzmann, a managing director at FirstMark Capital, which invested in that round and a subsequent one.) At one point, the game's outsourced code became so problematic that they had to scrap the whole thing, which delayed the launch by a year. Still, bit by bit, the game got better. For a long time, their game was so clunky and tedious that the staff would reward themselves by playing DotA after play-testing League of Legends. Steve Snow, a senior producer at the time, can still remember the day the staff knew the game would succeed: They didn't want to play the other game. They wanted to play League of Legends again. They'd finally created a game that was fairly easy to learn, and nearly impossible to master, one with endless ways to self-improve, to help your team, and to compete with others.
Riot Games released League of Legends on October 27, 2009. The game was free to download, and offered 40 characters. A month later, Beck and Merrill launched an in-game store. They decided to never sell upgrades, such as special weapons or powers that gave some players an edge over the others. They believed doing so was anti-gamer--it was wrong to sell what others got with skill. Instead, they sold cosmetic improvements, like new clothes that changed the characters' appearances. Just as you buy decorations for your home, the skins and accessories help players spruce up their game experience and make it feel personal and more fun. Gamers were spending hours a day living in the game, too.
By the end of 2010, Riot Games had rung up $17.25 million in revenue, according to SuperData. A year later, sales had almost quintupled, to $85.3 million. Its distribution partner in China and investor, internet giant Tencent Holdings, saw Riot Games' meteoric rise and wanted to buy the company, offering $400 million in early 2011 for a 93 percent stake. Merrill and Beck accepted, persuading Tencent to let them operate independently. The two had big plans for LoL.
In December 2015, Tencent bought the remaining 7 percent of the company for an undisclosed sum. But Riot shows little evidence of being wholly owned by another entity. "There's not much about the relationship that's been typical," says Tencent EVP and "chief exploration officer" David Wallerstein. "I feel like the more we own of Riot, the more independent they become."
Behind one closed door at Riot Games' campus, where most of its 2,500 employees work, it sounds like someone is bashing armor with a sword, over and over again. The door swings open to reveal Brandon Reader, one of the sound designers on the skins team, whacking tuning forks. He's recording sound effects for a new character. To create the right sound, he's layering that metal-on-metal effect over the sound of a didgeridoo and adding echo. During playback, it all sounds otherworldly--aggressive and alien. All characters, he explains, get their own aural profiles.
Each champion--each aspect of the game, really--is built with this level of customization and care, because nothing pleases Merrill and Beck like overdoing it. In addition to the sound designers, they employ four full-time composers and a team of music producers, who record new music for the log-in and load screens, as well as for standalone music videos. Hundreds of artists and designers work on the game itself; others work outside the game on those videos and animated vignettes that develop the backstories of its champions. Fourteen storytellers and artists are dedicated to creating the lore of the world surrounding League of Legends--a sort of J.R.R. Tolkien committee. These details barely appear in the game, but the founders believe they add richness--and lay groundwork for future projects. Riot also employs four documentary filmmakers to chronicle the hard work of all the creative employees for LoL's fans.
But nothing is as over the top as Riot's outsize e-sports division. After the company's first world championship tournament, which it hosted in 2011 for a small crowd at a gaming conference in Sweden, Beck and Merrill went all out to make LoL look and feel like a pro sport. They set up the league, invested in broadcast equipment, hired a producer who'd worked on Sunday Night Football and the Olympics to make the game broadcasts resemble Riot's much bigger brethren's, and trained top LoL players to look and sound TV-ready. The next year's event, which awarded $1 million in prize money, took place in USC's Galen Center arena. Since then, Riot has booked arenas in Berlin, Seoul, and, of course, Madison Square Garden. In 2014, the company hired the Grammy Award-winning Imagine Dragons to perform at the finals and to record new songs for League of Legends. Beck wanted to let fans know that the band members were LoL players who loved the game as much as the die-hards. This year's finals, at L.A.'s Staples Center, featured a performance by a full orchestra and new music by platinum-selling artist Zedd.
Beck sees the music videos and animations as steppingstones--proof that Riot can create exciting action sequences, emotionally poignant moments, and any other building blocks needed to tell immersive stories in any medium. Soon, he says, he plans to bring LoL to life in new ways. "From day one," adds Merrill, "we wanted each character to be sufficiently interesting to be the star of its own film."
Economic considerations rarely factor into these decisions. "To be candid, it's not always comfortable for me," says Dylan Jadeja, Riot Games' CFO. "Return is very broadly defined, and it's not quantifiable in all cases. It's a gut sense that ties to where the premise of the business started"--a company built to be like a community for hardcore gamers. "We leave so much money on the table to ensure we're doing the right thing."
For now, the margins on virtual goods are so high, the cash flow so good, says Jadeja, that the company can afford to place long-term bets in the name of fan loyalty. That's also why Riot goes to great lengths to recruit and hire only hardcore gamers who think like its customers (for more on Riot's hiring, see "How Riot Guards Its Culture" below). Employees fervently embrace this mission. "I like to be very clear: I work for the players," says senior producer Lance Stites. "I just happen to be accountable to Marc."
But money has become a central issue in a dispute that has sprung up around Riot's e-sports division. That's where League of Legends resembles a pro sport, so investors, players, and team owners want ways to make pro sports money--and debates over how to do that have heated up online. Although Riot funds the championship prize pools and pays $12,500 stipends for pro players and coaches for each season split, teams have become increasingly vocal about sharing the revenue Riot makes when it sells world championship sponsorships, strikes distribution deals to stream games and tournaments online, and sells team-branded in-game goods. (Owners say that it costs around $1 million a year to maintain a pro team, most operate at a loss, and their primary source of revenue--sponsorships--can be fickle, especially when teams get relegated out of LoL's championship tier.) Many fans, naturally, have sided with their favorite team, rather than with Riot.
Such tensions came to a head in August when Andy "Reginald" Dinh, owner of Team SoloMid, criticized Riot for making a major tweak to the game right before a big match. He found it akin to changing the weight of the basketball right before the NBA playoffs--and unfair and demotivating to players, he said, who already struggle with short and demanding e-sport careers. (LoL pros need sharp eyes and sharper reflexes, and both dull after a few years spent staring at computer screens.)
In response, Merrill jumped into a Reddit debate, which he's done many times before, but he took a personal shot at Dinh. "If he's so concerned about the financial health of his players," wrote Merrill, "maybe he should spend more of the millions he has made/makes from League of Legends on paying them instead of investing in other e-sports where he is losing money."
He later edited the post, toning it down and offering clarification, but the backlash was swift and brutal. He was widely criticized by the LoL community for being an out-of-touch corporate overlord. Merrill owned up to the mistake in a subsequent post and apologized to Rioters in a company meeting--and the next month Riot issued an open letter that promised a future in which the company will share revenue, give teams "permanent stakes" in the league, and collaboratively develop new business models. Some fans praised Riot for tackling the issue head-on. Others argued that Riot didn't go far enough.
Those fans are so fervent because they're used to having their voices heard. Riot built its wildly successful game by doing something no competing game publisher did: letting gamers into the creative process. "If you go back to some of the threads from year one or year two of League of Legends and all the Riot [online] forums," says Steve Arhancet, a former pro gamer and now co-CEO of LoL team Team Liquid, "you had your developers, your executives, all chiming in to the conversation, listening to the community, making adjustments based on forum threads. The executive team didn't just have a plan and roll it out."
Beck and Merrill are still reconciling their dual role: corporate executives of a multibillion-dollar company who still see themselves as hardcore gamers. (Merrill is a platinum-level LoL player, putting him in the top 10 percent of players worldwide, and he sometimes streams his games online and chats with fans.) Both are deeply preoccupied with how the community views them and hate the idea of letting it down. The ethos that Arhancet described persists. Over the past year, LoL forums were ablaze with anger over Riot's reluctance to release some much-demanded features, including an in-game instant-replay system. In October, the founders posted a missive to Reddit that read, in part: "We made a big mistake. We're looking to make things right by trying to do something radical--giving you what you've been asking for all along."
Fans poured out their appreciation in response. "This has been my favourite post in the history of League of Legends," wrote Reddit user Acroblade. "Thank you for acknowledging your mistakes and making a REAL effort to please all of your players ... I speak for the whole playerbase when I say that we forgive you Riot, and we love you, and we believe in you. 2017 is going to be a great year."
Around 4:30 p.m., on the second day of semifinals, crowds start ambling down Seventh Avenue toward Madison Square Garden. The match between Samsung and H2K won't start until 6, but already the fans are rowdy. "H2-what?" shouts one group.
"H2K!" responds another walking in the other direction. They've been drinking all day, explains Zach Smith, 24, as he passes a vape to a friend. It's rainy and cold, and Smith is wearing only a tank top and jeans, but he's impervious to the chill. He drove up with two friends yesterday from Maryland. At a bar, they'd met two other LoL players, guys who'd driven down from Albany; all were now luxuriating in the beery joy of being around those who understand what most of the world doesn't.
"Ninety-nine percent of the time, we're all outcasts," says Smith. "We like video games. We're really into watching other people play video games. When you say that to someone else, they're like, 'What are you talking about?' And then," he continues, "you congregate, and you meet people like this, and it brings people together--it's seriously amazing."
How much have they spent on skins?
One Albany guy groans. "Ugh--$200?" A buddy pipes up: He's spent $300. Another adds he's spent $200 too. Smith has spent $500--so far.
How do they feel about Riot?
They start talking over one another:
"They could do more--"
"They've been on the ball lately!"
"No, no, no! Marc Merrill fucked up!"
"As a player, I love Riot. As a competitive player, I think they could do more."
"Players have a one-, two-year career! They should make it last longer!" They all want LoL's pros to have five- or 10-year contracts--to play a video game that's existed for only seven years.
Inside, the arena is crowded with fans wearing jerseys for LoL teams and cosplayers dressed up like their favorite champions. Meanwhile, merch lines are stacked with fans 30 or 40 deep, clamoring to buy $25 T-shirts, $65 hoodies, and $25 furry hats. Up on the second tier, five friends from the Penn State e-sports club get ready to head to their seats. They traveled five hours to see LoL, having bought tickets before they even knew who was playing. They say the e-sports club has grown from around 30 members to more than 200, and LoL is the most popular game. But now, so many kids play LoL in high school that they arrive at Penn with their own teams and cliques--they don't need the e-sports club anymore.
H2K's smash-mouth offense scores a few early kills, but the disciplined and efficient Samsung recover to dispatch their rivals and advance to the finals. (SKT will beat them in five games, to retain their championship.) But the fans don't care that the match is lopsided. They shout for Samsung. They chant H2K. They chant for TSM, a fan favorite that isn't even playing. As the fans file out of the arena, they linger by the entrance. They're snapping photos with cosplayers. They're snapping photos with one another. The security guards keep yelling for them to clear out. But they're not going anywhere. League of Legends is their favorite game. They're surrounded by their favorite people. This is their tribe. They aren't going to let this moment slip away.
How Riot Guards Its Culture
Those who work at Riot should come to expect a very particular way of life. "Something-for-everyone culture will not really mean anything to anyone," CEO and co-founder Brandon Beck told a conference in 2011. "Be polarizing and take a fricking stand." As Riot does, every day.
1. Make your values nonnegotiable
An effective Rioter calls out stupid ideas (regardless of rank), is comfortable getting "brutal" feedback, and is obsessed with solving problems instead of making them go away. In other words: The ideal Rioter is a misfit at typical companies.
2. Look for fanatics
Riot's interviews test candidates passion for game minutiae. Hiring managers often check Riot's game logs to confirm an interviewee plays as obsessively as he or she claims. Shiny pedigrees? Riot doesn't need 'em.
3. Sell people on the challenges
Gamers will want to win through effort and practice, not shortcuts, and Riot wants workers driven by this ethos. Instead of pitching Riot as a congenial place to work, hiring managers focus on how new hires can level up--that is, develop and fine-tune skills.
4. Friction is your friend
Applicants need approval from a hiring sponsor--in addition to the manager--before a job at Riot is theirs. Those sponsors vet against Riot's cultural tenets and challenge the hiring manager's case. The process can take months--but it protects the culture.
5. Help them quit
New hires have six months to decide if they fit--and an incentive to leave if they don't: if they leave, they get 10 percent of their salary, up to $25,000.