Digital Media September 25 2019 E S P O R T S R E P O R T v

Esports: Transforming Media

and Entertainment

Passing the Billion Dollar Mark – Audience

Momentum Commands Attention of Advertisers, Legacy

Sports Platforms, & Investors

SEPTEMBER 25, 2019 | echlonpartners.com

Rob Goff 1 416 933 3351 | [email protected] Gianluca Tucci 1 647 794 1926 | [email protected] Pooja Sharma 1 647 794 1922 | [email protected] Karolina Kosior 1 604 647 4379 | [email protected] 1

Digital Media September 25 2019 FOREWORD

By Rob Goff, CFA

SUMMARY (3-11) Head of Research, Managing Director,

Telecom Services and New Media, Echelon Wealth Partners

We are exceptionally bullish on the broadly defined

ecosystem as an emerging new media and

ESPORTS PERSPECTIVE COVETED, LOYAL FAN entertainment market set to eclipse the billion-dollar BEYOND THE $1.1B MARK BASE THAT ADVERTISERS threshold. (12-23) FIND HARD TO REACH Technology, demographic, regulatory, and capital (24-30) tailwinds support compelling value realization across the ecosystem.

The shift of legacy advertising and sponsorship dollars to esports’ audience demographics where the IP enabled targeting capabilities and measured advertising ROIs are in the early innings is on track to surpass the billion-dollar mark. INVESTMENTS GOING ONLINE GAMBLING AND MAINSTREAM? (30-37) ITS RIPPLE EFFECTS (38-48) Billion-dollar legacy sports franchises need to play the long game given audiences that are increasingly long-in-

the-tooth with average ages of 50+. Esports leagues and franchises represent both a hedge on audiences moving away from traditional sports but also a means to cultivate

younger audiences.

Technology titans have placed billion-dollar bets on PUBLISHERS DOMINANCE SIGNPOSTS TO THE platforms and publishing titles. Their competitive AND OTHER CONCERNS dynamics support further capital flows and a self- TREASURE MAP (55-56) (49-54) regulation of league and tournament economics to stimulate user growth ahead of near-term monetization.

APPENDIX: We refer investors to the hockey stick analogy of going to where the puck is headed – we see sustained momentum ▪ ESPORTS ECOSYSTEM – KEY PLAYERS in audience growth and consequently esports revenues. ▪ FEATURED COMPANIES ▪ ESPORTS COMPS SHEET We do not see this as a build it and they will come ▪ EWP GAMING, ESPORTS AND GAMBLING INDEX situation. Rather, the audience is there, set to grow fuelled by aggressive infrastructure investments and

All figures are in US$ unless otherwise noted regulatory support, and monetization is key. Gambling is viewed as both an audience catalyst and source of revenues. Continued audience growth is expected to push advertising/marketing through the billion-dollar level. 2

Digital Media September 25 2019

DEEP DIVE INTO THE ESPORTS INDUSTRY Solid Viewership | Lucrative Brand Partnerships | Underappreciated Esports Betting Summary The competitive gaming esports phenomenon is poised to eclipse the billion-dollar threshold as it represents a game-changing new media and entertainment category. Audience engagement and growth have driven esports industry revenues on a steep trajectory tracking towards $1.1B (estimates by Newzoo, Exhibit 1) in 2019 from merely $195.0M five years back, representing a cannot-be-ignored CAGR of 41.3%. Structurally, esports is similar to traditional sports as both have professional and amateur players that compete in leagues and tournaments for prize money, either individually or as part of a team. Much like legacy sports, the growth in pro-level gaming has been an important driver in audience growth and amateur adoption as professional players have broadened awareness, provided playing strategies, and inspired young players to pursue professional careers. Technological innovation, the use of data analytics and investment in gaming arenas, initially for pro-level gaming, are supporting increased amateur engagement and user growth. In fact, the amateur gaming industry has created its own niche in the last few years with open source tournaments and social play that bring additional industry revenue potential. Advertising growth along with in-game purchases have the titans of game publishing and online platforms leveraged to accelerate esports adoption ahead of near-term monetization strategies that could potentially moderate growth.

We highlight the continued appreciation in legacy sports franchises where NBA franchise prices have jumped from $5.0M to ~$2.2B over the past 40 years. We now draw on the much-used hockey quote where ’s greatness was attributed in large part to his ability to go where the puck was going. We are optimistic that esports franchise valuations, and more broadly the ecosystem, represent a new media and entertainment category where audience trends suggest the analogy to traditional sports franchises applies for investors and industry participants. We find that the reference also applies to owners of legacy sports franchises where we see esports team ownership and audience outreach as a strategic imperative to reach and engage millennials. We have seen forecasts that have US esports viewer levels exceeding those of all legacy sports leagues with the exception of the NFL by 2021. The NFL’s just-announced partnership with TikTok reflects its strategic imperative to engage younger viewers and broaden its audience. Both Wimbledon and the NBA have begun working with TikTok to similarly engage younger viewers. It is noteworthy that the NFL similarly moved to expand its audience through live-streaming video on , it was the first on Snapchat Discover, and launched an Alexa voice app. With legacy sporting franchises sporting billion-dollar valuations, owners are playing the long game where audience rejuvenation and broadening must be a central consideration. The average viewer of an NFL game is over 50 years old with a downward trend in personal consumption (average age of MLB/PGA viewers is put at ~57/64+ years).

Esports player demographics continue to expand at both ends of the age spectrum, while the industry moves to attract younger amateur and prospective professional players. Significant investments and strong partners have invested in both college and high school level platforms broadening the development of younger participants and audiences. For example, Cineplex (CGX-TSX, C$25.34, Buy, C$34.00 PT) invested C$15.0M to acquire WorldGaming where it saw the value in its US college network and the potential to leverage its Canadian real estate platform for tournament and league play. Moving below the college level, PlayVS (Private), a gaming platform targeting high school esports tournaments, received $30.5M from investors including Adidas (ADS-ETR, NR), Samsung (005930- KSE, NR), Sean “Diddy” Combs, and the VC arm of the Dodgers to make esports more accessible for teenagers and to support recruiting new talent. We highlight that Discord (Private), a messaging app with a focus on video gamers and particularly strong with youth, raised $50.0M at an implied valuation of $1.7B in Q218 with an estimated 150M+ users at the time versus its 250M unique users in March 2019 (including 180K+ members on Fortnite’s server). It is also worth noting that, the US High School Esports League (HSEL) has advanced from 200 to 1,200+ during 2018 with its current reach at 2,000+ schools representing 50K+ students. The HSEL reflects both the expanding North American market and prospectively a pipeline for further growth.

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However, at its core, the solid viewership of wealthy millennials, mostly male (we expect that to normalize in the coming years), provides esports its oxygen. If Newzoo’s numbers are to be trusted, there were around 380.2M esports viewers globally in 2018 and it is set to grow by 15.0% y/y to 453.8M in 2019, ~44.0% of which are esports enthusiasts (individuals that watch more than once a month). This number is expected to reach 557M by 2021, out of which 44-45% would be enthusiasts and the remaining would be occasional viewers. Still, similar growth in both categories suggests a possible natural evolution of occasional viewers to enthusiasts. We see the roll-out of esports gambling as a significant catalyst for greater audience engagement and growth. Esports gambling, due to its solid viewership, is a sub-segment that should not be overlooked by early stage investors. Globally, the total amount of money/items wagered around major esports titles was at $5.5B in 2016. Eilers & Krejcik predicts this number to reach $13.0B by 2020, at their base level assumptions suggesting royalties of $700-800M.

Broad-based brand interest: Both endemic (within the ecosystem, such as hardware manufacturers) and non-endemic brands are rushing to partner with the elite leagues/tournament organizers, players, influencers, and team organizations to reach millennials in a meaningful way, as traditional digital advertising formats are losing their sheen and advertisers are continuously looking for innovative ways to interact with their customers. If we put advertising and brand sponsorships into a single basket of money flowing into esports from marketers, they currently account for ~60% or $645.9M of the total estimated $1.1B esports industry in 2019 (Exhibit 1). North American revenues are forecast at roughly 37% or $407.0M for 2019 with China put at 19%.

Exhibit 1. Esports Revenue and Viewership Growth; 2019 Revenue Streams and Y/Y Growth 2,000 700 500 45.0% 1,800 41.8% Y/Y 40.0% 596 450 600 1,600 35.0% 400 34.3% Y/Y ~60% 500 1,400 443 of the total 30.0% 350 1,200 395 355 400 25.0% 1,000 300 22.4% Y/Y 300 20.0% 800 250 14.8% Y/Y 15.0% 600 200 200 10.0% 400 150 100 5.0% 200 100 655 865 1,096 1,790 0.0% - 0 -3.0% Y/Y

2017 2018 2019 2022 50 -5.0%

95 95

457 457 189 251 104 Revenue ($M) Audience (M) - -10.0% Sponsorship Advertising Media Rights Merchandise & Tickets Game Publishers Fees Revenue ($M) Y/Y Change Source: Newzoo, Echelon Wealth Partners

Endemic brands to esports such as Intel (INTC-Nasdaq, NR), MSI (Private), and Logitech (LOGI-Nasdaq, NR) are promoted when players either use or recommend their products based on their own experience. Yet, with their growing maturity, non-endemic brands now account for the majority of the total sponsorship and advertising esports spend. In a recent partnership, the (OWL) signed a multi-year deal with Kellogg (K-NYSE, NR) to promote Pringles and Cheez-it, which is one example. Drawing on the traditional sports model, brands are looking for spots where they can interact with consumers either by placing an ad in the competition arenas or placing a branded logo on players clothing or sponsoring the event. Interestingly, individual players and influencers who stream on platforms such as (owned by Amazon (AMZN-Nasdaq, NR)), YouTube Gaming or (owned by Microsoft (MSFT-Nasdaq, NR)) also partner with brands, where non-endemic brand logos appear on their clothing or their game screen. For instance, Richard Tyler Blevins, better known as his online alias “Ninja”, has partnered with brands such as Adidas and (Private). Ninja also recently signed a lucrative contract with Mixer (speculation includes as much as $100.0M although the debate then moves on to whether it was per year or for the duration of the three-year contract) leaving Twitch, which many argue was a key to his fame. Nonetheless, Ninja amassed more than 2M subscribers in his first month of joining Mixer. This talks to the strength of these celebrity players/influencers in the esports ecosystem and their ability to influence viewers to migrate from one streaming platform to another. Ninja had 14M followers on Twitch prior to his departure.

Rob Goff, CFA | 416.933.3351 | [email protected] 4

Esports Ecosystem 1. Publisher Leadership: Title Stability, Dominates (Pages 10, 11, 29): Tencent (007-HKSE, NR) has clearly emerged as the most significant publisher given its title ownership and global reach. For a bit of history, Tencent acquired full ownership of (Private; publisher of ) in 2015 after buying 93% of the games studio in 2011 for $400.0M. Tencent also holds a 40% ownership in (Private; Tencent acquired its stake in 2012 for ~$330.0M), the American publisher behind Fortnite. Tencent also played a significant role enabling Activision Blizzard’s (ATVI-Nasdaq, NR) CEO to repurchase the company’s shares from in 2013. Tencent’s ~5% stake in Activision is currently valued at $1.9B, ahead 173.6% over the past five years. Activision’s success has been driven by titles including 2, , League of Legends, Clash of Clans, and Arena of Valor (). Tencent’s aggressive moves have been a catalyst to developing the global esports arena given its strength in China and its global reach. A core component of our industry thesis holds that Tencent has greater leverage at this stage and pace of growth to drive game adoption where in-game purchases represent the primary income generator and audience growth drives marketing revenues where Tencent realizes additional revenues. Leverage points will evolve with maturing user growth, and missteps are likely; however, continued audience growth is expected to remain as the primary objective.

Industry participants and investors alike are sensitive to publisher rights within leagues and tournaments. We expect to see team franchise owners looking to gain diversification and publisher leverage with participation across titles and publishers while securing greater strength through vertical integration. We are encouraged that the two Canadian players with diversified team franchises, Enthusiast Gaming (EGLX-TSXV, NR) and Overactive Media Group (Private), have substantial resources available with strong vertical integration. Enthusiast is fully engaged with its real estate heritage and Overactive has identified stadium ownership within its strategy. We expect further clarity to emerge on league economics to address concerns. We maintain that publishers are wholly motivated for leagues and tournaments to succeed as they are critical to building audiences.

2. Technology Titans and Streaming Platforms (Page 26, 27): The streaming platforms are predominantly owned and operated by prevailing technology titans. Amazon changed the landscape when it bought Twitch in 2014 for $970.0M, a level that drew global attention and second guessing at the time but is now viewed as prescient given its current multi-billion-dollar valuation. Amazon’s successful “new media” investment in Twitch came roughly eight years after ’s (GOOG-Nasdaq, NR) “new media” investment when it acquired YouTube and its 67 employees for $1.7B in 2006. Google’s acquisition of YT was similarly second guessed (although its shares gained on the news) and is now similarly heralded as prescient and considered in the same multi-billion-dollar category. We watch for Facebook (FB-Nasdaq, NR) to strengthen its leverage to esports as both a user retention tool and incremental revenue generator.

Twitch commands a dominant market share of 72.2%, with average concurrent viewers growing at a seven-year CAGR (2012-2019) of ~43.5%. While Twitch’s owner Amazon is well known for its competitive intensity, we see increased competition as Google (YouTube) and Microsoft (Mixer) move to gain scale and share while TikTok and Facebook are potential combatants. Mixer, the late entry (first launched as Beam in January/2016 but then renamed Mixer in May 2017), owned by Microsoft, is expected to invest aggressively to gain scale as it attracts high profile players and users, boasts a user-friendly UI/UX, and leverages its Xbox ecosystem. Mixer currently has a mere 3.0% of the market. However, we look at the early success of Ninja’s move as positive reinforcement for further strategic moves that will draw new streaming players onto the less crowded Mixer streaming platform. We note that Microsoft joined Amazon and Google in the exclusive tier of the billion-dollar acquirers club in 2014 with its $2.5B acquisition of Majong for its ownership of Minecraft. China, protected by its foreign intrusion regulations, has both HUYA and DouYu who have been funded by the Chinese giant Tencent investing $461.0M and $632.0M, respectively.

We see Microsoft and Google investing to gain scale and critical share of esports streaming. We could also see Facebook, and TikTok invest to gain share. We see the competitive intensity across the non-Twitch platforms as a positive consideration for team and influencer ownership as the platforms compete for greater audience reach. We note E11 (Private) has elected to focus its resources on teams (non-franchise) and building its

Rob Goff, CFA | 416.933.3351 | [email protected] 5

influencer network where franchise ownership requires greater capital resources and a different risk/return profile.

3. Marquee Games (Page 11, 20, 30): Twitch’s viewership charts consistently feature the , League of Legends, and Fortnite games as clear leaders. Launched in early 2019, Legends gained popularity early on helped by the endorsement of Ninja (for a compensation of $1.0M); however, competing with Fortnite and Dota 2 for viewership, its momentum faded leading to disappointing viewers and players alike. Fortnite and Dota 2 are the most popular esports game in the market where there is a flood of new games released every year. Few games reach scale and fewer yet sustain growth and gain significant market presence. Fortnite and Dota 2 are both free- to-play games with in-game economics driven by players buying cosmetic skins and revenues on microtransactions. We see a clear hierarchy of games’ budget across AAA-tier games and mobile focused games.

4. We do see room for lower development cost, particularly games in the mobile app segment of the market.

We note that V2 Games (Private) and Axion Ventures (AXV-TSXV, NR) are two Canadian companies focused on game development. V2 Games invests in a portfolio of mobile games acting as accelerators/incubators while its portfolio approach diversifies risk. Axion has developed studios in China and Taiwan where existing labour cost advantages may become a greater advantage, with North American studios seeing increased labour pressures. Axion has a strong profile amongst publishers as the company helped develop Fortnite for Epic Games, while the company was known as Epic Games China.

5. Esports Leagues and Tournaments: Development Drives Audiences, Sponsorships, Advertising – Prize Pools Measure Audience Growth and Loyalty (Page 24)

Sponsorship is currently the largest esports monetization stream; expected to reach $456.7M in 2019. Tournaments account for 41% of all esports sponsorship revenue (including team sponsorship) with top-tier tournaments alone making up 13% of revenue, according to Newzoo. However, by 2022 tournament revenue is expected to be on par with leagues’ revenues. The leagues and tournaments are built around the primary games.

We highlight that European League of Legends (LEC), North American League of Legends (LCS), and OWL alone have generated more than 33.9M live viewership hours in 2019, with another 26.4M hours generated from the publishers’ Twitch channels. Audience growth continues to broaden the base of advertisers and sponsors.

The escalating prize money reflects growth in audience numbers where digital sales go towards the pool. The International – Valve (Private) hosted its 9th annual championship for Dota 2 this summer in Shanghai, China, with a prize pool of ~$34.3M and over 1.1M viewers (adding other platforms, 1.9M) on Twitch.tv for the grand finals. In-stadium attendance was estimated at 18,000. Valve itself contributed a modest $1.6M of the prize money with $31.4M of the prize money generated through digital sales to the esports community, with Valve earning $94.2M as only 25% of Battle Pass purchases were added to the prize pool.

The success of tournament play and the emergence of regional teams have drawn considerable attention to venue considerations. The merger of Enthusiast Gaming with Aquilini GameCo and Luminosity saw venue rights as a key factor. The Gaming Stadium (Private), parent company of Myesports Ventures Ltd., confirmed that it has already spent millions of dollars in developing ’s first esports arena in Richmond, BC, with plans to spend more in the coming months. The stadium features an 18,000 square-foot esports arena with space for more than 300 spectators. We see this as solid proof that reaffirms our long-term positive view on the industry as events build audience. Industry watchers typically look to see Cineplex move to further leverage its real estate platform. Tournaments require large facilities while league play or qualifying round play for tournaments could be better suited to adapted versions of legacy theatres. We look for significant announcements of dedicated facility developments across North America. The move to regional teams within leagues is a key trigger for home facilities.

6. Team Franchises (Page 17): The growth of teamplay and tournaments has been seen to stimulate audience growth, sponsorship/advertising, and merchandising as the industry is in the early stages of developing league structures, awarding team franchises, and in turn the level of team development. Team economics reflect on sponsorships, merchandising, advertising, and shares of tournament winnings.

Rob Goff, CFA | 416.933.3351 | [email protected] 6

The adoption of the team franchising model has helped to draw the investor community to the esports ecosystem as the franchise valuations and the pedigrees of buyers have brought significant credibility to the space. Furthermore, investors are drawn by the prospects of wide-ranging opportunities to invest in esports beyond the large publishers and streaming platforms. For example, team organizations, as a result of a recent spike in investment, are now valued at ~13.5x EV/2018 Sales versus technology companies that are valued at 10.0x their EV/2018 Sales. In 2018, team organizations attracted $193.0M in investment, up from $65.0M in 2017. We believe that the ensuing investment in building teams, and in turn team fan bases, will contribute towards building audiences overall and help to establish long-term stability in the esports industry.

In Canada, Tiidal (Private; asset is Lazarus Esports) is expected to reach out to mainstream investors through a public listing in 2019 or early 2020. Tiidal does not own a team franchise but rather competes in open tournaments such as Fortnite where Lazarus is the #1 ranked team globally in Fortnite earnings and #2 globally for YTD 2019 earnings. Turning to team franchise owners, merged with Enthusiast Gaming in order to leverage Enthusiast’s content-driven revenue generation capabilities. Enthusiast in turn will benefit from Luminosity’s professional team and brand value to generate additional viewership. Enthusiast Gaming, the parent of Luminosity Gaming, announced on September 19/19 that it has acquired a non-controlling interest in the Titans from the team’s majority owner, the Aquilini Investment Group. Enthusiast Gaming’s Luminosity Gaming will manage the team through a long-term management services agreement with the Aquilini Group. Investors will recall that Enthusiast Gaming merged with the Aquilini GameCo and Luminosity Gaming with those transactions closing September 3/19 (Appendix 10). We note that Overactive Media (Appendix 16) positioned itself as the first esports organization to own three teams in the three largest franchised leagues. Overactive Media holds the franchise, named Defiant, to compete in the OWL. Overactive Media has raised over C$45M privately.

We have covered the ‘dominance of publishers’ in a separate segment that discusses how owning IP could potentially expose team owners and tournament providers to publishers moving to prioritize near-term monetization ahead of audience growth as publishers tend to maintain substantial control over leagues, tournaments, media rights, and advertisements. As noted, at this stage of audience growth and category building, a central tenet to our bullish ecosystem viewpoint is the belief that the dominant publishers are leveraged to continued audience growth ahead of near-term monetization. The leading publishers are thus supporting the development of leagues and tournaments to drive esports growth while building in the longer- term stability around league play into the esports industry. It is clearly early days and there will be growing pains; however, publisher leverage to audience growth is our bedrock thesis. The success of Fortnite’s freemium launch represents strong support for our view.

Looking for additional examples of publishers working to build leagues and teams, we note that the removal of relegation by some of the major leagues has benefited team organizations. Relegation leads to teams being disqualified if they did not perform well in the qualifying rounds. The relegation puts into question the team’s participation in the tournament in spite of investments by teams into training players, the payment of participation fees, and travel expenses to the venue, etc. In another move to encourage tournament development, Epic Games announced that it would hold back major updates to Fortnite prior to important events, although the patches are an integral part of Epic Games’ strategy in keeping Fortnite exciting for the audiences. The changes, however, were a major annoyance for professional players, which required them to alter strategies.

Investors raise the issue of league sustainability where games may lose popularity. We point to the relative stability of the top games (Exhibit 17) and to the increasing barriers to entry for new games given the significant development time and the dollar outlay for tier 1 games. Fortnite clearly stands out for its success; however, it is telling that its publisher Epic Games is a marquee publisher. We see franchise ownership partnerships with the underlying publisher as evidence that should there be an unforeseen change in a games’ fortunes, both publisher and franchise owners’ interests would align in moving onto successor games and transition strategies. As franchises build their online and onsite audiences, they gain greater flexibility to adapt to the inevitable moves in audience preferences. We note that top games evolve with their audience preferences in order to stay current. With patch updates, publishers can respond to user feedback and thus strengthen their franchises.

7. Gambling: A Catalyst for Growth, Another Source of Revenues (Page 38)

Rob Goff, CFA | 416.933.3351 | [email protected] 7

We hold a similarly bullish, growth focused thesis that ancillary segments offer equally lucrative investment opportunities. Esports betting growth is amplified by and overlaps with the growth of online gambling, as an increasing number of US states begin to legalize for additional tax revenue. Only 7 out of 50 US states have not passed/introduced any law related to online gambling. Our top pick for our ‘Q319 Top Picks Portfolio’, Social Media and Gaming Inc. (SCR-TSXV, C$0.69, Speculative Buy, C$0.80 PT) has seen an 86.5% QTD price increase, driven by the recent launch of its betting platform in New Jersey prior to the start of the NFL 2019 . Canadian companies Askott Entertainment, Inc. (Private), FansUnite Entertainment, Inc. (Private), Fantasy Sports Interactive (Private), and Fandom Sports Media Corp. (FDM-CNSX, NR) either already have a betting platform for online/esports gambling or are planning to launch one soon.

We believe that the efficiency and transparency of blockchain applications will take on a significant role in supporting the growth of online sports and the esports gambling industry where most of the transactions are limited to a few dollars (microtransactions). The same can be applied to large publishers where the revenue by freemium model depends on microtransactions through in-game purchases.

Our esports industry review considers participants’ role within the ecosystem and the broader esports industry structure (Exhibits 2, 3). Stay tuned for our ‘Esports & Gambling’ bi-Weekly and in turn direct coverage in the space beyond our current coverage of The Stars Group, Inc. (TSGI-TSX, C$20.50, Buy, C$32.50 PT), Social Media and Gaming, Inc. (theScore), and Cineplex, Inc.

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Contributing Authors: Rob Goff (Managing Director, Head of Research, Telecom Services and New Media), Gianluca Tucci (Analyst, Technology), Pooja Sharma (Associate, Telecom Services and New Media), Karolina Kosior (Associate, Special Situations and Esports)

Rob Goff, CFA | 416.933.3351 | [email protected] 8

Exhibit 2. Esports Ecosystem Overview; Chart to Draw its Similarity & Dissimilarity with Traditional Video Gaming & Sport

Traditional Video Gaming Traditional Sports ESPORTS Key Participants: Key Participants: Publishers Leagues Developers Pro players and teams Console Manufacturers Media Distributors Publishers/Developers Leagues / Event Management Organize esports events; Mostly Sponsorship Media Rights Nonleague Tournaments own the leagues $456.7M $251.3M

Top Revenue Streams: Top Revenue Streams: Advertizing 1. Sponsorships 1. Publishers Fees 2. Media Rights 2. Sale of Console $189.2M 3. Advertizing 3. Upgrades/Purchases on 4. Ticket Sale Freemium model Top three revenue streams: 4. Advertizing 82% of $1.1B (2019E)

How’s esports different? How’s esports different? Players • Esports attracts much • Play vs watch Team Organizations younger demographics • Direct target customer /Influencers • Digital viewership versus advertizing at a much lower traditional TV cost through • Shorter career span in pro influencers/teams/events both Streamers gaming; most retiring at 30 online and offline • Advertizing non-endemic brands as well Ninja Tfue Special Highlight: Sports and esports gambling is a big and rapidly growing industry Note: Arrows represent revenue flow that is not included while sizing the market. We have covered it in detail here. Spencer “Gorilla” Others: Venues, Analytics, media, investors, event organizers, hardware Traditional Video Gaming Esports Traditional Sports Total Size: $152.1B (2018) $1.1B (2019) $488.5B (2018) $1.8B (2020); 26.7% CAGR 4.3% CAGR (2014-2018), Expected Expected Growth: 9.0% CAGR (2018-2022) (2017-2022) to continue Age 18-35 in the US Target Demographics: Age 18-34, mostly male Average age 40-64 range -- Estimated 250M esports Soccer: 4B fans; : 2.5B; Field Hockey: Viewership: enthusiast; 557M total 2B Note: Refer Appendix for companies, players and influencers snapshot Source: Sports Business Journal, Newzoo, Echelon Wealth Partners

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Exhibit 3. Esports Ecosystem Overview; Key Players (Viewership in million hours Jan. 1, 2019 to Sept. 15, 2019)

Top publishers dominate the viewership Riot Games, 1,380.9 (Tencent Ownership - 100% ) and own the premier official esports leagues/tournaments. Epic Games, 1,178.8 (Tencent Ownership – 40%) Even though viewers have the ultimate say, publishers sit at the top of the value Activision Blizzard, (Tencent Ownership – 4.9%) 1,094.8 chain and usually decide the rules of the game. , 1,035.9

Rockstar Games, 650.6 (Take-Two Interactive – 100%)

Electronic Arts, 454.3

Bluehole , 272.9 (Tencent Ownership – 10%)

Mojang , 184.2 (Microsoft Ownership – 100%)

Ubisoft, (Tencent Ownership – 5%) 136.9

Gearbox Software , 30.7 (Take-Two Interactive – 100%)

▪ Tencent dominates the publishing space with its investment in eight of the top fifteen currently trending games and has significant ownership in the top of the chart publishers, i.e., Riot Games (100%) and Epic games (40%). This gives Tencent an overall viewership share of ~30% in the top 15 games. ▪ Video gaming giant Electronic Arts (EA) has esports titles like Battlefield (premium), Madden NFL 20 (premium), FIFA 19 (premium), and (freemium). Only Apex Legends is in the current top 15 trending list.

▪ EA is lagging behind competitors like Riot Games that has LoL and recently released Team Fight Tactics; Epic Games that has Fortnite; Activision Blizzard that has World of , Overwatch and ; and Valve with Dota 2 and CS:GO.

Source: Twitch Tracker, Esports Earnings, EA Official Website, FactSet, Echelon Wealth Partners

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Exhibit 3. Esports Ecosystem Overview; Key Players (Viewership in million hours Jan. 1, 2019 to Sept. 15, 2019) Contd...

Twitch Viewership (Jan 1, 2019 - Sept Strategic Top 15 Trending Game* Genre Launch 15,2019) Publisher Ownership/Stake Top League/Tournament Top Teams/Players Fortnite Survival, battle royale (MOBA) Jul-17 1,178.8 Epic Games Tencent (40%) 2019 Players: Bugha, Tfue League of Legends MOBA, multiplayer Oct-09 1,132.2 Riot Games Tencent (100%) 2018 World Championship Teams: iG, FNC Action-adventure, Take-Two 650.6 Grand Theft Auto V single/multiplayer Sep-13 Rockstar Games Interactive (100%) NA NA Dota 2 MOBA, multiplayer Jul-13 550.7 Valve Corporation -- Teams: OG, Liquid Massively multiplayer online 2019 Arena World 503.8 role-playing Nov-04 Activision Blizzard Tencent (4.9%) Championship Teams: M2KC, First person shooter, 470.3 CS:GO multiplayer Aug-12 Valve Corporation -- ESL Pro League 2019 Teams: ,Complexity Battle royale , first-person 454.3 Apex Legends shooter, multiplayer Feb-19 Electronic Arts -- Preseason Invitational 2019 Teams: TSM, First-person shooter, 339.1 Overwatch multiplayer May-16 Activision Blizzard Tencent (4.9%) PUBGOverwatch Global ChampionshipLeague 2019 Teams: Van, SFS PUBG Battle royale , multiplayer Dec-17 272.9 Bluehole Tencent (10%) 2018 Teams: OMG, Liquid Digital collectible card game, Hearthstone World 252.0 Hearthstone Single/multiplayer Mar-14 Activision Blizzard Tencent (4.9%) Championship 2019 Players: Hunterace, Viper Teamfight Tactics , Multiplayer Jun-19 248.7 Riot Games Tencent (100%) NA NA Action-adventure game, 184.2 Minecraft Single/multiplayer Nov-11 Mojang Microsoft (100%) NA NA Tactical shooter, 136.9 Rainbow Six: Siege Single/multiplayer Aug-98 Ubisoft Tencent (5%) Six Invitational 2019 Teams: G2, Empire Action role-playing , first- person shooter, 30.7 Take-Two Borderland 3 Single/multiplayer Sep-19 Gearbox Software Interactive (100%) NA NA First person shooter, 14.8 CS:Modern Warfare multiplayer Nov-07 Valve Corporation -- NA NA

Total 6,419.9 Tencent 1,941.29 Tencent Share 30.2% *In the week of second week of September 2019

Source: Twitch Tracker, Esports Earnings, EA Official Website, FactSet, Echelon Wealth Partners

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Esports Perspective Beyond the $1.1B Mark With access to , various connected devices, and the growth in OTT content (where competitive dynamics about Disney+ and HBO Max entering the market have spurred aggressive content spending), millennials are spoiled for entertainment options. The corollary to this, however, is the challenge faced by brands in reaching out to an increasingly engaged but also increasingly fragmented audience often characterized by their shorter attention spans. The past five years, in particular, have seen advertising strategies transformed as digital advertising has moved to overtake traditional advertising. The shift has been reflected in a significant changeover in chief marketing officers (CMO), where one study put the average longevity in the CMO position at three years.

Looking at the broader advertising market, eMarketer’s Research suggests that the $283.4B spent on digital ads represented 45.9% of total ad spending in 2018 with forecasts looking for digital spending to reach $517.5B or 60.5% of the total by 2023. The IP enabled data capabilities of digital advertising are allowing far greater audience targeting and advertiser feedback, while legacy broadcast means are challenged by the increasingly distracted consumer and unable to make significant gains in audience targeting and advertiser ROI measurement. Traditional media looked at viewers and hours watched with legacy feedback often restricted to survey data on viewership. In contrast, digital platforms are enabling advertisers to track unique viewers, concurrent views, and click-through rates. Esports viewership data has been encouraging (covered in detail here) and has attracted the attention of brands (initially those endemic to esports while increasingly non-endemic brands have also been drawn to the audience) who are longing for millennial attention, a demographic that continuously looks to block/or ignore the digital formats that brands were previously using to create an impression. We note that The Trade Desk (TTD-Nasdaq, NR) has seen its share price gain ~700% over the past three years as investors gain confidence in the opportunities for TTD as a programmatic advertising provider. Within our own coverage, AcuityAds (AT-TSX, C$1.30, Speculative Buy, C$3.80 PT) has seen its revenues advance from C$39.6M in 2016 to our forecast of C$113.0M for 2019 as it has successfully built out its managed and self-service product suite with full fixed and mobile programmatic capabilities. Audience growth together with IP enabled data analysis and audience targeting are key factors driving esports, taking industry revenue to $1.1B (estimate by Newzoo) in 2019 from merely $195.0M five years back, representing a cannot-be-ignored CAGR of 41.3%.

Our bullish thesis on the esports ecosystem considers publisher leverage to audience growth that in turn empowers the greater capture advertising/marketing dollars and to the ability to maximize in-game transactions. We see streaming platforms and ecommerce titans similarly focused on advertising/marketing dollars and in building audience to promote ecommerce where audience data analytics empower efficiencies. Esports gambling is seen as both a source of incremental revenues and as a catalyst for audience growth (Exhibit 4).

Exhibit 4. Esports: Catalysts for Growth

1. Digital Ad Spending

Esports gambling revenue expected to 2. Investment be ~$1.0B by 2020 5. Esports in Gambling Infrastructure

3. 4. Big Data Technological Development

Source: Newzoo, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 12

We share the general view that the popularity of esports has not nearly reached its true potential scale on a global basis. Additional sources of revenue are fully expected from further esports franchising, expanded merchandising, and in-game spending. New content models such as premium passes and innovation in big data are expected to generate increasing revenues given the leverage to audience monetization. Moreover, positive technology tailwinds driving the entire industry will enable a more interactive experience and result in a far broader reach. In the future, 5G for mobile, which is currently unavailable, will essentially enable providing even richer content and a more interactive gamer experience.

Furthermore, online gambling and betting related to esports, an industry that exists in parallel to esports and, similar to traditional sports, holds the potential to generate more revenue than esports itself. In fact, the global esports betting market, according to Eilers & Krejcik, is expected to reach $12.9B by 2020, compared to $1.5B in 2021, generated by media rights, publisher fees, sponsorships, advertising and merchandise combined. The $12.9B wagered in esports, with a “rake” (betting operator commission fee) of 8% would imply $1.0B in revenue to the betting ecosystem.

Rob Goff, CFA | 416.933.3351 | [email protected] 13

1. Growth in Digital Spending

Looking at the broader advertising market, eMarketer’s Research suggests that the $283.4B spent (Exhibit 5) on digital ads represented 45.9% of total ad spending in 2018 with forecasts looking at the digital spend to reach $517.5B or 60.5% of the total by 2023, gaining 14 market share points over the five years. Esports is increasingly attracting a bigger slice of digital ad spending. While it has subscription-based economics, (NFLX-Nasdaq, NR), the biggest streaming platform at present, in January 2019 said that it viewed the game Fortnite as bigger competition for viewer attention than HBO or Hulu. While in part this may have been motivated as a modest put-down on its OTTP competitors, the statement is a testament to the astonishing success and popularity of games such as Fortnite, which have been pivotal to the growth of the esports industry.

If we put advertising and brand sponsorships in a single basket of money flowing into esports from marketers, they currently account for ~59.0% or $645.9M of the total estimated $1.1B esports industry in 2019. With the number of esports enthusiasts (individuals that watch more than once a month) forecasted to grow at a +13% CAGR (2018-2022) to roughly 297M by 2022, brands are eagerly looking to establish their presence with league fans (who are predominately online). In fact, as shown below, non-endemic brands have progressively been entering the industry to target the otherwise difficult to engage male millennials1.

Exhibit 5. Growth of Digital Advertising 600.0 70.0% 60.5% 58.8% 56.6% 60.0% 500.0 53.6% 50.1% 45.9% 50.0% 400.0 40.0% 300.0 30.0% 21.4% 200.0 17.6% 15.5% 20.0% 13.2% 8.0% 10.0%

100.0 10.0%

333.3 435.8 517.5 283.4 385.0 479.2 0.0 0.0% 2018 2019 2020 2021 2022 2023

Digital ad spending ($B) % of total media ad spending % change Source: eMarketer, Echelon Wealth Partners

1 The esports fan base is predominately comprised of millennial males, which is a largely untapped and profitable demographic for brand advertising. The significance of this demographic is that millennials are the largest age cohort in the Canadian labour market surpassing the Baby Boomers. Additionally, the millennial age cohort is particularly lucrative as their income (from work, allowances, presents, etc.) is almost entirely disposable income, since their parents still predominately provide the essentials.

Rob Goff, CFA | 416.933.3351 | [email protected] 14

Exhibit 6. Esports League Sponsorships

Source: Newzoo

Sponsorship is currently the largest monetization stream; expected to reach $456.7M in 2019. Tournaments account for 41% of all esports sponsorship revenue (including team sponsorship) with top-tier tournaments alone making up 13% of revenue, according to Newzoo. However, tournament revenue is expected to represent a declining share of revenues with the aggressive league and team development expected to put league revenues on par with tournament revenues by 2022. The numbers look small or alternatively the opportunity looks compelling considering that the NFL grosses $1.4B in sponsorships from brands such as Budweiser (Part of AB InBev (ABI-BRU, NA)), Gatorade (Product of Pepsi Co. (PEP-Nasdaq, NR)), and Microsoft. Nonetheless, we are encouraged by recent esports partnerships between companies from several industries (varying from apparel to automotive) and five recently franchised leagues: League of Legends Pro League (LPL), European League of Legends (LEC), North American League of Legends (LCS), OWL, and King Pro League (KPL). The lucrative partnerships reflect audience growth and greater digital capabilities driving a greater portion of marketing budgets to be allocated to digital platforms. Esports is an obvious choice for advertisers and sponsors from big ticket brands, due to the industry’s ability to reach young, often TV-averse millennials. In addition, esports fans tend to have higher-than-average disposable incomes and are receptive to marketing messages when they are properly embedded into the esports experience. The importance of sponsorships cannot be overstated as the LEC, LCS, and OWL alone have generated more than 33.9M live viewership hours in 2019, with another 26.4M hours generated from the publishers’ Twitch channels. It should also be noted that at any given time these channels have been able to attract a significant number of viewers for live broadcasts.

As noted above, the millennial male audience is a major incentive for non-endemic sponsors to enter the market. Currently, brands are capitalizing on male audiences with products such as Gillette (PG-NYSE, NR) and L’Oréal Men Expert (OR-EPA, NR) sponsoring leagues. Gillette, for example, has gone further by partnering with Amazon to allow viewers the ability to earn virtual currency, or “Twitch Bits”, when they click on brand-sponsored ads displayed on 11 popular Twitch streamers’ channels. The virtual currency earned can then be used for purchases on Amazon, as well as third-party websites (Exhibit 6).

It is likely that as the audience diversifies brands will accommodate differing preferences. Brands have the option to provide league-level or team-level sponsorship. However, the division of sponsorship has the possibility to create contract conflicts among brands. For example, a league-level apparel sponsor such as Nike (NKE-NYSE, NR) for the LPL provides apparel and footwear for all teams, players, coaches and referees, which prevents teams from acquiring other apparel sponsorships. Therefore, league-level sponsorships can hinder team-level sponsorships and limit sponsorships in general, placing teams at a relative disadvantage. The nature of these contracts is likely to evolve along with league maturity.

Rob Goff, CFA | 416.933.3351 | [email protected] 15

Furthermore, advertisement revenue is expected to reach $189.2M in 2019, gaining ~15% y/y. The increase in advertisement dollars spent reflects on the absolute scale and growth of audience viewership across both digital/live esports platforms (for example, 99.6M viewers watched the League of Legends final in 2018 against 100.7M for the NFL Super Bowl). Without streaming services such as Twitch or HUYA, advertisers in the past were unable to quantify viewer numbers or general market interest. Thus, the ability of digital platforms to track viewers was a game-changer for brand investment.

We note that on September 4/19, Nielsen released its inaugural AMA2 (average minute audience) viewership data after the OWL started working with Nielsen in April 2019. The data compared digital streams taken from last year versus digital streams plus linear broadcasts this year. The analysis showed that the OWL averaged 313K (+18% y/y) viewers globally with 95K (+34% y/y) in the US during the recently concluded regular season for y/y gains of 18% and 34%, respectively. Digging further into the results, the league averaged 55K viewers in the US in the 18-34 demographic with a median age of 24 that is less than half the figure for traditional sports. While the figures may be below some expectations, they have been known by advertisers as the OWL shared the data with sponsors across the season. The availability and transparency of audience data are seen as critical steps in broadening advertiser support. The release of Nielsen ratings has also been welcomed given natural questions around digital viewership. For example, a viewer on Twitch watching with three devices/IP addresses counts as three unique viewers or a viewer who closes their browser and then reopens will count as two. The AMA measures consistently comparable figures across digital and linear mediums compared to average concurrent viewership numbers. We expect to see more streamlining efforts like this across the ecosystem as the esports industry matures.

Advertising is also a method for individual streamers, teams, and platforms to monetize activity. However, Twitch streamer, Jeremy “DisguisedToast” Wang states that compared to subscription or donations, advertisement revenue is substantially lower for streamers. Streamers have the option to pre-roll ads at the beginning of streams, or trigger ads during the stream. Some streamers never or rarely trigger ads during their streams, while others run them constantly. Nevertheless, Wang, who does not run extra ads, only pre-rolls and other associated banner displays reportedly earn about $10,000 per month from advertising. Sometimes fans watch advertisements in order to support their favourite streamers, but many use ad-blockers or pay for premium content to avoid advertisement. Therefore, for advertisers and streamers to engage fans advertisement methods need to become more integrative.

Still, the significant number of viewers has attracted brands from various industries into the ecosystem. Although endemic-brand advertisements have had an inherent advantage in the esports market, non-endemic brand advertisements are also becoming prevalent. In particular, endemic brands such as gaming hardware and peripherals have significantly increased sales as a result of esports, as fans buy the gear, they see professional gamers using in hopes of bettering their own performance. For non-endemic brands advertising on top streamers’ channels, tournaments and events have proven just as lucrative. Nielsen reports that many fans are responding positively to brand involvement, although there is a preference for endemic brands. The increase in the number of platforms, tournaments, and teams provides advertisers the flexibility to choose specific audiences to target. Since esports is a global phenomenon, brands are aligning their products accordingly.

2 AMA is minutes watched divided by minutes broadcast.

Rob Goff, CFA | 416.933.3351 | [email protected] 16

2. Infrastructure Investment

We believe enhanced infrastructure capabilities to date have esports squarely positioned for continued audience growth and monetization. We believe the success to date and the amounts spent have crystallized the opportunities and lowered risk profiles. We consider that further infrastructure investments will include the build-out of league franchises, players associations, streaming platforms, and data collection. The infrastructure, in turn, will generate additional revenue for brand sponsors, increase prize money, and justify subscriptions for premium content access. The establishment of major leagues such as Activision’s OWL or Riot’s League of Legends has created the foundation necessary for monetization of the esports ecosystem. Similar to traditional sports, the franchise model has been adopted. In early 2018, to own an Overwatch team the entry bid price was as much as $20.0M, which ultimately drew in prominent investors including traditional sports franchise team owners such as Robert Kraft of the New England Patriots and Fred Wilpon of the New York Mets, among others. With the growing awareness and investment potential, the competition to acquire the remaining teams consequently has bid up the price reportedly to $30.0-60.0M, according to ESPN. The exact price ultimately depends on several factors including general population of the area, number of players who watch the OWL within the region, and interest of prospective buyers. The increase in price is reportedly in line with a number of significant spikes in esports valuations, particularly those that have franchise spots in both the OWL3 and North American League of Legends Championship Series.

Of note, with the spike in investment, esports organizations valuations’ have moved to premium levels reflecting growth potential relative to expectations for legacy sports franchises. Esports valuations are more comparable with technology companies rather than sports teams (Exhibit 7).

Exhibit 7. Esports Teams vs. Sports Teams vs. Technology; EV/Sales Valuation (Average) Sports Teams: Esports Teams: Technology: 5.3x (EV/Sales 2018) 20.0x 10.0x 13.5x 19.0x (EV/Sales 2018) (EV/Sales 2018) 18.0x

14.1x 13.6x 13.0x 13.1x 12.5x 11.8x 10.9x 10.0x 10.0x 9.2x

6.5x 6.0x 5.0x 3.9x

Source: Forbes, Echelon Wealth Partners

The revenue generated from franchised teams is typically split among publishers, event organizers, teams, and players. For a case study, we found where H2K Gaming founder, Richard Wells, has presented the current economics for a professional League of Legends team with a posting on dexerto.com. Richard who notably did not receive a LoL franchise put his annual loss at $1.6M with player salaries at $1.9M, support staff costs of $300K, legal/accounting at $30K, and housing at $60K for total costs of $2.25M. The team generated revenues of $762K with sponsor revenues of $500K yielding $330K to the team (Riot taking 33%), prize money of $32K (net of players take), merchandising of $50K

3 The two Canadian cities that currently have Overwatch franchises are Toronto and Vancouver. The respective teams are called “” owned by OverActive Media and “” owned by the Aquilini Group (Private).

Rob Goff, CFA | 416.933.3351 | [email protected] 17

(stated a 20% margin), and digital revenues (net $20K). We present the above as a guide to early economics as the league, and more broadly esports, continues to build its audience and as it moves to better monetize its audience. The revenue figures are arguably low and may not include all associated revenues, so we urge that they be considered both rough and potentially not all inclusive, leaving considerable upside.

The franchise model signals the anticipated longevity of the esports industry, as investors are expecting to recoup their $20.0-60.0M investment. The added stability and distribution of risk reinforces incentives for future investors and stakeholders to enter the industry. While league economics remain closely guarded and draw a fair level of debate, we rely on publisher leverage to audience growth and the growing strength of the franchise backers to provide an element of self-regulation for league economics. Publishers remain leveraged to strong team ownership along with aggressive team promotion as longer-term audience catalysts.

Call of Duty (CoD), with its recent announcement, will be the third league to adopt a franchise model, following the OWL and LCS (plus the LEC in Europe). (CDL) franchise slots will reportedly cost $25.0M and Activision Blizzard is taking 10-20-year views (in terms of CDL’s longevity) on brand ownership for a three-year-old league. In comparison, the OWL franchise slots were sold at $20.0M in 2017 to 12 teams. ESPN reported that OWL partnered with Twitch signing a two-year media rights deal for $90.0M, a multi-year agreement with HP OMEN for $17.0M, and a multi-year agreement with Intel for $10.0M. The OWL also signed deals with other major brands such as T-Mobile, Toyota (TM-NYSE, NR), Coca Cola (KO-NYSE, NR) and Bud Light for a total of ~$200.0M, part of which is distributed to franchised teams.

In a hypothetical situation, one industry participant suggested that if Activision Blizzard was to take nothing from the sponsorship and media rights revenue pool and it is distributed to the franchise owners, it would take franchise owners seven to eight years to recoup their initial fees (excluding operational expenses). Many teams have attracted investment from high profile investors that are expecting longer-term value appreciation, although the long-term viability of esports leagues still bears substantial risk compared to traditional sports leagues that span 50+ years (although their aging demographics is a significant risk). CDL is expected to have a similar risk and return profile. Nine teams have already purchased franchised slots to be part of the CDL. , a prominent CoD team co-owned by Drake, has decided to not participate in 2020, as CDL moves from open circuit to franchise format, due to high initial investment and ongoing operating expenses. 100 Thieves’ announcement has attracted open criticism for the franchise format. 100 Thieves argues that the high initial fees and city-based league format is not a viable option, since the companies that own these teams are still in the start-up phase and would refrain from committing to a particular city thereby losing their global appeal. The franchise model is different from the previously followed relegation and open circuit model in that the latter does not require initial investment to secure a permanent spot in the league. Although in the open circuit model, teams bear the risk of losing their spot in the premier leagues as new teams/players can qualify for each tournament.

It is fully expected that league structures, formats and economics will be publicly debated, will evolve and we will see missteps. However, publishers are somewhat self-regulated by their leverage to audience growth where healthy league and team development are core factors.

In addition, as the esports industry matures the need for players associations will prove critical for sustained growth. A system of governance with established uniformity in each “esport” will provide stability not only for players but also teams. In fact, players are increasingly aware of their innate value and demanding certain rights. While much is said of the short career span of the esports athlete, we note that the average NFL player’s career is also a relatively short 3.3 years. We note that players have the potential to extend their careers where they are able to build a large audience of followers. There are numerous examples of successful streamers who build their audiences on their dialogue and persona more than their gaming skills.

The OWL in its inaugural season adopted regulations for salaries and benefits. For example, provisions for players’ contracts included one-year guaranteed contracts with an option to extend a following year, minimum salary for players of $50,000 per year, health insurance, and a retirement savings plan. In addition, teams were required to distribute at least 50% of performance bonuses to their players directly. For perspective, performance bonuses for the first season of the OWL were $3.5M in total, split among the 12 franchised teams, with a minimum of $1.0M awarded to the season

Rob Goff, CFA | 416.933.3351 | [email protected] 18

one champion.4 The OWL even outlined that teams needed to provide housing and practice facilities in accordance with the professional standards set by the OWL. The League of Legends franchise also outlined revenue share for sponsorships and media rights between leagues, players, and organizations. The split is 35% for players, however if the league performs well and the player portion is above the players’ combined salaries, the difference is reportedly shared with the players. Teams receive 32.5% of the portion, distributed equally to each organization and partly divided into allocations based on competitive and engagement metrics. The final 32.5% is retained by Riot Games (game publisher and LEC league organizer) for broadcast production, live events, and operating the league. The regulations illustrate the evolution of player contracts to more concrete and legally binding agreements.

Overwatch is not the only league with players associations; others include the global Counter Strike Professional Players Association and League of Legends Players Association. The agreements between players and leagues create further stability for organizations and teams, which rely on top talent to win tournaments and games. In order to secure top talent, depending largely on the game, players’ salaries are roughly $4.0-6.0K per month for tier 1 games and $0.5-1.0K per month for tier 2 games. This is a significant cost to bear for organizations, a portion of which is covered by tournament winnings, advertising, and sponsorship revenue. Teams have retained roughly 80% of tournament winnings, advertising and sponsorship revenue generated from players signed to their teams, while players retain about 20%. However, players are now demanding a greater share of revenue from tournament winnings, advertising and sponsorship deals as evident by FaZe Clan member “Tfue” Turner Tenney’s recent lawsuit against FaZe Clan claiming his contract was illegally limiting his business opportunities and in violation of California labour laws. FaZe Clan has since filed a countersuit in New York. We believe that these checks and balances are necessary for the industry to thrive and reach its potential, as without consistency and oversight of player’s rights many will likely not participate. As the industry develops it is likely that professional gamers will share many similarities with professional athletes and have personal managers and lawyers to guard their interests.

The development of tournaments and leagues has encouraged brand investment (endemic and non-endemic) but has also generated revenue for game makers, organizers, and players. For well-established games, total prize money can amount to millions of dollars a year. For instance, since 2013 Dota 2 has awarded approximately $216.0M in prize money within 1,210 tournaments and 3,341 players. League of Legends since 2011 has awarded $69.0M within 2,344 tournaments and 6,577 players, not including player salaries for their League of Legends Championship Series (Exhibit 8). Some examples:

▪ The 2019 Dota 2 International, hosted in Shanghai from August 20-25, accrued ~$33.0M in prize money through crowdfunding via battle passes that was added to the base prize pool at $1.6M, making it the largest single tournament prize pool in esports history. The main event was held in the Mercedes-Benz Arena (seating 18,000);

▪ The Fortnite World Cup 2019 had a $30.0M prize pool, with a solo player, 16-year-old, Kyle Giersdorf “Bugha”, winning $3.0M, the largest prize for an individual player to date. The second-place prize was $1.2M, with each participant in the tournament earning at least $50,000;

▪ In 2018, Dota 2 International awarded over $11.0M in prize money to the wining team, European “OG”, which roughly worked out to be over $2.0M per player. “”, a 10-day event held in Vancouver by Valve Corporation, presented the largest prize pool of any tournament that year, with about $25.5M awarded, a testament to the event’s popularity. Still, the prize pool for “The International” is distinctive as it is predominately crowdfunded, which speaks to the fact that Dota 2 enthusiasts are also financially involved in these competitions. While Valve (Dota 2 developer) put in only $1.6M, fans via “Battle Pass”5 purchases funded the rest. The large prize pool entices professional gamers to play the game directly extending the life of the IP and indirectly drawing in larger fan audiences.

4 The Overwatch season one champion team was . 5 The “Battle Pass” is a digital compendium that Valve releases three months prior to “The International final”, which builds hype around the event. The “Battle Pass” gives Dota 2 fans rewards to play or pay their way up the levels to unlock more items. The pass unlocks in-game treasure, new music and cursor packs, as well as digital player cards that fans collect to build their own fantasy Dota 2 teams. The “level 1” pass costs $9.99 and “level 75” costs $36.99. An additional, “5 levels” cost $2.49, “11 levels” $4.99, and “24 levels” $9.99. Valve funds 25% of the tournament prize from the “Battle Pass” sales and retains the rest. It is not difficult to calculate that Valve has generated over $100.0M from “Battle Pass” sales, in order to contribute over $25M in the 2018 prize pool. The popularity of Dota 2 is evident by the number of teams, which grew from eight in 2011 to eighteen in 2018, alongside the grand prize of $200,000 per player to more than $2.0M per player. The “Battle Pass” sales incentivize fans to play the game, creates excitement for the competition and empowers the fans to decide how large the prize pool will be.

Rob Goff, CFA | 416.933.3351 | [email protected] 19

Exhibit 8. Top Five Games by Total Prize Money #1 Dota 2 $216M #2 3342 Players 1220 Tournaments Counter-Strike: Global #3 Offensive Fortnite $81M $73M 11983 Players 2973 Players 4228 Tournaments 402 Tournaments #4 League of Legends #5 By: Valve Corporation $69M StarCraft II $31M 6577 Players 2344 Tournaments 1965 Players By: Valve Corporation 5539 Tournaments

By: Epic Games (Tencent)

By: Riot Games (Tencent) By: Blizzard Entertainment Source: Esports Earnings (As of September 2019)

As previously stated, the development of top-tier tournaments is a major proponent of the increase in media rights and sponsorship investment. While most large brands are currently focused on the top-tier leagues and tournaments, the build-out of local tournaments and events is likely to increase as the esports market matures6.

Finally, premium content passes have given fans the ability to pay for extra esports video content. The OWL All- Access Pass on Twitch, for example, costs $14.99 and includes access to an exclusive Twitch chat room, behind-the- scenes videos, post-matches Q&A sessions with players, and ad-free viewing on Overwatch channels. Twitch is not the only platform that provides premium passes; Znipe.tv (partnered with ESL), DreamHack PGL (MTG.B-STO, NR), and (Private) also deliver event coverage and streams during matches. Premium passes allow OTT platforms the ability to directly monetize their content. Similar to other OTT platforms such as Netflix, the direct-to-consumer subscription model is likely to become more widely adopted, which is consistent with millennial viewing preferences.

6 A top tier tournament is watched >20M hours per year globally, for tournaments that number is >10M. For mid-tier/other it is 1-20M/<1M hours for leagues and 0.5M-10M/<0.5M hours for tournament.

Rob Goff, CFA | 416.933.3351 | [email protected] 20

3. Big Data – Drives Advertising, Gambling, Participation

Streaming services have quantified the viewership audience of esports, providing critical data on the scope of esports popularity. As discussed in the section above, viewership scaling, engagement, and ROI measurability are arguably the main catalysts of brand investment. Data collection for players and brands alike will prove incredibly valuable as advertisers will be afforded greater information supporting ROI measurements that lead to greater budgets.

The use of data to identify, target, and engage customers creates positive brand building while driving higher budget ROIs. Even for non-endemic brands, the positive reception has been as high as 79% as is the case for Fnatic team sponsors.

Algorithms will have the ability to scan unstructured data sources such as social forums, chat groups, and social media, etc., to extract valuable information on the esports demographic and their spending patterns, preferences, and levels of satisfaction. The information will allow companies to target specific customers or regions rather than the general esports market as a whole. Since many fans remain loyal to particular games, the data will also be beneficial for improving gamer experience by relaying information to game publishers. Moreover, “big data analytics [may] enable gaming companies to use server and network data to understand exactly when, and how, their infrastructure is being pushed to its limits. This knowledge [may] enable companies to scale up or down according to player need; in today’s world of cloud-based PaaS/IaaS architectures (where cost is tied to usage), this information can have a dramatic impact on a company’s bottom line.” Therefore, as the esports market continues to mature, big data will likely become increasingly sought after, similar to many other companies in the technology ecosystem.

For players and teams, statistical coverage is necessary to improve gameplay. Just as in football or golf, success in sports is not solely based on skill, dedication and luck, but also strategy. In fact, strategy through analysis of past performance is imperative for future winning. Unlike traditional sports, big data is relatively easily accessible in esports. Game analytics platforms such as Shadow.gg or NXTAKE have altered how professional gamers prepare for matches. The platforms’ aggregate in-game statistics to draw conclusions about players’ performance and that of their opponents, provide a competitive edge in future games. The statistical results are also used by bettors to make decisions and sportsbooks to set odds. Game data will likely be further used to scout potential talent. Since “hundreds of matches are played every day, across different games, servers, and regions. Finding the next player simply by watching games haphazardly would be like looking for a needle in an infinitely large haystack.” Therefore, teams are expected to use increasingly sophisticated data collection to draft potential prospects and advance team competitive play. Data will also likely be used from a business perspective in order to effectively target potential new gamers with competitive pricing, improved gameplay experience, infrastructure, and also by sportsbooks to set odds.

Rob Goff, CFA | 416.933.3351 | [email protected] 21

4. Technological Tailwinds – Drives User Engagement

Technological advancement in the gaming industry will seek to make games as easy to play as “one click of a button.” Simplicity will likely engage a broader audience base that might be discouraged by what they perceive as complicated installation and hardware set up. The gaming industry in general has seen its audience growth fuelled by advancements in production capabilities and interactivity within games. We see further gains in graphics and VR realities advancing user experience while increasing data and processing capabilities. Fortunately, bandwidth constraints for fixed applications are being aggressively addressed while the introduction of 5G for mobile (and last mile fixed in select regions) will extend the access of gaming while it enables a more interactive viewer experience.

The next-generation standard of wireless communications is set to start taking over the mobile network environment as early as 2020. 5G will deliver vast increases in capacity, lower latency7, and provide faster connection speeds and improved multiplayer8 experience. The network will allow developers to create graphic-rich multiplayer games for any device such as 4K television, a laptop, or mobile device. Companies like Razer (1337-HKSE, NR) and ASUS (2357-TAI, NR) have already rolled out a “gaming phone” with as high as a 120Hz display, front firing speakers, vapour chamber cooling, Qualcomm (QCOM-NAS, NR) processor, and laptop-like RAM (Exhibit 9). While most associate 5G capabilities and lower latency with the user experience, advertisers are excited by their significantly enhanced capability to profile and value viewers for programmatic advertising placements. We note that Apple (APPL-Nasdaq, NR) recently launched its gaming subscription service reflecting its move to increase its SaaS revenues, strengthen its iOS ecosystem, and further reflecting on the growth of mobile gaming.

Exhibit 9. Gaming Features on ASUS ROG Gaming Phone

Source: TechTicTok

Similar to video-on-demand, cloud gaming will likely dominate as a result of its convenience. According to IHS estimates, the cloud gaming content subscription market is expected to reach $1.5B in 2023 from $234.0M in 2017, at a CAGR of 45%. 5G coincides with an increase in game streaming services. At present, Sony (6758-TKS, NR) charges $19.99 per month for its cloud gaming subscription ‘PlayStation Now’ giving access to over 800 games with minimum PC requirements, comparable to Netflix’s premium subscription of $15.99 per month. Unlike Netflix that interprets a few commands, such as pause video, PlayStation Now needs to process and interpret many commands in real time creating lags in gameplay. Thus, it is likely that more game streaming services will emerge as 5G becomes accessible with faster connection and reduced latency. Earlier this year, Google announced its own game streaming service, “Stadia”9, which will be priced at $10 per month, with plans to launch a free tier version in 2020. Similarly, Microsoft

7 Latency is the amount of time a message takes to traverse a system. In a , it is an expression of how much time it takes for a packet of data to get from one designated point to another. It is sometimes measured as the time required for a packet to be returned to its sender. 8 For instance, “Fortnite is currently capped at 100 players per session, but that number could grow exponentially with the help of 5G.” 9 Google’s “Stadia” will be launched in late 2019. Stadia is not a console, instead it is a full-fledged service that brings gaming on demand. According to Google, it is capable of streaming video games in 4K resolution at 60 frames per second with support for high-dynamic-range (HDR), to players using a sufficiently high-quality Internet connection. It will be accessible through the Google Chrome web browser and integrate YouTube. The integration with YouTube and its ‘state share’ feature will allow viewers of Stadia to launch a game on the service and enter at the same save state as the streamer. The service will be compatible with any HID class USB controller, but Google will also release a proprietary controller. The Google controller will have a Wi-Fi assist button. In order to offer this streaming service, Google has a network of data centers with more than 7,500 nodes located all over the world to bring Stadia hardware to all users, regardless of their location. Cloud gaming, such as Stadia, has the potential to revolutionize game streaming to the same magnitude that Netflix revolutionized video-on-demand. For example, the Stadia ‘Stream Connect’ feature will make gameplay exceptionally integrative. Google says, “Stream Connect provides a real time view into another player’s game as it’s happening, so you can not only watch but interact with another player’s game.”

Rob Goff, CFA | 416.933.3351 | [email protected] 22 announced “Project xCloud”, a streaming service that is said to bring console-quality games to PC and smart phone devices, which is expected to launch later this year. We add Apple to the list of subscription-based gaming providers given its September launch of its own service.

Therefore, 5G will allow gamers to “cut the cord” altogether and avoid expensive hardware or consoles with lengthy download times. Essentially, it will allow for higher quality content, greater advertiser profiling capabilities, and a more immersive experience for gamers. Additionally, the convenience of streaming games rather than downloading with expensive consoles will likely appeal to a wider audience. These factors will likely also support further growth in the spectatorship of gaming and engage a greater esports audience.

5. Esports Gambling – Catalyst for Audience Growth, Additional Revenues

Esports betting has already surpassed the billion-dollar mark, if data is to be trusted. Part of the reason is that esports gambling is not reliant on game publisher IP. In that sense, many esports sportsbooks are not susceptible to the same limitations and risks that affect other esports verticals (organizations, events, sponsors), namely game publisher influence. Riot’s LoL and Valve’s CS:GO dominate the betting market with ~60% of the betting volume. Fortnite, the leader in terms of digital viewership, has yet to establish itself as a full-fledged esports player and the options to bet on the game are limited. Esports fans are also not necessarily the only participants in the gambling market – seasoned gamblers that bet on various sports are likely active as well. Since esports betting closely resembles traditional sports betting, global gambling giants such as Pinnacle Sports (Private), Bet365 Sport (Private), and Paddy Power (Private), among others, have added esports to their sportsbooks. In addition, for other esports market participants, betting has the benefit of driving viewer engagement. For instance, when an individual has bet on a particular game outcome, they are more likely to watch the game. We view betting as a possible catalyst for future fan engagement both online and at events (tournaments, league games, etc.). Unsurprisingly, the most popular games are also the most popular to bet on as evident in the exhibit below.

Exhibit 10. EsportsChart Betting Title Volume by Game

Others, 8%

Starcraft 2, 7%

League of Legends, 38% Dota 2, 18%

CS:GO, 29%

Source: Narus Advisors/Eilers & Krejcik Gaming, Echelon Wealth Partners

Many sportsbooks lack sufficient data on the performance of esports players and teams compared to traditional sports. Data analytics will further be an area of opportunity, as esports books require standardized player and game statistics to set odds and match predictions.

We cover esports betting in detail in our Online Gambling section.

Rob Goff, CFA | 416.933.3351 | [email protected] 23

Audience Profile: Coveted and Loyal Fan Base that Advertisers Find Hard to Reach Esports fans are the fastest growing community of invested viewers, who are loyal and less likely to watch traditional sports, highly likely to cut cords, engage with gaming personalities on a regular basis, and pay attention to both endemic and non-endemic brands being advertised.

If the numbers from Newzoo are to be trusted, there were around 380.2M esports viewers globally in 2018 with y/y growth expectation of ~15% set to advance viewership to 453.8M in 2019, ~44% of which are esports enthusiasts10. This number is expected to reach 557M by 2021, out of which 44-45% would be enthusiasts and the remaining would be occasional viewers, representing similar growth in both categories where there is a natural evolution of occasional viewers to enthusiasts and the expanding appeal draws in new occasional viewers. The Asia-Pacific region is expected to represent 57% of esports enthusiasts in 2019, with North America, Europe, and the rest of the world accounting for 12%, 16%, and 15%, respectively. In addition, there is a huge growth potential built in the fact that there are in total ~2.2B active gamers globally and only ~5% of them currently watch esports. Therefore, given the nature of online engagement in esports it is possible that a social network effect could propel the industry further to reach a greater portion of the active gamer market.

Exhibit 11. Esports Audience

Young: Diverse: In the U.S., 75%are between the ages of 18 to 34 – with an average College Graduate: 42%; White: 72%, Non white: 28%; Married age of 25 36%; 17% are female Affluent and are Paying Passionate and Attention: Engaging: Average esports fan household income is ~$70K vs general >70% likely to spend time on esports vs traditional sports population at $61.4K >60% of Twitch esports fans engage with gaming personalities on In a survey, 90%of Twitch fans can recall at least one non-endemic a daily basis brand within esports

Source: Nielsen, Echelon Wealth Partners

Further, the number of people who are aware of esports worldwide will reportedly reach 2B in 2021, which is more than a quarter of the world’s population. Esports awareness, however, does not mean that individuals will actively participate or watch esports but that they will have at least heard of the industry. Nevertheless, the increasing exposure through media partnerships and advertising as a mainstream entertainment industry is driving the growth in awareness. In addition, the improvement of IT infrastructure and greater urbanization are the predominate driving forces of audience awareness and growth in the emerging regions of Latin America, the Middle East and Africa, Southeast Asia, and the rest of Asia. Moreover, the rise of new franchise teams, such as in the OWL, is an important growth factor as it provides stability for investment. The influx of young generations, who grew up playing video games and to whom esports is a natural phenomenon, will further drive the growth of the industry’s audience.

StreamMetrics, a company that generates detailed esports audience analytics, had some surprising insights to share on the US audience for the 2019 Fortnite World Cup Finals. The three-day event saw 19,000 fans attend while it achieved a 90,000 AMA on various streaming platforms such as YouTube and Twitch, with audience count hitting a peak of 2.3M viewers. It was interesting to note that the Fortnite finals audience comprised 44% over 35 years old and 43% were female. These statistics are contrary to the belief that esports fans are a young and male dominated audience. The numbers will make more sense if we look at them side by side with the audience that generally watch Fortnite: 30% of US viewership is over 35 years old and 23% are female. We can comfortably infer from the data that the Fortnite event

10 Esports Enthusiasts: People who watch professional esports content more than once a month.

Rob Goff, CFA | 416.933.3351 | [email protected] 24 attracted more casual viewers, which in turn validates the growing popularity of major esports events and leagues. We expect to see similar change in trend for other major leagues and tournaments. Top leagues/tournaments and teams by prize winning are listed below (Exhibit 12). Platform loyalty among viewers was another key finding from the data with Twitch, unsurprisingly to most, winning the loyalty battle (Exhibit 13).

Exhibit 12. Top Tournaments by Prize Money; Top Teams by Prize Winnings

Source: Esports Earnings

Rob Goff, CFA | 416.933.3351 | [email protected] 25

Platform Profiles: The Giants are Lined Up! Let the Fighters Engage! Currently, the two major platforms where fans can watch their favourite streamers either play the game or just casually interact and chat with them are: Amazon-owned Twitch and Google-owned YouTube Gaming (Exhibits 13, 14). Microsoft-owned Mixer recently made headlines after former Twitch celebrity “Ninja”11 left the platform to join Mixer. Ninja who had 14M followers on his Twitch channel, was successful in attracting 1.8M subscriptions in his first 21 days after he moved to Mixer on August 1 of this year. This is considered to be a major win for Mixer, while it competes with Twitch and YouTube. The details of the contract were not announced but sources report Ninja was offered ~$100.0M to make the shift to the smaller platform. This payoff for a single esports personality is unprecedented, however, many speculate that the move by Microsoft is an attempt to generate an audience for its streaming platform, which will likely be integrated with its next-generation Xbox and xCloud products, similar to Amazon (Amazon Game Studio and Twitch) and Google (Stadia and YouTube) platforms’ which will support both playing and watching games.

We see heightened competition across the streaming platforms working to favour content producers (streamers). Content providers have significant leverage to higher payout ratios from the platforms, and for the elite there is the potential for exclusive use payments from the platforms. While Amazon and thus Twitch should never be underestimated, we look for the other tech/social network titans to aggressively invest market share development given Twitch’s dominance in the growing space.

Exhibit 13. Top Streaming Platforms (by Million Hours Watched – Q219)

Source: StreamElements, Echelon Wealth Partners

11 Ninja who amassed over 14M followers, also signed sponsorship deals with massive brands such as Red Bull and Uber Eats for undisclosed amounts. Although he is a player (Fortnite is the game he is most known for), content publishing to his large following is what gains him most recognition. An event held at the Luxor Hotel and Esports Arena in April 2018 capitalized on Ninja’s massive following. The event was part tournament, part meet-and-greet, and live-streamed, which resulted in Ninja’s 680K concurrent viewer record. Tickets to the event were sold for $75 each for entry into the arena and cash prizes were rewarded for winners. The unique event highlights the magnitude of attention a single esports personality can generate. Moreover, Ninja is a prime example that players or streamers are paid through multiple channels including fan donations, subscriptions, sponsorships, and advertisements. Ninja reportedly earned close to $10.0M in 2018 with at least $500,000 a month in revenue coming from Twitch subscribers and YouTube advertisement.

Rob Goff, CFA | 416.933.3351 | [email protected] 26

Exhibit 14. Twitch Growth Metrics; Top Twitch Channels by Total Followers

Source: Twitch Tracker

Although the majority of esports events are streamed online it would be incorrect to state that broadcast TV does not have a stake in esports. For instance, Ginx TV (Private) is an international channel exclusively dedicated to broadcasting esports news. Likewise, in 2018 ESPN signed a multi-year agreement to broadcast live OWL events (organized by Activision Blizzard). However, platforms, such as Twitch and YouTube Gaming, have enabled greater audience engagement than TV channels, as fans interact online with each other in real time. For instance, streaming platforms have built features such as live chat, bits (Twitch’s virtual currency), and face masks to engage viewers.

Rob Goff, CFA | 416.933.3351 | [email protected] 27

Streamers/Influencers and Audience’s Loyalty Towards Games For streamers, Twitch is clearly the dominant platform given its legacy audience advantage relative to YouTube Gaming. With player compensation typically driven by viewership, Twitch’s scale is a significant advantage. In regard to HUYA, without third-party sources to measure viewership statistics it is difficult to compare the platform’s relative popularity. It will be interesting to see Microsoft and Facebook invest to catch up in the esports market. Audience loyalty clearly strengthens content producers leverage across the competing platforms.

Influencers or content streamers12 are an important part of the esports ecosystem as they maintain a loyal subscriber base, which would likely follow them if they ever decide to change streaming platforms, as evident from the classic case of Ninja moving from Twitch to Mixer (where he has already surpassed 2.2M subscribers, in less than two months). Similar to traditional sports celebrities, influencers such as Ninja and Tfue have the power to influence followers’ buying decisions. Consequently, an increasingly broader list of advertisers are signing massive deals with well-recognized gaming celebrities. Top streamers have themselves become stand-alone brands capable of securing advertisement deals and brand sponsorships. Content publishing is, therefore, an important driver of increased fan engagement through both official game publisher channels and individual esports influencers.

We see the influencer and team franchise advertising ecosystem advancing its own analytics and in turn driving both audience and higher advertising yields. We note that privately held Opera Event (Private) has signed on many of the top 15 teams onto its influencer platform where it has realized compelling audience gains and is moving to drive yields.

Exhibit 15. Esports Audience Overlap – Game Loyalty ▪ Data analytics companies such as StreamElements and Stream Hatchet have made it easy to track audience behaviour, which aids the entire esports ecosystem in operating in the most audience friendly way. ▪ Ninja, who is most known for playing Fortnite, made sure to announce his future agenda and a large part of it was to communicate his commitment to Fortnite to his audience. “Right now the hot game right now for me, and it’s been for the last year and a half to two years, is Fortnite,” he said. ▪ We see this commitment to a single game as a significant advantage for publishers/developers, where audiences are loyal to games and dedicated to the channels they want to watch and follow. ▪ The same was indicated by a survey conducted by Stream Hatchet this year:

• Only 0.8% of the Riot Games Followers would both Overwatch League or Fortnite • Only 6.0% of Fortnite Followers follow Overwatch League Bottom line is that the overlap is really small across channels/games

Source: Stream Hatchet, Echelon Wealth Partners

12 The influencers generate revenue through subscriptions, selling customized merchandise, donations and sponsorships. Individual content streamers have the potential to earn more than $20.0M a year from publishing on Twitch. Top Twitch streamers are often professional esports gamers; however, commentary and entertainment value are equally important in attracting fans. A prominent streamer on the Twitch platform, Tyler Blevins, “Ninja”, holds the record for 680K concurrent viewers set in 2018. ▪ To be a “Twitch affiliate” a streamer must stream 500 minutes on at least seven days of a month, receive an average of three concurrent viewers per stream and grow an audience of at least 50 followers. Top streamers or “Twitch partners” and have an option of running video advertisements in their content generating additional revenue. Both affiliates and partners earn a portion of the total viewer subscription revenue, which can range from $4.99 to $24.99 per subscription. The revenue generated is initially divided 50:50 between the individual content streamer and Twitch, but top streamers receive higher percentages, in some cases, even 100% of the proceeds. The subscription revenue is reported to be approximately $3,000-5,000 per month, with top streamers generating substantially more. Content streamers also receive donations or “bits”, which is Twitch virtual currency. Fans purchase the “bits” that are then redeemed as “emotes” (esports emoticons). “Emotes” can range in cost from one to 10,000 in “bits”, in order to cheer on Twitch streamers. Twitch pays the streamer for receiving “bits” at a rate of about one cent per “bit”.

Rob Goff, CFA | 416.933.3351 | [email protected] 28

Viewership can vary widely depending on the game genre13 where viewers prefer to follow certain genres over others. Each game requires a different skill set and professional players often specialize in a single game.

There are less fluctuations at the top when it comes to game popularity (Exhibit 17). Some popular games such as Dota 2 (published by Valve) and League of Legends (published by Riot Games) have remained hits since they were first released in 2013 and 2009, respectively. Still, Dota 2 and League of Legends were both inspired by their predecessor Warcraft III mod, (DotA), which was developed by “IceFrog” a game designer who in anonymity has been pivotal in the multi-player online battle arena (MOBA) genre. Valve bought the commercial rights for Dota in 2009 and hired the original game designer to develop the stand-alone sequel, Dota 2. Both games have gone through many changes since release, a process that is integral to maintaining the longevity of any game. Fortnite is known for its weekly patches/updates to keep the game fresh for players and spectators. However, frequent patches are more common for newer games.

Exhibit 16. Fortnite Patches

Source: Mary Meeker – Internet Trends 2019

13 The genres or “sports” in esports include: 1) first person shooter, 2) real time strategy, 3) multiplayer online battle arena (MOBA), 4) battle royale – multiplayer blends survival with last-man-standing, 5) fighting games, and 6) games that even game-makers have difficulty classifying.

Rob Goff, CFA | 416.933.3351 | [email protected] 29

Exhibit 17. Most Viewed Games on Twitch: Long-Term Trend; Top 10 This Week and in 2017, 2018 and H119

Most Viewed on Twitch in the week of August 27

LoL, Fortnite, Just chatting and Apex Legends launched; popularity Grand Theft Auto V (GTA) - OLD faded soon after AND STILL POPULAR much celebrated GTA became famous after recent Fortnite took away release; Ninja was update market share from LoL paid $1M to and PUBG promote. He then moved away to focus Just Chatting category on Fortnite started becoming famous

FULL YEAR - 2017 (Million hours watched) FULL YEAR - 2018 (Million hours watched) INTERIM - H119 (Million hours watched)

LoL 898.5 Fortnite 1,100.0 Fortnite 612.2

PUBG 484.5 LoL 862.7 LoL 586.8

Hearthstone 411.0 Dota 2 420.6 Just Chatting 350.0

Dota 2 402.0 IRL 388.6 Dota 2 266.2

CG:GO 353.5 PUBG 376.4 Apex Legends 204.2

Source: Twitch Tracker, StreamElements, Echelon Wealth Partners

Apex Legends did change the game (at least for a while) when it was first released in February 2019 but cases like this are few and far between. Fortnite, a battle royale game, was the most streamed game on Twitch in 2018 but the release of Apex Legends in February 2019 knocked Fortnite from its “#1 most viewed on Twitch” spot. Apex was viewed live on Twitch for 122.1M hours, compared to Fortnite’s 82.76M hours. Apex’s overnight success is a prime case study of the magnitude that top streamer influencers can have on viewers. In bypassing the traditional model of pre- release marketing and in leveraging top streamers’ audiences, Apex became an immediate hit. It is undeniable that game streaming continues to be pivotal to the success of the biggest games, such as Fortnite, Overwatch, and League of Legends. On Apex’s launch day, well-known streamers including Shroud, Ninja, and DrDisrespect, helped generate 1.6M live viewership hours on Twitch.

However, Apex Legends’ popularity significantly declined since the game debuted in February. SuperData estimates Apex Legends earned $24.0M in April, down 74% from its February launch month earnings of $92.0M. “That’s a mighty fall from grace, particularly considering SuperData believes Apex Legends had the strongest start for a free-to-play title of all time.” The decline in earnings was accompanied with a drop-off in Twitch viewing figures. Ten of the top streamers were reportedly playing the game in February with only two in March. Apex Legends reaffirms that at times game title popularity can be incredibly volatile. In general, viewers stick to their favourite games yet are not reluctant to try new games, and streamers ultimately adjust to what their audiences want to see them play (Exhibit 17).

Rob Goff, CFA | 416.933.3351 | [email protected] 30

Investments Going Mainstream? Esports is often presented as the new momentum sector on the Street as investors look to the next emerging space following on the success of cannabis investing. We find that both momentum and traditional value investors are looking for ways to gain exposure to the industry, drawn by its scale and expected growth at a CAGR of 20.7% (2019-2022). Though, in-depth understanding of the industry is varied and often limited.

We see the industry as a media and entertainment ecosystem with a blend of video gaming and traditional sports. However, esports is distinctly different from the gaming industry in terms of competitive leagues, team organisations, and mass entertainment factor. It is also different from traditional sports (besides the obvious difference that it involves technology) in terms of its video gaming aspect that has a global reach, attracts much younger audiences (at least from what we see right now), and where players and influencers have individual brands that continue on streaming platforms even when they are not competing. In this section, we will discuss how the investment scenario has changed over the years and its prospects for going mainstream. While strategic investors are likely to remain the largest source of funds over the near term, we are seeing a greater influx of private placements and look for increased public market activity. Continued sector growth and clarity on its value chain and the gains of private company portfolios through team ownership and partnerships suggest greater interest in the area.

As per Deloitte, a whopping $4.5B was invested in the esports industry in 2018, ~9x the investments made in 2017, where the number of disclosed deals has grown at a five-year CAGR of 103.1% between 2014 and 2018 from merely 4 disclosed investments in 2014 to 68 in 2018. Due to the high risk-reward spectrum, venture capital (VC) investments dominate with 56% of the total investments in 2018 funded by VCs. However, it is important to highlight the dramatic increase in investments from private equity firms in the last 15-18 months. There were 11 investments in total in 2018 compared to 9 during 2014-2017.

Exhibit 18. Esports Investments – Trend, Notable Transactions, and Category Breakdown

Investor/ Amount Target Acquiror Year ($M) Category Riot Games Tencent 2011 93 Developer Epic Games Tencent 2013 330 Developer Twitch Amazon 2014 970 Streaming ESL MTG 2015 78 Events Blizzard MLG Entertainment 2015 46 Events Mixer (Beam) Microsoft 2016 NA Streaming Consumer Astro Logitech 2017 85 Products

Cloud9 Valor Equity 2018 50 Teams Discord Tencent 2018 150 Streaming Consumer Roccat Turtle Beach 2019 19 Products Source: Deloitte, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 31

1. Industry Strategies: Developers here include analytics companies, software developers and game developers, as well as esports leagues that are owned by game developers/publishers. Large game developers attract a huge percentage of the total investments with proceeds going into new game development, regular game updates/patches, game marketing, and esports events. There are several smaller companies in the same investment arena leveraging off audience growth. Discord, a popular gaming chat application company, has attracted $200.0M of total funding (Tencent invested $150.0M) in 2018 when the company was valued at $2.1B. Discord has 250M registered users (~50% of total esports audience) compared to only 45M in mid-2017.

With growing esports popularity and solid viewer demographics, esports journalism and online platforms for amateur tournaments are gaining traction. QYOU Media Inc. (QYOU-TSXV, NR) and Enthusiast Gaming are Canadian media companies that have utilized digital media to reach gaming enthusiasts with in-depth gaming analysis which is useful for gamers, viewers and brands to understand the nitty-gritty of the games. Enthusiast Gaming uses around 80 websites to reach its 150M monthly subscribers. EGLX raised C$9.0M in funding via a non-brokered private placement.

theScore announced raising $40.0M in a strategic deal. Under the $40.0M agreement with Fengate, the firm’s PE team will invest in theScore to fund the development and growth of the Company’s media and sports betting platform. The investment will be made through a purchase of $40.0M 8.00% (per annum/ payable semi-annually) convertible unsecured subordinated debenture due in August 31, 2024.

Exhibit 19. EGLX Logo

Source: Company Website

On the platform side, Cineplex invested $15.0M in 2015 to acquire WorldGaming assets; the decision was in line with the company’s strategy to diversify its revenue stream which was largely dependent on volatile box office revenues up until then. We noted in our latest CGX report that we are optimistic about CGX’s investment in evolving the esports industry and we believe that by diversifying its gaming portfolio from first shooter games to traditional esports applications like NBA, 2K and NHL, CGX is targeting a variety of gamers as well as maintaining flexibility in an industry that is still in its nascent stage.

The build out of international stadium-size events is taking place at a large scale, mainly as a result of game publisher support. For example, Dota 2 ‘The International 2019’ held at the Mercedes-Benz Arena in Shanghai (seats ~18,000) or the Fortnite World Cup 2019 at the Arthur Ashe Stadium (seats ~23,000) have both become prominent events, gaining traditional media attention. However, as esports becomes increasingly mainstream the build out of local events and tournaments will become necessary.

Cineplex with its portfolio of theaters is poised to capitalize on development of local esports events and tournaments hosted by its subsidiary WorldGaming. Local esports events and tournaments have the potential to revive Cineplex’s underperforming theaters with a young demographic with its theaters located in both metropolitan and suburban areas. The suburban theatres, in particular, likely have less competition in terms of other venue options in the area given scale economics. However, suburban theatres and markets are likely more of an option for feeder tournaments or leagues. We note that Cineplex recently opened its first reinvented Playdium Complex, in Brampton . The new 41,000 SFT complex is dedicated to various games, including virtual reality, video games and attractions such as ten pin bowling. The firms’ Playdiums are intended to become a community space to connect and engage the younger generation.

Additionally, Cineplex’s theatres could be used to host several live tournament viewing events where consideration could be given to fans or teams competing live to make the experience even more interactive. For example, Cineplex with WorldGaming and in partnership with Maple Leaf Sports & Entertainment (“MSLE”) hosted Toronto Raptors fans across Canada at its Cineplex theaters for Raptors 2019 NBA Finals viewing parties. The viewing event further engaged fans with NBA 2K players and fans both in Toronto and across Canada through online and in-person gaming tournaments.

Rob Goff, CFA | 416.933.3351 | [email protected] 32

Cineplex is not the only company utilizing movie theatres. Recently, Super League Gaming (SLGG-Nasdaq, NR) announced a partnership with NetLevel to provide esports competitions and live viewing events in movie theatres such as Cinemark and others across the US. Esports dedicated venues are also becoming prevalent. For instance, Allied Esports Entertainment’s (AESE-Nasdaq, NR) HyperX Esports Arena, with over 30,000 SFT broadcast center and studio has already hosted numerous esports events including Ninja Vegas ’18, League of Legends All-Star 2018 and Cup 2018. Comcast (CMCSA-Nasdaq, NR) has committed over $50.0M to build a 3,500 seat esports stadium named “Fusion Arena”, which will be home to the Overwatch Leagues’ Fusion team. More esports venues are likely to appear with the build out of leagues.

Exhibit 20. Cineplex/WorldGaming Crowd

Source: Cineplex /World Gaming

Versus System (VS-CNSX, NR) and Battlefy (Private) provide online platforms that support multiple games for amateur tournaments where brand sponsorships are critical. Versus System raised $1.8M in February 2019 through a brokered private placement at a price of C$0.18/shr.

Recently, PlayVS a company that provides a platform for high school esports competitions announced it completed $50.0M Series C funding led by New Enterprise Associates, following Series B funding of $30.5M last year from Adidas, Samsung, Sean “Diddy” Combs, and the VC arm of the Los Angeles Dodgers, brining the total to funding to $96.0M. PlayVS signed as an exclusive partner with The National Federation of State High School Associations (NFHS) and the NFHS Network to host high school level matches and stream them for other students to watch, in addition to compiling standings and statistics, last year. According to PlayVS, 13,000 US high schools have created or on the waitlist to create esports teams. That amounts to 68% of the 19,000 NFHS member schools. In comparison, the NFHS’s recent survey indicated that 14,247 high schools offered football illustrating the popularity of esports as a high school competitive activity and the next wave of professional players.

Our bullish view on esports betting drew our attention to FansUnite where it looks to leverage blockchain platform efficiencies within its esports betting platform (Appendix 6). The esports betting market is expected to reach $13.0B by 2020 or 7x the esports industry in market size. FansUnite plans to launch a decentralized betting protocol, powered by Ethereum smart-contract technology, to simplify, expediate, and secure the payment process of betting, which would lead to greater adoption of esports betting. The Company already has ~30,000 bettors regularly engaged on its free social betting platform.

The success of tournament play and the emergence of regional teams have turned investors’ focus on venue considerations. The merger of Enthusiast gaming with Aquilini GameCo and Luminosity saw venue rights as a key factor. The Gaming Stadium, parent company of Myesports Ventures Ltd., confirmed that it has already spent millions of dollars in developing Canada’s first esports arena in Richmond, BC, with plans to spend more in the coming months. The stadium features an 18,000 square-foot esports arena with space for more than 300 spectators. We see this as solid proof that reaffirms our long-term positive view on the industry. Industry watchers typically look to see Cineplex move to further leverage its real estate platform. Tournaments require large facilities while league play or qualifying round play for tournaments could be better suited to adapted versions of legacy theatres. We look for significant announcements of dedicated facility developments across North America. The move to regional teams within leagues is a key trigger for home facilities.

Rob Goff, CFA | 416.933.3351 | [email protected] 33

The success of team development within both tournament and league play is critical to building out audience level and advertising/merchandising revenue streams. Furthermore, teams are a core part of the growth profile for esports betting. We are encouraged by the financial, sport and media pedigree of the team backers.

Esports team organizations are different from many traditional esports teams with parent companies more often pursuing greater diversification owning teams across leagues, game, and tournaments. Lazarus (ranked 27 based on total earnings) and Luminosity (ranked 38) are two such Canadian team organizations. Lazarus has around 13 teams listed on its website participating in popular games such as CS:GO, PUBG, Battle Royale, LoL, and Madden NHL, etc. Lazarus also features two all-female player teams (most organizations only focus on males) in an effort to entice female fan following and bring gender parity to the ecosystem. Tiidal Gaming, Lazarus’ parent company, is looking to go public in 2019. Please refer to Featured Companies Section for our company profiles.

Exhibit 21. Top 40 Teams by Earnings

Source: Esports Earnings

In 2018, $193.0M was invested in team organizations up from only $65.0M in 2017, largely driven by VCs. With Lazarus planning to go public, we believe that many companies will follow the same path, which will provide traditional investors direct exposure to high-quality, well-managed teams. As highlighted in the beginning of this report, with the spike in investments, esports organizations valuations are now more on par with technology valuations with the legacy sports franchises receiving lower revenue multiples that arguably imbed lower growth expectations. The revenue generated from franchised teams is typically split among publishers, event organizers, merchandising, and players. The franchise model signals the expected longevity of the esports industry, as investors are expecting to recoup their $20.0-60.0M investment. The added stability and distribution of risk reinforces incentives for future investors and stakeholders to enter the industry.

Rob Goff, CFA | 416.933.3351 | [email protected] 34

Exhibit 22. Esports Teams vs. Sports Teams vs. Technology; EV/Sales Valuation (Average) Sports Teams: Esports Teams: Technology: 5.3x (EV/Sales 2018) 20.0x 10.0x 13.5x 19.0x (EV/Sales 2018) (EV/Sales 2018) 18.0x

14.1x 13.6x 13.0x 13.1x 12.5x 11.8x 10.9x 10.0x 10.0x 9.2x

6.5x 6.0x 5.0x 3.9x

Source: Forbes, Echelon Wealth Partners

2. Incubators: Investors can also look at incubation companies such as V2 Games Inc. (Private), Axion Ventures Inc. (AXV-TSXV, NR), and New Wave Holdings Ltd. (Private), as a means of gaining exposure to the esports industry. These companies invest in small gaming companies and specialize and look to diversify their investment in multiple esports verticals. For example, New Wave Esports is invested in a team organization (Tiidal’s owned Lazarus team), a betting platform (Playline Ltd.), and an event production and broadcast company (Even Matchup Gaming). Investing in incubators can bring game diversification and industry expertise. The relatively short development to monetization timeline of specific mobile titles suggests successful incubators will be able to use proceeds from exits to help fund further investments.

3. Public ETFs: It remains early days and liquidity is limited; however, there are multiple esports ETFs such as HERO, GAMR, ESPO, NERD, etc., that allow direct diversified investment in the industry. HERO, Canada’s first esports ETF, was announced by Evolve Funds Group in June 2019, trades on the TSX, and as of August 22, 2019, had an AUM of just C$1.5M. GAMR, which trades on the NYSE, has a still modest AUM of $83.0M and has generated annualized returns of 19.2% since its inception in 2016. GAMR is far more diversified with 85 holdings versus HERO with 44. HERO is relatively new and trades at a NAV of ~C$20 compared to GAMR at ~$34. ESPO and NERD are also popular US-based gaming and esports ETFs with AUMs of $32.0M and $8.5M, respectively.

The growth and volatility that empowered cannabis ETF growth are shared characteristics of the esports space. The industry growth attracted investors and demand while the volatility drove ETF profitability and supply. ETFs can generate attractive returns through stock lending against their holdings. Thus, the greater the volatility of the underlying shares, the better the stock lending terms (from the ETF perspective).

Rob Goff, CFA | 416.933.3351 | [email protected] 35

Exhibit 23. HERO Allocation (Geography and Sector) and Top 10 Holdings

SWEDEN, Geographic Allocation Sector Allocation Top Holdings 0.9% TAIWAN, 0.7% Application Software, Sea Ltd, 3.60% FRANCE, 3.6% POLAND, 2.1% 1.2% NCSoft Corp, 3.78%

Leisure Products, SINGAPORE, 4.0% 5.2% Co Ltd, 4.92% Activision Blizzard Interactive Media & SOUTH Inc, 11.56% Services, 10.2% KOREA, 8.6% Bandai Namco , Holdings Inc, 5.24% 30.1% NetEase Inc, 10.30% Take-Two Interactive CHINA, 22.5% Interactive Home Software Inc , Entertainment, 82.5% 5.64% Electronic Arts Inc, Tencent Holdings 10.19% Ltd, 9.49% JAPAN, 26.8% Nintendo Co Ltd, 9.71%

Source: Evolve ETFs

Bottom Line: There are multiple ways to invest in esports for traditional investors: ETFs, stocks, debentures, etc. Still in its nascent stage, the industry is rapidly growing, and the anticipated inflow of investments is expected to support further industry growth while it creates long-term stability thus paving the way for retail investors to gain additional exposure. Top developers and top teams will likely find it increasingly easier to raise capital. In contrast, streaming companies such as YouTube, Twitch and Mixer are already supported by big tech giants. In China, Tencent Holdings (a technology conglomerate and game developer) has invested $632.0M in DouYu and $461.0M in HUYA, China’s top streaming platforms.

We believe investment will flow, in varying degrees, to all industry participants. The companies that create value, for example, by developing successful games, managing top preforming teams, limiting losses and reducing costs, will likely find greater access to capital.

China is Special: North America is the largest esports revenue market, at $409.1M of the projected $1.1B where sponsorship deals in North America are projected to account for $196.2M (48% of the $409.1M).

Meanwhile, the Asia-Pacific region, specifically China, is undoubtedly growing fast, contributing $210.3M in 2019, surpassing Western Europe as the second largest region in terms of revenue. While many in the West still view esports as an emerging form of entertainment, in Asia esports is already considered mainstream. Asia will account for 57% of esports enthusiasts in 2019. Average winnings/player is higher in Asia at $25,093 compared to the US that has 14,669 players and has average earnings of only $8,570 (Exhibit 24). A likely contributing factor is that China has the largest gamer base in the world. Statista reported in 2017 that revenue from the games market in Asia alone amounted to $51.2B, a level almost twice the revenue of the second-ranked North American gaming market.

The growth in China has been fuelled by its infrastructure investment. For example, Hangzhou, a city in China, officially opened an “esports town”, an area dedicated to esports, including an academy, hotel, and hospital with plans to have 14 esports projects in motion by 2022, with a plan to invest up to $2.2B (¥15.5B RMB) in total. The town is already home to two professional esports league teams: LGD Gaming’s League of Legends team that competes in the Legends Pro League and the Hangzhou Spark that competes in the OWL. The esports town is one-of-a-kind and further emphasizes the prominence of esports in China. Moreover, in early 2019, China’s Ministry of Human Resources and Social Security officially recognized esports as a profession, a possible indication of the Chinese government’s intention of further supporting the growth of the esports industry. While its size would naturally attract new companies to the market, government regulations and the strength of giants Tencent Holdings and Alibaba Group Holdings (BABA-NYSE, NR) present significant barriers. The Chinese conglomerate Tencent has emerged as a leader in the Asian market by leveraging its chat and payment platform “WeChat” to further drive engagement to its video gaming portfolio. In 2017, Tencent announced its plans to spend $15.0B on expanding the Chinese esports market. We note that the world’s leading live streaming gaming platform, Twitch, was subsequently banned, in line with China’s censorship policy.

Rob Goff, CFA | 416.933.3351 | [email protected] 36

Market forecasts for 2019 have the US market at $36.9B in revenues, just surpassing China where its gaming revenues are put at $36.5B. The Chinese government’s nine-month freeze in 2018 on new video game approvals affected revenues into 2019 and hampered growth. However, China will likely recover as the number one gaming market based on both revenue and fans by 2020. Improvement of IT infrastructure and greater urbanization are also the predominate driving forces of audience and awareness growth in other emerging regions such as Latin America, the Middle East, Africa, Southeast Asia, and Asia.

Exhibit 24. Top 10 Countries of Players in Esports (By Prize Money)

Russian Finland Federation $23.0M $23.1M Canada 1395 Players $24.6M $34.6M 3061 Players 2430 Players 2385 Players Republic of Korea $32.1M $80.1M 1396 Players US $23.0M 3671 Players $125.7M 3697 Players 14,669 Players France $24.7M 3182 Players China $101.6M 4048 Players

Source: Esports Earnings, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 37

Online Gambling and its Ripple Effects A favourable regulatory environment, technological advancement/adoption, and the need for online social interaction is expected to pave the path for online gambling. Online gambling is expected to contribute ~20.0% GGR14 to the overall gambling industry GGR by 2025, more than doubling from contributing ~7.5% in 2010. Likewise, the mobile contribution to online gambling GGR is expected to grow from ~11.0% to 55.0% during the same period. There is certainly a demographic overlap between online gamblers and esports viewers (both predominately young males), which results in a large pool of potential esports gamblers.

Regulation calls the shots in the gambling industry with timing (more than direction) varying at both the country and state level. Despite all the potential restrictions, online gambling (including online poker, casino, sports betting, bingo, lotteries and skill-based and other games) GGR bulged ~6.8x from a mere $7.8B in 2003 to $52.9B in 2018.

The market has seen a sizeable increase in the last 15-18 months after the Professional and Amateur Sports Protection Act of 1992 (PASPA) was scrapped at the federal level in May 2018, which opened the market for what WSJ estimates as a $17.0B market (excluding $3.0-5.0B media revenue). There has been an overwhelming response from individual states: eleven states have already fully legalized sports betting, only seven states have not passed any bill, while the rest all have some sort of bill in place that has either already been passed or introduced.

H2GC estimates that the global online gambling GGR could grow to ~$78.0B in 2025 for a seven-year CAGR of ~5.7%, where the overall global gambling market (including land-based and tribal ) is expected to exceed $590.0B by 2025.

Exhibit 25. Global Gambling Market GGR vs. Online GGR

700 90.0 60.0%

80.0 600 50.0% 70.0

500 60.0 40.0%

50.0 400 30.0% 40.0 300 30.0 20.0%

Global (US$B) GGR 200 20.0 GlobaliGaming (US$B) GGR 10.0% 10.0 100 0.0 0.0%

0 Total iGGR (US$B) iGaming (% Total) Mobile % of iGGR Source: Echelon Wealth Partners, H2GC, GBGC, Statista

14 “GGR” or “gross gaming revenue” is defined as online rakes plus bonuses, promotions, overlays and loyalty rewards, less prizes or winnings.

Rob Goff, CFA | 416.933.3351 | [email protected] 38

Exhibit 26. Sample of Digital Competitors by Segment

Source: Echelon Wealth Partners

H2GC estimates that for 2018 alone, the GGR splits by segment were: sports betting (50%), casino (27%), state lotteries (9%), poker (5%), skill and other gaming and commercial lotteries (5%), and bingo (4%). H2GC’s 2019 estimates by segment and geography are shown below.

Exhibit 27. Global iGGR by Segment and Geography (2019E)

Casino, 27% Asia/ME, 28% Betting, 46% Europe, 50% LATAM/ Poker, 8% Caribbean, 2% Africa, 1% Oceania, 7% State Bingo, 4% N. America, Lotteries, Skill/Other, 12% 10% 5% Source: Echelon Wealth Partners, H2GC, iGaming Business

Rob Goff, CFA | 416.933.3351 | [email protected] 39

Who is Gambling Online? – A Strong Overlap with the Esports Audience Approximately 69% of online gamblers are male and are between the ages of 25 to 44; older gamblers prefer land- based gambling over online. The younger demographics are positive for esports gambling.

Online gambling is not a new phenomenon. A quick internet search suggested that the first online betting was on casino games in 1994 (~24 years back). Over the years, both regulations and technology have evolved in favour of online gambling, resulting in higher online gambling penetration especially among the youth population. In the next section, we will look at how regulations have positively evolved for online gambling mainly in the North American and European regions. This section focuses on technology and in parts the behavioral aspect of millennials, that promote online gambling.

Rising internet penetration and growing adoption of smartphones and tablets amongst generation X and millennials are merely one part of the story of why online gambling is gaining traction over traditional gambling. The other part of the story is, in multiple ways, that online gambling can entice the online population by displaying ads, offering a free betting experience to first time bettors, offering minimum amounts such as $10 to those wanting to bet their own money and then sharing the experience/winnings on social networking websites, further influencing their friends to try online gambling. According to a survey by NCBI, the respondents mentioned that in addition to all the benefits of online betting, not having to deal with the negativity of players shouting at each other, is what drove them towards an online platform.

As per H2 Consulting Group, sports gambling gross winnings in the US are expected to increase from $200.0M in 2017 to $5.0B in 2023, a whopping 25x increase, primarily due to but not limited to, regulatory respite. As previously stated, all US states, except seven, have passed or introduced a bill in favour of online gambling in response to the regulation that was scrapped last year. The states are looking at the revenue generation from sports bettors, which are often young and wealthy, as revealed by the Nielsen 2018 survey.

Exhibit 28. US Sports Betting Demographic

Source: Nielsen Research 2018 Survey

The US sports betting market is opening state by state for bettors but if you look at technology companies, they have already spent years developing gambling platforms, creating and curating the optimal offerings, marketing schemes, and bonus/reward programs for jurisdictions where online gambling was legal. As soon as the US market opened, MGM Resorts (MGM-NYSE, NR) partnered with British giant GVC Holdings PLC (owner of Ladbrokes) to create sports betting and an interactive gaming platform. Caesars Entertainment (CZR-Nasdaq, NR) instead opted for a joint venture with US-based gambling tech company, Scientific Games (SGMS- Nasdaq, NR). We are bullish on the prospects for a number of small capitalization stocks leveraged to the online gambling market. We find a number of private and smaller capitalization companies have formed impressive strategic partnerships with global platforms and sportsbooks. For instance, theScore, one of EWP’s Q319 Top Picks, has seen its share price increase by 86.5% since the

Rob Goff, CFA | 416.933.3351 | [email protected] 40 beginning of CQ319. The Company has been investing upfront to position itself in the industry, with our estimate that it has taken on incremental betting and esport costs that approach ~$1.0M quarterly. We believe theScore’s focus on mobile users, heavy in-game usage (~70%), and its scale strengthen its partnership leverage in the betting ecosystem. Earlier this month, theScore announced that it has entered into a 20-year agreement with Penn National Gaming (PENN-Nasdaq, NR). The agreement provides theScore with the right to offer online and mobile sports betting and i- gaming in 11 states via Penn National’s casinos and racetracks.

Esports gambling, due to its solid viewership, is a sub-segment that should not be overlooked by early stage investors. Globally, the total amount of money/items wagered around major esports titles was at $5.5B in 2016. Eilers & Krejcik predicts this number to reach $13.0B by 2020, at their base level assumptions where there is huge upside potential if things go well for the esports industry.

The key point that works in favour of esports gambling versus all other esports participants is that it is IP agnostic, which means that betting companies are not required to pay licensing fees or franchise fees to publishers. Additionally, betting platforms are flexible in a way that they can integrate a new game into their platform in a day or two, offering customers what they want in an environment where a new game can gain popularity or go viral in a very short span of time.

Canadian Players in the Global Market: The private Canadian company, Askott Entertainment (Appendix 7), developed and manages its Chameleon Gaming Platform which enables its B2B clients the ability to launch their own esports gambling platforms. The company is also planning to launch its own sportsbook that will also be integrated with Chameleon. Askott has attracted investments from OverActive Media, BITKRAFT Ventures, Vancouver Founder Fund, Shaked Ventures, and Konvoy Ventures.

Another Canadian-based company, FansUnite, is attempting to exploit the opportunities in esports gambling by investing in developing a gambling platform for esports fans powered by blockchain. The company believes that its platform will lower the technical threshold of developing decentralized sports betting and sports data applications for its B2B clients by providing core smart contract infrastructure and developer tools. “Oracle Service: The Oracle network will provide low-latency and accurate event data, incentivized by a percentage of the betting volume processed, while utilizing blockchain technology to deliver efficient pricing and transparent market information. Subject to regulatory approval, FansUnite will offer an Oracles as a Service option, allowing for token holders to participate in a proportional percentage of Oracle rewards.”

Fandom Sports Media Corp. also has a blockchain driven sports (and esports) gambling and media/entertainment platform built on “Play. Predict. Get Rewarded” and “Pick A Fight. Talk Trash. Get Rewarded.” philosophy. The company recently announced raising C$308,040 via a private placement offering which was oversubscribed at 105%. Interlapse Technologies Corp. (INLA-TSXV, NR) is another example of a company utilizing blockchain technology to create a virtual currency platform as well as an esports tournament platform. Interlapse Technologies’ global esports tournament platform, “Strike”, will enable players to create, watch and compete in casual tournaments with virtual currency.

Blockchain technology will provide much needed transparency to the industry by using verified records on a distributed ledger that cannot be manipulated, greater privacy, and faster and cheaper transactions. Latency has historically been one of the challenges. Some players look for blockchain to take on an increasing role as part of their platform.

Rob Goff, CFA | 416.933.3351 | [email protected] 41

Online Gambling is a Highly Regulated Sector, But Tempers are Changing Established EU gambling operators need to possess many licenses to operate and provide their services across countries. While in the past, either there was no regulation specifically for online gambling or it was only allowed for state monopolies to provide online gambling services, today the overwhelming majority of EU member states have adopted multi-license regimes which allow several private operators to obtain a license and provide their services in that country. Only five EU member states had competitive multi-license regimes in 2009, whereas the rest had monopolies and prohibitions. In 2019, the situation has dramatically shifted, and multi-license regimes have now been adopted in 25 member states.

Exhibit 29. UK/Europe Online Gambling Legality

Source: EuropeanGaming.eu

Looking at the US regulatory history, the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.” UIGEA specifically excluded fantasy sports that meet certain requirements, skill-games and legal intrastate and intertribal gaming. The most significant milestone of the US online gambling regulation came from the Department of Justice (DOJ) in 2011, essentially decentralising online gaming law to the state level. In 2011, partly in response to the New York lottery division’s inquiry, the DOJ released a memo, which represented a 180-degree reversal of its previous interpretation of the Wire Act. The memo declared that because lottery is not related to sports betting, it falls outside the scope of the Wire Act. The decision (apart from allowing the State of Illinois to conduct online lottery), dispelled the ambiguity surrounding the Wire Act’s actual scope and it opened the door for states to legalize online gambling within their borders.

In the most recent turn of events, the US Supreme Court (SCOTUS) heard oral arguments in early December 2017 and ruled in mid-2018 on the legality of sports betting in the US outside of Nevada (and Delaware, Oregon, Montana) – the State of New Jersey challenged the validity of the 1992 PASPA prohibiting betting on sports, and in 2018 SCOTUS ruled calling PASPA unconstitutional. This has provided the catalyst to introduce sports betting on a state-by-state basis. After New Jersey’s Supreme Court victory last year, any state that wishes to, can legalize sports betting.

Rob Goff, CFA | 416.933.3351 | [email protected] 42

Exhibit 30. Sports Betting Legality US

Source: ESPN

As a result of scrapping PASPA, in just five year’s time, the US is projected to become the world’s biggest regulated betting market with almost $5.0B in gross wins by 2023 from $200.0M in 2017, as estimated by H2 Gambling Capital. The liberalization of federal sports betting laws by allowing each state to determine its suitability has opened doors for a new conversation at the league level surrounding the legitimacy and integrity of the sport. Each of the MLB, NBA, NHL, and NFL commissioners have commented on the SCOTUS 2018 ruling and how they believe it will impact the game.

Exhibit 31. US Sports Betting Market Expectations

6 Expected Growth in Win Revenue by Regulated Betting Predicted Share of the US Betting Market by Sport in 2024 (US$B) 5

7% 4

23% 37% 3

2

1 32% 0 United United France Australia Swesen States Kingdom 2017 2023 American Football Baseball Other Source: H2 Gambling Capital, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 43

Exhibit 32. US Handle/Turnover Forecasts ($B); US Estimated Tax Take ($M)

Source: H2 Gambling Capital

The US sports betting market is expected to rapidly expand in the coming years as a result of the 2018 SCOTUS ruling, with H2 Gambling Capital estimating that gross wins will soar to $8.4B across 32 states by 2030. In terms of handle or turnover, the market will increase from $9.0B wagered in the year since SCOTUS to top $50.0B by 2023—rising to almost $80.0B worth of legal bets by 2030. Fees associated with the betting could be put at ~6-8% of amounts wagered. As a direct result, state tax revenues will also grow strongly — quadrupling over the decade 2020-2030 from $242.0M in 2020 to reach a total take of $1.0B by 2030. H2 Gambling expects that over time with continued liberalization of state-by-state sports betting the regulated betting market will surpass that of the black market in 2030.

Exhibit 33. US Legal vs. Illegal Sports Betting Gross Win ($B)

Source: H2 Gambling

Rob Goff, CFA | 416.933.3351 | [email protected] 44

Exhibit 34. League Commissioners are Cautiously Bullish Sports Betting View Esports

MLB "We See Sports Betting as Great Source of Fan Engagement" Announced the launch of MLB China esports league and is expected to partner with eight teams

NHL “Ultimately, I think if you're interested in sports betting, you're going NHL has NHL 20 video game to have an increased opportunity to engage with the game. If you're developed by Electronic Arts not interested, it shouldn't impact the way you consume the game. And if you're a sports fan who may not necessarily be a hockey fan, it will give you an opportunity, potentially, to sample something new.”

NBA “On balance, it’s good for us. We’re better off having legalized sports NBA has collaborated with Take- betting where we do have access to data, where it can be regulated, Two Interactive and the joint where if there is aberrational behaviour, just like with the stock venture organises NBA 2K league market – if there is something going on in NASDAQ or the New York that has 17 NBA teams Stock Exchange, flags go up and they investigate.”

NFL “We have spent considerable time planning for the potential of NFL has Madden NFL 20 video broadly legalized sports gambling and are prepared to address these game developed by Electronic changes in a thoughtful and comprehensive way, including Arts. EA announced next series, substantial education and compliance trainings for our clubs, Madden NFL 20 Championship players, employees and partners. These efforts include supporting Series which includes 32 teams. common sense legislation that protects our players, coaches and Pizza Hut and Snickers have fans and maintains public confidence in our games. We are asking signed on as official sponsors of Congress to enact uniform standards for states that choose to the Madden NFL 20 legalize sports betting that include, at a minimum, four core Championship Series, with principles: Starbucks also joining as the ▪ There must be substantial consumer protections; presenting sponsor. ▪ Sports leagues can protect our content and intellectual property from those who attempt to steal or misuse it; ▪ Fans will have access to official, reliable league data; and

Law enforcement will have the resources, monitoring and enforcement tools necessary to protect our fans and penalize bad actors here at home and abroad.”

Intl’l Olympic “The sports movement is not against regulated betting, which is a Intel is hosting the Olympics Committee major source of financing for sport worldwide. Furthermore, legal esports event in 2020. The event betting on sport allows fans to extend their support for athletes and will include V teams, thus helping to build stronger attachments toward sport.” () and (soccer based) titles for $250,000 for each game. There will be 12 teams representing 12 countries.

Source: CardPlayer, Tribune, US Bets, NFL, Echelon Wealth Partners

Since the May 2018 SCOTUS decision, we have seen a number of sports leagues and individual teams announce partnerships with sportsbooks and casinos. The new norm appears to be lucrative contracts between professional sports leagues/teams and prominent casino and sportsbook operators. In the early days of legal sports betting, a number of such partnerships have materialized; the catalyst being the demise of PASPA by the US Supreme Court in May 2018.

Rob Goff, CFA | 416.933.3351 | [email protected] 45

From a league perspective, MGM Resorts International became the first casino operator to directly partner with the NBA – the deal is reportedly for three years and $25.0M. BetStars became the second sports betting operator to announce a partnership with the NBA – the deal brands the operator as an “official gaming partner” with FanDuel Group, becoming the third official gaming partner of the NBA. Turning gears to hockey, MGM partnered with the NHL to become its first official gaming partner with Caesars and FanDuel then following MGM’s footsteps. The NFL selected Caesars as its first ever official casino sponsor. MGM is the official gaming partner of the MLB. In short, we expect partnership deal flow to accelerate into the fall as new seasons in each respective league rapidly ensue.

Exhibit 35. US Sportsbook and Casino Team Sponsorship Tracker

League/Team Casino/Sportsbook Partner MLB MGM Resorts NBA MGM Resorts, BetStars (Stars Group), FanDuel NHL MGM Resorts, FanDuel, William Hill NFL Caesars New York Jets MGM Resorts, 888 Casino Philadelphia 76ers Caesars Vegas Golden Knights William Hill New Jersey Devils William Hill, Caesars, FanDuel WinStar Casino Baltimore Ravens Horseshoe Baltimore (Caesars) Source: CardPlayer, Chicago Tribune, US Bets, NFL, Echelon Wealth Partners

For the month of May 2019, New Jersey passed Nevada to become the top state in monthly sports betting for the first time. The Garden State harvested $319.0M in handle (the total in bets taken) and $16.0M in revenue (what sportsbooks earn after payouts), besting Nevada’s $317.0M in handle and $12.0M in revenue. New Jersey is one of seven states, besides Nevada, that moved to allow legalized sports betting across professional and collegiate games in the year since the US Supreme Court ended Nevada’s 50-year, and federally mandated, monopoly. Betting on sport events is one of America’s favourite pastimes, even if an estimated $150.0B is wagered annually in a grey market controlled by bookies and legal offshore sportsbooks, according to the American Gaming Association.

By the end of last year, Delaware, Mississippi, New Jersey, New Mexico, , Rhode Island, and West Virginia had authorized legal sports betting. The expansion helped boost total industry-wide revenue from legal and regulated sports betting to ~$430.0M in 2018, up nearly 65% from $261.0M in 2017, according to the American Gaming Association’s annual “State of the States” survey of the nation’s commercial casino industry. This reflects just the six months following the demise of PASPA. So far this year, according to Legal Sports Betting, more than $4.4B in handle and nearly $259.0M in revenue have been generated. Since PASPA was repealed, every licensed sportsbook (that has been subject to monthly reports from their states) have accumulated, for a total handle of over $8.0B, according to Legal Sports Betting. Sportsbooks in that time have kept more than $500.0M, before contributing over $60.0M in taxes to their respective states and cities.

Eilers & Krejcik predicts that roughly 50% of the US population will live in states that have some form of sports betting by the end of next year. This bodes very well for casino and sportsbook operators in states with legalized sports betting as well as media partners and leagues who stand to benefit from brand exposure.

Rob Goff, CFA | 416.933.3351 | [email protected] 46

Exhibit 36. Sports Betting by State

Source: CNBC

The liberalisation of sports betting laws in the US has prompted UK-based bookmakers to strategically place their bets in terms of partnerships with land-based casino and media outlets. The size and scale of UK-based online bookmakers are noteworthy and in terms of their digital approach are miles ahead of any operator domestically in its digital strategy. For this reason, US land-based players see value in aligning with their technical capabilities in serving the US market.

As at the end of 2018, Las Vegas Sands (LVS-Nasdaq, NR), the largest consolidated casino company in the world, reported revenues in excess of $13.7B. MGM Resorts is second with revenues in excess of $11.7B, and Caesars Entertainment third with revenues in excess of $8.3B. Apart from the casino companies, key players in the online betting market include companies such as Bet365 Group Ltd., Betfred Ltd. (Private), 888 Holdings Plc. (888-LSE, NR), Paddy Power Betfair Plc. (Private), GVC Holdings Plc. (GVC-LSE, NR), Fortuna Entertainment Group (Holding company of Penta Investment Group, Private), The Stars Group, The Betway Group (Private), William Hill Plc. (WMH-LSE, NR), Kindred Group (KIND-STO, NR), Rank Group (RNK-LSE, NR), Playtech (PTEC-LSE, NR), Hong Kong Jockey Club (Private), and mybet Holding (XMY-ETR, NR). Many of these companies also provide online casino and slot games to complement their sports betting services.

Exhibit 37. Leading Digital Bookmakers by 2018 Revenue; Select US Pairing Transactions GVC Holdings $3.9B

Bet365 $3.6B*

Stars Group $2.5B** Paddy Power-Betfair $2.5B William Hill $2.2B Playtech $1.5B Kindred Group $1.2B

Rank Group $0.9B

*Private corporation **2018 pro-forma revenue inclusive of acquisitions Source: Company Documents, Echelon Wealth Partners

The legality of online betting in Canada is currently a grey area. Provincial governments have a monopoly on gambling services, and civilians aren’t permitted to offer or use private gambling services. At present, the Canadian Criminal Code explicitly prohibits Canadian civilians from marketing or offering betting services to other Canadians. Provincial governments are permitted to offer a variety of gambling services, including parlay betting on sports. In practice, the vague nature of Canadian gambling laws and the limited sports betting options offered by provincial governments have resulted in extensive online sports betting activity. It’s estimated that Canadians bet over $2.0B with offshore bookmakers every year.

Brian Masse, NDP MP of Windsor West, tabled Bill C-221 in 2016 to repeal paragraph 207(4)(b) of the Criminal Code to make it lawful for the government of a province, or a person or entity licensed by the Lieutenant Governor in Council

Rob Goff, CFA | 416.933.3351 | [email protected] 47 of that province, to conduct and manage a lottery scheme in the province that involves betting on a race or fight or on a single sport event or athletic contest. Bill C-221 was defeated on September 21, 2016; 156 “nay” votes to 133 “yay” votes. A Toronto Sun story in March of this year reported that Finance Minister for Ontario, Vic Fedeli, sent a letter to his federal counterpart Bill Morneau. The letter asked for an amendment to the Criminal Code of Canada that would legalize single-game Canada sports betting in the country’s largest province. At present, citizens of Ontario can only bet legally via the provincial lottery’s Pro-Line product that allows for parlay betting, with a three-game minimum. The letter cites the turning tide south of the border and legalization threatening to siphon off money from Canadians. The provincial finance minister also discussed the potential for single-game betting to generate C$110.0M per year in tax revenue.

Rob Goff, CFA | 416.933.3351 | [email protected] 48

Publishers’ Dominance and Other Concerns The recent growth in esports has been remarkable in almost every metric: viewership, prize pools, stadium events and investment, however, with that growth comes risk and references to inflated valuations. Below, we review some of the major pushback items across investors.

Audience Monetization: It is fair to note that the full increase in viewership and investment has not yet translated into meaningful revenue in each esports stream. With 2019 revenue estimated at $1.1B, esports enthusiast viewership translates into only $5.45 per enthusiast of annual revenue, dwarfed by an average of ~$54 per traditional sports viewer (~10x of esports) of annual revenue. It is also worth noting that esports appeals to wealthy millennials and thus is under- monetized relative to its audience potential. It can partly be blamed on the current fragmented state of the esports industry when compared to traditional sports. Strong franchise structures like the NHL, NFL, NBA, MLB, make it easier for league owners to bargain on almost every revenue stream including media rights, sponsorships, and advertising deals. Even spectator sport event tickets are sold for as much as $100 compared to esports events where the average ticket price is $20. We have sourced Bloomberg references to NFL revenues at ~$15.0B for 2018 along with views that more than 50% of revenues are derived from TV deals with the other streams represented by ticket sales (estimated at US$1.6+B or ~10%), merchandising, licensing rights and corporate sponsorships. Clearly, the esports industry is still in its infancy in terms of monetization. For most event organisers, it is more about attracting a huge audience and establishing themselves with the expectation that greater monetization will follow.

We believe that the franchise league structure which is currently adopted by three titles namely Overwatch, Call of Duty and League of Legends, will build audience, bring stability to the industry and create greater fan loyalty that can be monetized. We do expect some major hiccups on the way, such as the most recent case in which a top Call of Duty team ‘100 Thieves’ decided not to participate in the Call of Duty League (CDL) due to high initial fees and city- based league format. It is fully expected that league structures, formats, and economics will be publicly debated, will evolve and will see miss-steps. However, publishers are somewhat self-regulated by their leverage to audience growth where healthy league and team development are a core factor.

We hold a bullish long-term view on audience monetization and believe that the audiences are under-monetized at the $5.45 level with an opportunity to grow by 10x, as the industry matures, by strengthening current offerings, innovating additional revenue streams and exercising bargaining power on both brands and viewers as it begins to consolidate.

Publisher Dominance: Playing the long game or short-term monetization: Game publishers continue to maintain substantial control over leagues, tournaments, media rights, and advertisement since they own the IP. Limited visibility on league profit shares leaves the ROIs on team franchise purchases in question. Furthermore, the lack of control creates potential challenges for organizers, teams, and sponsors and could negatively impact access to public capital where clarity and visibility would be rewarded. Clearly, the entire esports ecosystem is greatly reliant on game publishers as they play a crucial role in the development of the industry. Our view that publishers recognize audience growth as their greatest point of leverage is a core tenet of our view. We fully expect periods where investor sentiment is hurt by publishers appearing to pursue shorter-term monetization strategies or not ensuring attractive league economics to foster team, league, and audience development. To this extent, we see significant value in team owners holding franchises across games and publishers. With diversified holdings, team holders could shift investments to teams and leagues with superior economics. This consideration would in turn help to ensure that publishers support league development.

As previously stated, in the esports ecosystem game publishers have significant influence. Unlike in traditional sports, a game publisher owns the game, which means they have full discretion on who can host events, where these events take place, media rights, and more. The difference with traditional sports is that no one owns the “sport”, any individual is free to play whenever or wherever they choose. Other industry participants (tournament organizers, teams, players, and sponsors) are therefore dependent on game publishers. Yet most publishers are still predominately focused on microtransactions in freemium model games and view esports primarily as a means of expanding the audience for their games, since greater viewership tends to translate into more in-game purchases.

Rob Goff, CFA | 416.933.3351 | [email protected] 49

Ovum has forecasted that global revenues generated from microtransactions within PC games (such as LoL and Dota 2) will rise to $28.1B by 2019. Historically, game publishers have been reluctant to restrict viewership of their games in any form to maximize game sales. However, as esports has become more popular, publishers have started to sell exclusive rights to their competitions and form partnerships, and in most cases, publishers retain the ownership of their most popular gaming league.

Therefore, a developer such as Epic Games can afford to spend $100.0M on an esports tournament to maintain engagement, because its game Fortnite made $3.0B in microtransactions in 2018, and not because the revenue generated from tournaments directly covered the costs. However, even game publishers are beginning to cut or scale back on costs associated with esports tournaments that they view as unsustainable in the long term. For example, Riot Games’ head of global esports events, Derrick “FearGorm” Asiedu stated that Riot has spent “way over” $100.0M per year on global esports despite increasing costs. He noted that Riot plans to hold itself more accountable going forward than it historically has, as it is a “long way from breaking even” on net income targets. Likewise, third-party organizers such as Electronic Sports League (ESL) do not cover rising event costs with ticket and merchandise sales but rely on sponsorship and advertising dollars, as they do not own the game IP. In fact, some game publishers are organizing competitions through their subsidiaries to maintain further control and avoid mishaps. Activision Blizzard, the parent company of Blizzard Entertainment, for example, acquired New York-based organizers (MLG) in 2010 to host the OWL events. Unsurprisingly, third-party organizers such as ESL have branched out into content production. ESL in particular has partnered with telecom giant AT&T (T-NYSE, NR) to create its own mobile league, in addition to event organizing for game publishers.

Nevertheless, a game publisher can decide to abruptly cancel an esports league, a risk borne by teams, players and broadcasters that are dependent on the game as a source of income. For example, in 2018, Blizzard Entertainment announced its decision to redirect resources from “”, by moving developers to other projects, a clear indication that the game would no longer be a top priority for the publisher. Following the announcement, Blizzard released another statement via social media that it was cancelling the Heroes Global Championship in 2019 and dropping the Heroes of the Dorm collegiate circuit. “People who made a living based on Heroes of the Storm, including players, streamers, team owners and commentators, say they feel blindsided and betrayed by the announcement. Some said that Blizzard told them just a few weeks ago that the 2019 Heroes Global Championship was still happening.”

Dependence on Microtransactions: Microtransactions are in-game purchases for virtual goods such as cosmetic upgrades (decorative character attire and dance moves) or improved abilities (weapons and items), for freemium games. “The success of microtransactions rests on the fact that there are two kinds of players: those willing to invest time to advance in a game, and those who are more willing to invest money than time.” Microtransaction have long been the subject of controversy in terms of fair gameplay, with some game publishers ensuring that only cosmetic items are available. Nevertheless, the microtransaction model remains popular amongst publishers as it generates recurring revenue for the game rather than a single upfront payment. The four types of microtransaction are: in-game currencies (virtual currency that players redeem that disguises the value of what players purchase), loot boxes (randomized selection of virtual items), in-game items (purchase that permit game advantage) and expiration (purchase to continue playing). In-game currencies for some games do not have a 1:1 conversion with real money. Additionally, similar to a prepaid gift cards, purchases usually amount to more or less than the exact money on the card, usually enticing players to cover the difference. For example, 1000 “V-bucks” (Fortnite virtual currency) costs $9.99 but certain “skins” (cosmetic outfits) cost 1200 V-bucks. This example highlights that for a player to get their desired skin they would likely purchase over 1000 V-bucks, the second tier of 2500 V-bucks costs $24.99 and comes with a bonus of +300 V-bucks. Moreover, loot boxes are virtual item that contain a random collection of characters, skins, highlight intros, emotes, etc. The loot boxes can be bought outright by players or awarded during gameplay. Recently, they have been banned in , as the Belgian Gaming Commission ruled that loot boxes in several games including, Overwatch, FIFA 18 and CS:GO were considered “games of chance” or gambling targeting children. Belgium is not the only country, US senator Josh Hawley proposed a bill, ‘Protecting Children from Abusive Games Act’, to ban loot boxes and pay-to- win microtransactions and China has put measures in place to restrict the number of loot boxes players can open each day. However, the debate of loot boxes is on-going with others arguing that effective parental controls already exist in the games. Although some in-game purchases allow for game advantage through purchase of better weapons etc., as previously mentioned, players argue this makes games biased toward purchase rather than skill. Lastly, expiration microtransactions allow players to continue playing once the time has run out, similar to arcade games. Still,

Rob Goff, CFA | 416.933.3351 | [email protected] 50 microtransaction make up a substantial portion of game revenue. For example, Activision Blizzard reported net bookings of $7.3B for 2018 with in-game net bookings (microtransactions) of $4.2B, accounting for 58%.

Microtransactions have generated both significant revenues and at times negative feedback for freemium game publishers where their tactics were seen as too aggressive. League of Legends (“LoL”) was the first game to bring microtransactions into the mainstream western gaming industry. Gamers were comfortable paying a non-significant amount of money for additional features in a game they had already been playing for years. In addition, free-to-play games were also the easiest way to engage and encourage casual gamers to play the games, in turn growing the esports audience. In fact, the large esports audience is at the core of the esports industry, which is expected to reach $1.1B this year. LoL 2018 in-game revenues were $1.4B, down from $2.1B in 2017. Microtransaction revenue feed into the large prize pools of the official leagues, for example the 2018 League of Legends World Championship with an overall prize pool stood of $6.4M. However, LoL’s prize pool was dwarfed by the $34.3M prize pool awarded at the Dota 2’s The International 2019, which was mostly funded by its loyal community (crowdfunding). This makes Valve’s Dota 2 unique when compared to LoL or Fortnite leagues, which are predominantly dependent on microtransactions.

According to a 2014 survey, publishers focused only on 0.15% of the total gaming population and called them “whales” as they generated 50% of the total in-game revenue. Fast forward four years, Fortnite with a record $2.4B earnings in 2018 has ~70% players buying digital cosmetic items with an average spending per player of about $58. Still, it is tricky for publishers to integrate in-game purchases without annoying players. Loot boxes and pay-to-win are the most recent battlegrounds with countries such as Australia, Belgium and China declaring loot boxes as a gambling equivalent. Play-to-win came under radar when companies made it inherently difficult for players to win by playing and 30 hours of playing time was considered $30 equivalent of play-to-win.

There is no denying that free-to-play games have outpaced their premium counterparts (Exhibit below). The regulations are expected to evolve to become stricter for loot-boxes that targets kids who do not really understand the gambling aspect of the loot boxes.

Exhibit 38. Free-to-play vs. Top Premium Games 2018 Revenue Top free-to-play games 2018 ($B) Top Premium Games 2018 ($B) Fortnite $2.4 PUBG $1.0 Dungeon Fighter Online $1.5 FIFA 18 $0.8 League of Legends $1.4 Grand Theft Auto V $0.6 Pokemon Go $1.3 Call of Duty: Black Ops 4 $0.6 Crossfire $1.3 Red Dead Redemption 2 $0.5 Honour of Kings $1.3 Call of Duty: WWII $0.5 Fate/Grand Order $1.2 FIFA 19 $0.5 Candy Crush Saga $1.1 Monster Hunt: World $0.5 $1.0 Tom Clancy's Rainbow Six: Siege $0.4

Clash Royale $0.9 Overwatch $0.4 Source: Super Data, A Nielsen Company, Echelon Wealth Partners

League Stability: The issue of league stability remains in investors’ minds although recent success supports a more bullish view. The inaugural H1Z1 battle royale league was terminated in a saga involving US sanctions on Russian ownership, debated management execution and transparency where the league gained initial credibility from the involvement of marquee names, Facebook (who secured exclusive streaming rights in return for marketing commitments) and Caesars. Unfortunately, the league shut down abruptly in the middle of its inaugural season, barely six months after starting. Amidst the cloud of controversy, ESPN reported that delayed payments (stipends), inability to maintain an audience, and other organizational problems led to the league’s collapse. Teams were released from the league, but many suffered losses paying players from their own accounts. The teams included major esports organizations such as Cloud9, Team SoloMid, and , among others. Other teams that relied on the contractually obligated league stipend had to stop paying their players and were forced to withdraw. Yet further reported investigations suggest that the league organizer was manipulating Facebook viewer numbers, lost $27.0M,

Rob Goff, CFA | 416.933.3351 | [email protected] 51 and outright deceived investors. Additionally, the league apparently paid $2.5M for influencers that did not translate to ticket sales at live events. Sources claim that the organizers gave out drink vouchers to casino patrons to entice them into the arena and that some audience members were obtained from the nearby Caesar’s Employment Center. The H1ZI league illustrates the risks associated with mismanagement as well as the importance of sustaining audience attention in order to be successful. Fortunately, the H1Z1 league’s shut down is a fading consideration as investors associate it with a specific situation.

What are the risks of owning a team?: In regard to organization revenue, the vast majority or roughly 70-80% stems from sponsorship and advertising. The remaining revenue comes from tickets, merchandise, prize pools, and media rights sales. Although prize pools are in the thousands or even millions of dollars, the strong teams may only cover about 15% of their expenses from tournament winnings. Teams also often earn a percentage of advertising revenue generated during tournaments. However, teams may not receive a percentage of advertising revenue generated from individual player’s live streams. We note that some top players draw greater audiences for their individual streams than for team related streaming. Yet, top players’ viewership numbers are often what attracts sponsors to teams. The distinction therefore is a major risk for teams since currently many fans have greater loyalty to individual players and not to any particular team. In the future, with substantial investment, the build out of local teams for fans to connect with might create more loyal fans.

Teams are responsible for covering expenses associated with major tournaments including travel, accommodations, and visas for players. According to Anton “Sneg1” Cherepennikov, owner of Virtus.pro and SK Gaming, teams would be lucky to receive even a 50% reimbursement from tournament organizers months after the events conclude for expenses incurred. The tournament expenses are in addition to various other expenses for organizations such as taxes, office rent, etc., that result from normal business activities. Another expense for organizations is player salaries, which normally do not exceed 40% of the overall budget but for top talent can be in the five figures. Nonetheless, sponsorship revenue growth is often not in line with the growing costs of maintaining an organization. The fact that organizations lack the hard assets and control of IP often slows sponsors’ willingness to invest. Streaming services, such as Twitch, which often has quantifiable viewership, are more successful in drawing advertising dollars.

Since many organizations rely on variable revenue from a combination of sponsors and prize money but have fixed costs, they have instead been supplementing growth with Capital Market investment. Jason Lake, the founder of Complexity Gaming warns that, “When you’re seeing teams right now raising over $300M valuations on revenues under $25M, you’re kind of like, what? … I just think good, old-fashioned common sense would go a long way here, because the revenue has still not caught up to the size of the demographic and eyeballs.” As we have noted, Forbes Magazine recently valued the top 12 esports organizations and concluded that the teams on average trade at values 14x their annual revenue, compared to the NBA average valuation of 6.5x or even the 11.3x revenue multiple Airbnb (Private) received that sparked major funding in 2017. Although some organizations may be overvalued, many investors’ high valuations may suggest limited franchise opportunities and their willingness to invest in the long term. The landscape in the future will likely be similar to traditional sports league teams where a few powerful team brands dominate.

An additional risk is that many franchise league esports organizations lack a home arena to sell tickets and merchandise. Instead, esports events are held at league-owned venues, which results in ticket revenues being shared between teams and organizers. For example, all team OWL matches are hosted at the Blizzard-owned LA Arena. A long-term objective of international Overwatch teams will likely be to establish a network of stadiums to host home and away formats with teams travelling between locations. While home and away team games are present in most traditional league sports, the cost of international travel for teams and the visas necessary might create challenges.

Legal Challenges: Esports tournaments, publishers, and teams face a range of legal challenges. Finally, cheating and unprofessionalism increase the risk of tarnishing the reputation of the entire industry.

Publishers – Labour Challenges: With a AAA tier game requiring ~2,000 man-hours, publishers have huge exposure to rising labour costs. We have seen US publishers face legal challenges overcompensation and workplace practices. These challenges could lead to higher costs for US development. We could also see development shift offshore to lower cost regions. We have been encouraged by league and in turn team moves to improve and regulate athletes. We note from our profiled companies that Axion Ventures has ~400 developers in Shanghai and ~100 developers in Bangkok with the capacity to add another 400.

Rob Goff, CFA | 416.933.3351 | [email protected] 52

Teams, Tournaments: Player visa hurdles and developments: Esports tournaments can create potential visa challenges for foreign gamers competing in various countries. In the US, as of 2013, P-1 athletes visas have become increasingly popular, for professional gamers that can obtain them. The P-1 visa allows an individual beneficiary to enter the US for up to five years with the possibility of a further five-year extension. However, for some competitors meeting the P-1 visa requirements remains difficult, as each petition is considered on a case-by-case basis. “As a result, the P-1 success rate in some games, such as League of Legends, has been quite high, while other esports athletes have faced denials, causing disruption when competitors fail to obtain visas needed to compete in events.” If international esports players do not receive appropriate visas, they expose themselves and their teams to potential liability that may result in future denied entry. Esports events, however, are hosted around the world, not only in the US, adding another complexity for each individual player depending on each country’s immigration policy and creating further hurdles for teams that want to source international talent.

League, Team, Tournament Reputations about Player Cheating: As global esports prize pools continue to rise, and betting becomes more prevalent, the incentives to cheat increase. However, besides problems that plague both esports and traditional sports alike, esports cheating has the added complexity of technology-related cheating. The Esports Integrity Coalition (ESIC) divides cheating into two categories: cheating to win and cheating to lose. Cheating to win includes software cheats and hacks, online attacks, and doping, while cheating to lose involves match-fixing and spot-fixing, among others.

Basic software cheats are essentially “cheat codes” that enable players to skip levels or get infinite lives in the game. Other “types of cheats (known as “hacks” or “bots”) available offer significant advantages to the player, such as [“wall- hack”] an x-ray ability that allows the player to see opponents through walls, and an auto-aim “aimbot” that automatically targets an opponent in range.” However, software hacks are most prevalent in online amateur gameplay, as it would be very difficult to get away with software cheating in live tournament level matches. Nonetheless, with increased financial reward cheating software has become much more sophisticated. In fact, manufacturing and selling cheating software is a thriving industry. As with any technology company, hackers are creating software that even developers do not know exists. In an effort to combat cheating, Valve announced in 2018 that it would use machine learning and deep learning to catch cheaters. Many viewed the Valve Anti-Cheat system (VAC) a necessary requirement in retaining legitimate players for Valve’s game CS:GO going forward.

Another example of cheating to win is through in-game rule breaking; these are often unidentified flaws in game design. For instance, “the classic example of an exploit in competitive esports is the design flaw in the Overpass map in CS:GO. When one player climbed on top of another, they could view the map. This inevitably provided a tactical advantage. Using this boost led to the disqualification of the well-known Fnatic team in 2017.” Similarly, “a wall glitch in PlayerUnknown’s Battlegrounds (PUBG), which was consistently and successfully exploited at the 2018 IEM event in Poland. There was no less than USD 50,000 in prize money at stake, so there was considerable outcry from gamers.”

These errors are one reason why some games have difficulty carving out a permanent place in commercial esports. Ultimately, it is up to game developers to recognize cheats and correct the exploits. However, as previously mentioned, many developers are not interested in creating the perfect esports game. As is the case with Heroes of the Storm, some developers discontinue support for their games if they do not find them to be profitable or popular.

Online attacks include “Denial-of-Service” (DOS) attacks or interfering with Internet connections in order to slow down or immobilize an opponent. However, there are challenges to proving DOS attacks, as many Internet Service Providers are very reluctant to share the information required to prove these attacks. To combat DOS attacks, “a number of leagues and tournament providers have made tutorials available showing how to mask IP addresses or use a proxy server”, although it is not a requirement for players to implement the guidance. The threat can disrupt an entire tournament even offline, as was the case for Valve’s 2015 The International Dota 2 tournament. The DOS attack put the tournament on hold while “Valve’s on-stage commentators confirmed to the assembled crowd of thousands that the DOS was the reason they were pausing the action.”

Doping is not unique to esports but also present in traditional sports. In esports the most common drugs for performance enhancement include Adderall, Modafinil, Donepezil, and Propranolol. Various active and now inactive professional gamers have admitted to taking performance-enhancing drugs, either by their own judgement or at the request of their coach. The drugs claim to increase memory, alertness, concentration, reaction time, and motor skills

Rob Goff, CFA | 416.933.3351 | [email protected] 53 generating key advantages in competitive gaming. Tournament organizers such as ESL have collaborated with the World Anti-Doping Agency to create a list of prohibited substances to insure fair play. While the esports industry does have anti-doping rules in place for most competitions, at present there is no central authority for cheating by doping.

Cheating to lose is predominately for financial gain in betting. Match-fixing or spot-fixing, which is deliberately losing a game or underperforming in a particular part, constitutes betting fraud. Betting fraud can include the collusion of multiple players in a competition or can be orchestrated by one single player. Observers can often notice when players are preforming substantially below their normal level however, computer-aided analysis such as Valve’s Anti-Cheat system can be used to detect unexpected behaviour. In addition, analysis can uncover a large number of bets placed at the same time, unusually large wagers, or betting against obvious statistical odds, which are potential warning signs of manipulation. Some examples of match-fixing include bets for well-known games like StarCraft, Counter Strike, and League of Legends.

Cheating has the potential to undermine the integrity of the entire competitive gaming ecosystem and will likely further increase as financial rewards continue to grow. However, the risk of cheating is part of any game and esports participants will likely mitigate these problems as the industry matures.

Rob Goff, CFA | 416.933.3351 | [email protected] 54

Signposts to the Treasure Map

2014 Robert Morris University in Chicago is the first US University to offer League of Legends scholarships.

February 2014 Justin.tv renamed Twitch Interactive Inc., illustrating the 2010 Pinnacle launches one of the first prominence of Twitch and signaling itas thecore business. esports betting websites. Tournaments & prize pools August 2014 Twitch Acquired by Amazon for $910M. Reports claim the August 2012 Riot Games (game publisher) Google attempted to buy Twitch but had to withdraw bid due to antitrust “During the 2010s, esports grew tremendously, incurring a large increase announced the formation of the League of laws with Google owned YouTube. inboth viewership and prize money Legends Championship Series (LCS), featuring eight teams in both North America and Europe. November 2014 , esports betting and News Media Company Although large tournaments were founded before the 21st century, the The first two seasons were largely run by third- launches, later to create UnikoinGold cryptocurrency on the Ethereum number and scope of tournaments has parties such as, in Europe blockchain increased significantly, going from about and Major League Gaming in North America, 10 tournaments in 2000 to about 260 in capped by a world championship tournament 2014 Top four Counter-Strike players banned following $10,000 match-fixing 2010” hosted by Riot Games. scandal

June 2011 Twitch.tv founded (spin-off of Justin.tv) June 2013 Riot Games League of Legend gamer, August 2015 YouTube launch YouTube Danny 'Shiphtur' Le, granted professional athlete Gaming, a video gaming-oriented vertical June 2011 League of Legends World Championship, visa (P-1A) by the U.S. State Department, which on the web and app for videos and live held at Dreamhack Summer 2011, featured a $100K Riot Games said was a “watershed moment” for streaming, intended to compete with prize pool, 8 teams from North America, Southeast Asia foreign players to enter the U.S. for events. Amazon owned Twitch. and Europe. Over 1.6M viewers watched the streaming broadcast of the event, with a peak of over 210,000 2013 Blizzard Entertainment Partners with August 2015 Betway premier league simultaneous viewers inthe final matches. ( eSports Association), a North launches esports betting microsite American collegiate esports organization August 2011 The International Dota 2 hosted by Valve headquartered in the offices of Blizzard Corporation (game publisher) inaugural tournament in Entertainment, hosting online leagues for Cologne Germany, prize pool $1M funded by Valve, Hearthstone, League of Legends, StarCraft II, whileNvidia supplied hardware. Heroes of the Storm, and Overwatch.

Rob Goff, CFA | 416.933.3351 | [email protected] 55

Signposts to the Treasure Map (Contd.)

January 2018 Overwatch League inaugural season, twelve teams, $100,000 prize with runner up taking a $25,000 prize. All matches in the inaugural season (except for the Grand Finals) were played at the 350-seat Blizzard Arena. The Grand Finals were played at Barclays Center in New York City, where all 11,000 seats available were sold out for July 2016 Esports Integrity Coalition established, to deal both days of the event. Through the season, average online viewership ran between 80,000 and 170,000. with issues of common interest – in particular the threat that Reportedly, at least 310,000 viewers watched the final match of the Grand Finals. match manipulation and betting fraud and other integrity challenges poseto esports. January 2018 Riot Games announces nearly $500,000 in scholarships for students attending Big Ten colleges.

September 2016 Twitch announced Twitch Prime, a service April 2018 Ninja Vegas ‘18 at newly opened HylerX Esports Arena at Luxor Hotel & Casino, Richard Tyler “Ninja” that provides premium features, exclusive to users who have Blevins setrecord for 667K liveviewers. an active Amazon Prime subscription. This includes advertising-free streaming, monthly offers of free add-on May 2018 Epic Games announced $100M to fund various Fortnite tournaments throughout the year to help grow content ("Game Loot"), and game discounts. the game, biggest prize pool of any esport.

November 2016 Overwatch League was formally August 2018 Twitch announced Twitch Turbo, Twitch would no longer offer advertising-free access to the entire announced at BlizzCon 2016, unlike the League of Legends service to Amazon Prime subscribers, with this privilege requiring the separate "Twitch Turbo" subscription or an Championship series, Blizzard Entertainment (Overwatch individual channel subscription. game publisher and developer) decided to follow American franchisemodel October 2018 Full Sail University in unveils plans for a $6M, 11,200-square-foot esports facility.

June 2017 Twitch and Blizzard Entertainment sign landmark two-year media July 2019 Fortnite World Cup $30M prize pool, $3M first-place prize and title of the best rights deal, to make Twitch the exclusive streaming broadcaster of select Fortnite player in the world awarded to 16-year old Kyle “Bugha” Giersdorf Blizzard esports championship events. August 2019 The International tournament, 18 teams (12 teams through Dota Pro Circuit, 6 teams qualifying through Regional Qualifiers), ~$33.67M prize pool, first-place-prize ~15.3M roughly 45.5% of the total prize pool.

Rob Goff, CFA | 416.933.3351 | [email protected] 56

Esports Ecosystem: Key Players

Appendix 1. Publishers

Riot Games, Inc. is an American and esports Activision Blizzard, Inc. is an American video game and film holding tournament organizer, most known IP is League of Legends. company, high profile IP includes Call of Duty, Overwatch, Hearthstone, Candy Crush Saga. Company Type: Subsidiary of Tencent Holdings | Headquarters: Los Angeles, California, US Company Type: Public (ATVI-NASDAQ, Enterprise Value $42B) | Headquarters: Santa | Founded: 2006 | Employees: 2,500+ | Key Executives: Brandon Beck (Co-founder, Co- Monica, California, US | Market Cap: $39.4B | Revenue: $7.5B (2018) | Founded: 2008 | chairman) | Marc Merrill (Co-founder, Co-chairman) | Nicolo Laurent (CEO) | Dylan Jadeja Employees: 9,900 | Key Executives: Brian Kelly (Chairman) | Bobby Kotick (CEO) | Dennis (CFO) | Scott Gelb (COO) Durkin (CFO) | Coddy Johnson (President, COO)

▪ Majority acquired (93% stake) by Tencent Holdings for $400M in 2011 and fully ▪ Activision Blizzard is divided into three reporting business segments: acquired (7% remaining stake) for an undisclosed price in December 2015. o Activision Publishing: development, publishing and distribution of games from its ▪ Riot Games operates the League of Legends World Championship, Championship subsidiary studios (~33% of total revenue); Series and Mid-Season Invitational esports tournaments. o Blizzard Entertainment: development, production and distribution of Blizzard’s ▪ Riot Games monetizes its free-to-play League of Legends game by: games. In addition, to esports activities MLG and Overwatch League (~30% of o Microtransactions (Riot Points “RP” amounted to ~$1.4B in 2018); total); o S ponsorships (MasterCard, Foot Looker among others); o King: development and distribution of mobile games (~28% of total). o Real-life merchandise (branded t-shirts, mousepads etc.); ▪ Activision Blizzards’ two non-reporting segments: Activision Blizzard Studios o S treaming rights for its professional sports league (Caffeine OTTP and Twitch (production of film and television) and Activision Blizzard Distribution (logistic support OTTP). within Europe) (~6% of total).

Epic Games, Inc. is an American video game and software development company, Valve, L.L.C. is an American game developer, publisher and digital distribution most known for developing the Unreal Engine, the IP of Fortnite, and more. company, most known IP includes Counter-Strike, Dota 2 and more. Company Type: Private (>50% Tim Sweeney, 40% Tencent Holdings) | Headquarters: Cary, Company Type:V Private (50% ) | Headquarters: Bellevue, Washington, US | North Carolina, US | Founded: 1992| Employees: 1,000+|Key Executives: Tim Sweeney Founded: 1996 | Employees: 1,000+| Key Executives: Tim Sweeney (CEO) |Kim Libreri (CTO) (CEO) | Kim Libreri (CTO) | Mark Rein (VP) | Paul Meegan (President) | Donald Mustard (CCO) | Mark Rein (VP) | Paul Meegan (President) | Donald Mustard (CCO)

▪ Epic Games was valued at ~$825M at the time of Tencent’s acquisition which was ▪ Valve’s segments include video games (Dota 2, Counter-Strike: Global Offensive) and estimated to be worth $4.5B in July 2018 largely as a result of the success of Fortnite software (). Battle Royale and 7M Unreal Engine enterprise users. Most recent valuation is at $15B. ▪ Valve’s Dota 2 game has an expansive esports community, with ‘The International’ ▪ , the free-to-play video game reportedly earned $2.4B in 2018 tournament for the game offering the largest prize pool of any esport consistently for through the sale of in-game ‘skins’ and ‘emotes’ via microtransactions, in addition to years. the regular ‘Battle Pass’ season updates that offer players new challenges. ▪ In 2003, Valve launched its digital video game distribution platform Steam, and was ▪ Epic Game s developed the Unreal Engine, a commercially available game engine with first to deliver patches and updates to Valve’s online games. In 2018, Steam averaged royalty model which also powers its internally developed games, such as Fortnite. 47M daily active users and 90M monthly active users, and over a billion registered accounts. It also reportedly broke the record with 18.5M concurrent players. Steam offers >30,000 games.

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Appendix 2. Streaming Platforms Twitch is the world’s leading live video platform and community for YouTube .com/Gaming channel enables gamers to broadcast livestream gamers, owned by Twitch Interactive, a subsidiary of Amazon.com, videos, a subsidiary of Alphabet Inc. (GOOGL-NASDAQ, NR) Inc. Ticker: Owned by Amazon.com Inc. | Headquarters: , California, US | Ticker: Owned by Alphabet Inc. |Headquarters: San Bruno, California, US | Founded: 2015 | Founded: 2011 | Employees: 1,001-5000 | Key Executives: Emmett Shear (CEO) | Sara Employees: 1,001-5000 | Key Executives: Susan Wojcicki (CEO, YouTube) | Clemens (COO) (YouTube Global Head of Gaming)

▪ Twitch, formerly Justin.tv, was acquired by Amazon for $970M in 2014. ▪ In May 2019, YouTube retired the YouTube Gaming app to integrate it with YouTube ▪ In 2019 Twitch launched “Squad Stream” (available initially to Twitch Partners), a to exploit the opportunity to monetize the wider viewer base. feature that allows four creators to go live and stream together. ▪ Mobile-Game Streamers are reportedly more likely to stream on YouTube ▪ Blurring the line between traditional sports and esports, Twitch recently partnered ▪ YouTube puts an emphasis on live and on-demand content with a user-friendly with NFL’s Oakland Raiders, Allegiant Stadium for Twitch-branded lounge for dashboard immersive esports experience. Other partnerships include OWL, . ▪ YouTube will spotlight the top active live streamers similar to Twitch ▪ In 2018, Twitch announced that it would no longer offer advertising-free access to ▪ Other features include “Super Chat” which enables viewers to monetize their channels

all Amazon Prime subscribers instead offering Twitch Turbo subscriptions and through the YouTube Partner Program; The feature lets viewers purchase chat individual channel subscription. messages, and in some cases pin them to the top of a chat feed. Moreover, YouTube features of liking videos and commenting remain.

HUYA Inc. provides gamers a live streaming platform and is based in China Mixer is a video game live streaming platform, which is owned by but recently IPO’d on the NYSE Microsoft (MSFT-NASDAQ, NR)

Ticker: HUYA-NYSE, NR | IPO: May 2018 | Market Cap: $5.4B | Revenue: $704.8M | Ticker: MSFT-NASDAQ, NR | Headquarters: Seattle, Washington, US | Founded: 2016 | Headquarters : Guangzhou, China | Founded: 2014 | Employees: 1,001-5000 | Key Key Executives: Matthew Salsamendi (Co-founder) | James Boehm (Co-founder) Executives: Xue Ling Li (Chairman) | Rong jie Dong (CEO and Director) | Da Chuan Sha (CFO and Principal Accounting Officer) | Li Gao Lai (CTO) | Xiao Yi Ma (Director)

▪ HUYA singed a binding term sheet to invest $30M in Modern Times Group majority- ▪ Mixer is reportedly different from other streaming with its sub-second latency and owned ESL, acquiring a minority interest. community focus with features such as buttons that allow streamers and their ▪ Largest shareholders include YY Inc. (Chinese video-based social network) and viewers to interact. Tencent Holdings Ltd. (reportedly investing $461.6M in HUYA Series B financing in ▪ Mixer, formerly Beam, was acquired by Microsoft for an undisclosed amount in March 2018). August 2016 and subsequently integrated with the Xbox division as well as Windows ▪ HUYA’s valuation was $2.4B; it raised $180M through its IPO on the NYSE in May 2018. 10. In 2017, Beam broadcasting was integrated with software update, enabling Xbox users to stream directly using any USB camera compared to Twitch that needs Kinect. Beam changed its brand name to Mixer in May 2017. ▪ In August 2019, Mixer signed top Twitch streamer Ninja (who had 14M Twitch followers) exclusively to the Mixer platform for a reported $50-100M contract.

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Appendix 3. Team Organizations

Cloud9 is a North American professional esports organization based in Los is a North American professional esports organization Angeles, California, US based in Seattle, Washington, US

Owner: Jacques Etienne | Regions: North America | Founded: 2013 | Games: 13 | Owner: Peak6 Investments L.L.C. | Regions: North America | Founded: 1999 | Games: 7 | Earnings: $9.2M | CEO: Jacques Etienne | President: Dan Fiden | COO: Paullie Etienne Earnings: $22.9M | CEO: Nicole LaPointe Jameson | Head Coach: Kanishka Sosale aka Bulba (Dota 2) | Aaron Chung (R6S) ▪ Cloud9 has raised a total of $73M in three funding rounds; Seed funding (13 investors) ▪ Evil Geniuses was acquired for an undisclosed amount by Peak6 Investments; it was of $3M in March 2017, Series A funding (11 investors) of $20M in October 2017, and previously owned by GoodGame Agency (a subsidiary of Amazon’s Twitch division). the latest Series B funding (5 investors) was raised in October 2018 for $50M. The latest ▪ Competes in Call of Duty, Dota 2, Super Smash Bros. Rainbow Six Siege and Rocket round was led by Valor Equity Partners, and its founder/managing partner, Antonio League, Fighting Games. Gracias. ▪ 15.1K Twitch followers and 113K YouTube subscribers. ▪ Competes in League of Legends, Dota 2, Counter-Strike: Global Offensive, Hearthstone: ▪ Sponsors/partners include FVBET, Monster Energy, Xfinity, Razer, AMD, Twitch, Scuf Heroes of Warcraft, Super Smash Bros., Melee, Halow, Smite, Heroes of the Storm, Call Gaming, NeedForSeat, and DesignsByHumans. of Duty, and Battle Royale. ▪ 49.1K followers on Twitch and 390K YouTube subscribers. ▪ Sponsors/partners include AT&T, BMW, HP Inc., HyperX, Red Bull, Secretlab, Twitch, U.S. Air Force, Microsoft, Puma.

Team Liquid is a multi-regional professional esports organization based in Fnatic is a professional esports organization based in London, United Utrecht, Netherlands Kingdom

Owner: aXiomatic | Regions: North America and Europe | Founded: 2000 | Games: 14 | Owner: Jack Etienne | Regions: Europe | Founded: 2004| Games: 10 | Earnings: $14.1M | Chairman: Sam Mathews | CEO: Wouter Sleijffers | CGO: Patrik Sattermon Earnings: $33.8M | Co-CEO: Victor Goossens | Co-CEO: Steve Arhancet ▪ Team Liquid was acquired for an undisclosed amount by aXiomatic; investors include ▪ Fnatic has raised a total of $45M in five funding rounds; the last three funding rounds , Tony Robbins, Magic Johnson, , Steve Case, and Eric were Venture round funding (2 investors) for $7M in April 2017, Series A funding (1 Lefkosky. investor) for $19M in April 2018, and most recently Series A funding (4 investors) was ▪ Other investors include Dodgers executives Lon Rosen and Tucker Kain, Warriors raised in April 2019 for $19M. executives Rick Welts and Kirk Lacob, the Washington Nationals owners at Lerner ▪ Competes in League of Legends, Dota 2, Counter-Strike: Global Offensive, Clash Enterprises, and more. Royale, FIFA, Fortnite, Rainbow Six Siege, Rules of Survival and Street Fighter. ▪ Competes in Artifact, Call of Duty: Blackout, Clash Royale, Fortnite, CS:GO, ▪ 34K followers on Twitch and 507K YouTube subscribers. Hearthstone, Heroes of the Storm, League of Legends, Dota 2, Super Smash Bros., ▪ Sponsors/partners include AMD, Fnatic Gear, GG.Bet, eGG, MSI, OnePlus, Quersus, PUBG, StarCraft II, Street Fighter, and Rainbow Six Siege. Newzoo, Strafe, Twitch. ▪ 9.1K Twitch followers and 304K YouTube subscribers. ▪ Sponsors/partners include Alienware, HyperX, Marvel Entertainment, Monster Energy, NeedForSeat, Twitch and SAP SE.

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Appendix 4. Leagues

Blizzard Entertainment owns the Overwatch League operated by Major League Electronic Sports League, ESL, is an esports organizer and production company Gaming (subsidiary of its parent Activision Blizzard) that produces video game competitions worldwide

Owners: Blizzard Entertainment | Regions: International | Founded: 2017 | No. of Teams: 20 Owners: Modern Times Group (MTG.AB-STO, NR) | Regions: International | Founded: | Prize pool for 2018: $3.5M | Structure: Close - Franchise 2000 | Total Prize Pools: $8.3M | Structure: Open - Relegation

▪ Overwatch League buy-in was reportedly $20-60M to own a franchise team; first team ▪ This month (Sept 2019) ESL signed a JV term sheet with HUYA to enable Chinese to introduce league structure. market esports event expansion; Acquiring $30M worth of shares in ESL putting ESL at ▪ Overwatch League resembles traditional North American professional sports leagues, in a pre-money valuation of $425M. that each team has a permanent, regional team backed by separate ownerships groups. ▪ ESL has over 2.6M registered members making it one of the biggest gaming leagues in The league games are also structured in the familiar regular season and format. the world. ▪ Overwatch players are assured a minimum annual salary, benefits and a portion of ▪ ESL hosts international and regional competitions including ESL Play, ESL Pro Leagues, winnings and revenue-sharing based on team performance. ESL National Championships, ESL One and Intel Extreme Masters. ▪ Blizzard reportedly plans to expand its geographic reach to include more teams, and ▪ In 2017, ESL partnered with Hulu to produce four esports series (Player v. Player, establish worldwide stadiums for home/away games; all events are currently hosted in Bootcamp, Defining Moments and ESL Replay). the Blizzard Arena in Los Angeles. ▪ In 2015, Modern Times Gaming (MTG) bought a 74% stake ownership in ESL from its ▪ The most recent champion was London Spitfire. parent company, Turtle Entertainment for reportedly $86M.

Riot Games owns/operates the League of Legends Championship Series (LCS) in Valve Corp. owns/operates The International (often abbreviated TI), an North America and League of Legends European Championship (LEC) in Europe annual international Dota 2 tournament

Owners: Riot Games, Inc. | Regions: North America, Europe | Founded: 2013 | No. of Owners: Valve, L.L.C. | Regions: International | Founded: 2011 | No. of Teams: 2011-2016: Teams: 2013-2014: 16 | 2015-present: 20 | Prize Pool for LoL World Championship 2018: 16 | 2017-present: 18 | Prize Pool for The International 2018: $34.3M | Structure: Open - $6.4M | Structure: Close - Franchise Relegation

▪ LCS in North America with 10 franchised teams with a reported buy-in of $10-13M. ▪ The tournament has 18 teams and follows the year-long Dota Pro Circuit. 12 teams Teams include: Team SoloMid, , Cloud9, Team Liquid, , qualify through Dota Pro Circuit and 6 teams qualify through Regional Qualifiers; one FlyQuest, 100 Thieves, , , OpTic Gaming. team each from China, Southeast Asia, North America, South America, CIS and Europe. ▪ The most recent LCS champion was Team Liquid. ▪ The tournament is unique in that the prize pool is crowdfunded via gamers purchasing ▪ Leag ue of Legends European Championship (LCE) also has 10 franchised teams with a in-game Battle Passes, a system introduced in 2013 by Valve. Each iteration of The reported buy-in of €8.0-10.5M. Teams include: , , Fnatic, , International has surpassed the previous year in terms of prize money, emphasizing the Schalke 04, , Team Vitality, , SK Gaming, . games growing fanbase. ▪ The most recent LCE champion was G2 Esports. ▪ The International 2019 first place was OG, wining $15.6M (45.5% of the prize pool) with ▪ According to Riot Games, the 2017 LoL World Championship held in China had a record Team Liquid placing second $4.5M (13%). The top six teams won $1M or more. peak of 80M unique viewers for a single match with a total of >1.2B hours of content ▪ The International 2020 will be hosted in Stockholm, Sweden. watched during the event.

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Appendix 5. Influencers/Players

Ninja Tfue

Name: Richard Tyler Blevins | Age: 28 | Nationality: American | Former Name: Turner Ellis Tenney | Age: 22 |Nationality: American | Current Organization(s): Luminosity Gaming, Team Liquid, Cloud9, | Organization: FaZe Clan | Preferred Game: Fortnite | Earnings in 2018: Preferred Game: Fortnite | Earnings in 2018: ~$10.0M | Years Active: 2011- ~$10.0M | Years Active: 2014-present present

▪ Ninja’s Twitch followers amount to ~14.7M (most followed on Twitch) and YouTube ▪ Tfue is second most followed streamer on Twitch with ~6.96M followers. subscribers total ~22.4M. ▪ He has ~11.3M YouTube subscribers. ▪ Recently, Ninja left Twitch, signing an exclusive contract to stream on Microsoft- ▪ Tfue is an inactive member of FaZe Clan and made headlines when he filed a lawsuit owned Mixer for reportedly $50-100M. against FaZe Clan claiming his contract was illegally limiting his business opportunities ▪ Largely regarded as the most well-known and highest paid esports personality to-date, and in violation of California labour laws. FaZe Clan has since filed a countersuit in New featured on the cover of ESPN Magazine, helped drop the ball in Times Square on New York. Year’s Eve, and broke the record for concurrent Twitch streamers twice: with help from Canadian Rapper Drake, Pittsburgh Steelers JuJu Smith-Schuster and American Rapper Travis Scott (~628K viewers) and Ninja Vegas ’18 at Esports Arena Las Vegas (~680K viewers).

▪ Ninja has signed major sponsorships/partnerships with brands such as Microsoft, Adidas, Red Bull, Uber Eats, Hershey’s, and PSD Underwear.

KuroKy Shroud Name: Kuroosh Salehi Takhasomi | Age: 26 | Nationality: German-Iranian | Name: Michael Grzesiek | Age: 25 | Nationality: Polish-Canadian | Former Current Organization: Team Liquid | Preferred Game: Defense of the Organization: Cloud9 | Preferred Game: CS:GO | Earnings in 2018: ~$2.5M Ancients (DotA), Dota 2 | Total Earnings: ~$4.8M | Years Active: 2013-present | Years Active: 2013-present

▪ Shroud is the third most followed streamer on Twitch with ~6.93M followers. ▪ Kuroky is a professional Dota 2 player and currently Captain of Team Liquid. Team ▪ His YouTube channel has over ~5.3M subscribers. Liquid placed second in The International 2019 tournament winning ~$4.5M. ▪ In 2017, Shroud retired from playing professional Counter-Strike: Global Offensive. ▪ He has competed in every The International tournament, a record only matched by the ▪ However, he is known for streaming a diverse set of games including player Puppey.Name: Richard Tyler Blevins | Age: 28 |Nationality: American | Current Name: Richard Tyler Blevins | Age: 28 |Nationality: American | Current PlayerUnknown’s Battlegrounds, Call of Duty Black Ops 4: Blackout, Rainbox Six Siege ▪ Besides Team/Organization The International, : heNone has | alsoPreferred competed Game in: Fortnite China Dota| Earnings 2 Supermajor, in 2018: Team/Organization: None | Preferred Game: Fortnite| Earnings in 2018: and recently Apex Legends, Minecraft, Battalion 1944 and World of Warcraft Classic. EPICCENTER,~$10M StarLadd | Yearser Active: i-League 2011 StarSeries,-present The Manila Major, and the Shanghai ~$10M | Years Active: 2011-present Major.

▪ He is the first player to reportedly reach 1,000 wins in his pro career. ▪ Kuroky has previously played for Natus Vincere and .

Rob Goff, CFA | 416.933.3351 | [email protected] 61

Featured Companies

Appendix 6. Esports Betting

Company Type: Private | Headquarters: Vancouver, BC | Founded: 2017 | Funding: C$5.0M | Employees: 8 | Key Executives: Darius Eghdami (CEO) | Graeme Moore (CFO) | Duncan McIntyre (COO)

Strategy: To modernize sports betting through the use of new technology, for both bettors and operators. Also, the Company is looking for acquisition targets to leverage its technology suite. Business Description: FansUnite is a sports betting technology provider for both B2C and B2B clients. ▪ Its flagship asset is FansUnite sportsbook, a smart-contract-based sportsbook which uses digital currency. The multi- channel sportsbook will operate in licensed jurisdictions and leverages Betradar’s renowned tools and offerings. ▪ B2B White Label and Turnkey Solutions through their B2B brand, BetMaker Labs. The whitelabel solution covers over 370,000 events per year, across more than 60 sports and live odds for over 200,000 annually. FansUnite also leverages Betradar’s industry leading MTS system which provides a liability and player management system focusing on risk, fraud detection and trading ▪ An acquisition of a U.K. licensed sportsbook which handles ~C$50M of betting volume annually, focusing on the Scottish market.

For FansUnite’s blockchain as service technology, the Company will charge an up-front on-boarding fee, revenue share on operator Sportsbooks and a fee per transaction on the FansUnite Protocol.

Revenue Streams Management Experience/ Advisory

▪ FansUnite real-money B2C sportsbook operating in ▪ Darius (CEO) is a CA and serial entrepreneur. He has been licensed jurisdictions. in the tech space for over a decade, starting multiple

▪ Blockchain as a service to B2B clients. companies in digital and consumer internet. Darius was ▪ Pipeline of B2B clients recently named one of Canada’s next top 150 ▪ Social betting pipeline of 30,000+ members with potential entrepreneurs and has been in the capital markets for the to convert into real-money players. past 4 years. ▪ Duncan and Darius have been involved in the sports betting ▪ Premium subscription offering for social sports betting industry for nearly a decade. community. ▪ Advisors: Chris Torina (Exec Director, World Poker Tour ▪ Affiliate revenue opportunities from advertisers. DeepStacks). Peter Kroll (Fmr Dev Mgr, Pinnacle Sports,

Inventor of Bitcoin Paper Wallet). Ron Segev (Partner, Segev LLP).

Target Audience/Customers Catalysts/Partnerships

▪ Sports fans (etc. Soccer ~4B) ▪ FansUnite sportsbook to be launched in Q419 and mobile ▪ Esports fans (~~453.8M in 2019) version to be launched shortly after. ▪ B2B White label corporate clients ▪ Betradar bookmaker certification represents marquee ▪ 600+ Betradar bookmakers as possible B2B customers endorsement. ▪ Pursuing Betradar Gold Partner Certification. ▪ Aiming for direct listing by Q419.

Rob Goff, CFA | 416.933.3351 | [email protected] 62

Appendix 7. Esports Betting

Company Type: Private | Headquarters: Vancouver, BC | Founded: 2014 | Funding: ~C$5.0M+ | Employees: 11-50 Key Executives: Scott Burton (Co-founder, CEO) | Jeremy Hutchings (Co-founder, CTO) | Benjamin Bradtke (CCO) | Mathew Lee (CFO)

Strategy: Exploit opportunities in the online esports gambling space with their technology platform and games

Business Description: Askott Entertainment is an esports betting technology provider for B2B clients with plans for B2C offerings later this year

▪ Its flagship asset is the Chameleon Gaming Platform sportsbook, a B2B platform that provides white label solutions for existing regulated sportsbooks to add esports betting and casino style games to their existing offerings. ▪ Askott Games will offer a range of instant gratification and social casino games to engage millennial players. Upon launch, Askott Games will provide in-house designed and developed casino games, based on the Company’s certified Random Number Generator.

Askott Entertainment’s investors include: BITKRAFT Ventures, Rhino Ventures, Shaked Ventures, Konvoy Ventures, Pathfinder Asset Management, Firestartr, Pallasite Ventures, Charlotte Street Capital and Greenlaw Limited

Revenue Streams Management Experience/ Advisory

▪ B2B software license fees and revenue share ▪ Scott Burton (CEO) is a CPA, CMA and has been in the online ▪ Social betting pipeline converted into real-money players. betting space for almost a decade, co-founding Askott ▪ B2C offerings later in 2019 Entertainment and Tedbets, a social P2P sports wagering ▪ Affiliate revenue opportunities from sponsors and platform, which won ICE Gaming – Game to Watch 2014. advertisers. ▪ Jeremy Hutchings (CTO) has over thirty years experience in software programing both at multinational corporations and start-ups.

Target Audience/Customers Catalysts/Partnerships

▪ Esports fans (~~453.8M in 2019) ▪ Go public plans Q419 ▪ B2B White label corporate clients ▪ First two B2B clients signed ▪ Two gaming license applications submitted to Gaming Authority ▪ Partnership with IMG Group for betting site

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Appendix 8. Developer

Ticker: (AXV-TSXV, Enterprise Value C$158M) | Headquarters: Vancouver, BC | Founded: 2006 | Market Cap: C$110.3M | Revenue: $8.3M (C$11.6M) | Employees: ~500 | Key Executives: John Todd Bonner (Chairman, CEO) | Grant Kim (Executive Director) |

Institutional Holder: Purpose Investments C$0.1M

Strategy: Develop a portfolio of multi-platform, AAA video game titles covering a range of genres.

Business Description: Axion Ventures currently holds 10 video games in their portfolio, the largest being Rising Fire- an online PC game that is partnered with Tencent.

▪ AXV has majority ownership in Axion Games, formerly Epic Games China, an independent developer and publisher of online video games for mobile, PC and console platforms, headquartered in Shanghai, China. Axion Games has developed multiple

AAA titles including a portion of Fortnite and Gears of War and its first original IP “Fat Princess” which was sold to and published by Sony and became a #1 seller on PS3 and PSP in 2009. Its latest title “Rising Fire” is under a distribution partnership with Tencent to be published as their flagship title in China. ▪ Through their majority ownership in Axion Games Ltd., Axion has exposure to Axion Game Academy and True Axion Interactive. Shanghai and Bangkok facilities have ~400 and 100 developers, respectively. ▪ The Game Academy is the Company’s in-house training center, which provides designers, artists and programmers the ability to gain real-world video game industry experience from its game development staff and external consultants. ▪ True Axion Interactive is a mobile game development studio joint venture owned by Axion Venture and True Corporation Company Limited (one of the largest telecom and media companies in Thailand).

Revenue Streams Management Experience

▪ Outsourcing Services for co-development projects ▪ John Todd co-founded Axion Games in 2006. Throughout (contracts to assist game development) his career he has founded many companies including ▪ Licensing (pre-selling the rights to company owned games) founding an insurance company in Hong Kong that had a ▪ In-game monetization $888M exit and co-founding/executive director of PCCW Limited which was acquired by Hong Kong Telecom Limited

in 2000. In 2003, he co-founded NorthStar Pacific Partners, a merchant bank that became a $2B fund. ▪ Grant Kim, Executive Director, is a private investor and was a partner in a private equity group investing in Asia since 2004. Target Audience/Customers Catalysts/Partnerships

▪ Gamers (>2.5B gamers worldwide) ▪ Commercial launch Rising Fire (game is in pre-commercial

▪ Tencent’s WeGame has over 300M users launch on WeGame after 850+ man-years of development) ▪ Game studios’ seeking capital and expertise – represents a potentially very significant asset working ▪ Aspiring game designers, artists and programmers with Tencent. ▪ Finalize distribution contract for Invictus: Lost Soul mobile game.

Rob Goff, CFA | 416.933.3351 | [email protected] 64

Appendix 9. Esports Investment

Company Type: Privately Held Subsidiary of Victory Square Technologies Inc. (VST-CSE, NR) | Headquarters: Vancouver, BC | Founded: 2013 | Funding: C$1.3M Private Placement | Employees: 11-50 | Key Executives: Samarth Chandola (Founder, V2 Games) | Shafin Tejani (CEO, Victory Square – attributed to generating C$1+B in enterprise value)

Strategy: Provide seed investment, and strategic partnership to gaming ventures Business Description: V2 Games is a gaming and esports incubator focusing on royalty investments in gaming projects and featuring globally recognized intellectual properties. Looking for investment diversification across Gaming and Esports companies including SaaS tools, Platforms and esports content.

▪ Seed investor in the esports companies Pepper (casual esports tournaments), Piik Games (platform for mobile gamers) and Cash.Live (a game show network with daily esports tournaments that recently received a $150,000 investment from

Snapchat and was accepted into its in-house accelerator) ▪ Gaming investments include PAC-MAN Bounce (partner Bandai Namco, launch Oct 2015, ROI 584%, 20M downloads), Pacific Rim: Breach Wars (partner Kung Fu Factory, launch March 2018, projected ROI 137%), Men in Black: Global Invasion (partner MoreGeek, projected ROI 100%) and Top Gun Mobile (partner MoreGeek, target launch June 2020 – projected ROI 100%) – Future Royalty Projects include high-profile and immediately recognizable intellectual properties. ▪ Esports includes PEPPER Esports (Esports platform for casual and non-professional players to win cash), PIIK (platform, for mobile gamers), Casino Hour (merges live streaming with social casino).

V2 Games’ announced, Future Fund, a $10M seed fund for strategic investments in the video game vertical

Revenue Streams Management Experience

▪ Revenue Share (recoup investments) ▪ Samarth co-founded multiple companies in the technology V2▪ Games% Royalty (recurring revenue) and gaming space (V2Games, SmartShare Solutions, pepper.gg).

▪ V2 Games made successful exit to Victory Square Technology Inc. V2 Games is known for its Pac-man mobile puzzle game that scaled to 20M users. ▪ Target Audience/Customers Catalysts/Partnerships

▪ Gamers (>2.5B gamers worldwide) ▪ Aiming for a direct listing by Q419. ▪ Esports fans (~453.8M in 2019) ▪ Strategic partnership with Kung Fu Factory, a LA based ▪ Game studios’ seeking capital and expertise. independent game developer.

Rob Goff, CFA | 416.933.3351 | [email protected] 65

Appendix 10. Esports and Game Media

Company Ticker: EGLX-TSXV | Headquarters: Toronto, ON | Founded: 2018 | Market Cap: C$106.7M |Pro Forma Revenue:

C$22.0M | Employees: 51-200 |Key Executives: Adrian Montgomery (CEO) | Menashe Kestenbaum (President) | Steve Maida (President, Luminosity) | Corey Mandell (President, EGLive) | Alex Macdonald (CFO) | Eric Bernofsky (COO)

Strategy: To build the largest, vertically integrated gaming media and esports company in the world Business Description: Enthusiast Gaming and Luminosity together own and operate content sites, ad networks, live events, players

and teams

▪ Their assets include: 85+ gaming sites, 900 YouTube channels, EGLX events, eight professional esports teams (including the Vancouver Titans Overwatch franchise team and recently acquired a spot in Call of Duty League), in addition to 50+ celebrity influencers and a proprietary adtech data platform ▪ The Company’s growth opportunities are expected to be: growth in revenue per user to C$0.40 from current C$0.11, build out of ad programmatic revenue, increase in subscription revenue by offering unique content and player access, expansion of live events, franchise appreciation to monetize branded ancillary products, M&A to scale fan base and more non-endemic sponsorships

▪ Pro forma 2018 revenues put at C$22M with cash put at C$55M facilitated accelerated $14M Sims Resource Deferred Payment (Sept/19) leading to the addition of ~C$2.5M of EBITDA.

Enthusiast Gaming and Luminosity plan to take advantage of revenue synergies in leveraging their gaming websites and network to further monetize their brand and esports franchise.

Revenue Streams Management Experience

▪ Subscription revenue The Sims Resource (TSR) 60K ▪ Adrian Montgomery, CEO, has served as a President of subscribers generating ~C$2.5M in recurring revenue – Aquilini Entertainment and as an Alternate Governor for 2.5B page views/year. the NHL .

▪ Advertising (900 YouTube Channels, 150M+ monthly ▪ Menashe Kestenbaum, President, is the founder has built network visitors, 30B+ ad requests/month). TSR ad revs EGLX from the ground up. ~$4.5M. Destructoid at 5M monthly page views. ▪ Steve Maida, President, Luminosity, is the founder of ▪ Sponsorship (100+ premier sponsors ex. Ubisoft, Foodora, Luminosity Gaming and is well-known for developing a Nintendo, Bell Media, among others). championship brand in the growing esports market.

▪ Event Revenue and Merchandise (total 55,000 ▪ attendees at two EGLX events in 2018). Catalysts /Partnerships ▪ Prize pool winnings (C$325K CoD World League in 2019) – 8 Professional esports Teams. ▪ Growth in revenue per user: Revenue per user goal of $0.40/user. Target Audience/Customers ▪ Build out direct sales team: Expand in major centres – Toronto, NYC, London, Los Angeles, and San Francisco – to ▪ Esports fans (~453.8M in 2019) decrease reliance on commoditized programmatic ▪ Luminosity esports fans (~60M) revenue. ▪ Gamers (>2.5B gamers worldwide) ▪ Subscription model growth: Offer unique content and

player access to increase subscriptions.

▪ Partnerships include the NHL’s Vancouver Canucks and

Rogers arena, , ScufGaming.

Rob Goff, CFA | 416.933.3351 | [email protected] 66

Appendix 11. Esports Investment

Company Type: Private / Going Public on CSE in Q4 of 2019| Headquarters: Toronto, ON | Founded: 2018 | Funding: Private Rounds to Date| Employees: 11-50 | Key Executives: Trumbull Fisher (President & Managing Partner) | Daniel Mitre (CEO & Managing

Partner) | Tiffany Lee (CFO)

Strategy: Acquire, invest, and develop esports companies, taking on strategic financing and advisory roles.

Business Description: The company’s investment focus includes esports teams, leagues and organizations; gaming platforms and networks; esports tools; and emerging gaming technologies. Current holdings are all private, with some of the portfolio companies looking to go public on CSE in 2020; however, the company is interested in providing liquidity events and public stakes with a current projection of going public on the CSE in Q4 of 2019. Portfolio companies include the following Even Matchup Gaming (EMG), PlayLine, Tiidal Gaming, Thunderbolt CDG, and Avatar One Esports Capital Corp.

▪ EMG is an event production and broadcast company well-known for organizing Canada’s largest Smash event, “Get On My Level” with reportedly ~2,100 fans in attendance and ~1M views on Twitch and YouTube. EMG hosts 80 events annually with an average attendance of 7.4K. New Wave Esports holds an 18% equity stake with an option to increase to 49%. ▪ PlayLine is a fantasy sports platform, generating revenue with an esports vertical. New Wave Esports invested C$250K in March of 2019. PlayLine looks to go public in 2020.

▪ Tiidal Gaming (see profile) is a professional esports organization and entertainment company, which owns and operates the professional Lazarus esports organization. Original investment C$400K closed March 2019 with two Advisory seats in the company. ▪ Thunderbolt CDG is a software applications and technology development company that has provided services for 40+ startup companies. They are currently conceptualizing tools and solutions in the near future to meet the growing needs of the esports industry. ▪ Avatar One Esports Capital Corp. is an esports acquisition vehicle created by a group of Canada's top investors.

Revenue Streams Management Experience

▪ Acquisitions (Thunderbolt CDG) ▪ Daniel Mitre (CEO) has 17 years of experience in video ▪ Investments (PlayLine, Tiidal Gaming, EMG, Avatar One) gaming industry; is also an advisor for Tiidal Gaming, an advisor to The Gaming Society, and co-founder of Thunderbolt CDG. ▪ Trumbull Fisher (President) has extensive capital market experience of 15 years, has raised significant capital and has co-founded financial companies and investment funds.

Target Audience/Customers Catalysts/Partnerships

▪ Gamers (>2.5B gamers worldwide) ▪ New Wave Esports RTO expected to close Q4 2019. The ▪ Esports fans (~453.8M in 2019) RTO vehicle Trueclaim entered its binding LOI March 8,

▪ Esports companies seeking capital and expertise. 2019. It is intended that the common shares of Trueclaim ▪ B2B clients – Collaborative opportunities to expand and will migrate from the TSXV to the CSE. introduce new revenue streams by taping into gaming and financial networks, while also leveraging current portfolio.

Rob Goff, CFA | 416.933.3351 | [email protected] 67

Appendix 12. Esports Organization

Company Type: Private | Headquarters: Toronto, ON | Founded: 2018 | Employees: 1-10 | Key Executives: Zach Hyman (Founder, Owner, President) | Oliver Silverstein (COO) | Matt Biamonte (Head of Player Operations) | Nick Dotto (Creative Director)

Strategy: Canadian esports team organization focused on Fortnite and digital media content creator focused on multiple titles

and brands. Business Description: Eleven Holding Corp. (E11 & Soar) owns and operates professional esports teams and content creators.

▪ Eleven Gaming’s teams competed in Epic Games’ Champion Solos Cash Cup and Fortnite World Cup 2019 (in both the Solo Finals and Duo Finals). The teams are currently focused on playing professional Fortnite for a prize pool of $100M. The team

has earned prize money of $1M+ and has 14+ pro players, participating in 15+ competitive events. ▪ Roster consists of 14+ esports players including BlooTea (with ~20,287 Twitch follower, ~5817 Twitter followers and ~4081 YouTube subscribers) among others. ▪ E11 has 1.6M+ following across social media platforms: Twitch (280K+ followers, 10M+ minutes watched/month), Twitter (240K+ followers, 25M+ impressions/month), Instagram (390K+ followers, 10M+ impressions/month) and YouTube (750K+ subscribers, 5M+ average views/month). ▪ E11 partnered with Soar Gaming in March 2019 to be able to identify talent and emerging trends in the industry. Soar Gaming, started in 2011, has 20M+ following across social media platforms: Twitch (1.5M+ followers, 20M+ minutes watched/month), Twitter (3.5M+ followers, 200M+ impressions/month), Instagram (2.5M+ followers, 100M+ impressions/month) and YouTube (12.5M+ subscribers, 40M+ average views/month). ▪ E11 and Soar partner with brands to create branded content creation. The Company has worked with Gfuel, Champion and Scuf Gaming to create monetizable impressions.

E11 is sponsored by Gfuel Energy Formula

Revenue Streams Management Experience

▪ Tournament winnings (total prize money to-date ~$1M) ▪ Zach Hyman is a professional player for the ▪ Brand Sponsorship NHL’s and author of the children’s ▪ Advertising book The Bambino and Me, he is signed under contract ▪ Merchandise (currently offering shirts, sweaters, with Penguin Random House.

accessories and headwear) ▪ Oliver Silverstein (COO) spent three years at WorldGaming and eleven months as the president of 3six5 Influence, an

esports marketing agency.

Target Audience/Customers Catalysts/Partnerships

▪ Esports fans (total ~453.8M in 2019). ▪ Soar partnered with ChampionUSA to sell hoodie with Soar ▪ Up-and-coming professional gamers seeking and Champion logo. representation (recruiting top talent).

Rob Goff, CFA | 416.933.3351 | [email protected] 68

Appendix 13. Esports Ecosystem

Ticker: (GAME-TSXV, NR) | Headquarters: Toronto, ON | Founded: 2016 | Market Cap: C$7.2M | Funding: C$15.0M Debentures | Employees: 11-50 | Key Executives: Darren Cox (President, CEO, Director) | Jean-Yves Geffroy (co-Founder Eden Games) | David Nadal (co-Founder Eden Games) | Eduard Montserrat (co-Founder Stream Hatchet) | Anton Stipinovich (President Allinsports)

Strategy: To grow by investing/acquiring companies across esports ecosystem. The company is blurring the lines between esports and sports racing through global competition model (e.g. World’s Fastest Gamer).

Business Description: Millennial Esports, a Canadian company with operations in the NA and Europe, growth strategy includes acquiring gaming and esports assets. The Company’s core business segments include gaming content production, data, hardware, and esports events and content production. ▪ Millennial Esports operates in a various esports industry sub-segments through its wholly owned subsidiaries: Stream

Hatchet, IDEAS+CARS, Eden Games and Allinsports ▪ Stream Hatchet is a data analytics company focused on live streaming intelligence, esports industry research, API and consulting services. ▪ IDEAS+CARS is an esports competition and tournament provider for the racing industry. The Company is the creator and IP owner of World’s Fastest Gamer (Season one TV show reached nearly 400M households via 84 broadcasters). IDEAS+CARS works behind-the-scenes for several F1 esports teams on marketing/PR, social media & management. ▪ Eden Games is a gaming studio with ~23M downloads across it’s game IP. The studio was selected to develop the game F1 Mobile 2018. Additionally, it has commenced three new games based on daily tournaments, wagering and prize pools

▪ Allinsports is a hardware provider for racing simulators for F1 and pro racing drivers.

Revenue Streams Management Experience

▪ Media rights (esports content) ▪ Darren Cox (CEO) has more than 20-years experience in the ▪ Subscription revenue (Eden Games owned IP) automotive industry. He paved the way for esports within ▪ Wagering Revenue Share the racing game genre by delivering GT Academy for Nissan ▪ Advertising and Sony. He is also founder of IDEAS+CARS. ▪ Sponsorship ▪ Advisers and Ambassadors: Bryan Reyhani (Director), Peter ▪ Tournament Revenue (Worlds Fastest Gamer) Liabotis (Director), Rubens Barrichello (Ambassador) and

Juan Pablo Montoya (Ambassador).

Target Audience/Customers Catalysts/Partnerships

▪ Gamers (>2.5B gamers worldwide) ▪ Eden Games (develops Gear.Club Unlimited 2 Porsche ▪ Esports fans (~453.8M in 2019) Edition Nintendo Switch) has become an exclusive ▪ Esports organizations, advertisers and sponsors looking for platform partner for the Porsche Edition Game to launch esports data analytics. on Nov 14th on Nintendo Switch. ▪ Allinsports has a technical partnership with Ferrari Driver Academy and simulator development. ▪ Steam Hatchet has partnerships with Xbox Game Studio,

Activision Blizzard, Cynopsis Media, Complexity, 100 Thieves among others. ▪ IDEAS+CARS is developing new racing-themed global esports competitions.

Rob Goff, CFA | 416.933.3351 | [email protected] 69

Appendix 14. Esports Organization

Company Type: Private | Headquarters: Toronto, ON | Founded: 2010 | Employees: 51-200 | Key Executives: Jeffrey Orridge (Chairman) | Charlie Watson (CEO) | David Brisson (President)

Strategy: Diversified platform company focused on infrastructure businesses across the esports and gaming ecosystem.

Business Description: Tiidal Gaming Group Inc. is focused on empowering the esports and gaming industry by owning and operating infrastructure businesses, including competitive teams (open and franchised structure), event and league organization, technology, and digital media.

▪ Their flagship asset is Lazarus Esports, an esports organization with over 50 competitive professional gamers that represent the brand across more than 10 gaming titles. Lazarus Esports is the #1 Ranked Team in Canada, #1 Globally in Fortnite earnings following the organizations US$3.5m of winning at the July 2019 Fortnite World Cup and #2 globally for YTD 2019 competitive winnings. ▪ Recently acquired Space Esports, a hosting company currently organizing tournaments and other events for multiple games across a number of platforms globally. Space hosts more than 150+ multi-national events annually using its

proprietary technology to organize and host events. Space is currently live doing events in Overwatch, Call of Duty, and other titles. ▪ Tiidal Digital produces premium content and feature videos on YouTube and social media feeds that follow and markets their professional players, streamers, and personalities. ▪ The teams also produce high-quality broadcasting and entertainment on Twitch and Facebook Gaming. ▪ Tiidal intends to build out its teams to compete in closed league franchises (specifically, evaluating the Overwatch league, League of Legends and Clash Royale), in addition to open model competitive tournaments.

Lazarus Esports is sponsored by Honda, Andretti, NASCAR, Logitech, DXRACER, Gfuel, and Scufgaming

Revenue Streams Management Experience

▪ Brand Sponsorship, League Royalties, Media Rights, ▪ Charlie Watson has 9 years of gaming industry experience Content & Licensing, Merchandising &Tickets, and founded Canada’s first esports organisation in 2010 Subscriptions/Saas. called SetToDestroyX. ▪ Tournament earnings (total prize money to-date ~$4.5M ▪ Jeffrey Orridge has served as Former CEO and from 237 tournaments) commissioner of the CFL and has 25+ years of senior

management experience across CBC Sports, USA Target Audience/Customers Basketball, Warner Bros. and Mattel. ▪ Esports fans (total ~453.8M in 2019) ▪ David Brisson, President, was past founder of KB Media the ▪ Esports Enthusiasts (~201.2M in 2019) largest digital advertising network. Built BSM in 2005 as a ▪ Up-in-coming professional gamers seeking representation multi-management distribution firm focus on sports.

(recruiting top-talent) ▪ Director Neil Duffy is Chief Commercial Officer at Collegiate StarLeague (owned by Cineplex). Catalysts/Partnerships ▪ Strategic Advisory Board – networked to NFL, NBA, CWHL, Red Bull and Tony Hawk. ▪ Aiming for public listing in late Q419 / Q120.

▪ Lazarus Esports women's teams partnered with SheIS to grow the awareness and support of women in sports – women are 30% of esports audience, 45% of US gamers. ▪ Currently evaluating franchising opportunities. ▪ Acquisition of additional assets in the technology, digital

media, and league organization space.

Rob Goff, CFA | 416.933.3351 | [email protected] 70

Appendix 15. Esports Investment

Ticker: (VST-CSE, NR) | Headquarters: Vancouver, BC | Founded: 2015 | Market Cap: C$19.4M | Revenue: C$4.5M | Employees: >350 | Key Executives: Shafin Diamond Tejani (CEO) | Sheri Rempel (CFO) | Vahid Shababi (COO)

Strategy: Builds, acquires and invests in promising startups, then provides the senior leadership and resources needed to fast- track growth. The result: rapid scale-up and monetization, with a solid track record of public and private exits. Esports related investments have made significant progress over the past year with FansUnite & V2 Games targeting a fall 2019 RTO. Esports related investments have made significant progress over the past year with FansUnite & V2 Games targeting a fall 2019 RTO. Business Description: Victory Square Technologies (VST) builds, acquires and invests in promising startups, then provides the senior leadership and resources needed to fast-track growth. The result: rapid scale-up and monetization, with a solid track record

of public and private exits. VST has developed an impressive portfolio of innovative and disruptive SaaS companies in every sector of the global economy; including Mobile Gaming, Esports, Sports Betting, InsureTech and Security using the most powerful technologies in AR/VR, Blockchain and AI.

▪ Portfolio of 18+ high growth companies using AI, VR/AR and blockchain to disrupt sectors as diverse as fintech, insurance, health and gaming ▪ $10M+ invested capital to date by the CEO and strategic partner; 3 years of triple digit revenue growth ▪ CEO Shafin Diamond Tejani has launched 40 start-ups in 24 different countries generating over $1B in enterprise value

▪ Victory Square Technologies, through its subsidiaries V2 Games Inc. and FansUnite, has exposure to the growing esports industry in online betting and hosting esports tournaments. ▪ Its portfolio of companies is diverse, such as Immersive Tech which through video game development, theme park engineering and the latest VR/AR/MR technologies builds engaging experiences for a portfolio of global brands. Immersive Tech’s clients include Intel, insurance company PartnerRe, Scottish whiskey brand Ardbeg. Recent project contracts include Capital One, Bayer and BioMerieux. ▪ The Company added eleven new private companies to its portfolio either through investment or acquisition in 2018. Victory Square Technologies reported revenue of C$4.5M, EBITDA of C$2.9M and a cash balance of C$2.7M for F2018. Cash at June 30/19 was C$0.8M.

Revenue Streams Management Experience

▪ Revenue Share (recoup investments) ▪ Shafin launched his first venture iFlurtz at 19. He has gone

▪ % Royalty (recurring revenue) on to launch over forty start-ups in over twenty different ▪ Investment income countries throughout his career, generating C$100+M in ▪ Consulting sales and C$1+B in enterprise value. He has received ▪ M&A Advisory numerous awards including: EY Tech Entrepreneur of the Year 2015, Startup Canada Award for Advancing

Entrepreneurship 2015, Canadian Angel Investor of the Year 2015 and INC500 Growing Companies in the US.

Target Audience/Customers Catalysts/Partnerships ▪ Technology start-ups seeking capital and expertise ▪ To spin-off subsidiaries V2 Games and FansUnite. ▪ Esports fans (~453.8M in 2019) ▪ Partnerships with Living Labs set-up with Launch Academy, ▪ Gamers (>2.5B gamers worldwide) Canadian Government (Build In Canada), Foxwoods Casino, Leicester City Football Club, d10e, University of Waterloo Institute for A1, among others.

Rob Goff, CFA | 416.933.3351 | [email protected] 71

Appendix 16. Esports and Media

Company Type: Private | Headquarters: Toronto, ON | Founded: 2018 | Employees: 51-100 | Funding: ~$45.0+M |Key Executives: Chris Overholt (President, CEO) | Adam Adamou (Director, Co-founder, SVP, Strategy) | Jason Toledano (CFO) | Marty Strenczewilk (SVP, Team Operations)

Strategy: To build a vertically integrated global esports platform, with growth across multiple revenue streams and diversified across leagues, games. Vertical integration provides additional hedge, efficiencies with event ownership and plans for venue ownership/partnership.

Business Description: OverActive Media (“OAM”) owns and operates a global esports platform of league franchises, professional teams, brand assets and event management.

▪ OAM is the only organization to own a franchise in each of the three franchised esports leagues. Toronto Defiant of the OWL, Splyce of LEC and newly franchised COD x TO in CDL. It has fifteen competitive teams in seven countries such as Mad Lion Esports Club based in Spain with a fanbase in Latin America offering international growth. ▪ OAM and BCE Inc. (“Bell”) signed a three-year equity investment and marketing agreement, which includes all Bell brands and affiliates in addition to exclusive sponsorship as sole telecom partner, Canadian content rights and Board nomination rights. ▪ Roy Thompson Hall, in Toronto Ontario, a venue that seats ~2,600 will be the venue for homestand weekend Toronto Defiant matches next season (2020). CDL matches to be held in Toronto with the venue to be announced. ▪ In May 2019, OAM acquired an esports live events company, MediaXP and also Madrid-based esports organization MAD Lions E.C. OverActive Media investors include BCE Inc., 3-time Grammy Winner “The Weeknd” (Abel Tesfaye) and David Grutman

Revenue▪ Streams Management Experience

▪ Media rights (broadcast rights) ▪ Chris Overholt (President, CEO) has over 18 years in the ▪ League revenue share (OWL, LEC, CDL) sports industry including CEO of the Canadian Olympic ▪ Advertising (both content & venue) Committee, prior to which he served as VP and CMO for the

▪ Sponsorship (ex. Bell Media, Red Bull, Canon Canada, Miami Dolphins and executive VP and CMO for the Florida among others) Panthers as well as VP of the MSLE. ▪ Event Revenue and Merchandise (OAM Live) ▪ Adam Adamou (Director, Co-founder, SVP, Strategy) has ▪ Prize winnings (Splyce ~$3.2M) 25+ years of experience in financing Canadian tech start- ups as a venture capitalist and investment banker.

Target Audience/Customers Catalysts/Partnerships

▪ Esports fans (~453.8M in 2019) ▪ OAM held an Esports UpFront event in downtown Toronto ▪ Esports Enthusiasts (~201.2M in 2019) for more than 200 marketers, media and industry ▪ Professional gamers participants. ▪ Acquire additional industry franchises and industry players.

Rob Goff, CFA | 416.933.3351 | [email protected] 72

Appendix 12. Esports Comps Sheet

Market Cap Enterprise Company Ticker Last Price ($M) Value ($M) Returns EV/Sales EV/EBITDA P/E 1 Month 3 Month YTD 2018 2019 2020 2018 2019 2020 2018 2019 2020 Game Publishers Activision Blizzard, Inc. ATVI-US $54.18 $41.14 $34.35 14.5% 18.0% 16.3% 4.6x 6.2x 5.7x 11.4x 17.7x 15.0x 19.8x 24.4x 21.2x Electronic Arts Inc. EA-US $98.18 $28.60 $26.65 5.7% 3.0% 24.4% 6.5x 4.9x 4.6x 20.6x 14.8x 13.1x 36.3x 20.7x 19.5x Take-Two Interactive Software, Inc. TTWO-US $125.73 $14.13 $8.73 -2.4% 11.6% 22.1% 5.1x 4.4x 4.4x 32.5x 17.8x 16.9x 63.5x 26.3x 25.6x NetEase, Inc. Sponsored ADR NTES-US $266.70 $33.70 $25.55 7.9% 1.6% 13.3% 2.5x 2.6x 2.2x 17.1x 13.9x 12.0x 32.8x 20.6x 18.9x Nintendo Co., Ltd. 7974-JP ¥42,830.00 ¥5,576.18 ¥2,712.25 4.5% 11.9% 46.3% 4.4x 3.3x 3.1x 22.1x 13.4x 11.3x 40.3x 23.2x 19.2x Konami Holdings Corp. 9766-JP ¥5,160.00 ¥744.77 ¥534.47 10.5% 0.6% 7.4% 2.7x 2.2x 2.1x 11.3x 8.9x 7.9x 24.8x 20.5x 18.0x Bandai Namco Holdings Inc. 7832-JP ¥6,400.00 ¥1,445.22 ¥927.59 1.4% 22.6% 29.9% 0.9x 1.7x 1.6x 6.1x 11.3x 10.5x 14.2x 21.8x 20.0x Tencent Holdings Ltd. 700-HK $335.80 $3,206.18 $3,054.03 0.5% -5.2% 6.9% 8.2x 7.8x 6.3x 19.6x 20.6x 17.7x 31.8x 30.1x 26.0x Ubisoft Entertainment SA UBI-FR € 69.12 € 7.66 € 9.76 -3.7% 0.8% -1.9% 5.2x 3.9x 3.5x 12.2x 8.6x 7.4x 54.4x 29.7x 21.9x Average 4.3% 7.2% 18.3% 4.5x 4.1x 3.7x 17.0x 14.1x 12.4x 35.3x 24.1x 21.1x Median 4.5% 3.0% 16.3% 4.6x 3.9x 3.5x 17.1x 13.9x 12.0x 32.8x 23.2x 20.0x Companies with eSports Exposure Amazon.com, Inc. AMZN-US $1,785.30 $864.37 $758.60 2.0% -6.6% 18.9% 3.3x 3.3x 2.7x 30.0x 21.8x 17.4x 74.6x 73.6x 52.5x Microsoft Corp. MSFT-US $139.14 $1,050.20 $991.23 4.3% 1.6% 37.0% 6.6x 7.7x 6.9x 14.6x 17.6x 15.5x 46.3x 27.5x 24.5x Alphabet Inc. Class A GOOGL-US $1,234.69 $790.98 $629.78 7.0% 9.7% 18.2% 4.6x 4.6x 3.9x 14.3x 12.7x 10.9x 23.9x 25.1x 22.0x Facebook, Inc. Class A FB-US $186.82 $438.61 $342.29 5.1% -2.3% 42.5% 6.1x 6.9x 5.7x 11.5x 13.0x 10.8x 17.3x 27.7x 19.2x Intel Corp. INTC-US $50.90 $221.12 $234.90 13.2% 7.2% 8.5% 3.3x 3.5x 3.4x 7.1x 7.7x 7.4x 10.4x 11.4x 11.2x NVIDIA Corp. NVDA-US $174.84 $104.88 $94.66 7.6% 15.2% 31.0% 15.3x 9.2x 7.9x 43.0x 32.0x 23.7x 50.5x 31.6x 24.4x Advanced Micro Devices, Inc. AMD-US $30.64 $32.14 $19.05 3.7% 5.3% 66.0% 2.9x 4.9x 3.9x 30.7x 34.0x 21.6x 55.7x 47.8x 28.5x HUYA, Inc. Sponsored ADR Class A HUYA-US $27.04 $1.65 $1.71 22.5% 8.0% 74.7% 2.4x 4.2x 3.1x NA 85.2x 32.3x NA 82.2x 39.6x Walt Disney Company DIS-US $132.46 $237.21 $198.13 0.6% -5.5% 20.8% 3.3x 3.0x 4.2x 10.6x 10.5x 17.4x 17.3x 19.5x 22.8x GameStop Corp. Class A GME-US $5.02 $0.46 $0.34 37.5% -7.4% -60.2% 0.2x 0.2x 0.2x 2.9x 4.6x 5.1x 47.5x 3.8x 4.8x Lions Gate Entertainment Corp. Class A LGF.A-US $9.56 $1.98 $6.85 -7.9% -20.5% -40.6% 2.3x 1.5x 1.4x 4.4x 11.0x 10.2x 11.4x NA 17.4x Sony Corp. 6758-JP ¥6,411.00 ¥8,158.88 ¥5,266.72 8.6% 13.5% 20.4% 0.7x 0.9x 0.9x 4.1x 6.5x 6.2x 13.3x 12.6x 13.6x Modern Times Group MTG AB Class B MTG.B-SE € 83.80 € 5.56 € 23.87 5.3% -22.4% -18.3% 1.2x 1.1x 1.0x 12.6x 26.9x 13.4x 18.9x NA NA Average 8.4% -0.3% 16.8% 4.0x 3.9x 3.5x 15.5x 21.8x 14.8x 32.2x 33.0x 23.4x Median 5.3% 1.6% 20.4% 3.3x 3.5x 3.4x 12.1x 13.0x 13.4x 21.4x 27.5x 22.4x Canadian Publicaly-listed Companies with eSports Exposure Cineplex Inc. CGX-CA $24.77 $1.62 $2.18 2.0% 7.0% -2.6% 1.3x 2.2x 2.1x 8.5x 8.7x 8.2x 20.9x 35.2x 22.7x Enthusiast Gaming Holdings EGLX-CA $2.17 $0.11 NA -56.6% -68.6% -42.9% #N/A NA NA NA NA NA NA NA NA Axion Ventures Inc. AXV-CA $0.45 $0.11 $0.19 -10.0% -46.4% -50.0% 16.6x 8.6x 1.6x NA NA 2.8x NA NA 3.6x Millennial Esports Corp. GAME-CA $0.68 $0.01 NA -34.0% 240.0% -24.4% NA NA NA NA NA NA NA NA NA Victory Square Technologies Inc. VST-US $26.96 $13.21 $21.54 12.4% 11.9% 17.8% 2.1x 2.1x 2.0x 10.6x 7.4x 7.4x NA 12.0x 11.8x Average -17.2% 28.8% -20.4% NA 4.3x 1.9x 9.5x 8.1x 6.1x 20.9x 23.6x 12.7x Median -10.0% 7.0% -24.4% NA 2.2x 2.0x 9.5x 8.1x 7.4x 20.9x 23.6x 11.8x Source: FactSet, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 73

Appendix 13. EWP North American Gaming, Esports and Gambling Index

NA: Gaming, Esports and Gambling NA: Gaming, Esports and Gambling NA: Gaming, Esports and Gambling 2-weeks 6-Months YTD-2019 29.0% 97.1% 130.0% Super League Gaming, Inc. and Gaming Inc.… Score Media and Gaming Inc.… 19.3%Scientific Games Corporation 54.0% Versus Systems Inc 79.4% Everi Holdings, Inc. 18.8% Victory Square Technologies Inc 30.9% Take-Two Interactive Software,… 67.1% Versus Systems Inc 18.1% Versus Systems Inc 22.4% Walt Disney Company 66.0% Advanced Micro Devices, Inc. 16.5% GameStop Corp. Class A 18.9% Microsoft Corporation 56.7% Zynga Inc. Class A 9.9% Everi Holdings, Inc. 16.4% Zynga Inc. Class A 44.8% Razer, Inc. 9.3% 16.2% Advanced Micro Devices, Inc. 42.5% Facebook, Inc. Class A 9.2% Eldorado Resorts Inc 15.6% Activision Blizzard, Inc. 37.0% Microsoft Corporation 8.3% PlayAGS, Inc. 13.7% Facebook, Inc. Class A 33.1% KuuHubb Inc 7.3% Boyd Gaming Corporation 10.3% Scientific Games Corporation 31.0% NVIDIA Corporation 5.7% Glu Mobile Inc. 9.7% MGM Resorts International 29.4% Scientific Games Corporation 5.7% Glu Mobile Inc. 2.2% Alphabet Inc. Class A 24.4% Electronic Arts Inc. 5.4% SciPlay Corp. Class A 2.1% Cineplex Inc. 23.4% Boyd Gaming Corporation 5.1% Zynga Inc. Class A 1.7% Monarch Casino & Resort, Inc. 22.1% Take-Two Interactive Software,… 4.8% Red Rock Resorts, Inc. Class A 1.2% Amazon.com, Inc. 20.8% Walt Disney Company 3.6% Golden Entertainment, Inc. -1.5% NVIDIA Corporation 18.9% Amazon.com, Inc. 2.4% Alphabet Inc. Class A -2.6% Penn National Gaming, Inc. 18.2% Alphabet Inc. Class A 1.9% Great Canadian Gaming… -4.1% Electronic Arts Inc. 18.0% MGM Resorts International 1.4% Century Casinos, Inc. -4.4% Intel Corporation 17.6% Eldorado Resorts Inc 1.2% Monarch Casino & Resort, Inc. -5.6% Razer, Inc. 16.3% Activision Blizzard, Inc. 1.1% MGM Resorts International -5.7% Las Vegas Sands Corp. 14.3% Monarch Casino & Resort, Inc. 0.3% Advanced Micro Devices, Inc. -5.8% Everi Holdings, Inc. 10.3% ePlay Digital Inc. 0.0% Microsoft Corporation -6.0% Golden Entertainment, Inc. 9.3% Century Casinos, Inc. 0.0% Las Vegas Sands Corp. -6.2% Boyd Gaming Corporation 9.3% Wynn Resorts, Limited 0.0% Intel Corporation -7.1% Century Casinos, Inc. 8.5% Intel Corporation -0.4% Penn National Gaming, Inc. -7.2% KuuHubb Inc 8.0% Las Vegas Sands Corp. -0.4% Electronic Arts Inc. -7.5% Wynn Resorts, Limited 7.7% Red Rock Resorts, Inc. Class A -0.4% Facebook, Inc. Class A -9.7% Stars Group Inc. 4.5% Penn National Gaming, Inc. -0.7% Activision Blizzard, Inc. -10.0% Pollard Banknote Limited -2.6% Cineplex Inc. -2.1% NVIDIA Corporation -14.2% Eldorado Resorts Inc -2.7% Pollard Banknote Limited -2.6% Amazon.com, Inc. -14.6% Turtle Beach Corporation -6.0% Stars Group Inc. -3.0% Wynn Resorts, Limited -15.1% Red Rock Resorts, Inc. Class A -12.8% Golden Entertainment, Inc. -3.8% Take-Two Interactive Software,… -16.2% Great Canadian Gaming… -13.1% Great Canadian Gaming… -4.4% Razer, Inc. -20.0% QYOU Media, Inc. -24.4% Millennial Esports Corp. -4.5% Stars Group Inc. -24.7% ePlay Digital Inc. -29.4% QYOU Media, Inc. -4.7% Cineplex Inc. -27.7% Enthusiast Gaming Holdings Inc -32.7% Turtle Beach Corporation -5.1% Walt Disney Company -28.5% Victory Square Technologies Inc -38.2% Glu Mobile Inc. -7.7% YDx Innovation Corp. -35.2% Millennial Esports Corp. -38.2% Glu Mobile Inc. -7.7% YDx Innovation Corp. -36.5% Super League Gaming, Inc. -40.6% Lions Gate Entertainment Corp… -9.8% Pollard Banknote Limited -36.9% Lions Gate Entertainment Corp… -42.2% Victory Square Technologies Inc -9.9% ePlay Digital Inc. -52.0% GameStop Corp. Class A -42.9% Enthusiast Gaming Holdings Inc -10.0% KuuHubb Inc -53.4% Glu Mobile Inc. -45.5% YDx Innovation Corp. -12.1% Lions Gate Entertainment Corp… -53.4% Glu Mobile Inc. -50.0% Axion Ventures Inc -13.7% Score Media and Gaming Inc.… -54.1% PlayAGS, Inc. -51.9% PlayAGS, Inc. -28.6% Axion Ventures Inc -58.6% YDx Innovation Corp. -60.2% GameStop Corp. Class A -32.0% Millennial Esports Corp. -60.9% Axion Ventures Inc -73.1% Fandom Sports Media Corp -41.8% Fandom Sports Media Corp -63.4% Fandom Sports Media Corp -56.6% Enthusiast Gaming Holdings Inc

Source: FactSet, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 74

Appendix 14. EWP Europe Gaming, Esports and Gambling Index

Europe: Gaming, Esports and Gambling Europe: Gaming, Esports and Gambling Europe: Gaming, Esports and Gambling 2-weeks 6-months YTD-2019 12.5% 40.2% 91.4% Playtech plc GVC Holdings PLC Evolution Gaming Group AB 12.4%International Game… 39.4% Evolution Gaming Group AB 67.2% CD Projekt S.A. 7.1% Flutter Entertainment Plc 30.9% CD Projekt S.A. 66.9% THQ Nordic AB Class B 6.9% NetEnt AB Class B 28.6% Flutter Entertainment Plc 56.0% Gamenet Group SpA 6.7% JPJ Group plc 21.5% William Hill PLC 31.2% Rank Group Plc 6.4% GVC Holdings PLC 21.3% Gamenet Group SpA 30.1% Tobii AB 5.7% Rank Group Plc 20.9% LeoVegas AB 28.4% Logitech International S.A. 5.2% adesso AG 14.7% Kambi Group plc Class B 19.1% William Hill PLC 4.4% Endor AG 13.7% THQ Nordic AB Class B 17.2% Flutter Entertainment Plc 3.7% William Hill PLC 13.6% Endor AG 13.4% Playtech plc 2.3% LeoVegas AB 12.7% International Game… 12.4% JPJ Group plc 1.8% THQ Nordic AB Class B 11.9% Rank Group Plc 10.6% Endor AG 1.1% Betsson AB Class B 9.0% Tobii AB 8.0% GVC Holdings PLC 0.4% Kambi Group plc Class B 6.9% Logitech International S.A. 6.8% adesso AG 0.2% Kindred Group plc Shs Swedish… 4.4% Playtech plc 4.6% bet-at-home.com AG -2.0% Modern Times Group MTG AB… 3.2% JPJ Group plc -0.8% International Game… -2.9% Gamenet Group SpA -3.3% 888 Holdings Plc -1.9% Ubisoft Entertainment SA -3.5% Logitech International S.A. -4.8% NetEnt AB Class B -6.0% Mail.ru Group Ltd. Sponsored… -3.8% Tobii AB -8.0% Mail.ru Group Ltd. Sponsored… -8.1% LeoVegas AB -4.1% Ubisoft Entertainment SA -8.0% adesso AG -8.8% NetEnt AB Class B -4.2% Evolution Gaming Group AB -13.1% Ubisoft Entertainment SA -10.5% Kambi Group plc Class B -4.5% Mail.ru Group Ltd. Sponsored… -17.1% bet-at-home.com AG -10.9% 888 Holdings Plc -4.7% CD Projekt S.A. -21.6% Gfinity PLC -18.3% Modern Times Group MTG AB… -4.8% Gfinity PLC -25.1% Guillemot Corp. SA -23.3% Guillemot Corp. SA -6.4% 888 Holdings Plc -27.2% Betsson AB Class B -28.3% Betsson AB Class B -8.8% Guillemot Corp. SA -28.4% Modern Times Group MTG AB… -31.5% Kindred Group plc Shs Swedish… -11.8% bet-at-home.com AG -40.2% Kindred Group plc Shs Swedish… -43.0% Gfinity PLC

Source: FactSet, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 75

Appendix 15. EWP APAC Gaming, Esports and Gambling Index

APAC: Gaming, Esports and Gambling APAC: Gaming, Esports and Gambling APAC: Gaming, Esports and Gambling 2-weeks 6-months YTD-2019 55.1% 41.9% 186.6% Changyou.com Ltd. Sponsored… COLOPL, Inc. Sea Ltd. (Singapore) Sponsored… 46.8%COLOPL, Inc. 41.1%KLab Inc. 74.7% HUYA, Inc. Sponsored ADR… 13.4% Square Enix Holdings Co., Ltd. 39.5%Nintendo Co., Ltd. 63.7% AfreecaTV Co., Ltd. 12.9% Gravity Co Ltd Sponsored ADR 36.1%Sony Corporation 63.1% Kingsoft Corp. Ltd. 11.5% HUYA, Inc. Sponsored ADR… 34.3% Sea Ltd. (Singapore) Sponsored… 57.0% Square Enix Holdings Co., Ltd. 9.3% gumi, Inc. 28.6% Akatsuki, Inc. 52.3% Akatsuki, Inc. 7.2% Kingsoft Corp. Ltd. 24.4% Aristocrat Leisure Limited 46.3% Nintendo Co., Ltd. 6.7% CyberStep, Inc. 24.0% BANDAI NAMCO Holdings Inc. 44.9% KLab Inc. 6.1% AfreecaTV Co., Ltd. 20.5% PearlAbyss Corp. 41.3% Aristocrat Leisure Limited 5.1% Akatsuki, Inc. 19.2% AfreecaTV Co., Ltd. 30.2% COLOPL, Inc. 4.8% Micro-Star International Co., Ltd. 18.1% Square Enix Holdings Co., Ltd. 29.9% BANDAI NAMCO Holdings Inc. 4.5% Gamewith, Inc. 17.3% DeNA Co., Ltd. 26.3% gumi, Inc. 4.4% , Inc. Sponsored ADR… 14.8% NetEase, Inc. Sponsored ADR 25.8% Koei Tecmo Holdings Co., Ltd. 4.1% Ainsworth Game Technology… 9.8% Capcom Co., Ltd. 25.7% Capcom Co., Ltd. 4.1% Gungho Online Entertainment,… 9.2% NCsoft Corporation 21.7% Gungho Online Entertainment,… 3.3% Nintendo Co., Ltd. 9.2% NCsoft Corporation 20.7% Micro-Star International Co., Ltd. 3.2% Netmarble Corp. 9.0% Koei Tecmo Holdings Co., Ltd. 20.4% Sony Corporation 3.1% Aristocrat Leisure Limited 8.0% HUYA, Inc. Sponsored ADR… 13.3% NetEase, Inc. Sponsored ADR 2.6% Sea Ltd. (Singapore) Sponsored… 7.7% Micro-Star International Co., Ltd. 11.9% NCsoft Corporation 2.6% Koei Tecmo Holdings Co., Ltd. 5.2% KONAMI HOLDINGS CORP 11.9% NCsoft Corporation 2.6% KONAMI HOLDINGS CORP 0.5% Kingsoft Corp. Ltd. 10.0% DeNA Co., Ltd. 2.4% Com2us Corporation -4.5% DoubleUGames Co., Ltd. 7.4% KONAMI HOLDINGS CORP 2.2% Mixi, Inc. -6.9% Com2us Corporation 6.9% Tencent Holdings Ltd. 2.2% DoubleUGames Co., Ltd. -7.5% Asustek Computer Inc. 4.7% Asustek Computer Inc. 1.9% Asustek Computer Inc. -7.5% gumi, Inc. 3.5% Bilibili, Inc. Sponsored ADR… 1.0% The9 Ltd. Sponsored ADR -8.0% Tencent Holdings Ltd. 2.9% The9 Ltd. Sponsored ADR 0.8% Sony Corporation -11.3% Mixi, Inc. 1.0% Mixi, Inc. 0.3% NEXON Co., Ltd. -12.3% Bilibili, Inc. Sponsored ADR… -0.1% CyberStep, Inc. 0.0% BANDAI NAMCO Holdings Inc. -13.1% Ainsworth Game Technology… -0.3% NEXON Co., Ltd. -1.7% PearlAbyss Corp. -15.2% Netmarble Corp. -4.4% Ainsworth Game Technology… -2.0% DeNA Co., Ltd. -16.0% Webzen Inc. -5.0% DoubleUGames Co., Ltd. -2.2% Tencent Holdings Ltd. -17.2% NEXON Co., Ltd. -5.3% Gamewith, Inc. -4.3% Capcom Co., Ltd. -28.4% CyberStep, Inc. -5.9% PearlAbyss Corp. -4.3% NetEase, Inc. Sponsored ADR -31.8% Aiming, Inc. -12.2% Netmarble Corp. -4.7% Webzen Inc. -38.1% Gamewith, Inc. -19.7% Webzen Inc. -5.4% NCsoft Corporation -39.2% Gungho Online Entertainment,… -25.0% Gravity Co Ltd Sponsored ADR -5.4% NCsoft Corporation -45.6% Changyou.com Ltd. Sponsored… -26.0% Com2us Corporation -6.3% IGG, Inc. -53.0% IGG, Inc. -29.3% Aiming, Inc. -10.6% KLab Inc. -54.1% Gravity Co Ltd Sponsored ADR -49.8% Changyou.com Ltd. Sponsored… -21.7% Aiming, Inc. -57.9% The9 Ltd. Sponsored ADR -51.8% IGG, Inc.

Source: FactSet, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 76

Appendix 16. EWP North American Gaming, Esports and Gambling Index (By Category)

Weighted Average Return - by Weighted Average Return - by Weighted Average Return - by (0.5%) 8.5% 26.5% Market Capital Market Capital Market Capital

Average Return Average Return Average Return (1.6%) n=48 (9.3%) n=48 5.7% n=48

0.5% Nasdaq Composite Nasdaq Composite 24.4% Nasdaq Composite 15.3% (0.4%) S&P/TSX 9.5% S&P/TSX 17.1% S&P/TSX

13.3% 0.0% S&P 500 S&P 500 20.8% S&P 500

(4.9%) Investment Firms (n=2) (44.7%) Investment Firms (n=2) (46.1%) Investment Firms (n=2)

(0.1%) Streaming (n=2) 1.7% Streaming (n=2) 18.5% Streaming (n=2)

14.1%Tournaments (n=3) 6.5% Tournaments (n=3) 32.2%Tournaments (n=3)

1.7% Gambling (n=19) (2.7%) Gambling (n=19) 16.5% Gambling (n=19)

(20.6%) Media (n=6) (18.6%) Media (n=6) (20.5%) Media (n=6)

1.5% Hardware (n=8) (12.7%) Hardware (n=8) 6.1% Hardware (n=8)

(3.8%) Publisher (n=8) (13.5%) Publisher (n=8) 3.7% Publisher (n=8)

Source: FactSet, Echelon Wealth Partners

Appendix 17. EWP Europe Gaming, Esports and Gambling Index (By Category)

Weighted Average Return - by Weighted Average Return - by Weighted Average Return - by (0.7%) 12.4% 36.5% Market Capital Market Capital Market Capital

0.6% Average Return 3.6% Average Return 10.1% Average Return n=28 n=28 n=28

0.5% Nasdaq Composite Nasdaq Composite 24.4% Nasdaq Composite 15.3%

(0.4%) S&P/TSX 9.5% S&P/TSX 17.1% S&P/TSX

Tournaments (n=0) Tournaments (n=0) Tournaments (n=0)

2.7%Gambling (n=17) 6.9% Gambling (n=17) 9.5% Gambling (n=17)

(3.4%) Media (n=2) (25.0%) Media (n=2) (30.6%) Media (n=2)

(2.9%) Hardware (n=4) 1.1% Hardware (n=4) 11.4% Hardware (n=4)

(2.9%) Publisher (n=4) 5.9% Publisher (n=4) 31.5%Publisher (n=4)

Source: FactSet, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 77

Appendix 18. EWP APAC Gaming, Esports and Gambling Index (By Category)

Weighted Average Return - by Weighted Average Return - by Weighted Average Return - by (1.0%) 10.5% 11.5% Market Capital Market Capital Market Capital

n=40 3.9% Average Return n=40 (1.2%) Average Return n=40 16.7% Average Return

0.5% Nasdaq Composite 15.3% Nasdaq Composite 24.4% Nasdaq Composite

(0.4%) S&P/TSX 9.5% S&P/TSX 17.1% S&P/TSX

0.0% S&P 500 13.3% S&P 500 20.8% S&P 500

Investment Firms (n=1) 0.5% Investment Firms (n=1) 63.1% Investment Firms (n=1) 7.2% 7.3%Streaming (n=3) 5.0% Streaming (n=3) 47.3% Streaming (n=3)

1.2% Gambling (n=4) (2.3%) Gambling (n=4) 3.1% Gambling (n=4)

3.5% Media (n=2) (1.9%) Media (n=2) 90.7%Media (n=2)

2.7% Hardware (n=4) 19.0% Hardware (n=4) 23.0% Hardware (n=4)

4.0% Publisher (n=26) (4.9%) Publisher (n=26) 6.9% Publisher (n=26)

Source: FactSet, Echelon Wealth Partners

Rob Goff, CFA | 416.933.3351 | [email protected] 78

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ANALYST CERTIFICATION Company: Score Media and Gaming Inc. | SCR:TSX.V I, Rob Goff, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report. IMPORTANT DISCLOSURES

Is this an issuer related or industry related publication? Issuer

Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No If Yes: 1) Is it a long or short position? No position; and, 2) What type of security is it? None

The name of any partner, director, officer, employee or agent of the Dealer Member who is an officer, director or employee of the issuer, or who serves in any No advisory capacity to the issuer.

Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No

Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of No common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer?

During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public No offering, or private placement of securities of this issuer?

During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? No

Has the Analyst had an onsite visit with the Issuer within the last 12 months? AGM January 2019 – investors/analysts Yes

Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No

Has the Analyst received any compensation from the subject company in the past 12 months? No

Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No

Rob Goff, CFA | 416.933.3351 | [email protected] 79

Company: Cineplex Inc.| CGX:TSX I, Rob Goff, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report. IMPORTANT DISCLOSURES

Is this an issuer related or industry related publication? Issuer

Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No If Yes: 1) Is it a long or short position? No position; and, 2) What type of security is it? None

The name of any partner, director, officer, employee or agent of the Dealer Member who is an officer, director or employee of the issuer, or who serves in any advisory No capacity to the issuer.

Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No

Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common No equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer?

During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public No offering, or private placement of securities of this issuer?

During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? No

Has the Analyst had an onsite visit with the Issuer within the last 12 months? No

Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No

Has the Analyst received any compensation from the subject company in the past 12 months? No

Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No

Company: AcuityAds Holding Inc. | AT: TSX I, Rob Goff, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report. IMPORTANT DISCLOSURES

Is this an issuer related or industry related publication? Issuer

Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No If Yes: 1) Is it a long or short position? No positions; and, 2) What type of security is it? None.

The name of any partner, director, officer, employee or agent of the Dealer Member who is an officer, director or employee of the issuer, or who serves in any No advisory capacity to the issuer.

Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No

Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of No common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer?

During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public Yes offering, or private placement of securities of this issuer?

During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? Yes

Has the Analyst had an onsite visit with the Issuer within the last 12 months? Management Meeting – Head Office, Toronto in March 2019 Yes

Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No

Has the Analyst received any compensation from the subject company in the past 12 months? No

Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No

Rob Goff, CFA | 416.933.3351 | [email protected] 80

Company: The Stars Group Inc. | TSGI:TSX I, Gianluca Tucci, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report. IMPORTANT DISCLOSURES

Is this an issuer related or industry related publication? Issuer

Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No If Yes: 1) Is it a long or short position? No position; and, 2) What type of security is it? None.

The name of any partner, director, officer, employee or agent of the Dealer Member who is an officer, director or employee of the issuer, or who serves in any None advisory capacity to the issuer?

Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No

Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of No common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer?

During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a No public offering, or private placement of securities of this issuer?

During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? No

Has the Analyst had an onsite visit with the Issuer within the last 12 months? No

Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months No

Has the Analyst received any compensation from the subject company in the past 12 months? No

Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No

RATING DEFINITIONS

The security represents attractive relative value and is expected to appreciate significantly from the current price over the next 12 month time Buy horizon. Speculative Buy The security is considered a BUY but in the analyst’s opinion possesses certain operational and/or financial risks that are higher than average. Hold The security represents fair value and no material appreciation is expected over the next 12-18 month time horizon.

Sell The security represents poor value and is expected to depreciate over the next 12 month time horizon. While not a rating, this designates the existing rating and/or forecasts are subject to specific review usually due to a material event or share Under Review price move. Echelon Wealth Partners recommends that investors tender to an existing public offer for the securities in the absence of a superior competing Tender offer. Dropped Applies to former coverage names where a current analyst has dropped coverage. Echelon Wealth Partners will provide notice to investors Coverage whenever coverage of an issuer is dropped.

RATINGS DISTRIBUTION Recommendation Hierarchy Buy Speculative Buy Hold Sell Under Review Restricted Tender Number of recommendations 51 42 16 0 7 1 2 % of Total (excluding Restricted) 44% 36% 14% 0% 6% Number of investment banking relationships 12 16 4 0 2 1 0 % of Total (excluding Restricted) 35% 47% 12% 0% 6%

Rob Goff, CFA | 416.933.3351 | [email protected] 81

Toronto Wealth Management Toronto Capital Markets Montreal Wealth Management and Capital Markets 1 Adelaide St East, Suite 2000 1 Adelaide St East, Suite 2100 1000 De La Gauchetière St W., Suite 1130 Toronto, ON M5C 2V9 Toronto, Ontario M5C 2V9 Montréal, QC H3B 4W5 416-572-5523 416-572-5523 514-396-0333

Calgary Wealth Management Calgary Wealth Management Oakville Wealth Management 525 8th Ave SW, Suite 400 123 9A St NE 1275 North Service Road, Suite 612 Calgary, AB T2P 1G1 Calgary, AB T2E 9C5 Oakville, ON L6M 3G4 403-218-3144 1-866-880-0818 289-348-5936

Edmonton Wealth Management London Wealth Management Ottawa Wealth Management 8603 104 St NW 495 Richmond St, Suite 200 360 Albert St, Suite 800 Edmonton, AB T6E 4G6 London, ON N6A 5A9 Ottawa, ON K1R 7X7 1-800-231-5087 519-858-2112 613-907-0700

Vancouver Wealth Management and Capital Markets Victoria Wealth Management Saskatoon Wealth Management 1055 Dunsmuir St, Suite 3424, P.O. Box 49207 730 View St, Suite 210 402-261 First Avenue North Vancouver, BC V7X 1K8 Victoria, BC V8W 3Y7 Saskatoon, SK S7K 1X2 604-647-2888 250-412-4320 306-667-2282

Rob Goff, CFA | 416.933.3351 | [email protected] 82