ESPORTS DISCUSSION A discussion paper into the Esports market & FaZe Clan August 2019 $1.1b MARKET ANALYSIS 2019 total Esports revenues +26.7% year on year $456.7m +34.3% $251.3m +41.8% $189.2m +14.8% $103.7m $95.2m +22.4% -3.05% Sponsorship Media Rights Advertising Merchandise & Gamer Publisher Tickets Fees Excluding revenues from betting, fantasy league, and similar cash-payout concepts, as well as revenues generated within games. New investment coming in from outside the sport is being matched from within. Similar to the 1. POPULAR VICTORIES INCREASED INCREASED “Money-maker” effect that was seen in 2003 in POPULARITY REVENUE 2. LARGE PRIZEPOOLS the world of poker, where poker saw the first- place prize more than quadruple over three years markedly increasing its popularity, Esports (in particular Fortnite) are attempting to do Figure 1: ‘Money-maker’ pathway the same. Figure 2: Fortnite World Cup RECENT ESPORTS INVESTMENTS IS BOOMING Companies and fans investing titles due to strong financial backing, capital investment has gone into ▪ Fortnite managed to raise money into sport, competitions and Manchester City and Paris Saint Esports teams since 2013. Teams over $100m for its star players is nothing new. With Germain are examples of changing are currently competing to establish competition prize pool for expanding social media, media the status-quo as a result of strong themselves as the ‘Dallas Cowboys’ three years 2018-2021. rights and global reach, the number financial backing and interestingly or the ‘New York Yankees’ of of leagues turning over $1b in these two teams are two of the Esports to effectively guarantee ▪ Total prize pool of $113m revenue is ever increasing. Over the most active and successful themselves a sizeable share of the for all other competitions in last couple of decades, substantial professional sports teams in the market for the foreseeable future. 2018. investments have seen sports teams Esports world. There have been multiple funding transition from being successful due rounds for most teams competing at the top of their divisions as they ▪ Total prize pool is expected to their historic roots to being Another example of financial successful due to their financial support resulting in success in more look to capitalise on the money to reach over $400m by flowing into the sport. 2022. muscle. Financial clout has led to a recent times is the promotion of widening of the gap between Wolverhampton Wanderers to the teams, thereby introducing a phase English Premier League in 2018 Shareholders appear to have a ▪ First place prizes already of dominance which looks unlikely following its backing from Chinese mentality that it is better to own exceed those at Wimbledon, to wane soon. owners and subsequentially 10% of a company valued at $1b The Masters and the securing the highest points total by than 100% of a company valued as Daytona 500. Over time, and periods of success, a newly promoted team since $100m. financial muscle brings expanding 2001. ▪ $34m is the total prize pool fan bases, notoriety from success for the Dota 2 International and an increase in the level of Large amounts of investment is 2019. income from sponsorship, media now being seen in the Esports rights and tournament wins, world. thereby increasing the value of a team and making it self-sustaining. The universal excitement to be part of an Esports team competing for This can be seen, most notably, in titles in an exploding sector is sports without a salary cap, like driving investment, the scale of soccer, where teams with relatively which is surpassing many other little history of success have won mainstream sports. Over $3.3b of . 2 Figure 3: DOTA 2 International MARKET ANALYSIS 2016 2017 2018 2019 Wimbledon Singles winner (£m) 2.00 2.20 2.25 2.35 Masters Men’s winner ($m) 1.80 1.98 1.98 2.07 Daytona 500 winner ($m) 1.50 1.50 1.58 1.58 Asia has the largest 79% of viewers are YouTube and Twitch Dota 2 International online population under 35 years-old audiences are larger than winner (team of 5) ($m) 9.14 10.86 11.23 13.50 HBO, Netflix and ESPN combined Table 1: Comparable tournament prize winnings, Source: Individual tournament websites Figure 4a, b, c: Viewership Statistics The growth in media rights is This number is expected to As the popularity increases COMPARABLE expected to provide the driving increase, reaching over 275m younger viewers will start force behind the increased by 2022 with a total media watching each year and fans at the BROADCASTING revenue in Esports. Similar to audience of 550m, due to the top end of the age range will not other sports with more and more demographic of Esports fans, stop supporting the sport as they RIGHTS networks and online broadcasters increasing popularity of gamers, get older, therefore expanding the wanting to get into televising (or increasing prize pools and audience. ▪ EPL £3.0b per season online streaming) matches, this is media rights. expected to occur in Esports as A single Esports fan provided an well. Amazon Prime will be Over 15% of millennials watch average revenue of $5.50 in 2018 streaming their first premier Esports on a monthly basis. This from merchandise sales and league games for the 2019 season. will increase over time as fans subscriptions. expose others in their age This gives an audience of 550m ▪ NFL $6.5b per season There is currently a monthly range to Esports and it viewership of over 167m in becomes ingrained in popular people a value of over $3b. Esports [1]. culture. 2017 Revenue ($600m) 2022 Predicted Revenue ($7.5b) Other Other 7% ▪ Esports expected to be $3b by 17% 2022 Advertising 14% Sponsorship Sponsorship 38% Local 35% 4% Advertising 21% Media Rights Tickets Media Rights 40% 9% 15% Figure 5a: Esports industry 2017 revenue streams Figure 5b: Esports industry 2022 revenue streams Source: Goldman Sachs Equity Research [1] Goldman Sachs Equity Research, 12th October 2018 3 Figure 6: FaZe Clan Fortnite squad FAZE CLAN SUMMARY Social Media Fig. 7 compares the 12 teams listed in an article by Forbes FaZe Clan is an American Esports team with a significant presence on social media as well as an e- (the Forbes article, October 2018) against their social media commerce arm. Founded in 2010, FaZe Clan has entered over 250 tournaments and its social following per platform. It is very clear that FaZe Clan’s social media following is greater than any of its competitors. FaZe Clan is primed, with one of the biggest following is significantly greater than all other Esports teams fan bases in Esports, to establish itself as a global franchise similar to the New York Yankees. with a total following of more than double any other team. A limitation with this graph is that it doesn’t account for The current largest revenue stream in Esports is from sponsorship (Fig. 5a). The main reason for potential overlap across different platforms; however, this sponsoring is the number of people that can be impacted and the audience that will be reached. In doesn’t affect FaZe Clan’s results significantly. This is because the gaming world, publicity and fame not only come with success but with social media publishing the followers from YouTube (the most valuable following) and content. The most valued platforms are YouTube and Twitch, both of which are video alone is greater than the total following of all other teams, but streaming platforms. one. Spread of followers including FaZe Clan YouTube is the primary platform used by gaming teams and players to distribute their content and earn revenue from 18000 their social media accounts. 16000 • The revenue from a YouTube channel is strongly based 14000 on the daily views, rather than subscribers. 12000 10000 • Daily views are strongly correlated to the number of subscribers, but views earn the channel advertising rates. 8000 6000 FaZe Clan is significantly further ahead of the competition in this category and, therefore has the most valuable channel. Number of followers of thousands followers Number 4000 2000 Scale up potential; PewDiePie, the most followed gaming 0 streamer, has been included to show the potential of a FaZe Gen. G Echo Fox Immortals Counter 100 Envy G2 Esports Team Cloud9 Fnatic OpTic Team FaZe Clan Clan’s channel if audience engagement continues to grow. Esports Logic Thieves Gaming Liquid Gaming SoloMid Gaming Youtube Instagram Twitter Facebook Twitch In a sector dominated by sponsorship, media rights and Figure 7, Source: Individual Team Social media pages advertising it will be teams like FaZe Clan with the larger Total followings who, not only shape the sport, but also command Daily views Monthly Equivalent annual Team subscribers the greatest percentage of revenues, provided they are also (k) earnings ($) earnings ($) (m) reasonably successful ‘on the pitch’. PewDiePie 98.30 18,000 1,020,000 12,240,000 • In the early days of a sport like this, where social media plays such a prominent role, it is not just success which determines popularity, but the quality, relatability and FaZe Clan 6.90 1,000 55,000 660,000 style of their online profile. Team • FaZe Clan seem to be mastering this. 2.20 112 6,500 78,000 SoloMid 100 As more money and more fans come into Esports this is a 0.46 118 5,900 70,800 Thieves factor which will maximise the profitability of FaZe Clan and its potential to be one of the first household names in the sport. Fnatic 0.49 119 5,900 70,800 G2 Esports 0.22 72.5 3,900 46,800 Esports Results Whilst FaZe Clan’s social media presence cannot be denied Cloud9 0.37 54.6 3,000 36,000 and certainly not ignored, it has less appealing figures when looking at their Esports tournament success where it ranks Team 16th among Esports teams for total prize money earned 0.29 30 1,600 19,200 Liquid ($7.54m) over the team’s entire history.