The rise of esports investments A deep dive with Deloitte Corporate Finance LLC and The Esports Observer

April 2019 The rise of esports investments | Contents Contents

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Executive summary

This publication contains general information only and Deloitte Corporate Finance LLC and The Esports Observer are not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice 06 or services. This publication is not a substitute for such professional advice or services, nor should it be used as a Leveling up: the rise of basis for any decision or action that may affect your business. esports investment Before making any decision or taking any action that may affect your business, you should consult a qualified Esports investment has made professional advisor. significant strides in recent years as traditional investors join Deloitte Corporate Finance LLC and The Esports Observer venture capital in exploring many shall not be responsible for any loss sustained by any person who relies on this publication. of the diverse investment opportunities across the industry’s Copyright © 2019 Deloitte Development LLC. All rights diverse ecosystem. reserved.

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The value of an esports Why Modern Times Group The rising power (and risk) of investment: an investor view made two of esports' best influencers in esports investments to-date Many investors will find the strong By recognizing the shifting media As esports influencers continue to expected growth trajectory of the environment early and putting its gain larger followings built on the industry, potential for key investments into a position to social aspects of their diversification, and unique capitalize on growth, MTG has entertainment value, the customer base intriguing as they solidified its position as a major recognition of their brands in their increasingly explore potential player within the rising esports own right may lead them away esports investment opportunities. industry. from the structure of traditional esports team organizations. 26 31 39

The value of an esports Late to the party: learning Dynamics of esports investment: an investee view from the history of Heroes of Investments the Storm’s esports initiatives As the esports industry grows, Establishing a successful esports In order to best position companies that invest in strategic league can offer its challenges, themselves to maximize potential partnerships can obtain access to and these challenges are not the investment dollars, esports a variety of tangible and intangible exclusive issue of the developer. companies should understand the benefits that can help to fuel Industry players further different investors in the industry growth, establish operational downstream who invest time and and the key questions they will efficiencies, and drive market capital to participate can also face ask. positioning. significant risk.

02 The rise of esports investments | Executive summary Executive summary

80

$4.5B 70 68 USD invested 60 in 2018 50

40 34 15% 30

12% investments of Number 20 19 20 16 56% 14 17% 10 4

0 Venture Capital Family Office 2014 2015 2016 2017 2018 Jan. - Feb. Jan. - Feb. 2018 2019 Private Equity Strategic Number of investments in esports, 2014 – February 2019.(2) Breakdown of esports investments in 2018 by investor type.(1)

hile popular streamers such were only nine disclosed W as Tyler “Ninja” Blevins investments into esports have dominated the public businesses from private equity discourse on esports and gaming firms, relative to the eleven that over the past year, an indication of took place in 2018.(4) the staying power of the industry and its future potential is the Interest among traditional underlying story of investment investors to explore different ways dollars into the space. to gain exposure to the industry is indicative of the maturation of the For esports, 2018 was a record industry and its growing year in both number of mainstream appeal from an investments and investment investor perspective. dollars. Over $4.5B USD was invested into the industry in 2018 The esports ecosystem offers a alone.(3) While this headline variety of different investment number is certainly significant, it opportunities across a range of is the composition of these subsectors. Some are unique to investors that also offers the industry, such as team interesting insights. organizations, while others hold similarities to other traditional For the first time, traditional industries, such as consumer private equity investors have products and event planning, gotten involved in a meaningful which could be more palatable to way. From 2014 to 2017 there investors entering the space for

03 The rise of esports investment | Executive summary

the first time. an investor lens with a focus on several key specific valuation A key merit of the industry is the considerations. core demographics. In 2018 the esports industry had a global fan The potential rewards (and base of 380M with 37% risks) of an investment representing males aged 21 to 35, and 16% representing females After establishing the investment ages 21 to 35.(5) In addition, in landscape in the prior section, this the U.S., 61% of esports viewers section explores the potential earn more than $50,000 per benefits and hazards of year.(6) Investment offers partnerships for both investors exposure to this demographic that and companies alike. is increasingly averting its attention away from traditional Through a series of articles written media. by The Esports Observer contributors, this section presents With increasing focus by investors examples of some of the nuanced and an attractive industry profile, issues to consider as one explores this thought leadership seeks to esports for investment potential. explore the current state of the industry from an investor Dynamics of esports perspective. investment

In doing so, this paper is divided Finally, the publication offers into three parts: the rise of companies in the space an esports investment, the potential overview of the positives and rewards (and risks) of investment, negatives of partnering with and the dynamics of an esports different investor types and a investment. breakdown of key questions and diligence areas they should The rise of esports investment consider exploring before agreeing to a deal. The first section examines the history of investment into the Overall, as the industry continues industry up to today. More to grow and mature, investment specifically it explores how interest from outside players is different investor types have expected to be in lockstep. The engaged with the industry, such goal of this thought leadership is as venture capital and private to provide a starting point for the equity, before ultimately analyzing discussion; offering both the current state of the industry traditional investors exploring the through five major subcategories. space for the first time, and esports companies that are These subcategories (team considering raising capital or organizations, developers, event exploring a sale, some factors to coordinators, media platforms & consider when contemplating an advertising, and consumer investment in this dynamic, fast- products) are examined through growing industry.

04 The rise of esports investments | Leveling up

Leveling up: the rise of esports investment

Esports investment has made significant strides in recent years as traditional investors join venture capital in exploring the diverse investment opportunities across the industry’s ecosystem.

he esports industry attracted Right now, there are uncertainties over $4.5B USD in disclosed over the long-term viability of T investment in 2018, up from certain esports competition series, $490M from the previous year.(7) and the revenue potential of lower Interest is likely to increase with valued teams could stifle future the introduction of more investment into the space. That franchise-style leagues, the said, by far the most capital centralization of esports teams intensive entities are those (including management and building the infrastructure behind support staff), and continued the industry: game developers, growth in the esports audience— live streaming services, and the latter in particular driven by a ancillary services (for in-game greater awareness of esports and communication, player data, etc.). other forms of live videogame entertainment, within the popular culture.

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The esports gold rush years This greatly incentivized publishers venture capital firms. The high- to support a competitive scene, and growth potential, limited operating Competitive show matches have to develop professional esports history, and early instability of the been part of gaming since its early competitions as marketing industry led to cautioned interest days, but the onset of online and extensions of their products. “Free- from larger conglomerates. local area network (LAN) support to-play” games, which originated in began with packet-based computer Asia and were popularized in the There are a few key examples of networking in the 1970s. Once west by League of Legends, largely mergers and acquisitions within the further developed, this allowed for replaced the subscription model last decade that have had a higher simultaneous player counts (used in games like World of measured impact on esports’ and team play, dedicated servers, Warcraft), and allowed developers acceleration: and persistent user information (i.e. to justify the need to keep a game ▪ In February 2011, Chinese tech win/loss records, rankings). Esports running for years, potentially conglomerate Tencent Holdings through the 2000s remained a high- decades—provided revenue remains Limited (Tencent) paid $232M cost consumer hobby, with the consistent. USD for a 93% stake in League global financial crisis, in particular, of Legends developer and limiting spending on PC gaming The simultaneous emergence of publisher Riot Games, Inc. (Riot) hardware.(8) At this time, options for dedicated online streaming services —later acquiring the totality of broadcasting competitions were also allowed esports to expand its the company for an undisclosed extremely limited, and monetization audience and support regularly amount.(10) The game’s was restricted to small batches of scheduled broadcasts. The resulting professional competition in China ticket and merchandise sales at live consumer brand interest in pro is run as a joint venture between events, which were held gaming competitions allowed a Tencent and Riot. Tencent is also infrequently. number of tournament operators to an owner or investor in multiple scale into sustainable enterprises. esports game publishers, The 2010s saw a growth in both This spawned a number of including Supercell, Activision online viewership and prize money tournament brands, many of which Blizzard, Inc. (Activision for esports.(9) If one imagines all were financially backed by global Blizzard), and Epic Games, Inc the stakeholders in the industry as “tech giants.” Examples included (Epic). “planets,” then this was a period of Samsung’s World Cyber Games, the near perfect alignment. Game Boost Mobile-sponsored Major ▪ Amazon.com, Inc. (Amazon) publishers began to transition from League Gaming circuit, and the acquired Twitch Interactive, Inc. cyclical game releases to the Intel Extreme Masters. (Twitch) on Aug. 25, 2014, for “games as a service” (GaaS) model, $970M.(11) This followed months where revenue is generated Early team organizations, of reporting that Google LLC continuously from competition organizers, and (Google) had reached a microtransactions, rather than one- software developers were, and still preliminary deal to acquire time physical and digital sales. largely are, backed by Twitch through its YouTube subsidiary, for $1B.(12) In subsequent years, Amazon’s Target Investor/Acquiror Year Amount Category subscriptions services and (USD) payment methods have been Riot Tencent Holdings 2011 $93 Developer integrated into Twitch. The latter Games(10) is used in microtransactions, Twitch(11) Amazon 2014 $970 Streaming allowing esports operators as well as individual streamers to ESL(12)(13) MTG 2015 $78 Events monetize their content. MLG(19) Blizzard 2015 $46 Events Entertainment ▪ In July 2015, Swedish media firm Modern Times Group (MTG) (14) Astro Logitech 2017 $85 Consumer Products acquired a majority stake in Cloud9(15) Valor Equity 2018 $50 Teams esports competition organizer, content producer, and services Discord(16) Tencent Holdings 2018 $150 Streaming provider Turtle Entertainment Roccat(17) Turtle Beach 2019 $19 Consumer Products (ESL) for $87M (it currently owns 82.48%).(13) In November of that Notable transactions in the esports industry over the last decade ($ in millions) same year, MTG fully acquired gaming festival company 07 The rise of esports investment | Leveling up

80

68 70

60

50

40 34

30 20 19

Number of investments of Number 20 16 14

10 4

0 2014 2015 2016 2017 2018 Jan. - Feb. Jan. - Feb. 2018 2019 Number of investments in the esports industry, 2014 - Feb. 2019.(21)

DreamHack AB (DreamHack), recognized the maturation of the the predominate driver of which also runs a series of esports industry and its potential for investment within the esports esports competitions.(18) At the growth. While the highest individual industry over the last several years. time these were among the investments in 2018 were raised by largest investments by a private game publishers, streaming 2018 was a record year for venture traditional media company into platforms, and software developers, capital investment, with 49 esports and signified the firm’s individual team organizations investments, double the number of commitment to gaming as a (which typically recruit player investments in 2017.(20) In terms of staple online video category. rosters across multiple games) also subindustries, venture capital was raised significantly higher capital largely focused among media ▪ In December 2015, game than in previous years, with the top platforms & advertising (45%), publisher Activision Blizzard five highest valued teams developers (31%), acquired “substantially all” assets collectively raising over $150M in and team organizations (18%).(24) of esports competition organizer disclosed funding rounds.(23) and broadcasting network Major This is likely due to the pre-revenue League Gaming (MLG), for Venture capital nature of many types of $46M.(19) MLG continues to investments. These are largely tech organize and broadcast As expected in any nascent focused investments with unique competitions for Activision industry, venture capital has been concepts, such as BITKRAFT Esports Blizzard game titles. In 2018, the company created its own Activision Blizzard Esports 60 Leagues division to 50 commercialize its esports 49 properties, such as the 40 Overwatch League and Call of Duty World League.(20) 30

20 15 With maturation comes 13 expanded interest Investments of Number 10 11

In the period following these high- 0 value acquisitions, many investors 2014 2015 2016 2017 2018 from industries adjacent to Venture Capital Family Office Private Equity Strategic esports/gaming (i.e. sports teams (22) and entertainment companies) have Esports investment breakdown by investor type, 2014-2018.

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Venture’s investment into Epics.gg, in a series A round at the end of developers (27%).(29) a digital trading card platform for 2018.(27) esports.(25) Private equity Family office Among developers, analytics has The esports industry experienced a been a key focus area among Similar to venture capital, in the significant increase in private equity venture capital investors with over early stages of an industry, such as investment in 2018. 40% of investments within this esports, family offices also provided subcategory.(26) A unique significant investment. Private equity groups made 11 component of esports is the investments in 2018, two more inherent ability to track a variety of Family offices include high net- investments than made over the last data from games played. worth individuals or investment four years combined.(30) Unlike vehicles that invest on behalf of an venture capital or family offices, This data could be leveraged by individual or family. As they are private equity will typically require a teams, looking to gain an investing their own money, family level of maturation in the underlying advantage in competitive play, or offices typically have more business before investing. among a game’s casual player base flexibility to take greater risk than to beat their friends. traditional private equity investors. This can be seen in the types of investments that private equity One such example is the artificial Family office investments in esports made. The major categories of intelligence (AI) analytics company, more than doubled in 2018, from 6 investment were Media Platforms & Visor, a support tool for Overwatch investments in 2017 to 15.(28) Advertising (36%), Event that can analyze gameplay in real In 2018, family office investments Coordinators (27%) and Team time and provide in-game tips to were mostly made into team Organizations (18%).(31) Within players. The company raised $4.7M organizations (33%) and these categories, there was a

Changing esports league structures may entice investors The adoption of “franchises” and similar league structures may offer esports teams protection from new entrants and investors comfort regarding their potential investment.

By Graham Ashton, The Esports Observer Consulted by Tobias Seck, The Esports Observer In the U.S., investors typically performance-based financial benefit introduced revenue sharing models, make one of three plays: 1) private models for teams. or provided stipends for participants. equity investments in an existing Growing sports property, and a team esports team organization and/or League of Legends has integrated a brand that is appreciating in value, is ownership group; 2) developing an partner team model into four one model traditional sports esports division out of a pre- professional circuits (China, North investors are well used to. Cloud9, a existing sports franchise; or 3) America, Europe, and Turkey), with multi-game esports organization establishing an entirely new esports the prices and processes for entry with teams in both the Overwatch team brand, usually as part of a differing between regions. The League and League of Legends franchise league. Overwatch League has pulled in Championships series raised $50M in franchise fees ranging from a its Series B funding round.(36) For In 2018, multiple esports reported $20M-$60M for its first comparison, the average franchise competition organizers either two years of operation and intends deal for a National Basketball restructured their existing leagues to expand its team count from the Association (NBA) team during the or built entirely new closed circuit current global 20 to an eventual 1980s was $58.25M.(37) competitions.(34) Not all of these 28.(35) competitions are “franchised” in the Competitions in lower-tier titles, While the viability of esports leagues strict sense of granting partners the such as the Clash Royale League, as 10, or 20-year ventures is right to own/operate teams in a Paladins Pro League, or national untested, the entry cost is so specified location, but all feature PLAYERUNKNOWN’s comparatively low, and the target buy-in fees, preclude any kind of BATTLEGROUNDS leagues have audience value so high, that dozens promotion-relegation system, and either offered slots with of traditional investors have taken introduce revenue sharing and comparatively lower entry fees, the bet.

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$800 Developers Media Platforms& Advertising $700

$600

$500

$400

$300 Investment Amount Investment Event Team Coordinators Organizations $200 Consumer Products $100

$0 0 5 10 15 20 25 Number of Investments

2018 esports investment breakdown by category ($ in millions).(38)

Note: In order to avoid skewing the an average 6 investments per a breakdown of the five data the chart above does not year.(33) primary categories of esports include the transactions listed investment opportunity: below: Strategics have explored investments in the space as a ▪ Tencent investment of $632M means to expand their presence or into Douyu TV and $461M into capitalize on a growing market. Team organizations Huya TV.(39) Today’s esports investment ▪ Epic’s capital raise of $1.3B.(40) ecosystem Developers consistent story of later stage In 2018, the esports industry investments into established reached $4.5B USD in disclosed names, such as Greenoaks Capital funding across a broad array of Third-party event investment into Discord Inc., a free companies.(41) From startups to coordinators voice and text chat app for gamers, established companies entering the and ICONIQ Capital’s participation space, the esports ecosystem is in Epic’s, the creator of Fortnite, filled with investment opportunities Media platforms & $1.25B capital raise.(32) of every shape and size. advertising

Strategics With so many different ways to invest in the space, it can be Consumer products Strategic companies have been difficult to identify where an consistently involved in esports investor’s capital may be well M&A over the last five years, with placed. To that end, the following is

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Team organizations Team organizations investment snapshot

Just like in traditional team sports, competition within esports takes Investment in esports place between players representing teams has increased a specific organizational brand. The significantly over the 13% Venture difference in competitive gaming, last several years. Capital however, is that most prominent While this investment Family Office has been driven team brands have diversified across 31% 56% multiple games. Think of it as largely by venture Private Equity though the Washington Capitals, capital, it has been Washington Wizards, Washington largely deployed to Mystics, and Baltimore Brigade all the major teams. wore the same jersey sporting the logo of their ownership group: 2018 team organization investments by investor type.(43) Monumental Sports Entertainment. ($ in millions) Major esports organizations like 16 $250 Cloud9 or Team Liquid compete $193 across anywhere from five to 12 14 $200 different games with varying levels 12 of success and scale. This diversification allows a single $150 organization to reach a much 8 broader audience (creating more $100 value for its sponsors) and helps to $65 protect against the risk of any one 4 $50 game losing its value either due to $1 4 poor performance by the team, or 1 reduced support from the developer. 0 $0 2016 2017 2018 However, casting such a wide net Count Amount can create substantial added costs for an organization as it must pay Team organization investments over time, 2016-2018.(42) salaries for each extra player, coach, and support staff member. The turnover in game popularity outside A potential exception comes in the of the big three (League of Legends, form of single-game organizations Dota 2, Counter-Strike: Global which are involved in franchised Offensive) is often so quick that leagues. Teams such as the teams should consider broadening Overwatch League’s Boston Uprising, When making an their scope to remain relevant, owned by the Kraft Group, will not be which can also result in a net loss able to diversify into any other investment into a from games which never take off games due to league rules.(44) team organization enough to generate revenue for the Similarly, Clutch Gaming was organization. founded by the Houston Rockets investors should ownership group, and controls a identify a company When making an investment into a franchise spot in the League of team organization investors should Legends Championship Series.(45) In that has consistently identify a company that has both cases, the added revenue made smart decisions consistently made smart decisions sharing opportunities for league when choosing which games to sponsors and media rights can make when choosing which invest in, and has also shown a investing in these single-game games to invest in. willingness to cut its losses in failing organizations attractive. However, titles. such an investment likely carries

11 The rise of esports investment | Leveling up

25.0x

20.0x 20.0x 19.0x

15.0x 14.1x 13.6x 11.8x 13.0x 13.1x 10.0x 10.9x Median: 13.1x 10.0x 9.2x

5.0x

0.0x Cloud9 Team Team Echo Fox OpTic Fnatic Gen.G G2 Esports Immortals Envy SoloMid Liquid Gaming Esports Gaming

2018 estimated revenue multiples for top 10 team organizations. (49) substantially more risk, as the Of the $234M USD in ▪ International expansion, brand could lose significant value if with teams either recruiting that league or game were to investments made to game rosters or building collapse. team organizations in the subsidiary team brands in Latin America, Southeast Asia, With the industry experiencing last two years, over 50% and the Asian Pacific regions. significant growth over the past few years, esports teams have enjoyed has gone to the top ▪ Stronger merchandising strong growth multiples, as seen 10.(46) arms and retail presence. above. Growth multiples such as In the League of Legends these are largely driven by the Championship Series (LCS), expectation of strong future ▪ Dedicated training facilities for example, nearly all teams performance. For esports teams, are replacing the long-used have an ongoing apparel this is the expectation that the “gaming house.” For partnership with brands industry will continue its strong organizations, this can offer including Puma SE and growth trajectory and the given revenue potential in the form Champion Athletics.(47) esports team will remain a major of naming rights, on-site brand in the ecosystem. activations, and content The result of these trends is that creation. In addition, it allows newly formed teams may have However, as the industry matures, consolidation of staff and difficulty when exploring investment investors will likely expect these players, with management options. They may also have limited teams to achieve operational and talent working under the ability to achieve the scale required efficiencies as they determine and same roof. for operational efficiencies. develop their core competencies. Rather than attempting to be a ▪ Recruitment of high- As a result, while investment for “one-stop shop” of all things esports quality management and team organizations has increased, (such as teams, media, analytics, sales teams, typically with the focus of this investment has consumer products, etc.), many professional experience wholly historically been towards making teams are narrowing their focus to outside the esports and the strong stronger. Of the $258M the development of winning rosters gaming industries. USD in investments made to team for the games they are in. organizations in the last two years, ▪ Talent development and over 50% has gone to the top Based on market activity by some of youth outreach, including 10.(48) the highest valued esports teams, academy or secondary teams the following appear to be the most for tier-one esports titles, and likely sources of expenditure over seasonal competitions for the next two to three years: college students. 12 The rise of esports investments | Leveling up

Developers Valuation considerations The development of a video game by a developer often takes several Developers are the core difference Unlike the other subsectors of the years and requires significant between esports and traditional esports ecosystem, developers capital outlay to complete. Having sports. If the National Basketball represent a more mature industry multiple studios under a developer Association (NBA) was to disband, with several major developers working on different games all at you could still get a group of attaining market capitalizations well once allows developers to have a people together to play basketball into the billions. greater opportunity of creating a whenever you wanted. New groups blockbuster title while also could form to organize professional These larger developers consistently spreading revenue throughout the play for the sport. The success or dominated the market, with the top year. failure of that game is not 25 companies accounting for 77% of dependent upon the ability of a the total global game market in These developers can also leverage single governing body to generate 2017.(54) their economies of scale for revenue. production and distribution. The dominance of the space by this This is not the case in esports. In smaller subset of developers is due in When examining investments over order to play League of Legends, part as a hedge against the inherent the last several years, one can see even at the amateur level, Riot risk of video game development. how the strong developers have must continually spend resources and capital maintaining the game. If the company shut down its Developers investment snapshot servers, the entire League of Legends esports ecosystem would Investment in immediately collapse. developers has continued to grow With the exception of some fighting over the past several games, every single prominent Analytics years. While the space esport played today relies on the 35% is dominated by the 41% active support of the game’s largest developers, Software developer.(53) Developer there remains opportunities for Game Not only that but in many cases smaller investments in Developer today the developer is also the fledgling subsectors 24% primary source of that esport’s such as analytics or infrastructure and prize money. early stage game The modern esports ecosystem is developers. 2018 investments in developers by subcategory.(52) heavily reliant on the success and sustainability of its most prominent developers. ($ in millions) $758 20 $800 That said, the industry is constantly evolving. Many of the biggest 16 $600 esports titles today have come from developers who were not 12 players in the space just two years $400 ago. Whether it’s a well-established 8 company maintaining its big $123 $200 4 esports games, or a smaller $12 $27 $37 company developing the next big 0 $0 thing, there are investment 2014 2015 2016 2017 2018 opportunities available with Count Amount developers at every level. Developer investements over time, 2014-2018.(50)

For comparison purposes, This table does not include Epic Games $1.25B capital raise in 2018.(51) 13 The rise of esports investment | Leveling up

30.0x

25.0x

20.0x

15.0x

10.0x Enterprise Value/EBITDA Enterprise

5.0x

0.0x Jan-2016 May-2016 Sep-2016 Jan-2017 May-2017 Sep-2017 Jan-2018 May-2018 Sep-2018 Jan-2019

Game Developer Index S&P 500 Index

Index of game developer EV/EBITDA multiples compared to the S&P 500 from 2016-YTD 2019. (Game Developer Index includes Electronic Arts (EA), Activision Blizzard (ATVI), Take-Two Interactive Software Inc. (TTWO), NetEase, Inc. (NTES), and Nintendo (NTDOY). been getting stronger. per year in the future.(59) Another developer multiples seen above. trend has been the emergence of Since 2015, the major investments micro-transactions. Micro- While this subsector is dominated among game developers have been transactions consist of smaller in- by the major developers, there with the larger developers.(55) This game items that a player can continues to be investment would include major activity such purchase to enhance their in-game opportunities among smaller start- as Activision Blizzard’s acquisition experience. up developers with unique of King.com Limited, the creator of concepts or gameplay. the popular Candy Crush mobile Micro-transactions have benefited game, for $5.9 billion in 2015 and developers as they can have lower This includes the largest NetEase Inc.’s (NetEase) development costs and allow them investment of 2018, the $1.25B investment of $100M into Bungie to maintain consistent revenue capital raise of Epic.(61) Inc., the creator of popular titles streams from the same player base. such as Halo and Destiny, in In addition to game developers, 2018.(56)(57) While this trend has been a boon other developers have also seen for many developers, in the past significant investment interest. Compared to the S&P 500, these year there has been increasing Particularly among venture capital investments appear to be paying player pushback on this over investors and analytics companies. off. Game developers have monetization. In addition, one These developers typically seek to consistently outperformed the S&P particular type of microtransaction, harness the underlying data within 500 when comparing EV/EBITDA the “loot box”, where players pay video games to enhance the multiples. Multiples for game for a randomized set of in-game player experience whether developers reached a high in items of varying quality, is facing through improving their gameplay January 2018 of 25.5x.(58) greater scrutiny from governments or providing meaningful analysis that consider it a form of gambling. for competition. Since 2016 there This performance has been largely For instance, in 2018 the has been over $35M invested in driven by several positive trends Netherlands and Belgium analytics developers alone.(62) that have been favorable for these determined that some loot boxes developers. These trends include violated their gambling laws.(60) Overall, while the space is the rise of mobile gaming, dominated by major developers, particularly in Asia, where demand Increasing pressure on micro- there remains opportunities for for mobile games is expected to transaction revenue could be investments of all sizes. drive revenue growth by 10-15% contributing to the declining

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Third-party event coordinators Operate small weekly tournaments Not only can these companies such as the Connecticut-based diversify into a wide range of While many of the most prestigious Great Value Smash.(63)(64) tournament products and esports tournaments are operated organization services, but by developers, there is an entire In addition to running their own organizers at every level have the ecosystem of third-party event self-branded events, many event potential to scale almost infinitely. coordinators operating throughout coordinators also run white label DreamHack the world. From international tournaments for various clients. has expanded into India, Spanish championships to high school Some also offer on-demand online organizer LVP works with Riot to run leagues, third-party organizers play tournament services which allow a U.K. league, and Chinese a critical role in the industry and are amateur players to experience a company Mars Media will soon often contracted by developers to tournament environment. operate a Dota 2 Major in operate regional leagues and select Additionally, third-party organizers France.(65)(66)(67) Successful third- events within a tournament circuit. generate revenue through ticket party organizers can expand not sales, sponsorships, media rights, only the size and scope of an Event coordinators vary greatly in and merchandise. individual tournament, but scale from major names like ESL continually move into new and DreamHack that operate events Perhaps the most appealing thing territories to work with new for thousands of attendees across about third-party organizers to a partners. the world, to regional groups that potential investor is their scalability. Valuation considerations

As event coordinators become increasingly important in the Event coordinators investment snapshot esports industry and the landscape grows more competitive, Event coordinator coordinators are looking for ways to companies differentiate themselves. Without a 20% Venture Capital experienced a unique and scalable platform, many significant increase coordinators are unlikely to Family Office in both number of 47% succeed. investments and dollars invested in 20% Private Equity One manner in which event 2018. These coordinators are differentiating investments were Strategic themselves is through the also well diversified 13% development of their own facilities. across the range of At the inception of the industry investor types. coordinators would utilize existing 2018 event coordinator investments by spaces that could offer reasonable investor type.(72) accommodations for tournaments and events. However, as the industry has grown so has the ($ in millions) demand for events with hyper- 10 $250 (68) $208 specific offerings. This had led to the development of dedicated 8 $200 esports arenas, training facilities, $138 6 $150 and venues across the globe.(69) $85 4 $100 The rationale for the continued $38 2 $50 investment in the space has varied depending on the stage of the 0 $0 company and type of investor. The 2015 2016 2017 2018 recent investment into N3rd Street Count Amount Gamers by SeventySix Capital and Event coordinator investments over time, 2015-2018.(71) Comcast Sports Ventures (Comcast Spectacor) was meant to help

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Russia Denmark South Africa #1 #5 #9 $200,000,000 $24,575,000 $570,000

United States China Germany #2 #6 #10 $114,700,000 $15,430,000 $127,200

Sweden France #3 #7 $54,590,239 $3,400,000

Canada Netherlands #4 #8 $26,400,000 $1,600,000

Cumulative event coordinators investment by country (2015 – 2019).(73)

facilitate growth in pursuit of a Top investments by country $11M to help local esports fans national expansion strategy.(70) create their own tournaments.(81) As the data above suggests, Russian- Smash.gg works to create smaller In a similar fashion, the based companies have received the events from the ground up – investment by Creandum and largest amount of capital in the event enabling fans to take organizing into Sunstate into RFRSH coordinators space.(76) These their own hands.(82) Entertainment was to expand the investments are directly tied to the brand by bringing competitions to funding and subsequent sale of Sweden-based event coordinators three new locations in 2019: Sao ESforce Holdings.(77) In 2015, the have received $54.6M in capital Paulo, Brazil; Miami, United company held its first funding round, since 2015, with the most recent States; and Madrid, Spain.(74) The receiving $100M in its Series A.(78) investment of $1.3M into investors hope to establish the Only three years later the company Challengermode.(83)(84) Similar to the company on a mainstream level, would be acquired for $100M, the rationale of investment into RFSH in leagues with NBA, UFC, football exact amount it had previously Entertainment, Challengermode and online entertainment in raised.(79) sought to achieve their next phase general.(75) of growth by going mainstream.(85) In comparison, the investments Notable investments that work to within the United States are more This continued alignment in establish brands on a mainstream diverse with a total of 10 investment thesis supports the level help strengthen the investments, into 5 different notion that as capital flows into industry’s credibility. This companies, since 2015.(80) One of event coordinators and additional awareness may even the most noteworthy investments demonstrates its viability, serve to direct more capital into into a U.S.-based esports event incremental funds will follow.

the space. coordinator was Smash.gg’s raise of 16 The rise of esports investments | Leveling up

Media platforms & investor.(86) Excluding significant income. In the U.S., 61% of advertising outlier investments by Tencent into esports fans over the age of 18 are Douyu TV and Huya TV for $632.0M earning more than $50,000 a Media platforms & advertising and $462.0M respectively, the year.(89) Many fans are increasingly encompasses a variety of different average investment size was just shifting away from traditional forms categories that are focused on fan under $10.0M.(87) of media and are instead engaging engagement. This ranges from with streaming platforms such as advertising agencies that support With an actively engaged and Twitch and YouTube. In 2018 the nonendemic brands seeking to gain growing demographic, the esports average concurrent viewer count exposure within the space to industry will likely see an increasing for Twitch was around 1.1 companies exploring new ways to get number of nonendemic brands million.(90) viewers more engaged with the explore different ways to engage influencers and teams they watch on with the space. For many brands, Both endemic and nonendemic a regular basis through different the underlying demographics of brands will increasingly be drawn to streaming services. esports are appealing. Esports has these underlying dynamics, and as an estimated global fan base of 380 a result, the need for advertising From an investment perspective, this million and this is largely comprised support is expected to remain. In category remains in its infancy. Of the of millennials between the ages of fact, according to a SuperData 15 investments into media platforms 21 and 35.(88) Not only are these research report, by 2020 & advertising companies in 2018, all viewers young, they also represent advertising and sponsorship will but three had a venture capital expendable account for 60% of the industry’s overall revenue.(91) Media platforms & advertising investment snapshot Brand engagement could take a Largely dominated by variety of paths. For example, smaller venture capital some can take a traditional investments, the sponsorship route, such as Audi category has 23% Denmark’s $750,000 partnership experienced steady Venture deal with popular Danish esports investment growth over Capital team Astralis for branding on the last few years as Private Astralis jerseys.(92) Engagement investors increasingly Equity can also take other forms, such as 77% recognize the value of KFC Corporation’s partnership with the esports fan base notable Twitch streamers of the demand for greater game PLAYERUNKNOWN’S engagement. BATTLEGROUNDS, such as DrLupo, 2018 media platforms & advertising where if the streamer won a game investments by investor type.(97) viewers could post a KFC emoji into the stream’s chat for a chance to win a $5 KFC gift card.(93) ($ in millions) 25 $689 $800 No matter the form that 20 $600 engagement takes, nonendemic brands will rely on advertisers with 15 $400 an understanding of the underlying 10 $226 $179 demographics of the industry and $200 effective ways of engaging. This 5 $35 $19 creates an opportunity for investors 0 $0 to capitalize on this trend. 2014 2015 2016 2017 2018 Count Amount An example of this is the September 2018 $3.6M Series A Media platforms & advertising investments over time, 2015-2018.(95) capital raise for Upfluence, an For normalization, this table does not include Amazon’s $970M acquisition influencer focused marketing of Twitch in 2014 or Tencent’s investment into two streaming platforms agency with an emphasis on for $1.0B in 2018.(96) offering brands support in working (94) 17 with Twitch influencers. The rise of esports investment | Leveling up

Streaming Services $135M

News Agencies $21M

Networking & Social Media $526M Advertising $6M

Breakdown of media platforms & advertising investments in 2018 by subcategory.(99) Note: this table does not include Tencent’s investment into two streaming platforms for $1.0B in 2018.(98)

As noted above, the use of An example would include Discord has grown quickly over its streaming services has increased StreamElements, a “full-stack” three years of existence as users rapidly over the last several years. platform that supports streamers have used its voice and text For example, for Twitch, average in broadcasting their gameplay. communication services to talk daily concurrent viewer count has The company raised $11.3M in with teammates and friends during grown from a little over 100,000 in Series A funding in 2018.(102) and outside of gameplay. (104) By 2012 to 1.1 million viewers in May 2018, Discord had 130 million 2018.(100) In addition to these software tools registered users, tripling its user that assist creators in their base since 2017.(105) Viewers are engaging both with production presentations of competitive play of streaming content, other media Other examples within this space and popular influencers. As larger platforms & advertising companies include Taunt, a social streaming services, such as Twitch have focused on enhancing the engagement platform for fans that and YouTube, compete for viewer experience through various allow viewers to compete against viewers, an industry has emerged applications that add an additional each other by predicting the for tools that support and enhance layer of connectivity with other outcome of games they are the streaming experience for fans or the creators themselves. viewing. The company raised content creators and fans alike. $3.0M in 2018 from The Foundry One of the larger investments in Group.(106) Investments into streaming 2018 within the media platforms & services and social media advertising category relates to this engagement has increased by over engagement. Discord, a popular 200% from 2017 to 2018.(101) gaming chat application, raised These investments have largely $150.0M in 2018 at a $2.05B consisted of capital raises by valuation.(103) venture capital firms into early stage startups.

18 The rise of esports investments | Leveling up

Consumer products Valuation considerations(108)

One of the most attractive esports segments for traditional private equity and strategic buyers continues to be consumer products. These companies • Strategic Range of Assets typically offer consistent revenue Astro • Ability to Target Millennial Consumers streams with a strong runway for • Growth, Strong Operating growth, which can make for a well- Performance suited partner and investment Jaybird • Strong Product Offering opportunity. This thesis aligns with the • Near-Term Growth figure presented on page 20, which 1.5x shows large strategic investors

(namely Logitech and Foxconn) EV/Revenue directing capital into consumer Roccat • Mature Company technology products. • Evolving Growth Story Corsair • Mixed Operating Performance For the apparel segment of consumer • Less Branded Portfolio Mix products, there has been rapid growth in the west, with dedicated streetwear Saitek brands competing with merchandise designed by team organizations.(107)

Case study: Logitech acquires ASTRO Gaming Tapping into a popular esports headset brand offers significant opportunity to major computer peripherals player. With esports rising popularity, trend due to a combination of factors ASTRO also gave Logitech access peripheral brands are seeking ways including market saturation, to higher margin products with to resonate within the space. One extended replacement cycles, and retail values between $200 and example of this dynamic is the competition from other consumer $300.(116) acquisition of ASTRO Gaming devices.(114) (“ASTRO”) by Logitech International The result for Logitech was a (“Logitech”) for $85M USD in July By contrast, the esports hardware significantly stronger brand 2017.(109) With an expected revenue market, however, has been able to presence in the esports industry of $35M in 2017, this purchase price insulate itself from some of these commanding the attention of implies a multiple of 2.4x trends, due in part to the promotion major influencers in the space – revenue.(110) of products by influencers and specifically with those already teams. Similar to a basketball fan gaming with ASTRO headsets, In the years leading up to the wanting to get the signature shoe of such as Nick “NICKMERCS” transaction, Logitech was their favorite player, esports fans are Kolcheff and Brett “Dakotaz” experiencing fairly flat annual motivated to get the hardware they Hoffman.(117) As of today, ASTRO revenue growth of (0.15%) from see their favorite players using. and/or Logitech constitute a piece 2014 to 2015 and 0.69% from 2015 of the gaming setups of more to 2016. (111) By comparison, overall The industry has shown to be a than 60% of the top esports revenue grew 67.52% and revenue generating avenue and as streamers.(118) 51.69%, respectively.(112) gamers demand more customization the hardware manufacturers are For Astro, the transaction offered Additionally, the acquisition of driven to offer these options with the a great opportunity to leverage ASTRO was an opportunity to further latest high-performance processors the capabilities of one of the diversify in an increasingly and graphics cards.(115) largest players in the technology competitive hardware market that hardware industry. has faced headwinds in recent As such, the acquisition of ASTRO years.(113) Worldwide PC shipments offered the opportunity to further While ASTRO’s operations were have sharply declined, and peripheral expand Logitech’s product portfolio previously limited to the United hardware has followed a similar within the esports industry. States, the acquisition offered the

19 (Continued on next page) The rise of esports investment | Leveling up

ability to expand sales globally.(119) Previously, ASTRO’s flagship Although the total revenue of headset product line was limited to ASTRO only contributed 2% to In fact, one of Logitech’s first steps three SKUs due to high R&D costs. total net sales growth, the guiding following the acquisition was to Post-acquisition, capital was strategy of diversification into capitalize on the new product line invested into the development of esports was likely a significant by making them available outside new high-margin product lines, success factor for the 57% growth the United States.(120) increasing the total number of experienced in the gaming SKUs.(122) segment of Logitech.(124) This acquisition also provided ASTRO access to a vast network of The years following the transaction Following this acquisition Logitech distributors and suppliers, which Logitech experienced revenue continues to build a diverse could be leveraged to reduce costs growth far in excess of the years business that incorporates esports and increase efficiencies.(121) preceding, at 10.08% from 2016 to and gaming peripherals. 2017 and 15.55% from 2017 to 2018.(123)

Consumer product enterprise value to revenue multiples

3.0x

2.4x 2.5x

2.0x 1.8x

1.5x 1.0x 1.1x 1.1x

EV/Revenue 1.0x Median: 1.1x 0.5x

0.0x

Roccat (125) Corsair(126) Astro (127) Saitek (128) Jaybird(129)

Close March 2018 July 2017 July 2017 Sep. 2016 April 2016

Acquiror Turtle Beach EagleTree Capital Logitech Logitech Logitech

Size(1) $MM: $19.2 $525.0 $85.0 $13.0 $50.0

Designs and Designs and Manufactures Designs, develops, manufactures video manufactures Manufactures and markets and manufactures gaming equipment, consumer electronics computer high-performance Bluetooth Target such as, wireless products, such as components and PC peripherals and headphones and Description and Bluetooth computer games accessories, such as components, such as activity trackers for headsets for Xbox, accessories, input keyboards and mice. cases, keyboards, sports and active PlayStation, PC, and devices, and audio PCs, and fans. lifestyles. mobile systems. products.

Target Germany Global United States Global Global Geography

20 The rise of esports investments | Leveling up

Conclusion

Ultimately, the esports ecosystem is vast and growing every day. Making sound investments in the space requires significant research, and likely partnering with a group or advisor who has an intimate knowledge of the industry. However, by understanding the basic structure of esports, you will be better equipped to begin asking the right questions, identifying where your investment can have the most impact, and yield the greatest potential return.

21 The rise of esports investment | Rewards (and risks)

Potential rewards (and risks) in esports investing

As the esports industry becomes increasingly more appealing as an area for investment, investors and companies alike should understand the potential benefits, and risks, of exploring partnerships.

ESL IEM Katowice 2019 (Copyright: ESL | Adela Sznajder).

22 The rise of esports investments | Rewards (and risks)

Introduction

This section begins with two brief DreamHack. nvestment interest in the esports primers on the potential benefits industry is increasing.(130) I of an investment in esports. Late to the party: learning Investments, measured by from the history of Heroes of number of deals and amount For investors, esports offers the Storm’s esports initiatives invested were larger in 2018 than access to a fast growing industry any year prior.(131) In addition to highlighted by a youthful The second examines some of the this general increase in deal flow, demographic. potential challenges of developing the types of investors considering an esports league and the investments has also grown. For esports companies, in addition challenges this can have for not to investment proceeds, investors only developers, but also team 2018 was a record year for private can offer business expertise and organizations and other groups equity investment into esports, credibility as these esports that are vested in the leagues and as the industry continues to companies aim to capitalize on success. grow these traditional investors near and long term opportunities. will continue to look for ways to The rising power (and risk) of explore potential This section then highlights some influencers in esports opportunities.(132) For traditional of the nuanced challenges and investor groups, entering a new considerations an investor should The final article considers the rise industry for the first time, consider when exploring of influencers and the potential understanding the key benefits, investment options. Through a challenges their popularity poses and perhaps more importantly, series of articles written by The to the existing team organization key challenges is critical. Esports Observer, major topics structure. and trends within the industry are This section seeks to address presented and discussed from an The core focus of these articles is these considerations for a investor perspective. to demonstrate that while the traditional investor considering industry has experienced esports investments. Through a Why Modern Times Group significant notoriety over the past series of short articles, this section made two of esports' best several years, there are nuanced highlights some of the potential investments to-date considerations that will require in- advantages and risks of depth diligence. investment for both investors and The first article highlights the companies operating within successes of MTG’s two esports looking for investments. investments into ESL and

23 The rise of esports investment | Investor view

The value of an esports investment: an investor view Many investors will find the strong expected growth trajectory of the industry, potential for diversification and hedging, and unique customer base intriguing propositions as they explore new opportunities within the esports ecosystem.

hile endemic brands and Diversification opportunity Access to key demographic investors already involved in W esports can already see its Due to the uniqueness of the In 2018 the esports industry had a value, outside investors will likely industry, traditional investors may global fan base of 380M with 37% be drawn by several potential also view esports investments as a representing males aged 21 to 35, benefits and considerations. means of diversification. and 16% representing females ages 21 to 35.(134) In addition, in Although each subsector of the Unlike more mature industries that the U.S., 61% of esports viewers esports ecosystem will have may have a more limited growth earn more than $50,000 per nuances that can add further profile, the esports industry is still year.(135) benefits depending on an in its nascent stages and offers investor’s current portfolio; exposure to trends that are not The industry offers access to a overall, the strong performance of wholly reflected in other unique demographic that is the industry to-date and its industries. As such, an investment increasingly turning away from unique customer base are driving in esports could offer strong traditional media.(136) factors in its appeal. hedging implications. By investing into this space, Industry with strong growth investors can gain access to this profile demographic. Whether this would be nonendemic brands attempting With $869M of revenue in 2018 to increase awareness among this and an expected CAGR of 34.9% demographic, or traditional private over the next four years, the equity investors seeking to esports industry is an attractive leverage access to cross-sell market.(133) In addition, the products and services from disruptive nature of the space and ancillary industries within their its impact on traditional media Diversification portfolio.(137) No matter intent, opportunity and sports, will likely appeal to the industry’s unique fan base investors looking to get in on a would likely be a key investment “the next big thing.” highlight.

Strong growth Access to key profile demographics

24 The rise of esports investments | Investee view

The value of an esports investment: an investee view As the esports industry grows, companies that invest in strategic partnerships can obtain access to a variety of tangible and intangible benefits that can help to fuel growth, establish operational efficiencies, and drive market positioning.

With so much n the last 15 months, over provided to many esports $4.5B USD in disclosed funding companies through these funding investment activity I has flowed into the esports rounds. A strong understanding of occurring throughout industry.(138) From prominent the value these investments esports organizations to third- provides should not only help the industry, it’s party event coordinators, small companies identify the right important to startups to major streaming investment partners, but can aid platforms, the pool of investment investors in determining how they remember that there opportunity within esports is vast. can get involved in the space. is meaningful value With so much investment activity From the perspective of an esports being provided to occurring throughout the industry, company, the primary investment benefits can be bucketed as many esports it’s important to remember that there is meaningful value being proceeds, knowledge, and credibility. companies through their funding round.

1 2 3 Proceeds Knowledge Credibility Capital infusions offer Partners provide Traditional investors in esports companies the experience and esports companies offers dry powder to maintain operational expertise legitimacy to the strong growth while that can be invaluable for business model and pursuing new objectives growing esports provides value for future businesses financings

25 The rise of esports investment | Investee view

Proceeds develop its platform, secure when exploring an esports partnerships, and build out its investment opportunity. If One of the most obvious and infrastructure.(142) considering investing in a direct benefits of any investment tournament organizer, investor is the infusion of capital into a Knowledge questions may include: Where is business. With the esports the tournament organizer hoping industry growing so rapidly, many In many ways, the esports to expand next? Does the investor esports companies have become industry is still working to shed its have connections in that region reliant on capital investment in grassroots origins. Some of the that can offer guidance on which order to seize new opportunities or most prominent team cities would make the best maintain their current market organizations, event coordinators, tournament hosts? If the team the share. and startups began as passion investors is meeting with plans to projects started by competitors build a training facility, can the Franchised league systems such and fans rather than being investor advise them on how to as the League of Legends established as profit-oriented keep construction costs low? Championship Series and the business ventures. While the Overwatch League require teams leaders of these companies Investors should ask thoughtful to pay franchise fees ranging certainly know the esports questions to ensure that they fully anywhere from $8M to $20M, industry well, they may lack the understand the current and future respectively.(139) While these knowledge, experience, and needs of the company, and how a payments can be spread out over connections that can help scale partnership will be most profitable. time, they represent a significant their business to the next level. expense in the budget of any team Credibility organization, and many of these This is why having investors get teams do not yet generate enough involved as board members or The esports industry has gained a revenue to offset those costs. To strategic advisors is an appealing great deal of credibility over the that end, many teams have stated proposition for a growing esports last 12 months, but still has room that their recent funding rounds company. Often, companies in the for improvement in earning the will be used in part to cover these esports industry are looking for same level of universal respect as franchise fees. For example G2 more than just someone to write a traditional industries.(143) Esports raised $17M in funding in check when seeking investment; February 2019, in part to pay the they are looking for a strategic Most conversations with new franchise fee to enter the partner. Someone who can help partners, investors, sponsors, and European League of Legends the company navigate its next government officials still requires Championship Series.(140) expansion effort, offer guidance on a significant amount of education new projects, and offer a large on the basic mechanics of the There are many segments of the network of new contacts in industry, and many investors still market which remain open to the complementing industries. need to be sold on the economic first company that is able to potential and capacity for viable establish a firm foothold. A prime This type of partnership can be industry business cases. example of this is high school just as valuable as the capital esports. While there are several itself. In discussions with esports Prominent, respected investors companies attempting to create companies and startups, an carry a great deal of weight in the national systems for high school investor should consider how space today as they can greatly esports, none has yet risen to active a role that investor wants to increase the level of credibility for a become the industry standard.(141) take in advising that company, given company. A nonendemic This is part of the reason why one and what additional value that sponsor may not have heard of of the companies competing in this party can bring to that specific aXiomatic, or fully understand the space, PlayVS, has already organization. value of its organization Team Liquid, completed multiple funding rounds, injecting millions in new There are a number of questions a capital in order to move quickly to potential investor might consider

26 The rise of esports investments | Investee view

but knowing that NBA star Michael Conclusion Jordan has invested in the team will likely make many executives sit up The potential benefits of esports and take notice.(144) The fashion investments may seem evident at the industry is far more likely to hear surface level, but understanding how what the owners of 100 Thieves have proceeds, knowledge, and credibility to say about their streetwear line if factors apply specifically to esports they know that hip-hop icons Aubrey companies can serve both sides of “Drake” Graham and Scooter Braun the negotiating table. Investors can are actively involved.(145) ask better questions and determine the specific value they bring to an Adding a celebrity or prominent organization to in turn optimize their business figure to an investment return on investment, while group can go a long way toward companies can gain a clearer opening doors and making an esports understanding of their needs and company “legitimate” to an outsider’s seek out investors that best suit them. perception.

In addition, when considering future liquidity events for the business, such as potential full sales to c or majority or minority recapitalizations with private equity investors, having the support and investment backing of traditional investment groups (e.g. venture capital, growth capital, family offices, or private equity) can offer a strong indication to future potential follow-on investors that the business is credible.

27 The rise of esports investment | Modern Times Group

Why Modern Times Group made two of esports' best investments to-date

By recognizing the shifting media environment early and putting its key investments into a position to capitalize on growth, MTG has solidified its position as a major player within the rising esports industry.

sports is such a young and by acquiring a majority interest in By Andrew Hayward, The rapidly evolving industry that ESL parent company Turtle Esports Observer E with many investments, it's Entertainment, as well as fully simply too early to decide whether acquiring DreamHack.(147)(148) Consulted by Tobias Seck, or not they have been economically Since then, both tournament The Esports Observer successful moves. For example, operators have continually grown despite all of its potential, it could and become even more firmly be years before we know whether entrenched as key companies and Overwatch League teams can get a market leaders in the industry. return on investment on the millions of dollars poured into MTG has since restructured its franchising.(146) organizational structure and split its media business from those key However, there is one investments and others in the straightforward example of a gaming and video space, shedding lucrative investment—two, actually. previous business interests to The Modern Times Group (MTG) refocus on its rapidly-growing made a significant move digital endeavors.(149) establishing itself in esports in 2015

DreamHack Masters Stockholm 2018 (Copyright DreamHack | Adela Sznajder).

28 The rise of esports investments | Modern Times Group

2016 Under the MTGx banner, both businesses see steady October growth following investment MTG increases its ownership level in Turtle October 2017 March Entertainment to 83% MTG obtains 74% of MTG doubles sales MTG spins off its Turtle Entertainment/ESL. from 2016 from Nordic Entertainment $146M to $362M Group regional TV business and focuses

on MTGx

2017 2018 2016 December MTG reports its highest sales, profits and margins November MTG acquires Dreamhack May for $25.8M Former Turtle Entertainment COO, Peter Nørrelund is appointed Dreamhack co-CEO

Timeline of MTG’s investments into Turtle Entertainment/ESL and Dreamhack.(160)(161)

Here's a look back at the timeline of the business previously under the Financial growth MTG's esports investments and MTGx umbrella—which also included decisions, the financial impact to- online competitive league, E-Sports Each year following 2015, MTG’s date, and how it has changed the Entertainment Association League sales and profits have continued to Swedish firm's focus going forward. (ESEA)—would continue on simply increase. MTG's 2017 annual report as MTG following the completion of hailed the company's evolution into Making moves the split.(154) "a smarter and more relevant MTG," and it showed in the significant MTG first invested in Turtle At the time, Tobias Gyhlénius, group growth of the MTGx business.(158) Entertainment/ESL in July 2015, head of PR at MTG, told The Esports Sales in the division more than acquiring 74% of the company from Observer that the timing was right doubled over 2016, rising from founders and investors for €74M EUR "in order to maximize the focus and kr1.33B ($146M) to kr2.96B (then $86.9M USD).(150) Four months potential of each group for the ($361.7M). Esports accounted for later, in November 2015, MTG benefit of owners, customers, and the largest share of the division's acquired DreamHack in its entirety employees.“(155) In May 2018, MTG sales at 46% for 2017.(159) for kr244M SEK (then $25.8M).(151) continued its restructuring Both companies were placed under maneuvers by appointing long-time That surge continued into 2018. In the MTGx video games, esports, and employee (and previously Turtle Q1, MTG reported 32% year-over- video brand, and steadily grew in Entertainment COO) Peter Nørrelund year growth in esports revenues, 2016 and 2017, after which MTG as DreamHack's co-CEO to help driven by more than 70% growth in began making further moves.(152) optimize the company's growth and ESL's revenue from owned-and- development.(156) operated events.(162) In March 2018, MTG's board announced that it would instigate a In October of 2018, MTG increased Following the March announcement process to split the company into its ownership level of Turtle of the impending split into two two publicly-traded entities, with its Entertainment/ESL to 82.48%, companies, the remaining MTGx half Nordic Entertainment Group regional paying kr152M (then $17M) for that reported kr994M ($112M) in sales, TV business spun off into a separate additional 8.48% control.(157) That's up company.(153) Meanwhile, the side of a significant premium over the rate paid for MTG's original investment in the company.

29 The rise of esports investment | Modern Times Group

4.41% from Q1 2018 and 63% ($449.4M) over kr2.96B MTG continues to invest in the year-over-year.(163) Esports ($361.7M) in 2017.(170) Esports esports space, too. The company represented kr411M ($46.3M) of accounted for kr1.52B ($169.5M) has invested in BITKRAFT Esports that, marking a 41% increase over of that in 2018, up 11% over the Ventures—an investment fund Q1 2018 and representing 41.3% kr1.37B ($167.4M) tally in specifically for industry of total revenue for the 2017.(171) companies—as well as nutrition vertical.(164) This was driven by brand Runtime and learning app more than 60% growth year-over- The impact on MTG Blitz.(176) With the NENT Group year in revenue for ESL and formally splitting off, MTG can now DreamHack.(165) MTG's fortunes have risen each focus its attention specifically on year since adding Turtle its complementary digital In Q3 2018, the MTGx division Entertainment/ESL offerings, including esports. reported kr1.02B ($111M) in and DreamHack to its stable, with sales, an increase of 28.3% from MTG's digital businesses gradually ESL and DreamHack continue to kr798M ($86.8M) the same taking a more prominent role in grow as two of the industry's quarter in 2017.(166) Turtle the leading global third-party Entertainment/ESL saw a 16% company's current and future tournament coordinator. After 19 revenue boost over Q3 2017, outlook. That point is driven home years in the business, ESL's bold however, DreamHack saw lower with the split between MTG and new rebrand is intended to help year-over-year revenue due to the new Nordic Entertainment light its own path ahead and show changes in its Q3/Q4 event Group (NENT Group), which was that the company is still vital in schedule.(167) Esports sales were finalized when the latter's shares today’s esports landscape, while down 13% year-over-year in Q4, began trading on the Nasdaq DreamHack's extended events as double-digit growth in both ESL Stockholm market in late March schedule shows its own ongoing and DreamHack's owned and 2019.(172) expansion.(177) Those investments operated business was diminished could pay off even more by weakened work-for-hire Even before the split, the shifting significantly over time as the revenues.(168) interest and momentum within esports industry is expected to MTG was apparent. In the years continue to grow by leaps and For the full year of 2018, MTG leading up to the plan, the bounds. reported its highest-ever sales, company shed various television profits, and margins, with the interests in other European Investing in Turtle MTGx division profitable for the countries, gradually whittling Entertainment/ESL and first time on a full-year basis down its focus on traditional DreamHack has not only set MTG despite ESL’s restructuring costs terrestrial TV offerings as its up as one of the most prominent of kr49M ($5.5M).(169) Overall, the digital elements grew and became players in esports, but has also MTGx division's sales were up a much larger part of MTG's permanently altered the course of nearly 36% for 2018 at kr4.03B identity.(173)(174)(175) the 32-year-old company as it adapts to the changing entertainment landscape.

30 The rise of esports investments | Late to the party

Late to the party: learning from the history of Heroes of the Storm’s esports initiatives

Establishing a successful esports league can offer its challenges, and these challenges are not the exclusive issue of the developer. Industry players further downstream who invest time and capital to participate can also face significant risk.

eveloper Blizzard esports can serve as an important By Trent Murray, The D Entertainment (Blizzard), a lesson for evaluating the viability of Esports Observer subsidiary of Activision future games and leagues. Blizzard, has perhaps Consulted by Tobias Seck, one of the most important legacies in Late arrival to the genre The Esports Observer all of esports. StarCraft launched the modern era of professionalized The Multiplayer Online Battle Arena competitive gaming, Hearthstone (MOBA) genre is one of the biggest (185) opened the doors for an entire genre in all of esports. Two of the “big of digital card game esports, and the three” esports titles (League of Overwatch League kicked off a brand Legends and Dota 2) are (186) new era of franchised leagues and MOBAs. By the time Blizzard geolocation.(178)(179)(180) entered the space, its leaders had already established a firm foothold. The factors that led to However, things have not been all League of Legends (LoL) launched (187) the cancelation of the landmark decisions and sold out in 2009. Dota 2 was released in (188) grand finals. In December 2018, 2013. SMITE was released in league and the decline (189) Blizzard announced that it was 2014. Heroes of the Storm did of Heroes of the Storm discontinuing all esports support for not enter its open beta phase until (190) one of its lesser-known title, Heroes May of 2015. esports can serve as an of the Storm (HOTS).(181) By that time, not only had these important lesson for other titles established large, The game had professional leagues entrenched player bases, but plenty evaluating the viability in four major regions, commitments of other studios had tried and failed of future games and from major organizations like Fnatic to compete. The DC Universe- and Team Liquid, and to-date has themed Infinite Crisis never made it (191) leagues. awarded the sixth-most total prize out of beta. Electronic Arts money across all events of any abandoned Dawngate by the end of (192) esport, according to Esports Earnings 2014. Major publishers and ($17.9M USD).(182)(183) Despite popular IP came and went. To this significant investment on the part of day, many MOBAs have had its developer, Heroes of the Storm difficulties cracking the market failed to grow an audience on Twitch dominance of LoL and (193) during the two years its professional Dota 2. league, the Heroes Global Championship (HGC), was in Arriving so late to the MOBA party operation.(184) meant that Blizzard’s entry would come with extremely high The factors that led to the expectations, and would have to cancelation of the league and the find a way to differentiate itself in decline of Heroes of the Storm an already saturated market.

31 The rise of esports investment | Late to the party

A unique MOBA experience faces of messaging and departure from matchmaking problems, a lack of growing pains convention gave many players the key drafting features, and various impression that Heroes of the Storm other issues, top competitive Blizzard’s first attempt to stand out was the MOBA for people who had players would explore organizing from the MOBA scene was to not enjoyed the traditional MOBA their own ranked mode outside of declare that Heroes of the Storm did experience.(196) the Heroes of the Storm ranked not belong in that market at all. The ladder.(198) developer ignored the MOBA label in While enjoyable at a casual level, all press and marketing, referring to these unique game mechanics also Throughout the lifespan of Heroes the game instead as a “team likely helped to create a disconnect of the Storm, the disparity between brawler.”(194) between the game’s esports scene the game played by the pros and and its general player base. One of the experience of the average In order to stand out and offer the primary reasons many players player would create separation players a unique experience, Heroes first choose to watch a game’s between the game’s core of the Storm had also tried to competitive content is to learn how community and its professional improve and differentiate many of to improve their own skills. scene.(199) the core features and mechanics of However, because professional other MOBA titles. Heroes of the Storm placed so much Between its messaging and core emphasis on teamwork, there was gameplay experience, Heroes of the These changes created a lower often little a player could learn that Storm struggled to incentivize emphasis on individual player skill would translate into their solo play players to engage with its in favor of stressing the importance experience. competitive scene.(200) When of teamwork for achieving looking at successful, long-lasting victory.(195) Additionally, Heroes of the Storm esports, the opposite is consistently drew some criticism for its ranked true.(201) Players can watch top- For veteran MOBA players and play experience from some of the level professional matches and learn newcomers alike, this combination game's top players.(197) Due to how to improve their own game. Individual skill and playmaking ability are rewarded across the board.

In spite of these hurdles, however, a small, dedicated esports scene began to emerge for Heroes of the Storm.

Where’s the value?

The early days of Heroes of the Storm was a veritable who’s who of top esports teams. Cloud9, Evil Geniuses, Virtus.pro, and Natus Vincere all signed teams before Blizzard held the game’s first World Championship at BlizzCon 2015.(202)(203)(204)

However, by the time the Heroes of the Storm Global Championship Competitive Heroes of the Storm gameplay at the 2017 DreamHack Mid-Season (“HGC”) launched in 2017, all four Brawl. (Copyright DreamHack | Abraham Engelmark) organizations had left the game.(205)(206)(207) A few prominent organizations such as Fnatic and Dignitas remained, but many of the teams that qualified for the HGC

32 The rise of esports investments | Late to the party

remained unsigned by any When a professional organization by professionals. significant esports brand throughout invests in a new game, there are the league’s existence.(208) substantial upfront costs including The competitive depth of a game player and support staff salaries, can be a strong indicator of One significant barrier for both allocating resources to provide sustainability. StarCraft: Brood War team organizations and viewers was jerseys, graphic assets, and social and Super Smash Bros. Melee are the lack of in-person tournaments. media coverage for the new team. widely considered to be two of the While viewership for Heroes of the deepest competitive games ever Storm was never especially high, it As player salaries continue to rise made, and both have sustained was always substantially higher and franchise fees become more active, professional esports scenes during live tournaments when common, effectively identifying more than 15 years after their compared to online events.(209) sustainable games will become release.(213) more and more important for both With low viewership, online events team owners and their potential Are there enough offline events? provide limited value to esports investors. teams, and although Blizzard The story of Heroes of the Storm Online leagues can drastically provided large prize pools for each provides a few key points by which reduce operating costs for year of Heroes of the Storm investors can examine a game to developers, but they often provide esports, that money was limited to help evaluate the potential little value to esports organizations the major offline tournaments.(210) risk/reward of investing at an early if they don’t directly feed into a Online competitions also meant that stage. wide array of offline tournaments. the players could not be shown on Sponsorships are typically a key camera, which meant that the Is this game relevant? revenue stream for team sponsor logos on team jerseys were organizations, so they need to be rarely visible. For a game to build up enough able to generate value for brands momentum to become sustainable with every game. From 2016-2018, Blizzard held as an esport, it needs to be three international offline embraced by a large player base. Is Any game that over-emphasizes tournaments a year.(211) There were the game in question at the online events without some clear occasionally other small live events forefront of a relevant genre, or is it way to generate visibility for during the year, but the chasing a trend that has already sponsors will likely struggle to overwhelming majority of Heroes of passed? generate that value. the Storm’s highest level of competition took place online. As a While not a perfect indicator of long A healthy esports ecosystem should result, teams outside of the top two term esports health, a large player have multiple opportunities for all in a region had difficulties base can make it more economically professional esports teams to generating value from their viable for a developer to continue compete offline, with the best investment in Heroes of the Storm. investing in both the esports scene teams earning extra value by and ongoing development. The qualifying for international By the end of 2018, only six majority of a game’s viewing championships. prominent esports organizations audience will likely come from its (Tempo Storm, Dignitas, Fnatic, active player base as well, so the While there are plenty of additional Team size of that player base can provide factors professional teams must Liquid, Method, and Gen.G) had an indicator of expected viewership. weigh before choosing to invest in Heroes of the Storm rosters out of any game, answering these 32 HGC teams.(212) Is this game competitive? questions can provide investors with a useful baseline by which to What can we learn Successful esports games are measure the health of each game designed to reward individual skill professional teams participate in, While Blizzard was most adversely and playmaking ability and have an and to evaluate the potential impacted when Heroes of the Storm actively supported, popular risk/reward of buying into a high- was unable to gain wider competitive mode. Ideally, the ticket franchise system. Several acceptance, it also affected many of game’s ranked mode also provides active esports titles today show the organizations who chose to an experience that closely warning signs in at least a few of invest. resembles the game mode played these categories, and so investing requires careful consideration.

33 The rise of esports investment | Influencers

By Graham Ashton, The The rising power (and risk) of Esports Observer

influencers in esports Consulted by Tobias Seck, The Esports Observer As esports influencers continue to gain larger followings built on the social aspects of their entertainment value, the Esports ambassadors recognition of their brands in their own right may lead them driving value away from the structure of traditional esports team organizations. Esports has entered the mainstream consciousness, with dedicated episodes in TV shows espite its common usage in CSGOLotto scandal, in which two such as The Simpsons, to public— marketing, the term popular YouTubers promoted a so- and capital—endorsement by hip- D “influencer” carries somewhat called “skin gambling website” hop stars including Aubrey of a negative connotation within the without properly disclosing their “Drake” Graham, Jacques Bermon gaming community. Professional ownership in the business.(218) This “Travis Scott” Webster II, and esports teams will often identify their was the first Federal Trade DeAndre Cortez “Soulja Boy” line-up of influencer talent simply as Commission (FTC) case levied Way.(222)(223) “streamers” or “content creators.” against influencers.(219) The esports industry relies on In tandem, certain gaming authenticity, which conflicts with the For the esports industry, influencers personalities have slowly become idea of pro-gamers known more for may pose a secondary problem; loss household names among their marketing value than dexterity with of leverage. While esports target age group. The most keyboard and mouse. tournaments and competition notable of these is Tyler “Ninja” brands are able to garner millions of Blevins, a former Halo professional Nevertheless, certain gaming views in a single event, team who quickly became Twitch’s most influencers are rapidly outpacing the organizations are discovering that subscribed personality after a set value of the professional esports the brand equity of their of star-studded Fortnite streams, teams they are contracted to, and the professional players in some and high profile media ethical concerns with influencer instances is quickly being outpaced appearances.(224) These include a marketing—highlighted by by influencers. multi-commercial campaign with controversies such as the Fyre Samsung to promote its Galaxy Festival campaign or YouTube Traditional media agencies, such as phone series, a live-stream in personalities such as Laura Lee and Creative Artists Agency (CAA) and Times Square on New Year’s Eve, Felix “Pewdiepie” Kjellberg—are just United Talent Agency (UTA) have set and a cameo appearance at the as likely to cripple a up gaming-focused divisions, and in NFL’s own Super Bowl team.(214)(215)(216)(217) some cases, drawn talent away from (225)(226)(227) endemic esports commercial. This was exemplified by the organizations.(220)(221) It should be noted that while Ninja occasionally competes in tournaments, he is more often recognized as one of the most popular gaming influencers.(228) This represents a schism within the gaming entertainment space; the purely-competitive scene, and players (or in some cases, entire teams) that are personality- driven.

This factors into the diversification opportunity for esports investors.

(Continued on next page) Michael “Shroud” Grzesiek, a notable influencer, competing at the DreamHack ASTRO Open in 2017. (Copyright DreamHack | Adela Sznajder) 34 The rise of esports investments | Influencers

Characteristics of the gaming in-game rank. Since they are in While media rights are one of the influencer many ways the protagonist of their fastest growing revenue streams stream, audiences tend to favor a in the industry, predicted to Marketing influencers typically player that can triumph account for $251.3M of the accumulate their audience and consistently. projected $1.1B total revenues in reach by building credibility within 2019, the reliance on sponsorships a given industry. Gaming Regular scheduling: While the has prompted certain professional influencers carry many of the specific times of play are subject esports teams to run influencer- traits seen in any other type of to change, an influencer will driven campaigns for social media personalities: they typically broadcast on a daily sponsors.(229) start conversations, drive basis. The earliest start and latest engagement, and set trends end time are pre-provided, with an Examples include G2 Esports’ among their audience. While some announcement posted on all social “Making the Squad,” a talent- gaming influencers may occupy media channels once the contest for Fortnite streamers, and their own niche (e.g. gameplay broadcast has begun. In many Team SoloMid establishing a tutorials and tips, unboxing cases, highlights of these streams, “Fortnite house” to create content videos, product/game reviews), which can last up to 10 hours, are for the game before an official the most followed personalities posted on various video on tournament was even typically bear the following demand services. announced.(230)(231) characteristics: Associated game: A successful All said, there are some instances Competence of play: Whether influencer will be able to transition of competitive players taking the male or female, the most popular between multiple game titles, typical role of a brand gaming streamers usually have a particularly when a new release or ambassador. high win-rate when playing. Their content update arrives. However, ability at a given game is rarely at the most popular gaming Last year, two Russian Dota 2 the level of a purely competitive influencers predominantly play players from the organization gamer, but they are able to one specific game. Virtus.pro were featured in maintain a respectable advertisements for The Procter & Regular Gamble Company brands Head & scheduling Shoulders, and Gillette.(232) Most notably, the Chinese League of Legends player Jian “Uzi” Zi-Hao was featured in a promo campaign for a major athletic footwear and apparel company.(233)

Competence of Associated game play

Key characteristics of a major gaming influencer.

35 The rise of esports investment | Influencers

Which major influencers got their start in esports? Many of the most popular influencers initially started as competitive esports players and eventually shifted their focus towards entertainment.(241)

Tyler “Ninja” Blevins Michael “Shroud” Grzesiek Matthew “Nadeshot” Haag

Became a professional streamer Stepped down from Cloud9’s CS:GO A former player and captain for for Luminosity Gaming in 2011. team in 2017, and left the OpTic Gaming, Haag became a Began streaming Fortnite in organization and game entirely in full-time content creator in 2015. 2017, follower count grew by 2018. Has competed in some He set up 100 Thieves as a 250% from 500K in six months . PLAYERUNKNOWN’s lifestyle brand in 2017, before BATTLEGROUNDS tournaments building out the company into an since. esports organization in 2018.

Followers: 31.1M Followers: 8.2M Followers: 6.7M Game: Halo 3 Game: Counter-Strike: Global Teams: Cloud9, Renegades, Offensive Game: Call of Duty Team Liquid Teams: compLexity gaming, Cloud9 Team: OpTic Gaming

Jaryd “summit1G” Russel Lazar Michael “Imagqtpie” Santana

While Lazar is a full-time streamer, Retired from professional League of he still competes as a semi- Legends play in 2014, briefly professional player. His last returned to competitive play in recorded competition was in 2017 in “Delta Fox,” a team made August 2018. of retired players—known also as the “Meme Team.”

Followers: 4.5M Game: Counter-Strike: Global Followers: 1.0M Offensive Game: League of Legends Teams: A51, Team Mythic, subtLe Team: Dignitas

Influencers vs. professional …Certain gaming via content on social media, esports teams YouTube, and Twitch.(236)(237) influencers are rapidly As mentioned, influencers have been While Fortnite developer Epic a staple of esports team outpacing the value of Games is attempting to build a organizations for some time already. competitive scene around the The organizations that are largely the teams they are game, complete with a $30M prize cash-flow positive generate a pool World Cup in 2019—the largest significant source of income by contracted to… prize pool in esports to-date—the retaining highly followed professional current value for professional teams players and influencers, using them its flagship competitive roster, is lies in its streaming potential.(238) to promote sponsor products through only 2.8M.(235) The game is less about competing, video content, and splitting the and instead functions as a video- revenue share. TSM promotes its sponsors, game social media platform, including Dr. Pepper, Geico, and complete with in-game live events A clear example is Team SoloMid Grubhub, through all its (including music concerts).(239) The (TSM), which has ten Fortnite professional players, but in May game has celebrity players influencers signed to its roster, all of 2018 the organization signed a including Joel Thomas “Deadmau5” whom have a combined 11.5M partnership deal with Chipotle Zimmerman, Chancelor “Chance the followers on Twitch.(234) The Mexican Grill, Inc. that focused Rapper” Bennett, and various combined Twitch followers of TSM’s exclusively on the team’s “Fortnite professional sports athletes and League of Legends professional team, house,” with product promotion personalities, who are not known

36 The rise of esports investments | Influencers

for playing competitive videogame ● Will esports organizations for “entertainment purposes” rather titles.(240) need to change their than legitimate contests. Whereas business models to the success of professional wrestling While this is a positive accommodate the rise of entertainment and its development in driving audience both influencers and contemporaries did not steal the and brand interest in live gaming gaming-centric marketing audience of professional sports, the events, it poses several potential agencies? For example, relatively short history and market risks for esports organizations that Tyler “Ninja” Blevins and instability may put professional have traditionally focused on Jack “CouRage” Dunlop were esports teams in an awkward competition prowess: previously signed to position. Luminosity Gaming and ● Can an esports OpTic Gaming, respectively. Until recently, influencers have been organization with limited The two later signed a profitable side-arm of the esports experience in brand exclusive influencer industry; a way to generate greater development and management deals with ROI for sponsors. Soon, they could management guarantee Loaded, an agency created become the dominant face of live the success of its by esports technology and videogaming, and a more valuable influencers? How do these services company prospect for stakeholders. organizations recruit Popdog.(242) influencers, and ensure long term audience growth? ● What happens if an influencer’s brand value ● If investors and brands (i.e. follower count, value entering the live gaming of sponsorships) exceeds space can attain a greater that of their team? How reach and ROI through can investors be assured individual investors, how that the company will not will this affect the lose that relationship? resources for competitive esports players? What will The phenomenon of gaming be the effect on esports influencers within esports can be tournament operators if compared to the boom of more teams siphon their professional wrestling in the resources to content 1980s. creation and marketing, instead of player While the outcome of Fortnite development and matches and popular streaming recruitment? titles are not fixed, they are more

37 The rise of esports investment | Dynamics

Photo that bleeds over to next page - TEO

38 The rise of esports investments | Dynamics

Dynamics of esports investments

In order to effectively position themselves to maximize potential investment dollars, esports companies should understand the different investors in the industry and the key questions they will likely ask.

s the esports industry continues In addition to understanding the to rise in popularity, new value proposition of different A investors will explore the space investors, it is also important to in order to capitalize on its strong understand the questions they will expected growth profile over the likely ask, and which areas will be next several years. With an influx of important areas of focus as they new investors, it is important for go through a diligence process. esports companies to understand what each investor type is able to An esports company that offer. While the dollar size of an understands the investor’s investment is certainly the headline concerns will be better positioned item, different investors can offer to maximize the benefit of a other intangible benefits and partnership and reduce potential possible risks. risks.

39 The rise of esports investment | Dynamics

Investor landscape The esports industry’s rapid growth periods in excess of five years in number of investments and mean without hesitation. Investor type and subsequent size of investment carries the investment structure can vary implication that traditional private The investments into esports teams significantly on any given deal by equity firms will likely begin to enter have been led primarily by wealthy industry, sector, and may even be the space in a much more regular individuals, family offices, and situation/circumstance specific. The fashion. Private equity firms typically venture capital firms.(244) main investor types can be bucketed aim to invest with a five-year hold into: family offices, venture capital, period with either a minority (less Investment into esports teams has traditional private equity, and than 50% of the business is yet to become commonplace for strategic. Each segment operates acquired) or majority investment traditional private equity likely due and invests in a unique manner, but (greater than 50% of the business is to the risk and unpredictable cash are all typically variations on stage acquired). A full purchase (100% of flows of the organizations. Private of company, amount of capital the business is acquired) is much equity firms typically seek to invested, investment structure, and less common as private equity firms minimize risk and esports teams risk tolerance. wants to encourage management to have yet to enact a model that remain on the platform with a direct enables consistent, reliable cash In the esports industry, the number incentive to grow the business. flows as winning tournaments and of investments has significantly Private equity firms are also more sponsorships tend to vary greatly increased with only four investments risk averse relative to venture capital over any given period of time. For in 2014 to a record 68 investments and will want to see strong historical this reason, it is difficult to estimate in 2018, representing a 103.1% financials in their target investment. or verify future growth and creates a CAGR.(243) The majority of these misalignment with private equity investments are classified as Family office investments can follow objectives. As professional esports venture capital, which is often any model depending on the size of teams grow and establish additional defined by investments in early- the firm and can take part in avenues of consistent revenue- stage companies. venture-like opportunities or those generating products/services, it is with more established companies. A likely that private equity firms will These ventures are considered to be family office is run as a private begin to partake in these types of riskier due to the unsecured nature wealth advisory firm that typically investments. of the investment and lack of seeks to preserve capital as opposed historical performance/financials. To to generate significant, above- Private equity firms have been adapt to this increased risk, venture market returns for shareholders. For willing to enter the esports industry capital firms seek greater than this reason, family offices are not with investments into peripheral normal returns on their tied to any specific time horizon and esports companies, such as investments. may invest in companies for consumer or related software

Several pros and cons of different investment types.

Venture Capital Private Equity Family Office

▪ Credibility ▪ Credibility ▪ Longer term investment ▪ Active support for growth ▪ Larger investment sizes horizon

Pros ▪ Retain ownership ▪ Can offer strategic assistance for growth

▪ Focus on early stage and ▪ Five year investment horizon ▪ Informal investing process pre-revenue investments before exit ▪ Strategic assistance typically Cons ▪ Debt financing component limited ▪ Potential loss of control

40 The rise of esports investments | Dynamics

products. In a similar fashion, many strategic What are investors looking for? players that were initially hesitant to EagleTree Capital’s acquisition of invest in the space have become When considering an investment into Corsair Components, Inc. in July much more active in the past year as esports each investor is looking for 2017 is one example that may serve the industry holds greater potential distinctive qualities in a target as a strong indication that private to be a profitable venture. One company. More specifically, in equity firms are seeking exposure to reason for this initial caution is due valuing a business to determine the the esports industry, but have to their typical investment model, suitability of an investment, focused on familiar segments, such which calls for acquiring 100% of the investors will look to confirm as consumer electronics.(245) These target business. Given the early consistent future revenue streams peripheral esports companies are stage of the esports space it’s likely and cash flow. If there is significant becoming increasingly attractive to that few owners were willing to part revenue generated on a consistent private equity firms as they not only with their entire business. As the basis, the valuation metrics are provide exposure into one of the space has grown and given rise to typically straight-forward. fastest-growing industries, but also profitable enterprises – opportunities offer an attractive demographic of for both strategic investors and However, with revenue models that millennials between the ages of 21 business owners arose. incorporate inconsistent cash inflows to 35 with significant disposable or potential future brand value, income.(246) As the industry The importance of strategic investors which are indicative of professional continues to grow in size and in the space should not be esports teams and prize pools, it’s esports companies continue to show overlooked as nonendemic brands difficult to verify or project future consistent revenue growth, the raise awareness and interest. revenue. This unpredictability alone number of investments in the space Endemic strategics also have a lot to can push away the majority of by traditional private equity firms is offer with deep industry connectivity investor types. expected to significantly increase. and knowledge that can be leveraged in a variety of ways. Therefore, esports companies that Further, as private equity firms Relationships with suppliers can help are well positioned for an investment demonstrate that their investments improve margin through cost are typically those that can show are viable and successful, others will reduction and connections to consistent revenue generation. To likely follow – helping push distributors can offer a target combat the negative element of significant capital into the growing company international reach. Given unpredictable cash flows there are a industry. In fact, from 2014 to 2017 the global nature of the esports few ways that target companies can there were only three disclosed industry a global component of any adjust their approach to potential investments into esports businesses given company can be of extreme investors. For example, the company from private equity firms, relative to value. can show that there are future plans the nine that took place in 2018.(247) to develop consistent revenue streams – the introduction of merchandise is one avenue that is often explored in esports.

From 2014 to 2017 there Additionally, if the target company has had a consistent sponsor were only nine disclosed throughout its operations, regardless if the dollar contribution is low, that verifies standardization in cash flow investments into esports it could help in building a strong case for an investment. If the target businesses from private company does not have plans to build out an avenue of consistent equity firms, relative to the revenue generation, a large following on gaming and/or social media platforms can also serve to eleven that took place in validate growth prospects. This is (247) because the investor may have the 2018. ability to

41 The rise of esports investment | Dynamics

leverage and mobilize this base in Generally speaking, all investor For the most part, minority times where the unpredictable types can offer partnerships – the investments (venture capital and cash flows are not realized. key here is determining which private capital) come with the partnerships are the most valuable flexibility of choice between Several key questions from for the current stage of the passive and active investors, while investors business. majority (private equity) and strategic investors don’t always After evaluating the alternatives Willingness to remain on the offer a choice. and preparing for a potential platform investment there are a number of To understand the various factors factors that play into selecting the Is the owner looking to stay with and their corresponding appropriate partner. the business and help the investor implications can be extremely grow? valuable in the context of esports. Ownership As data suggests, the current In nearly all cases, with the investment partner of choice is How much equity is the owner exception of strategics, the venture capital with roughly 100 looking to sell? Does the owner investor will want management to investments in the space since want to retain full control of the remain on the platform. In the 2014.(248) Family offices are the business? event the owner is looking for a second choice with 43 full exit, then a strategic investor investments, followed by strategic If the goal is to retain ownership is better suited as they typically investors with 27.(249) As of the business the ideal partners have the infrastructure in place to expected, due to the age of the are venture capital or private continue operations without industry, private equity lags equity firms – both of which may management. behind with only 12 be willing to make minority investments.(250) Every business is investments. In the event the Alignment going to require a tailored owner is looking for a full sale, approach, even more so in a then a strategic investor is most Is the owner looking for a passive young industry, which makes the likely the ideal partner. partner or one that plans to choice of a partner an extremely significantly alter operations? Do important process. As the industry Experience and industry the owner and the potential grows the number of investor connectivity investor have a similar plan for the alternatives is expected to company’s next steps? increase accordingly and each Is the owner looking for a partner factor should be considered with deep and leverageable This is an extremely important carefully. connections? Is this an important factor for esports businesses as factor in the overall consideration? management may want to explore untested areas of the industry, If the owner hopes to leverage the while the investor hopes to only partner to take advantage of explore existing profitable worldwide distribution or lower ventures. cost producers, then this is an important consideration.

42 The rise of esports investments | Dynamics

Due diligence considerations Key man Industry dynamics One of the most crucial aspects of considerations any investment process is the due Positive industry Strong management outlook diligence that is performed on the team target company. In short, due Relationship with diligence is the process by which a Prior experience influencers potential investor confirms that the Strategic alignment Positioning within information received from the esports subsector company is accurate and complete. This process is inclusive of an in- depth review of the company’s financials, the competitive landscape, Business operations the addressable market, and a Financial performance variety of other factors. Working capital Quality historic revenue In the esports space there are a Operational efficiencies variety of industry-specific aspects Strong growth profile that investors typically look for when Favorable contracts Margin improvement conducting due diligence on a potential investment.

Strong management team Several key diligence areas to consider for esports companies.

A common and fundamental strong management teams. experienced management team. diligence item arising from venture capital and traditional private equity The components of a strong This experience cumulated over firms continues to be the management team, in the eyes of a years of operating in the space management team. In a young potential investor, include (but are comes with deep industry industry (from an investment not limited to) the following: prior connectivity, which refers to the viability standpoint) experiencing experience, industry connectivity, connections, partners, and rapid growth, traditional private willingness to remain on the networks that senior management equity firms will look for a strong platform, and future growth plans. have developed over their tenure management team to navigate the in the industry. These ties become landscape. Although venture capital Prior experience invaluable in the daily operations has successfully entered the esports of the business as they help to industry and will have a greater Prior experience is a strong factor, as maintain consistent suppliers, understanding of the space, a majority of the potential investors rates, and other factors that would management will be able to provide will not have deep experience in be subject to variation to new key insights on any major shifts that esports. Industry experience not only market entrants. These networks may arise. As suggested previously, allows management to adeptly react are often even more difficult to all these factors are amplified by the to changes in the market, but it also develop and maintain in a young, nascent aspect of the esports helps when planning future growth dynamic industry, which suggests industry, which further stresses the alternatives. For example, two ways that a connected management importance of a strong management that private equity firms may team in the esports space can team. For traditional private equity attempt to increase revenue in provide significant value. firms, having confidence in the portfolio companies are through new decision-making capabilities and product lines or further penetration These factors reinforce a desire for vision of a management team can of existing markets. The individuals a strong management team and as offer confidence as the firm explore most suited to decide which avenue such, in determining the viability of investments. This holds true across to explore is management, as they an investment, venture capital and the entire esports industry – team have been operating in the industry private equity firms should ensure organizations, developers, event and will understand the needs of that management is willing to coordinators, consumer products, their customer base, further remain on the platform for the and media and advertising all require demonstrating the value of an investment period. Management’s

43 The rise of esports investment | Dynamics

willingness to remain on the platform process comes into play with respect allows for a continuity in culture, to the company’s historical Valor Equity invests in vision, and relationships that helps financials. The potential investor will Cloud9 minimize any potential disruptions in work to verify and confirm the the business’ daily operations. accuracy of the financials provided The largest investment Therefore, if management is unwilling to-date and aim to ensure that all into an esports team to remain on the platform the items are accounted for. This organization likelihood of continued interest in the process is important, as the final target company from venture capital financial figures delivered to the The $50M USD Series B investment and traditional private equity firms is investor will inform the valuation of round, led by Valor Equity Partners likely low. the company. This process may be (Valor), into Cloud9 Esports, Inc. less relevant for venture capital (Cloud9) was the largest Industry dynamics investors, relative to private equity, investment into an esports team as venture capital firms seek to to-date and included two other The historical and future growth of invest in early-stage companies that investment firms, Reimagined the target company’s industry is also often lack significant historical data. Ventures and TrueBridge Capital a key component of the diligence For this reason, those firms initially Partners.(254) process. directing capital into the esports industries, beginning around 2014, Founded in 2013 by Jack and An investor should seek to ensure were venture capital.(252) As private Paullie Etienne, Cloud9 generated that the macroeconomic trends of the equity firms increasingly begin to revenue on its first day of industry are favorable as a downturn enter the space financial due operations through immediately in the sector can have significant diligence will be of growing securing sponsorship adverse effects on the performance of importance. Private equity firms will agreements.(255) This success has the business. Through market track and verify historical figures continued, and under Etienne’s research and management with an ideal target company management, Cloud9 expanded to discussions, venture capital and typically offering consistent, year- multiple games . As the team grew private equity firms can develop an over-year revenue growth. In in both size and revenue it informed opinion on the future of the addition to top-line growth, private developed a strong, loyal fan base industry in question. equity firms typically look for margin that helped lock down sponsorships improvement – as growing revenue and drive merchandise sales. Only This component of diligence continues while simultaneously reducing two years after inception, Cloud9 to favor the esports industry as operating costs signals that the was valued at $30.2M – the second current market research suggests target company is achieving most valuable esports team, behind strong and continued growth. In a operational efficiencies. This Fnatic at $42.6M.(256) similar manner, the potential investor diligence stream is most relevant to aims to diligence the size of the product-based esports companies as With this investment Valor, addressable market. If the target a majority of the professional TrueBridge Capital Partners, and company has already addressed or esports teams have yet to Reimagined Ventures were able to served a majority of the existing demonstrate profitability on a break into one of the fastest market, then the room for additional consistent basis. growing industries with an iconic market penetration may become a and respected brands. Valor’s concern. Venture capital and private Working capital entrenched position in the equity firms are looking to create consumer and technology sector additional value through their Working capital, defined as current offers a unique perspective that investments and a target company operating assets less current Cloud9 is positioned to leverage. that doesn’t offer a strong runway for operating liabilities, is a critical growth is likely not an ideal portion of the financial due Furthermore, this investment candidate. In relation to the esports diligence. The target working capital, helped establish Cloud9 as the industry, the addressable market has which is agreed upon by both most valuable esports team in the proven to be sizable and growing.(251) parties, is a figure that represents world, at an estimated $310M.(257) the normal level of working capital In this case, the alignment of Quality of financials in a business and will ultimately incentives and opportunity forged a adjust the final purchase price. If at partnership that benefited all Another key piece of the diligence close the working capital parties involved.

44 The rise of esports investments | Dynamics

delivered is less than the target, the it is evident that they play an sustainability of these contracts. In seller will pay the buyer, and if it’s extraordinarily important role in this case, a favorable contract is greater than the target then the esports. Major influencers can help typically longer-term and offers the buyer will pay the seller.(253) Due to propel a partnered brand forward target company the ability to renew the fact that the esports space has based on their reach and audience the contract. only recently become viable from a alone. Therefore, the potential traditional investment standpoint, investor will want to diligence these Across both sponsorship and most of the target companies will contracts in-depth. partnership contracts is the need to have not had the time or capital to determine the value they offer the generate significant operating Partnerships are important for target company – if the overall assets product-based esports exposure or revenue offered by any organizations as they can offer given contract is not offset by the or liabilities, which can reduce the significant brand exposure on a relevant costs, then a potential overall importance of this metric. As global scale. investor may signal the contract as the target working capital figure problematic and seek to have it grows, assuming all else constant, Furthermore, when discussing renegotiated or terminated in the the larger the purchase price product partnerships, investors will consideration of an investment. adjustment. Therefore, this look to see if the related contracts diligence stream may not presently offer reasonable terms to the target The due diligence process serves to be a key consideration for many company. For example, a contract confirm the initial investment thesis esports companies, but will likely that dictates significant revenue of the venture capital or private become more relevant as the share over a long period of time equity firm. There is continuous and industry grows. may raise concerns, while a short- open dialogue between parties term contract with an up-front fee throughout each diligence stream Influencer relationships or small revenue share will likely be and as problems arise, solutions viewed favorably. For professional can also be reached. At the close of A diligence stream specific to the esports teams, sponsorships are a all diligence items the investor and esports space relates to the key component to the diligence target company can move forward contracts and agreements in place process as they may offer the only and close the deal, forming a new between sponsors and partners. consistent revenue stream outside partnership. Although nearly every major of merchandise sales. Thus, it’s in industry enlists the use of both the investors interest to verify and sponsors and partners, determine the future

Several key takeaways for esports investments As esports companies consider the pursuit of additional capital the following takeaways are important to consider in order to achieve a successful investment process.

▪ When investing in the ▪ To entice traditional private ▪ Sponsorship and influencer esports industry, investors equity partners, esports contracts remain an will look for strong companies should important diligence item management teams that demonstrate several years across investor type and have a good understanding of performance to the demonstrated of the space and the vision demonstrate the business stickiness of these and capabilities to further concept and operational relationships will likely be expand the business. viability. an important topic during the investment process.

45 The rise of esports investment | Sources Sources cited

1. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 2. Ibid. 3. Ibid. 4. E.J. Schultz, “Are You Game?” AdAge, https://adage.com/article/news/e-sports/308447/. 5. The Esports Observer, “The Average Age of Esports Viewers is Higher than You May Think, says GameScape from Interpret, LLC”, February 24, 2017, https://esportsobserver.com/average-age-esports-viewers-gamescape/. 6. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 7. Ibid. 8. Scott Merill, “Recession Strikes PC Sales” TechCrunch, https://techcrunch.com/2009/01/18/recession-strikes-pc-sales/. 9. Newzoo, “Esports Conference Slides” 2015, https://newzoo.com/wp-content/uploads/2011/06/Newzoo-eSports- Conference-Slides-2015.pdf. 10. S&P Capital IQ, https://www.capitaliq.com, accessed April 5, 2019. Data as of April 5, 2019. 11. Donna Tam, “Amazon to Buy Live-stream Gaming Site Twitch for $970M” CNET, August 25, 2014, https://www.cnet.com/news/amazon-to-buy-live-stream-gaming-site-twitch/. 12. Dean Takahashi, “Google's $1B purchase of Twitch” VentureBeat, July 24, 2014, https://venturebeat.com/2014/07/24/googles-1b-purchase-of-twitch-confirmed-joins-youtube-for-new-video-empire/. 13. Dan Pearson, “Modern Times Group acquires majority stake in ESL for €78m” Gamesindustry.biz, July 1, 2015, https://www.gamesindustry.biz/articles/2015-07-01-modern-times-group-acquires-majority-stake-in-esl-for-usd78m. 14. Logitech, “Logitech to Acquire ASTRO Gaming” July 11, 2017, https://ir.logitech.com/press-releases/press-release- details/2017/Logitech-to-Acquire-ASTRO-Gaming-Adding-Console-Gaming-Headsets-to-its-Position-as-the-1-Maker-of- PC-Gaming-Gear/default.aspx. 15. Matt Perez, “Esports Company Cloud9 Raises $50 Million in Series B Funding” Forbes, October 15, 2018. https://www.forbes.com/sites/mattperez/2018/10/15/esports-company-cloud9-raises-50-million-in-series-b- funding/#a57f3693dd32. 16. Lucas Matney, “Gaming chat startup Discord raises $150M, surpassing $2B valuation” TechCrunch, https://techcrunch.com/2018/12/21/gaming-chat-startup-discord-raises-150m-surpassing-2b- valuation/?guccounter=1&guce_referrer_us=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_cs=XHTrJqxhOqh1m t6uQVO_rQ. 17. Jeff Grub, “Turtle Beach acquires Roccat” VentureBeat, https://venturebeat.com/2019/03/15/turtle-beach-acquires-pc- peripheral-company-roccat/ 18. MTG, “MTG Acquires DreamHack” November 12, 2015, https://www.mtg.com/press-releases/mtg-acquires-dreamhack/. 19. John Gaudiosi, “Activision Blizzard Acquires MLG” Fortune, January 4, 2014, http://fortune.com/2016/01/04/activision- blizzard-acquires-mlg/. 20. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 21. Ben Fischer, “UPDATE: Activision Blizzard Launches Esports Division With Three Hires” The Esports Observer, March 16, 2018, https://esportsobserver.com/activision-blizzard-esports-division-hires/ 22. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 23. Ibid. 24. Ibid. 25. Dean Takahashi, “Epics.gg Raises $2M for Esports Digital Trading Cards” VentureBeat, January 31, 2018, https://venturebeat.com/2018/01/31/epics-gg-raises-2-million-for-esports-digital-trading-cards/ 26. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 27. Ibid.

46 The rise of esports investments | Sources Sources cited, (cont.)

28. Sara Elsam, “AI Games Coaching Start-Up Visor Raises $4.7M” The Esports Observer, August 15, 2018, https://esportsobserver.com/visor-series-a-funding/. 29. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 30. Ibid. 31. Ibid. 32. Mike Minotti, “Fortnite maker Epic Games raises a landmark $1.25 billion” VentureBeat, October 26, 2018 https://venturebeat.com/2018/10/26/fortnite-makers-epic-games-raises-a-landmark-1-25-billion/. 33. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 34. GlobalWebIndex “Esports, Trend Review” 2018 https://cdn2.hubspot.net/hubfs/304927/Downloads/Esports- report.pdf?t=1528372092399 35. Jacob Wolf, “Overwatch League” ESPN, June 6, 2018, http://www.espn.com/esports/story/_/id/23464637/overwatch- league-expansion-slots-expected-30-60-million 36. Matt Perez, “Esports Company Cloud9 Raises $50 Million in Series B Funding” Forbes, October 15, 2018. https://www.forbes.com/sites/mattperez/2018/10/15/esports-company-cloud9-raises-50-million-in-series-b- funding/#a57f3693dd32. 37. Tim Cato, “How much did each NBA owner pay to buy their teams?” September 5, 2017, https://www.sbnation.com/nba/2017/9/5/16255168/nba-teams-sold-highest-record-price-all-30 38. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 39. Timmy Shen, “Tencent invests in two game streaming platforms in one day: Huya & Douyu” Technode, March 9, 2018 https://technode.com/2018/03/09/game-streaming-site-huya-pockets-461-m-from-tencent/. 40. Mike Minotti, “Fortnite maker Epic Games raises a landmark $1.25 billion” VentureBeat, October 26, 2018 https://venturebeat.com/2018/10/26/fortnite-makers-epic-games-raises-a-landmark-1-25-billion/. 41. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 42. Ibid. 43. Ibid. 44. Austen Goslin, “Why Blizzard’s controversial decision to force Overwatch League teams to rebrand makes sense” August 30, 2017, https://www.heroesneverdie.com/2017/8/30/16221400/overwatch-league-teams-rebrand-cities. 45. Ibid. 46. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 47. Alec Moylan, “Esports Apparel: The Direction Gaming Fashion is Headed” Esports Talk, November 2, 2018 https://www.esportstalk.com/blog/esports-apparel-9601/ 48. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 49. Mike Ozanian, Christina Settimi, and Matt Perez, “The World’s Most Valuable Esports Companies” Forbes, October 23, 2018, https://www.forbes.com/sites/mikeozanian/2018/10/23/the-worlds-most-valuable-esports-companies- 1/#181ee20e6a6e. 50. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 51. Ibid. 52. Ibid.

47 The rise of esports investment | Sources Sources cited, (cont.)

53. Mateusz Kaliski, “Who Holds the Cards: How Developer Control in Esports Can Impact the Ecosystem” Medium, March 5, 2018 https://medium.com/@matkaliski/who-holds-the-cards-how-developer-control-in-esports-can-impact-the- ecosystem-8cb1589c5c67 54. Tom Wijam, “Top 25 Public Game Companies Earn $94.1 Billion in 2017” Newzoo, May 9, 2018, https://newzoo.com/insights/articles/top-25-public-game-companies-earn-94-1-billion-in-2017/. 55. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 56. Activision Blizzard, “Activision Blizzard To Acquire King Digital Entertainment for $5.9 Billion” November 2, 2015, https://investor.activision.com/news-releases/news-release-details/activision-blizzard-acquire-king-digital- entertainment-59. 57. Andrew Liptak “Bungie gets $100 million investment from Chinese gaming company NetEase” The Verge, June 3, 2018, https://www.theverge.com/2018/6/3/17422410/bungie-netease-100-million-investment-china-destiny-business. 58. S&P Capital IQ. https://www.capitaliq.com, accessed April 5, 2019. Data as of April 5, 2019. 59. Niko Partners, “Predictions for the Asia Games Market” https://nikopartners.com/2019-predictions-for-the-asia-games- market/. 60. Haydn Taylor, “Loot Boxes in Belgium” Gamesindustry.biz, August 28, 2018, https://www.gamesindustry.biz/articles/2018-08-28-blizzard-locks-sale-of-real-money-loot-boxes-in-belgium 61. Mike Minotti, “Fortnite maker Epic Games raises a landmark $1.25 billion” VentureBeat, October 26, 2018 https://venturebeat.com/2018/10/26/fortnite-makers-epic-games-raises-a-landmark-1-25-billion/. 62. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 63. Adam Fitch, “DreamHack announces full event line-up for 2019” Esports Insider, December 10, 2018, https://esportsinsider.com/2018/12/dreamhack-2019-events/. 64. Great Value Smash, http://greatvaluesmash.com/. 65. VP Esports, “DreamHack Expands its Borders – Incoming to India” September 28, 2018, https://www.vpesports.com/dota2/dreamhack-expands-its-borders-incoming-to-india/. 66. Haydn Talyor, “Riot Games announces UK as home to first League of Legends regional championship” Gamesindustry.biz, January 23, 2019, https://www.gamesindustry.biz/articles/2019-01-23-riot-games-announces-uk- as-first-league-of-legends-regional-championship-with-others-spinning-up-around-Europe. 67. Amanda Hurych “First Dota 2 Major in France to be co-hosted by Mars Media and Disneyland Paris” March 7, 2019, https://www.axs.com/first-dota-2-major-in-france-to-be-co-hosted-by-mars-media-and-disneyl-137246 68. David Malone, “Gamers Paradise: The Rise of Esports Arenas” January 18, 2018, https://www.bdcnetwork.com/gamers- paradise-rise-esports-arenas. 69. Ibid. 70. Biz Journals, “SeventySix Capital Invests in N3rd Street Gamers” October 18, 2017, https://www.bizjournals.com/philadelphia/news/2017/10/18/seventysix-capital-n3rd-street-game-esports.html. 71. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 72. Ibid. 73. Ibid. 74. Adam Fitch, “RFRSH Entertainment raises €10 million following funding round” Esports Insider, November 13, 2018 https://esportsinsider.com/2018/11/rfrsh-entertainment-funding-round/. 75. Ibid. 76. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 77. S&P Capital IQ, https://www.capitaliq.com, accessed April 5, 2019. Data as of April 5, 2019. 78. Ibid. 79. Ibid.

48 The rise of esports investments | Sources Sources cited, (cont.)

80. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 81. Dean Takahashi, “Smash.gg raises $11 million for esports tournament platform” VentureBeat, August 2, 2017, https://venturebeat.com/2017/08/02/smash-gg-raises-11-million-for-esports-tournament-platform/. 82. Ibid. 83. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5 2019. 84. Eoin Bathurst “Challengermode Raises $1.3M Capital Investment, Zlatan Ibrahimović Listed as Investor” The Esports Observer, February 27, 2017, https://esportsobserver.com/challengermode-investment-ibrahimovic/. 85. Ibid. 86. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 87. Timmy Shen, “Tencent invests in two game streaming platforms in one day: Huya & Douyu” Technode, March 9, 2018 https://technode.com/2018/03/09/game-streaming-site-huya-pockets-461-m-from-tencent/. 88. Venture Beat, “Newzoo: Esports could hit 380 million fans and $909 million in revenues in 2018” February 21, 2018, https://venturebeat.com/2018/02/21/newzoo-esports-could-hit-380-million-fans-and-906-million-in-revenues-in-2018/. 89. The Esports Observer, “The Average Age of Esports Viewers is Higher than You May Think, says GameScape from Interpret, LLC”, February 24, 2017, https://esportsobserver.com/average-age-esports-viewers-gamescape/. 90. TwitchTracker, https://twitchtracker.com/statistics. Accessed April 5, 2019. 91. SuperData, A Nielsen Company. “2018 Year in Review: Digital Games and Interactive Media,” https://www.superdataresearch.com/market-data/market-brief-year-in-review/. 92. The Esports Observer, “Audi Denmark and Astralis Reunite For Permanent Jersey Partnership” November 20, 2017, https://esportsobserver.com/audi-astralis-reunite/. 93. Bleeding Cool, “KFC Partners with Twitch for a PlayerUnknown’s Battlegrounds Event” March 22, 2018, https://www.bleedingcool.com/2018/03/22/kfc-partners-with-twitch-for-a-playerunknowns-battlegrounds-event/. 94. Upfluence, “Announcing Upfluence’s $3.6M Series A Funding,” September 4, 2018, https://upfluence.com/software/series-a-funding. 95. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 96. Ibid. 97. Ibid. 98. Timmy Shen, “Tencent invests in two game streaming platforms in one day: Huya & Douyu” Technode, March 9, 2018 https://technode.com/2018/03/09/game-streaming-site-huya-pockets-461-m-from-tencent/. 99. The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 100.TwitchTracker, https://twitchtracker.com/statistics. Accessed April 5, 2019. 101.The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 102.The Esports Observer, “Stream Elements Closes $11.3M Series A Funding Round” January 24, 2019, https://esportsobserver.com/streamelements-series-a-funding/. 103.Techcrunch, “Gaming chat startup Discord raises $150M, surpassing $2B valuation” February 2019, https://techcrunch.com/2018/12/21/gaming-chat-startup-discord-raises-150m-surpassing-2b-valuation/. 104.Ibid. 105.Variety, “Discord Turns Three, Hits 130 Million User Milestone” May 15, 2018, https://variety.com/2018/gaming/news/discord-turns-three-1202810983/.

49 The rise of esports investment | Sources Sources cited, (cont.)

106.Kurt Schlosser, “Taunt esports startup raises $3M to build new platform for fan interaction” GeekWire, June 28, 2018, https://www.geekwire.com/2018/game-changing-esports-startup-taunt-raises-3m-builds-new-platform-fan-interaction/ 107.Alec Moylan, “Esports Apparel: The Direction Gaming Fashion is Headed” Esports Talk, November 2 2018 https://www.esportstalk.com/blog/esports-apparel-9601/ 108.Silverwood Partners, “What is the Equity Market Rewarding?” September 2018. 109.Logitech, “Logitech to Acquire ASTRO Gaming” July 11, 2017, https://ir.logitech.com/press-releases/press-release- details/2017/Logitech-to-Acquire-ASTRO-Gaming-Adding-Console-Gaming-Headsets-to-its-Position-as-the-1-Maker-of- PC-Gaming-Gear/default.aspx. 110.Owler, “ASTRO Gaming Revenue” https://www.owler.com/company/astrogaming. 111.Logitech, “2018 Annual Report” https://s1.q4cdn.com/104539020/files/doc_financials/annual/Logitech-2018-Annual- Report.pdf. 112.Statista, “Esports Revenue Worldwide” https://www.statista.com/statistics/490522/global-esports-market-revenue/. 113.Cision, “Global PC Market Forecast” February 19, 2018 https://www.prnewswire.com/news-releases/global-pc-market- 2017---forecast-to-2023-300600552.html. 114.Ibid. 115.VentureBeat, “Esports and PC Hardware Growth” January 12, 2018 https://venturebeat.com/2018/01/12/esports-and- pc-hardwares-growth-is-like-peanut-butter-and-jelly/. 116.Logitech, “Logitech to Acquire ASTRO Gaming” July 11, 2017, https://ir.logitech.com/press-releases/press-release- details/2017/Logitech-to-Acquire-ASTRO-Gaming-Adding-Console-Gaming-Headsets-to-its-Position-as-the-1-Maker-of- PC-Gaming-Gear/default.aspx. 117.Headphonesty, “10 Best Fortnite Streamers and Their Gaming Headsets” September 26, 2018, https://www.headphonesty.com/2018/03/best-fortnite-streamers-and-their-gaming-headsets/ 118.Top streamers based on total viewership hours. 119.Logitech, “2018 10K” https://s1.q4cdn.com/104539020/files/doc_financials/annual/Logitech-2018-10K.pdf. 120.Ibid. 121.Anton Shilov, “Logitech Acquires ASTRO Gaming, Strengthen Portfolio of Headsets for Consoles” AnandTech, July 14, 2017, https://www.anandtech.com/show/11638/logitech-acquires-astro-gaming. 122.Ibid. 123.Logitech, “2018 Annual Report” https://s1.q4cdn.com/104539020/files/doc_financials/annual/Logitech-2018-Annual- Report.pdf. 124.Logitech, “2018 10K” https://s1.q4cdn.com/104539020/files/doc_financials/annual/Logitech-2018-10K.pdf. 125.Jeff Grub, “Turtle Beach acquires Roccat” VentureBeat, https://venturebeat.com/2019/03/15/turtle-beach-acquires-pc- peripheral-company-roccat/ 126.EagleTree Capital, “Eagle Tree Capital Buys Majority Share in CORSAIR” July 26, 2017, http://www.eagletree.com/eagletree-capital-buys-majority-share-corsair-transaction-valued-525-million/. 127.Logitech, “Logitech to Acquire ASTRO Gaming” July 11, 2017, https://ir.logitech.com/press-releases/press-release- details/2017/Logitech-to-Acquire-ASTRO-Gaming-Adding-Console-Gaming-Headsets-to-its-Position-as-the-1-Maker-of- PC-Gaming-Gear/default.aspx. 128.Logitech, “Logitech acquires Saitek simulation product line from Mad Catz” September 15, 2016 https://news.logitech.com/press-release/corporate/logitech-acquires-saitek-simulation-product-line-mad-catz. 129.Lauren Goode, “Logitech buys Jaybird for $50 million” April 12, 2016, https://www.theverge.com/2016/4/12/11418650/logitech-buys-headphone-maker-jaybird-for-50-million-acquisition 130.The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 131.Ibid. 132.Goldman Sachs “Esports From Wild West to Mainstream” October 12, 2018, https://www.goldmansachs.com/insights/pages/infographics/e-sports/report.pdf. 133.Venture Beat, “Newzoo: Esports could hit 380 million fans and $909 million in revenues in 2018” February 21, 2018, https://venturebeat.com/2018/02/21/newzoo-esports-could-hit-380-million-fans-and-906-million-in-revenues-in-2018/.

50 The rise of esports investments | Sources Sources cited, (cont.)

134.The Esports Observer, “The Average Age of Esports Viewers is Higher than You May Think, says GameScape from Interpret, LLC”, February 24, 2017, https://esportsobserver.com/average-age-esports-viewers-gamescape/. 135.Purpose Generation, “Streaming the Future: Millennials and Media” February 25, 2015, https://www.purposegeneration.com/buzz/article/streaming-the-future-millennials-and-media. 136.AList Daily, “Why Non-Endemic Brands Are Investing In Esports” January 12, 2017, https://www.alistdaily.com/strategy/why-non-endemic-brands-are-investing-in-esports/. 137.Ibid. 138.The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5 2019. 139.Forbes, “Esports Leagues Set to Level Up With Permanent Franchises” October 3, 2017, https://www.forbes.com/sites/kurtbadenhausen/2017/10/03/esports-leagues-grow-up-with-permanent- franchises/#1e87a30021d6. 140.Forbes, “G2 Esports Raises $17.3 Million In a Series A Funding Round” February 26, 2019, https://www.forbes.com/sites/mattperez/2019/02/26/g2-esports-raises-17-3-million-in-series-a- funding/#3adb61aa7492. 141.USA Today, “Esports go mainstream, but are high schools ready to buy in?” March 31, 2019, https://www.lohud.com/story/sports/high-school/2019/03/27/new-york-and-new-jersey-exploring-addition-high-school- esports/3003251002/. 142.TechCrunch, “With investors knocking, PlayVS opens the door to a $30M Series B” December 2018, https://techcrunch.com/2018/11/20/with-investors-knocking-playvs-opens-the-door-to-a-30m-series-b/. 143.Newzoo, “Esports Reaches Tipping Point as Media Brands Scramble to Get Involved,” https://newzoo.com/insights/articles/esports-reaches-tipping-point-media-brands-scramble-get-involved/. 144.TechCrunch, “NBA All-Star Michael Jordan leads a $26 million round for esports group aXiomatic,” https://techcrunch.com/2018/10/25/nba-all-star-michael-jordan-leads-a-26-million-round-for-esports-group-axiomatic/. 145.The Verge, “Drake now co-owns a professional e-sports organization” October 23, 2018, https://www.theverge.com/2018/10/23/18015534/drake-nadeshot-esports-fortnite-100-thieves-scooter-braun. 146.Gamesindustry.biz, “Overwatch League franchise spots for next season could be worth up to $60m” July 30, 2018, https://www.gamesindustry.biz/articles/2018-07-30-overwatch-league-franchise-spots-could-be-worth-up-usd60m. 147.Modern Times Group, “MTG completes the acquisition of Turtle Entertainment” September 1, 2015, https://www.mtg.com/press-releases/mtg-completes-the-acquisition-of-turtle-entertainment/. 148.Modern Times Group, “MTG acquires DreamHack” November 12, 2015, https://www.mtg.com/press-releases/mtg- acquires-dreamhack/. 149.Digital TV Europe, “Gaming boosts MTGx as Modern Times Group preps for Split” July 18, 2018, https://www.digitaltveurope.com/2018/07/18/gaming-boosts-mtgx-as-modern-times-group-preps-for-split/. 150.ACXIT, “MTG Acquires 74% of Turtle Entertainment” July 1, 2015, https://www.acxit.com/en/mtg-esl/. 151.Modern Times Group, “MTG acquires DreamHack” November 12, 2015, https://www.mtg.com/press-releases/mtg- acquires-dreamhack/. 152.Modern Times Group, “MTG Annual Report 2017” March 2018, https://www.mtg.com/wp- content/uploads/2018/03/MTG-Annual-Report-2017.pdf. 153.Modern Times Group, “Plan to split MTG into two listed companies” March 23, 2018, https://www.mtg.com/wp- content/uploads/2018/03/MTG-to-split-in-two-Investor-presentation.pdf. 154.Ibid. 155.The Esports Observer, “ESL and DreamHack Parent Company, MTG, to Split Into Two Listed Entities,” March 23, 2018, https://esportsobserver.com/mtg-to-split-into-two-companies/. 156.The Esports Observer, “MTG Adds Co-CEO to DreamHack Ahead of Demerger,” May 16, 2018, https://esportsobserver.com/mtg-adds-co-ceo-dreamhack/. 157.Esports.com, “MTG boosts stake in Turtle Entertainment to 82.48%,” October 2, 2018, https://www.esports.com/news/mtg-boosts-stake-in-turtle. 158.Modern Times Group, “MTG Annual Report 2017” March 2018, https://www.mtg.com/wp- content/uploads/2018/03/MTG-Annual-Report-2017.pdf. 159.Ibid.

51 The rise of esports investment | Sources Sources cited, (cont.)

160.Brandon Brathwaite, “Modern Times Group Increases Investment in Turtle Entertainment, ESL” The Esports Observer, October 1, 2018, https://esportsobserver.com/mtg-increases-investement-esl/ 161.Esports.com, “MTG boosts stake in Turtle Entertainment to 82.48%,” October 2, 2018, https://www.esports.com/news/mtg-boosts-stake-in-turtle 162.The Esports Observer, “ESL Parent Company MTG Reports 32% Esports Sales Rise for Q1 2018” April 24, 2018, https://esportsobserver.com/mtg-sales-rise-q1/. 163.Modern Times Group, “MTG Annual Report 2017” March 2018, https://www.mtg.com/wp- content/uploads/2018/03/MTG-Annual-Report-2017.pdf. 164.Ibid. 165.Ibid. 166.Ibid. 167.Modern Times Group, “Q1 2018 Interim Report January-March” 2018, http://mb.cision.com/Main/56/2501345/826233.pdf. 168.Ibid. 169.Modern Times Group, “Q4 2018 Full year report January-December” 2018, https://mb.cision.com/Main/56/2731924/985710.pdf. 170.Ibid. 171.Ibid. 172.Modern Times Group, “MTG to split into two companies” 2019, https://www.mtg.com/mtg-nordic-entertainment-split/. 173.Modern Times Group, “MTG to sell Hungarian free-TV channels” February 11, 2015, https://www.mtg.com/press- releases/mtg-to-sell-hungarian-free-tv-channels-2/. 174.SportsPro, “MTG sells Nova to PPF Group,” February 20, 2018, www.sportspromedia.com/news/mtg-sells-nova-ppf- group. 175.C21 Media, “MTG selling Trace amid shift away from TV,” January 19, 2018, https://www.c21media.net/mtg-selling- trace-amid-shift-away-from-tv/. 176.Modern Times Group, “MTG backs premiere gaming and interactive entertainment start-ups,” December 4, 2018, https://www.mtg.com/press-releases/mtg-backs-premiere-gaming-and-interactive-entertainment-start-ups/. 177.Esports Insider, “ESL announces ‘simpler, more power’ rebrand,” February 14, 2019, https://esportsinsider.com/2019/02/esl-rebrands/. 178.Engadget, “The pro ‘Starcraft’ scene is alive and well,” August 1, 2017, https://www.engadget.com/2017/08/01/starcraft-esports-resurgence/. 179.Venture Beat, “SuperData: Hearthstone reigns over forecasted $1.5 billion digital card game market,” August 2, 2018, https://venturebeat.com/2018/08/02/superdata-hearthstone-reigns-over-forecasted-1-5-billion-digital-card-game- market/. 180.Fortune, “How the Overwatch League is Breaking the Rules of E-Sports,” September 5, 2018, https://www.fortune.com/2018/09/05/overwatch-league/. 181.Blizzard Entertainment, “Heroes of the Storm News…,” December 13, 2018, https://news.blizzard.com/en- us/blizzard/22833558/heroes-of-the-storm-news. 182.Polygon, “Heroes of the Storm takes inspiration from League of Legends in 2017 esports plans,” September 22, 2016, https://www.polygon.com/2016/9/22/13017690/heroes-of-the-storm-global-championship-hgc-esports-league- promotion-relegation. 183.Esports Earnings, “Top Games Awarding Prize Money,” https://www.esportsearnings.com/games. 184.The Esports Observer, “BlizzCon Esports: A Twitch Viewership Breakdown,” November 9, 2018, https://esportsobserver.com/blizzcon-esports-viewership-breakdown/. 185.Polygon, “MOBA, DOTA, ARTS: A Brief introduction to gaming’s biggest, most impenetrable genre,” September 2, 2013, https://www.polygon.com/2013/9/2/4672920/moba-dota-arts-a-brief-introduction-to-gamings-biggest-most. 186.XY Gaming, “Top 5 Largest Esports Games & Their Prize Pools,” March 27, 2018, http://www.xygaming.com/content/top-5-largest-esports-games-prize-pools/. 187.Medium, “Legendary: The Story of League of Legends from 2009-2018,” August 9, 2018, https://medium.com/@williamlim3/legendary-the-story-of-league-of-legends-from-2009-2018-68c578a0563f. 188.Kotaku, “Valve Finally ‘Releases’ DOTA 2,” July 9, 2013, https://kotaku.com/valve-finally-releases-dota-2-725489527. 189.Kotaku, “Smite Officially Releases in march,” November 27, 2013, https://www.kotaku.com.au/2013/11/aw-hel-hi-rez- studios-smite-is-officially-releasing-on-march/.

52 The rise of esports investments | Sources Sources cited, (cont.)

190.Heroes of the Storm, “Heroes of the Storm Open Beta Testing Begins,” May 19, 2015, https://heroesofthestorm.com/en-us/blog/19162955/heroes-of-the-storm-open-beta-testing-begins-5-19-2015/. 191.The Boston Globe, “After two months, ‘Infinite Crisis’ announces shutdown,” June 4, 2015, www.betaboston.com/news/2015/06/04/after-two-monthsinfinite-crisis-announces-shutdown/?p1=Stories_By. 192.Polygon, “Dawngate, EA’s version of League of Legends, canceled after six-month open beta,” November 4, 2014, https://www.polygon.com/2014/11/4/7156941/dawngate-canceled-after-six-month-open-beta. 193.Gamers Decide, “Top 10 Most Played MOBA Games (2019 Edition),” February 14, 2019, https://www.gamersdecide.com/articles/top-10-most-played-mobas. 194.Venture Beat, “Why Blizzard says Heroes of the Storm is a ‘hero brawler’,” April 22, 2014, https://venturebeat.com/2014/04/22/why-blizzard-says-heroes-of-the-storm-is-a-hero-brawler/. 195.IGN, “Heroes of the Storm: The Tactics and Teamwork Behind Blizzard’s Brawler,” November 11, 2013, https://www.ign.com/articles/2013/11/11/heroes-of-the-storm-the-tactics-and-teamwork-behind-blizzards-brawler. 196.Destructoid, “Heroes of the Storm is a MOBA for people who hate MOBAs,” March 15, 2014, https://www.destructoid.com/heroes-of-the-storm-is-a-moba-for-people-who-hate-mobas-271910.phtml. 197.Medium, “Analyzing Hero League: The reason it is frustrating and what can Blizzard do about it,” November 1, 2017, https://medium.com/@Mortal_Phantom/analyzing-hero-league-the-reason-it-is-frustrating-and-what-can-blizzard-do- about-it-cf38455fc617. 198.Heroes of the Storm, “Storm Heroes: Cloud9 Maelstrom Rises in North America,” August 4, 2015, https://heroesofthestorm.com/en-us/blog/19819247/storm-heroes-cloud9-maelstrom-rises-in-north-america-05-08- 2015/. 199.The Esports Observer, The State of the HGC, Blizzard’s Other Esports League,” June 7, 2018, https://esportsobserver.com/state-of-the-hgc/. 200.Home, Hearth, & Heroes, “Quick Match Made Me Dumb! How HOTS Teaches You the Wrong Lessons From Minute One!,” January 4, 2018, https://heroeshearth.com/b/trentesports/read/quick-match-made-me-dumb-how-hots-teaches-you- the-wrong-lessons-from-minute-one/. 201.The Esports Observer, “Esports Essentials: League of Legends and the Rise of MOBA Esports,” September 12, 2018, https://esportsobserver.com/esports-essentials-league-of-legends/. 202.Heroes of the Storm, “Blizzcon 2014 Heroes of the Storm Esports,” November 8, 2014, https://heroesofthestorm.com/en-us/blog/16607666/. 203.Heroes of the Storm, “Heroes of the Storm World Championship Announced,” May 14, 2015, https://heroesofthestorm.com/en-us/blog/19127984/. 204.The Score, “Cloud9 disband HotS roster, cut competitive ties with scene,” June 9, 2016, https://www.thescoreesports.com/hots/news/8378-cloud9-disband-hots-roster-cut-competitive-ties-with-scene. 205.Cybersport, “Virtus.pro close down HotS unit,” June 30, 2016, https://www.cybersport.ru/hots/news/virtus-pro- prekrashchayut-rabotu-s-heroes-of-the-storm. 206.ESPN, “Team Liquid leaves Heroes of the Storm,” December 16, 2016, www.espn.com/esports/story/_/id/18293978/team-liquid-leaves-heroes-storm. 207.Esports Charts, “The short story of HGC and HotS esports,” December 20, 2018, https://escharts.com/blog/HGC- history. 208.Heroes of the Storm, “Standings,” https://esports.heroesofthestorm.com/en-us/standings). 209.Esports Charts, “The short story of HGC and HotS esports,” December 20, 2018, https://escharts.com/blog/HGC- history. 210.Esports Earnings, “Heroes of the Storm,” January 27, 2019, https://www.esportsearnings.com/games/371-heroes-of- the-storm/summary. 211.Esports Charts, “The short story of HGC and HotS esports,” December 20, 2018, https://escharts.com/blog/HGC- history. 212.Blizzard Entertainment, “Teams,” https://esports.heroesofthestorm.com/en-us/teams. 213.Geek, “How the hell is Super Smash Bros. Melee still this popular?” July 19, 2016, https://www.geek.com/tech/how- the-hell-is-smash-bros-melee-still-this-popular-1662268/. 214.Media Kix, “How Much Do Top Twitch Streamers Make?” November 2, 2018, http://mediakix.com/2018/09/how-much- do-twitch-streamers-make/#gs.499ssn. 215.Vox, “Laura Lee, Jeffree Star, and the racism scandal upending the YouTube beauty community, explained,” August 31, 2018, https://www.vox.com/2018/8/28/17769996/laura-lee-jeffree-star-racism-subscriber-count. 216.The New Yorker, “The Fyre Festival Was a Luxury Nightmare,” April 28, 2017, https://www.newyorker.com/culture/jia- tolentino/the-fyre-festival-was-a-luxury-nightmare.

53 The rise of esports investment | Sources Sources cited, (cont.)

217.Fortune, “Popular YouTube Streamer Promotes Channel That Publishes Anti-Semitic Content,” December 11, 2018, http://fortune.com/2018/12/11/pewdiepie-esemicolonr-controversy/. 218.Polygon, “Counter-Strike gambling scandal comes to an end with FTC settlement,” September 7, 2017, https://www.polygon.com/2017/9/7/16271520/csgo-lotto-scandal-counter-strike-betting-ftc-endorsement-guidelines. 219.Federal Trade Commission, “CSGO Lotto Owners Settle FTC’s First-Ever Complaint Against Individual Social Media Influencers,” September 7, 2017, https://www.ftc.gov/news-events/press-releases/2017/09/csgo-lotto-owners-settle- ftcs-first-ever-complaint-against. 220.Creative Artists Agency, “Video Games,” https://www.caa.com/entertainmenttalent/video-games. 221.The Esports Observer, “United Talent Agency Expands Into Esports with acquisition of Press X and Everyday Influencers,” June 27, 2018, https://esportsobserver.com/united-talent-agency-esports-acquisitions/. 222.Variety, “Riot Games Consulted on ‘The Simpsons’ Esports Episode,” March 16, 2019, https://variety.com/2019/gaming/news/the-simpsons-esports-riot-games-1203165046/. 223.Esports Insider, “Hip-hop and esports: a match made in heaven,” February 13, 2019, https://esportsinsider.com/2019/02/esports-hip-hop-intersection/. 224.ESPN, “Living the Stream,” September 18, 2018, http://www.espn.com/espn/feature/story/_/id/24710688/fortnite- legend-ninja-living-stream. 225.The Esports Observer, “Ninja Featured in Fortnite Esports-Themed Samsung Commercial,” October 2, 2018, https://esportsobserver.com/ninja-samsung-commercial-video/. 226.The Verge, “Fortnite star Ninja is getting his own 12-hour New Years Eve broadcast in Times Square,” October 26, 2018, https://www.theverge.com/2018/10/26/18030602/fortnite-ninja-tyler-blevins-new-york-city-times-square-new- years-eve-red-bull-event. 227.Tubefilter, “Tyler ‘Ninja’ Blevins Lands Starring Spot In Super Bowl Commercial,” February 1, 2019, https://www.tubefilter.com/2019/02/01/ninja-super-bowl-commercial/. 228.Venture Beat, “Ninja, DrLupo, and CouRage sign exclusive influencer management deals with Popdog’s Loaded,” March 7, 2019, https://venturebeat.com/2019/03/07/ninja-drlupo-and-courage-sign-exclusive-influencer-management-deals- with-popdogs-loaded/. 229.Newzoo, “Newzoo: Global Esports Economy Will Top $1 Billion for the First Time in 2019,” February 12, 2019, https://newzoo.com/insights/articles/newzoo-global-esports-economy-will-top-1-billion-for-the-first-time-in-2019/. 230.G2 Esports, “Making the Squad – World’s First Interactive Talent Show for Fortnite,” November 6, 2018, https://www.g2esports.com/fortnite-making-the-squad/. 231.Cybersport, “Team Solomid announce team house for Fortnite team,” May 13, 2018, https://cybersport.com/post/tsm- fortnite-team-house. 232.The Esports Observer, “Head & Shoulders Names Virtus.pro Dota 2 Player as Brand Ambassador,” September 25, 2018, https://esportsobserver.com/head-shoulders-virtuspro-dota/. 233.DBL Tap, “Royal Never Give Up’s Uzi Featured in New Nike Campaign,” October 18, 2018, https://www.dbltap.com/posts/6199897-royal-never-give-up-s-uzi-featured-in-new-nike-campaign. 234.Team Solo Mid, “Welcome TSM Fortnite,” February 3, 2018, https://tsm.gg/news/welcome-tsm-fortnite. 235.Socialblade, “Top 500 Twitch Streamers – Sorted by Most Followed,” https://socialblade.com/twitch/top/500/followers. 236.Team Solo Mid, “Partners,” https://tsm.gg/partners. 237.The Esports Observer, “Team SoloMid Partners With Chipotle as Fortnite House Sponsor,” May 31, 2018, https://esportsobserver.com/tsm-fortnite-house-chipotle/. 238.Epic Games, “Fortnite World Cup Details and 2019 Prize Pool Info,” February 22, 2019, https://www.epicgames.com/fortnite/competitive/en-US/news/fortnite-world-cup-details. 239.The Verge, “Fortnite’s Marshmello concert was the game’s biggest event ever,” February 21, 2019, https://www.theverge.com/2019/2/21/18234980/fortnite-marshmello-concert-viewer-numbers. 240.Ranker, “Celebrities Who Play ‘Fortnite: Battle Royale’,” https://www.ranker.com/list/celebs-who-play-fortnite/celebrity- lists. 241.Total follower numbers for highlighted major influencers are the count of total followers across all social media accounts (Twitch, Twitter, YouTube, and Instagram) as of April 1, 2019. 242.Venture Beat, “Ninja, DrLupo, and CouRage sign exclusive influencer management deals with Popdog’s Loaded,” March 7, 2019, https://venturebeat.com/2019/03/07/ninja-drlupo-and-courage-sign-exclusive-influencer-management-deals- with-popdogs-loaded/.

54 The rise of esports investments | Sources Sources cited, (cont.)

243.The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 244.Ibid. 245.EagleTree Capital, “Eagle Tree Capital Buys Majority Share in CORSAIR” July 26, 2017, http://www.eagletree.com/eagletree-capital-buys-majority-share-corsair-transaction-valued-525-million/. 246.E.J. Schultz, “Are You Game?” AdAge, https://adage.com/article/news/e-sports/308447/. 247.The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 248.Ibid. 249.Ibid. 250.Ibid. 251.Jurre Pannekeet, “Newzoo: Global Esports Economy Will Top $1 Billion for the First Time in 2019” Newzoo, February 12, 2019, https://newzoo.com/insights/articles/newzoo-global-esports-economy-will-top-1-billion-for-the-first-time-in- 2019/ 252.The Esports Observer, “Investments” https://esportsobserver.com/a/investments/bar- chart/?date=%7B%22from%22%3A1136073600%2C%22to%22%3A1554163200%7D&overviewInterval=yearly. Accessed April 5, 2019. 253.Debevoise & Plimpton, “Working Capital Adjustment Mechanism” https://privateequityreport.debevoise.com/the- private-equity-report-spring-2015/demystifyng-working-capital-am. 254.Matt Perez, “Esports Company Cloud9 Raises $50 Million in Series B Funding” Forbes, October 15, 2018. https://www.forbes.com/sites/mattperez/2018/10/15/esports-company-cloud9-raises-50-million-in-series-b- funding/#a57f3693dd32. 255.Paresh Dave, “Inside Cloud9: How This Couple Built an E-sports Empire Worth Millions” LA Times, March 21, 2017, https://www.latimes.com/business/technology/la-fi-tn-la-tech-20170321-story.html. 256.Kyle Wolmarans, “2015 Top 5 Esports Organizations Worth” Critical Hit Gaming, December 8, 2015, https://www.criticalhit.net/gaming/2015s-top-5-esports-organizations-worth/. 257.Mike Ozanian, Christina Settimi, and Matt Perez, “The World’s Most Valuable Esports Companies” Forbes, October 23, 2018, https://www.forbes.com/sites/mikeozanian/2018/10/23/the-worlds-most-valuable-esports-companies- 1/#181ee20e6a6e.

55 The rise of esports investment | Authors Authors and contacts

Deloitte Corporate Finance LLC The Esports Observer

Trent Murray Phil Colaco Staff Writer CEO [email protected] Deloitte Corporate Finance LLC @Trent_Esports [email protected]

Graham Ashton Christian Christoefl Staff Writer Associate [email protected] Deloitte Corporate Finance LLC m [email protected] @Graham_Ashton

Tobias Seck Analyst [email protected] @TobiasSeck

Andrew Hayward Contributing Writer @ahyawa

The authors would like to thank Alec Lynch from Deloitte Corporate Finance LLC for his contributions to this publication.

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