Esports, Gaming and Gambling Bi-Weekly Update Volume 2 - October 25, 2019 Our Esports, Gaming and Gambling bi-weekly update report includes industry news and delves into an in-depth feature story. It also covers global industry-wide and company specific news, including our current coverage of Feature Story The Stars Group, Inc. (TSGI-TSX, Tender), Score Media and Gaming, Inc. (SCR-TSXV, $0.60, Speculative Buy, PT $0.90/shr) and Cineplex, Inc. (CGX-TSX, $22.85, Buy, PT $34/shr). Our recent esports industry white paper Tournament Economics explored the ecosystem, trends and investments in detail. (LINK) Explained Shroud Joins Mixer: We reiterate our thesis, Twitch’s owner Amazon is well known for its competitive Understand How Esports Competitions are intensity, we see increased competition as Google (YouTube Gaming), Microsoft (Mixer) and Facebook Organized – Professional esports competitions Gaming move to gain scale. Industry contacts support moves by Twitch to lock-down top streamers on are organized in either open circuit or franchised formats. Differences in publisher control, capital its platform. We are also hearing more on Fox owned Caffeine moving to invest in its livestream games outlay, media rights/sponsorship/advertising promoting celebrities and the entertainment aspect. We note articles on the subject across CNN, The deals and player qualification exist between the Verge and TechCrunch in the past week. two formats. (JUMP TO DETAILS) Esports: Community built-up, Shroud and partnerships remain as top headlines: ---------------------------------------------------- ▪ Score Media and Gaming (SCR-TSXV, $0.60 , Speculative Buy, PT $0.90/shr) Partnered with Ubisoft Trivia Time (UBI-EPA, NR) to Launch Esports Video Content for Rainbow Six Siege – See Telecom and New Media Which market will have the highest esports Analyst, Rob Goff’s recent note published after SCR released its FQ419 results earlier this week. density in 2019 (12%)? I.e. the highest share of Esports Enthusiasts in the online population. ▪ Twitch Top Streamer Shroud Joins Ninja on Mixer – Michael “Shroud” Grzesiek announced that he A. South Korea will begin streaming exclusively on Microsoft-owned Mixer with his first stream to feature the newly B. China released Call of Duty: Modern Warfare game. Shroud is currently the second most-watched C. United States (Answer on pg. 11) personality on Twitch with 60.27M hours watched this year. The move follows the former most watched Twitch streamer, Tyler “Ninja” Belvin’s move to Mixer in August. Twitch reacted to Ninja’s ---------------------------------------------------------------- move by locking up Nick “NickMercs” Kolcheff to an exclusive contract, indicating it is willing to lock Snapshot: Market Performance up talent. We look for further marquee streamer moves. (Esports Observer) 09/10/2019-24/10/2019 - 2 NA Europe APAC ▪ Activision Blizzard (ATVI-NASDAQ, NR) Announced Call of Duty League Format and Challengers weeks return Publisher -4.6% -3.6% 2.0% League – The league format is similar to the OWL homestand format with each of the 12 franchised Hardware 0.6% 6.1% 0.1% CDL teams hosting two weekend competitions in their respective home markets during the regular Media -4.9% -0.2% -8.8% Gambling 4.1% 6.0% -0.5% season in 2020. A second-tier Challengers league with a $1+M prize pool will be hosted online and Tournaments -12.1% 0.0% 2.6% offline, with some competitions hosted by the CDL franchised teams. (Esports Observer) Streaming 3.2% 0.0% 7.4% Investment Firms -27.4% 0.0% 0.0% Simple Average Return -1.4% 4.1% 1.2% Gambling: Regulations surrounding online betting continue to evolve: Weighted Average Return - by Market Capital 2.7% 5.9% 1.4% ▪ DraftKings (Private) Received First Daily Fantasy Sports Wagering License in Iowa – DraftKings is the S&P 500 0.0% first operator to be awarded a license by the Iowa Racing and Gaming Commission (IRGC) and plans S&P/TSX -0.4% Nasdaq Composite 0.5% to launch in the state in the coming days. (iGaming Business) ▪ Google (GOOGL-NASDAQ, NR) Expanded Gambling Ads in Legally Permitted US States and Beyond – Google has updated its gambling and gaming policy to allow betting operators in legal US states, as well as Colombia, Kenya and Nigeria to promote their betting services. (iGaming Business) Rob Goff, CFA | 416.933.3351 | [email protected] Gianluca Tucci | 647.794.1926 | [email protected] Pooja Sharma, MFIN, B.E. | 647.794.1922 | [email protected] Karolina Kosior | 604.647.4379 | [email protected] Page 1 of 29 Top Highlights Non-Endemic Drink, Food, Tech, Car, and Apparel Brands Sponsorship Deals Increase 74% Y/Y for Q319 – The Esports Observer reported 75 deals with non- endemic brands for Q319, up from 43 deals in Q318. The quarters’ deals included major global brands, Bud Light, Honda, Red Bull, Adidas, Louis Vuitton, Starbucks, among more. The food and beverage category continue to see the most significant growth with a reported 30 deals in Q319. Notable mentions include: • Beverages and food: Anheuser-Busch InBev (BUD-NYSE, NR), parent company of Bud Light, became the official beer sponsor of OWL and added NBA 2K League to its portfolio. Bud Light has also sponsored Bandai Namco’s Tekken World Tour in partnership with Twitch for a Bud Light Tekken 7 Beer League tournament series. PepsiCo (PEP-NASDAQ, NR) energy drink MTN DEW AMP GAME FUEL became official global beverage partner for ESL events through 2020. EA Spots partnered with Pizza Hut (YUM-NYSE,NR), Snickers (Private) and Starbucks (SBUX-NASDAQ, NR) for Madden NFL 20 Championship Series. Finally, Kellogg’s (K-NYSE, NR) in Q319 signed a multi-year sponsorship deal with the OWL for its Pringles and Cheez-It brands. • Technology: OPPO (Private), Chinese smartphone maker signed a deal with Riot Games to be an international LoL competition through 2024. AT&T expanded its partnership with ESL and Dreamhack with the ESL Mobile Open in North America. Overactive Media’s (Private) OWL team signed a multi- year sponsorship with Canon Canada (7751-TYO, NR) and dating app, Bumble (Private) sponsored Gen.G (Private) Esport’s all-women Fortnite team. • Automobiles: Honda (7267-TYO, NR) became exclusive partner of LCS in August. Toyota (7203-TYO, NR) partnered with BLAST Pro Series’ by sponsoring Sept. Moscow stop and Mercedes-Benz (DAI-DE, NR) sponsored the addition of a Dota 2 tournament to the UK ESL Premiership. Astralis Group, known for its CS:GO team, announced the formation of a Future FC FIFA team and added Audi(VOW-FWB, NR) as a sponsor in a three-year deal reportedly worth at least $1M/year. • Apparel: Ninja partnered with Adidas (ADS-FWB, NR) to collaborate on apparel and digital content. Riot Games partnered with Louis Vuitton (MC-ENX, NR) for LoL World Championship’s “Summoner’s Cup” and in-game skins, spanning multiple years. (Esports Observer) Hiro Capital Launched $110M Games, Esports and Digital Sports VC Fund – The British investment firm, Hiro Capital, will look to accelerate the growth of approximately 20 companies through Series A and B financing in the European Union and United Kingdom in addition to providing entrepreneurial mentorship to help companies scale. Spike Laurie, former ESL (MTG.AB-STO, NR) and Warner Bros (T-NYSE, NR) was appointed as the fund’s esports venture director. (Esports Observer) Caffeine Signed Exclusive Streaming Partnership with American Rapper, FaZe Clan Investor, ‘Offset’ – Caffeine’s, exclusive streaming partnership with Kiari Kendrell “Offset” Cephus includes two shows to be aired on Cephus’ Caffeine channel. Caffeine an esports and entertainment streaming platform co-founded by former Apple designers Ben Keighran and Sam Roberts received $46M in two funding rounds last year and a $100M investment from 21st Century Fox. The streaming platforms strategy is to focus on creation and distribution of live, interactive content to host live entertainment, action sports and mainstream culture not just gaming. (Rolling Stone) 2 North American Developments Canada Enthusiast Gaming Holdings (EGLX-TSXV, NR) ▪ Partnered with Champion to Create Luminosity Clothing Line – Enthusiast partnered with Hanesbrands Inc.’s (HBi- NYSE, NR) Champion brand for custom apparel for Enthusiast’s esports division, Luminosity Gaming, which launched at EGLX last weekend. The Luminosity-branded apparel is now available for purchase exclusively on Luminosity’s website and through its social media channels. (Enthusiast Gaming) ▪ Entered into a Sponsorship and Partnership Agreement with PartyCasino.Fun – The PartyCasino.Fun logo to appear on Luminosity Gaming jerseys, to be visible during live streams and broadcast events, as well as on the online store. In addition, PartyCasino.Fun also sponsored a 19+ gaming lounge at EGLX. (Enthusiast Gaming) Torque Esports Corp. (previously known as Millennial Esports Corp.) (GAME-TSXV, NR) ▪ Entered into a Binding LOI to Acquire UMG Media (ESPT-TSXV, NR) – The transaction is subject to several conditions including UMG’s shareholder approval and Torque’s completion of 51% acquisition of Allinsports. UMG Media, an esports company providing online and live tournaments and original esports content, plans to raise $1.2M in a non- brokered private placement of 10M shares for $0.12/shr prior to the transaction. (Torque Esports) ▪ Entered into Definitive Agreement to Purchase Controlling Interest in Allinsports for $5.6M – Torque Esports through a share purchase agreement will acquire 51% of Allinsports for $1.9M in cash (payable in three tranches on th or prior to Nov. 30 ) and 1.9M in Torque common shares. Torque also has the option to purchase the remaining 49% of Allinsports beginning 18 months after the closing date and ending 24 months following the closing date for the lesser of 10x EBITDA for F2020 or $20M, based on certain milestones. (Newswire) ▪ Millennial Esports Corp. Changed Its Name to Torque Esports Corp.