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eSports - More Than Just a Game

  1. eSports- More Than Just a Game - Prepared by Luc Ryu Finalized: December 18, 2016
  2. Despite being labelled as nothing more than a hobby for decades, video games, and their competitive setting of eSports have finally started turning heads with their rapid growth in player base, influence, and viewership: i. The largest prize pool in history recently eclipsed US$20.8M; ii. A 17 year-old eSports player was recently listed in TIME Magazine as one of the world’s most influential teenagers; iii. In 2016, more people viewed the grand finals of an eSports tournament than the clinching game of the World Series. Analysts predict a $1.4B industry by 2020, but with the rapid pace of societal break-throughs occurring on a weekly basis, eSports has the potential to be much more. With the generation of Millennials ready to make their impact on society, eSports will soon break away from its stigma and cement itself into today’s culture. The objective of this publication is to highlight a number of recent key developments that are indicative of the industry’s rising legitimacy, how the industry should be considered a disruptive force in today’s entertainment media, and how the industry’s influence extends far past the computer screen. eSports will be the next major source of entertainment media. *All figures in this report presented in USD unless otherwise noted.
  3. 0.0 30.0 60.0 90.0 120.0 150.0 Super Bowl NBA Finals MLB Finals NHL Finals Worlds (League of Legends) AverageViewersforFinalGame (millions) 2012 2013 2014 2015 2016 Traditional Sports Viewership for traditional sports is estimated by Nielsen. This does not include foreign, or digital viewership. The underlying methodology of estimation is questionable1. eSports Methodology in estimating viewership for eSports is unknown. Publishers simply release a number months after the event. Different publishers focus on different metrics, making meaningful comparisons difficult to make. There are inherent difficulties in measuring viewership for both industries. Notwithstanding the prior, the viewership of major eSports titles already rivals those of the major traditional sports. Such a large base may be attractive to non-endemic brands who target groups with similar profiles as the average eSports viewer. Viewership is already beginning to challenge traditional sports 0.1% 4-Year CAGR 13.9% 26.8% 2.5% 51.0%
  4. 0.0 10.0 20.0 30.0 40.0 50.0 2013 2014 2015 2016 TotalPrizePoolfortheYear (millions) Dota 2 Dota 2 - excl. TI League of Legends Counter-Strike: Global Offensive While growth in annual prize pools across the major titles appears to be decreasing, the prize pool per event has increased. This may suggest that forces are pushing away less-polished events. Should this be the case, it may further imply stability for event organizers as market leaders begin to establish themselves. eSports Superstars are Multi- Millionaires from Prize Money Alone Dota 2’s major tournament, The International (“TI”), had a total prize pool of almost $20.8M in 2016, or 64.3% of the entire available Dota 2 prize pool in the year. DoB: Feb. 13, 1999 (17yo) Name: Sumail Hassan Career Winnings: $2.3M
  5. Traditional Sports Team Across the Globe are Taking Action Sept. 26 Oct. 12 Nov. 16 May 16Jan. 20 Aces 2015 2016 FC Schalke Elements PSG Philly 76ers SAC Kings Beşiktaş J.K. The entrance of traditional sports teams into the eSports space helps to establish legitimacy and has received notable media coverage. More importantly, however, will be the introduction of industry best- practices in the traditional sports world, with respect to infrastructure needs that help to facilitate safe and sustainable competitive environments for players (e.g. the development of player unions). High Team Huma Team Coast Team Apex Team Dignitas
  6. Icons from Traditional Sports are Seeing the Value The entry of traditional sports icons help to further increase media attention on eSports. In addition, the advocacy from these icons may help in process of defining eSports players as “athletes” for the purposes of obtaining international work visas. Rick Fox 3x NBA Champion Owner of Echo Fox(2000 – 2002) Dec.2015 Co-Investors Into NRG eSports Shaquille O’Neal Alex Rodriguez Jimmy Rollins *formerly Team Coast Nov.2015 Jonas Jerebko Boston Celtics (2005 – Present) Owner of Renegades Aug.2016
  7. Media and Entertainment Leaders are Already Investing into the Future Market leaders in the entertainment and media industry are beginning to enter into the eSports space. It is worth noting the connection that many of these corporations have to traditional sports, with Turner Broadcasting also operating the digital experience for the NBA. The introduction of broadcasting rights may provide motivation for more traditional sports teams to invest in eSports. Partnering with WME/IMG, Turner Broadcasting now operates one of the largest Counter-Strike leagues in the world. Matches are played live, at the Turner Studios facility, and featured matchups are aired on the TBS channel. ELEAGUE is entering its second season. MLBAM is a spin-off of the MLB, and is responsible for the digital experiences for organizations such the NHL, and HBO. MLBAM and Riot Games signed a $300M* agreement with to develop the viewing experience, and monetization and commercialization of League of Legends. *Agreement is for an average annual payment of $50M to 2023. Through ESPN, Disney has broadcast a number of high profile competitions such as Heroes of the Dorm, The International, and the League of Legends World Championships. ESPN also has a separate section on its website and mobile app for eSports coverage.
  8. Non-Endemic Brand Case Study: ELEAGUE ELEAGUE is a professional Counter- Strike: Global Offensive league started by Turner Broadcasting System and WME | IMG in 2016. In addition to producing live streams on Twitch for the legacy audience, they have began broadcasting key matches on their TBS channel. ELEAGUE has been given “Major” status by Counter- Strike publishers, Valve, and will host the first Major* of 2017, with the finals played out on January 29. Snickers is the official marketing partner of ELEAGUE. They capitalize on their “You’re Not You When You’re Hungry” tagline by acting as title sponsors for blooper reels. Arby’s is the official Quick Service Restaurant partner of ELEAGUE. Their advertisements run online and on cable broadcasts, and are Counter-Strike themed. Sony Pictures was signed on with ELEAGUE for its first season. Sony was the exclusive movie studio sponsor. With Millennials representing 54% of the eSports audience, western non-endemic brands are beginning to transition into the eSports landscape to increase their brand awareness. Increasing viewership and engagement numbers, coupled with the relative youth of eSports, help to position eSports as a cost- efficient marketing channel for the time being. Eachsponsorpays $2Million Foratwo-yearagreement * A Major is a tournament sponsored by Valve with prize pools of at least $1M. They also sometimes include exclusive in-game content related to the tournament, including fantasy leagues.
  9. Engagement of the Target Market at the Collegiate Level In an effort to engage the target market of Millennials, third-party organizers have joined game publishers in creating eSports tournaments focused at the collegiate level, providing scholarships as incentives. As the participation rates in eSports increases, a post-secondary institution’s openness to eSports may drive enrolment rates, as prospective students look for ways to fund their own education. Borrowing from established intercollegiate rivalries, Riot Games partnered with the Big Ten Network to produce The BTN Invitational – a head-to-head League of Legends match between rival schools Ohio State and Michigan State. VS The Collegiate StarLeague is one of the premier collegiate eSports leagues in North America. They have partnered with Riot Games to host the 2017 uLoL Campus Series – a collegiate League of Legends tournament. $180,000 UBC’s six-member League of Legends team won $180,000 in scholarships for placing first in the 2016 uLoL Campus Series. Tespa is a network of over 190 chapters across North American schools. In 2016, Tespa partnered with Blizzard Entertainment to host Heroes of the Dorm, an intercollegiate Heroes of the Storm tournament. The grand finals of Heroes of the Dorm were televised on ESPN2. Each starting player on the winning team from Arizona State won $75,000 in scholarships. $75,000
  10. Transactions in the Industry Provide Preliminary Valuation Points Despite the relative opacity of the industry, a number of precedent transactions help in establishing preliminary price points for different types of organizations. Although valuations appear to be trending upwards, there are legitimate concerns for a bubble harboured on an eventual plateau of growth, and current lack of bottom-line profitability for many teams and organizations. League of Legends Spot Purchases The relegation format of the League of Legends Championship Series (“LCS”) makes participation in the top division valuable. The following are transactions for the right to play in any League of Legends league. These do not include the value of teams, their brands, or any of their goodwill unless otherwise noted. Purchaser Target Transaction Date League Transaction Value Rick Fox Team Gravity Dec. 18, 2015 North America; 1st Division $1,000,000 FC Schalke 04 Team Elements May 7, 2016 Europe; 1st Division $1,000,000 Paris St. Germain Team Huma Oct. 20, 2016 Europe; 2nd Division $70,000 Wesley Edens Cloud9 Challenger Dec. 9 , 2016 North America; 2nd Division $1,800,000 Noteworthy Takeaways Conservative Sum-of-the-Parts The following is an estimate of the value of an established eSports team playing only in the North American LCS. The following uses an overly basic asset approach anchored on reported numbers. Asset Notes Low High LCS Spot [1] $1,800,000 $3,600,000 Brand [2] $5,000,000 $15,000,000 Roster [3] $700,000 $787,500 Total $7,500,000 $19,387,500 [1] High end assumes an LCS spot would be valued at 2.0x a 2nd Division spot. [2] Source. [3] Source. High end assumes the 5th player would be paid 50.0% of the average $175,000 per player. • The extreme opacity of the industry makes market-based valuations difficult. • There is a large discrepancy between European and North American 2nd Divisions. • Riot Games’ new initiatives in supporting teams, and the potential of the MLBAM deal may explain the increase in North American spots.
  11. Sources Introduction: eSports will be the next major source of entertainment media. SuperData – eSports the 2016 Report Slide 1: Viewership is already beginning to challenge traditional sports Slide 2: eSports Superstars are Multi-Millionaires from Prize Money Alone Slide 3: Traditional Sports Team Across the Globe are Taking Action Slide 4: Icons from Traditional Sports are Seeing the Value Slide 5: Media and Entertainment Leaders are Already Investing into the Future Slide 6: Non-Endemic Brand Case Study: ELEAGUE Slide 7: Engagement of the Target Market at the Collegiate Level Slide 8: Transactions in the Industry Provide Preliminary Valuation Points