Palisade Research A Brief Esports Primer

1. Palisade Research
A Brief Esports Primer
August 29, 2017
Contact: info@palisadeglobal.com
Poised to overtake the NHL and NBA in the next five years
Investment Highlights
Revenue & Spectator Growth
Revenue is expected to surpass $2 billion by 2021, or an increase of 140% from current numbers. Due to
advances in technology, the number of spectators is expected to increase from 260 million to 438
million by 2021, or an increase of 70%.
Vertical Integration – Firestorm of Growth, Innovation, Acquisitions
In just the past two years, M&A and investment activity has ramped up significantly, with major game
developer/publishers acquiring other developers and Esports organizations to partake in all aspects of
growth. The sector is segmented into many niches, with larger gaming companies already looking to
consolidate and vertically integrate. Activision Blizzard Inc. (ATVI, Mkt Cap: $47.0B), the makers of
popular Esports franchises Call of Duty and Starcraft, announced the creation of an Esport division in
October 2015, and subsequently acquired the assets of Major League Gaming (MLG) for $46 million in
January 2016.
A Brief History of the World of Esports
Esports, or professional gaming, is the competitive playing of video games for cash and prizes.
While online and offline competitive gaming is not a new phenomenon, the majority of gamers have
been amateurs until recently. That is until the 2000s, when both professional gamers and Esport
audiences saw a significant surge, widely due to newer game genres, mass media attention, and online
streaming technology.

2. (173,000 attended the Intel Extreme Masters, Source: Venturebeat)
The first recorded video game competition for an actual, material prize occurred at Stanford University
in 1972. Five students played Spacewar!, a space combat game developed at MIT in 1962, for the grand
prize of a year’s subscription for Rolling Stone magazine.
Atari, makers of the iconic Pong, held its own tournament for Space Invaders in 1980, and attracted
more than 10,000 participants, setting the record for largest video game competition at the time.
In 1981, Walter Day founded Twin Galaxies Incorporated and travelled to over 100 arcades to record
high scores for different games. In 1982, Twin Galaxies became the official aggregated scoreboard for
the public and was used to arrange contests between top players. Soon afterwards, Walter hosted his
first competition, pinning top players from California and North Carolina against each other in 17
different games. Twin Galaxies hosted similar competitions in 1983 and 1984, expanding their reach to
15 different States in the United States.

3. (Twin Galaxies Official International Scoreboard Logo (September 1982), Source: Twin Galaxies Website)
Competitions began airing on television around the same time, namely on the television show, Starcade,
which aired 133 episodes. In March 1983, Twin Galaxies was contracted to form a group comprised of
record holding gamers to travel the United States, becoming the first recorded professionally contracted
team.
The 1990s was a transitional decade for Esports due to popularity of Nintendo and the rapid adoption of
the internet. The Nintendo World Championships (NWC) was launched in March 1990, and toured 29
cities across the United States. The finalists were awarded $250 among other prizes, while the runners-
up were awarded a Nintendo Power Pad and a Game Boy. A similar tournament was featured in the
cult-classic film, The Wizard, which was used a platform to launch Nintendo’s Super Mario 3, arguably
one of the greatest games in video game history.
The 2000s was an inflection point for Esports, beginning with South Korea. In 1995, the Government
announced initiative that would make South Korea the most-connected country in the world, resulting
in the highest degree of internet literacy. A 10-year Korean Information Infrastructure project was
launched to build a mass broadband internet network, and by 2000 almost half its population was
connected.
Unlike many other developed countries, the South Korean government also fostered deregulation and a
competitive private sector, lowering the barrier to entries for new Internet Service Providers (ISPs),
allowing companies to expand upon the existing skeleton framework. South Korea now boasts the
fastest internet speeds in the World and are leaders in technology and R&D; over 85% of its population
is connected.
The last ingredient for Esports and Korea was the 1997 Asian Financial Crisis, which resulted in high
unemployment rates, particularly in the younger generation. This caused many students and young
adults to congregate in ‘PC bangs’, or computer cafes to save money and stave off boredom. This
coincided with Blizzard’s release of Starcraft in 1998, where one game could be copied onto multiple
machines in a LAN setting.
Starcraft’s popularity grew like wildfire, and resulted in Korea’s pro-gaming scene. The Ministry of
Culture, Sports, and Tourism created the Korean e-Sports Association in 2000 to market and regulate
Esports; Starcraft became implanted in Korean culture.
At its peak, matches were broadcast over three television channels dedicated to gaming, with
professional gamers becoming famous media celebrities. Top player, SlayerS_`BoxeR, or Lim Yo-Hwan,
had a fan club of over half a million followers, and eventually married a South Korean actress and media
personality.

4. (BoxeR in 2004 killing it, Source: GAMEDONGA)
Led by South Korea, Esports continued its torrid rise throughout the 2010s, according to
Esportsearning.com, the number of tournaments increasing from 49 in 2010, to 856 by 2010, with total
prize money increasing from $670,000 to $5.7 million in the same period. Many tournaments that are
now the largest events in present day were formed during this period.
With game developers now creating games geared towards Esports, online streaming services took
growth to another level, becoming the go-to method of watching tournaments. Twitch, an online
streaming platform launched in 2011 and was acquired by Amazon for $970 million in 2014. In 2015,
users of the platform watched a total of 4.9 billion hours over 2.2 million unique streams.
At the same time, physical spectatorship is also growing. In 2016, the Season 6 League of Legends World
Championship was held in a sold-out Staples Center, with the grand finals being watched by 43 million
unique viewers. In 2014, the World Championship was held at the Seoul World Cup Stadium in Seoul,
South Korea, where 40,000 watched live, with another 27 million people watching the grand final online.
Esports Game Genres
Fighting – Action-type game where two or more
characters fight each other side-by-side. Typically
involves exaggerated martial artists, and made
popular by Capcom’s Street Fighter II, released for
arcade in 1991. The most popular fighting game to
date is Nintendo’s Super Smash Bros. Melee, with
2,143 tournaments and prizes totaling $2.1 million,
followed by Street Fighter V, with 64 tournaments
and prizes totalling $1.2 million. It is worth noting,
that Super Smash Bros. Melee was first released in

5. 2001, while Street Fighter V was released in 2016. Tournament prizes have escalated with the rise of
Esport’s popularity.
Strategy – The most popular strategy games is the
real-time strategy (RTS) subgenre, where gamers
play on vast maps, securing resources to create,
deploy, and maneuver units and infrastructure.
Resources are limited, thus in addition to the end
goal of destroying an opponent’s structures and
controlling more areas of the map, securing and
managing resources is essential to the game. While
Starcraft was not the first RTS, it is the game that
set the benchmark. Starcraft II, released in 2011,
has generated $39.6 million in tournament prizes, followed by StarCraft: Brood War, released in 1998,
generating $7.1 million.
Multiplayer Online Battle Arena (MOBA) – MOBA
have risen to the game of choice for Esports, with
total prizes over $160 million. The genre was spun-
out of real-time strategy games, with the similar
objective of destroying the opponents’ main
structures. A typical game can last from 30 minutes
to an hour, with a player controlling one champion
in a team, with a specific role and special abilities
that cater to that role. The game also involves
aspects of role-playing games, where champions
level up within games, and can use earned money to buy items. The most popular MOBA by far, is
League of Legends (LoL), which boasts over 100 million active users, versus its closest competitor, Dota 2
with 1.1 million. However, Dota2 has awarded over $100 million to date, versus League of Legends’ $42
million. This is due to a crowdfunding component of Dota’s prize pools, where a percentage of in-game
purchases are earmarked for the tournament. The International 2016, the world’s largest Dota 2
Championship was the World’s first Esport tournament to surpass $20 million in prizes.
League of Legends followed a similar trajectory to Starcraft, a mixture of being at the right place at the
right time and shrewd businesses decisions. When it was first released in October 2009, it was offered
and still is free-to -play, a very foreign concept for developers at the time. The timing also coincided with
Dota 1 becoming stale, with the added fact that Warcraft 3 had to be purchased in order to play it.
Starcraft 2 and Runescape were also reaching their peak, and gamers began looking for alternative
outlets.
League of Legends was easy to play and did not require high level computer specs, and this appealed to
a wide audience, casual gamers and professionals alike. Riot Games, League’s developer, fully leveraged
streaming platforms and social media. Youtube was the principal video-sharing service at the time, and

6. influencers were paid to promote the game. Twitch was also growing, and viewers became intrigued
when seeing League consistently ranked as highest viewed games. Riot was able to acquire one of
Dota’s largest forums, redirecting traffic to its own, and also hired away Steve Feak, one of the lead
developers of Dota.
Once critical mass was obtained, the user base grew exponentially. League tournaments began setting
records for prize pools and began receiving mass media coverage. Riot Games showcased League as the
premier Esports game, and created the League of Legends Championship Series (LCS) in August 2012, a
professional league a regular schedule and salaries for players.
One last major contributing factor was the involvement of Tencent, one of the largest Internet and
gaming companies in the World. Tencent participated in an early financing round, before acquiring a
majority interest in 2011, putting a valuation on League of Legends at $472 million. With a foothold in
China, League of Legends is the by far the most popular game, with 5.8% of the population playing it.
First-Person Shooters (FPS) – First-person
perspective game, typically using a gun or other
combat-weapons. Gamers play in a 3D
environment, and are normally part of a team,
especially in Esports context. The Counterstrike
series is the FPS of choice, with Counter-Strike:
Global Offensive awarding $37.3 million, followed
by the original Counter-Strike accounting for $10.8
million in prizes. Blizzard’s Overwatch is becoming
the new gaming phenomenon in South Korea,
momentarily knocking off League as the more popular game in PC cafes. However, League quickly
regained its throne and still remains number one.
Sports & Racing – The majority of sports have now been recreated in video game form, with team sports
emphasizing gameplay the most popular. Not surprisingly, the sports which generate the most revenue
are also the most popular games, FIFA 2017 has already had tournaments paying out $1.1 million, with
Madden NFL 2017 a close second at $1.0 million.
Racing games are very much like the typical sports game, played in either first or third-person. Racing
games can be very realistic, some with elaborate gaming stations that simulate movement. Other games
can take place in a fantasy setting. In terms of tournaments, the largest prize pool for racing was for the
mobile app, Turbo Racing League, where $1 million prize was awarded as promotion for DreamWorks’
2013 movie, Turbo. Formula E also hosted a $1 million-dollar tournament earlier this year, with the
winner taking home $200,000.

7. Other – There are other subgenres, but last one worth
noting is collective card games, namely Blizzard’s
Hearthstone. Hearthstone is a turn-based digital card
games, free-to-play, with in-game microtransactions that
allow gamers to bolster their decks. The game builds
upon Blizzard’s Warcraft universe, and was first released
on Microsoft Windows and macOS, and supported on iOS
and Android afterwards. Hearthstone became a featured
Esport game quickly after its release in March 2014, and
has doled out $8.8 million in prizes to date.
The Verticals
Video Game Developer & Publisher – Developers represent the software developers that actually
create the video game. The term encompasses a vast industry, and can range from one-man
independent shops to large multi-billon dollar businesses. Larger companies are normally publishers as
well, which also handle all aspects of a game’s manufacturing and marketing. When the manufacturer of
a video game console/platform creates its own video games, it is referred to as a first-person developer.
Nintendo is the prime example of this.

8. Smaller developers can be contracted by console makers to develop games that are exclusive to that
platform. Depending on the contract, the video game developer (third-party developers) can have
majority control, and can override the input of the console maker.
The development vertical has seen constant M&A, with third-party developers typically acquired by the
larger publishers for specific titles.

9. Video game M&A set a record in the first half of 2016, seeing $18.6 billion in deals. The largest was the
84.3% consolidation of Supercell by Tencent for $8.6 billion, beating the record previously set by
Activision-Blizzard’s acquisition of King in 2015 for $5.9 billion.
Communities – Gaming communities can make and break a game. As mentioned earlier, a large part of
League of Legends success was hiring Pendragon, who owned Dota-Allstars, the largest Dota community
website. Pendragon founded the website in 2004 and was hired by Riot in 2008, taking on the role as
Director of Community Relations. At the same time, all website traffic was redirected to League of
Legends, resulting in both an uproar in the Dota community and an increase in League users.
The transition from console-based games to online games has led to the development of far-reaching
communication networks. The internet has allowed gamers to congregate online, and has also allowed
developers to receive constant feedback. The majority of games now have their own forum, social
media and subreddit where developers post along side the community. The larger publishers now all
have dedicated employees that act as relationship managers between the community and company.
Tournament & Leagues
Tournaments are first and foremost live events in front of a live audience, but the majority of views are
attributed by online spectators. The transitional decade for Esports was the 1990s, especially for
tournaments. The Cyberathlete Professional League (CPL) was formed in 1997, which was the first
professional video game tournament. The CPL awarded more than $3 million in cash prizes before it was
dissolved in 2008.
Tournaments now are now comparable to the finals of any major sporting event. The International is an
annual event for Dota 2, hosted by Valve, the game’s creator. The 2016 event broke records with its

10. $20.8 million prize pool, but is expected to be surpassed by the 2017 event, with a forecasted purse of
$25 million.
Typically, when a game developer hosts a tournament, it also provides the majority of the purse,
however, sponsors are now contributing a material amount. Most tournaments that are hosted by
developers operate at a loss, with the difference accounted for as a marketing expense. When a third-
party organizes a tournament, there is still a symbiotic relationship between host and developer, usually
outlined in a contract.
When Starcraft was first gaining enormous traction in Korea, the tournaments were independent of
Blizzard. When Starcraft 2 was released, Blizzard decided that all events must be authorized through the
company, leading to a deadlock in contract negotiations between the developer and the Korean e-
Sports Association. By the time an agreement was reached, Blizzard was not able to capitalize on the
initial rush, losing a large percentage to newer games, namely League of Legends.
Many Esports leagues culminate into the major tournaments at the end of the season. For example,
when League of Legends was first released, the first two years of competitive tournaments were held by
third-parties, including Major League Gaming in North America and Intel Extreme Masters in Europe,
which concluded with Riot’s World Championship Tournament.
In 2012, Riot formed the League of Legends Championship Series (LCS), a professional league a regular
schedule and salaries for players, made up of teams from both North America and Europe. The 2016
World Championship Tournament saw sixteen teams qualify from regional events. China, South Korea,
Europe, and North America each had three spots, the Taiwan/Hong Kong/Macau region with two, and
International Wildcard winners with the last two.
Valve also created a series around its famous The International. In April 2015, the Dota Major
Championships was introduced to increase team stability and to improve the competitive landscape and
by hosting four marquee tournaments. The tournaments are sponsored by Valve but hosted by third-
party organizers, and held in different regions of the world.

11. The World’s largest and oldest Esports company is ESL, formally the Electronic Sports League. ESL
organizes competitions around the world, and partners with all the major publishers including: Blizzard,
Riot, Valve, and Microsoft. ESL more prominent competitions include: ESL Play, ESL Pro Leagues, ESL
National Championships, ESL One, and its famous Intel Extreme Masters, the longest-running global
Esports tournament series. Major League Gaming (MLG) was acquired by Activision Blizzard on
December 31, 2015. The move was part of Bobby Kotick’s, CEO of Activision Blizzard, to transform the
company into the ESPN of Esports.
Professional teams have seen a strong inflow of capital, with institutions and individuals investing in
teams to partake in Esport’s growing popularity. To name a few, NRG, The Immortals, and Team Liquid
have seen capital infusions from the owners of the Sacramento Kings, Memphis Grizzlies, Washington
Wizards, and Golden State Warriors, respectively. Team Dignitas, Team Apex, and FlyQuest have seen
investments from NBA teams the Philadelphia 76ers and Milwaukee Bucks. Most recently, Counter Logic
Gaming was purchased by the Madison Square Garden Company.

12. Esports Revenue & Growth
The Esports sector is forecasted to generate $1.13 billion in 2017, with 258 million viewers. By 2021,
revenue is expected to grow to $2.70 billion, and to 438 million viewers. Some analysts peg revenues to
reach as high as $3.31 billion, which would almost match the revenues of the established National
Hockey League ($3.7 billion), and on the heels of the National Basketball Association ($4.8 billion).
Current revenue breakdown is:

13. Media and broadcasting rights have always been a significant source of revenue for traditional sports
teams. However, in Esports, the publishers hold the power. In 2016, a number of Esports teams
attempted to negotiate with Riot for a revenue sharing and broadcasting deal. Riot rejected any plans,
highlighting the unbalance of power held by game publishers in the Esports sector.
Thus, the majority of revenues for an Esports team is derived from sponsorships, which can account to
95% of the money generated. Unfortunately for an Esports team, in order to keep sponsors they must
stay relevant by winning and by playing the most popular games. Unlike a traditional sports team, where
a physical location provides a steady fan base, Esports teams can quickly fall into obscurity. Thus, there
are still issues with stability in the Esports sector, but there is no denying the rapid growth that is on the
horizon.
The Only & Best Way To Invest At Ground Floor
As noted earlier, there are many publicly-listed companies, however, most are multi-billon dollar
companies. Through our research, there is only one true pure-play Esport company that offers exposure
to many of the growing verticals.
Millennial Esports Corp (CVE:GAME, FRA:MJ0)
Millennial Esports was formed in October 2016, and began by operating the ProGaming League (PGL)
website, an e-sports platform and on-line community that was formed in 2012. PGL has a production
division that delivers turnkey tournament and event planning, co-ordination and logistics. Since, the
company has made several acquisitions to further diversify its operations, but still maintains a pure-play
approach to Esports.

14. Current Price: C$0.83
Shares Outstanding: 111.4 million
Market Capitalization: C$92.5 million
Cash: ~C$4.5 million
Tournaments
In March 2017, Millennial Esports completed construction of its 15,000-square foot studio and arena in
downtown Las Vegas at the Neonopolis. The facility seats up to 500 people, and is wired for live
streaming and broadcasting, and hosting players, featuring a main stage with built-in broadcast capacity
and DJ booths. The company hosted the Millennial Esports Halo World Championship Open LAN which
yielded a $50,000 prize pool and the top six qualifying for the Halo World Championship Finals this
spring with a $1 million prize pool.
(Source: ESPN)
ProGaming League (PGL)
Millennial Esports operates millennialEsports.gg, an Esports platform and online community, that
provides gamers with a variety of online competitions, leagues and ladders giving them an opportunity
to win prizes. Through this platform, Millennial Esports is able to help game publishers generate new
revenue streams by influencing a targeted audience.
Stream Hatchet
Millennial closed its acquisition of Stream Hatchet in May 2017, a data analytics company that provides
business intelligence for those involved in video game streaming. Users utilize the information to make

15. decisions in regards to content, Esports organizations, sponsors and brands. Current users of Hatchet
are streamers, e-sports organizations, video game producers and advertising agencies.
A large percentage of a streamer's income comes from advertisers and sponsorships, and Esport
organizations need a way to identify these influencers, target the right audience, and measure the
impact of their marketing campaigns. Through proprietary methods, Stream Hatchet collects and refines
the data from various live streaming platforms.
In addition, Millennial Esports will be able to collect all this information to see what the next trends in
Esports will be, and monetize the opportunity in its infancy. By receiving insights on what people are
paying attention to, Millennial will always be the first mover.
Further Vertical Integration
Millennial recently made two key acquisitions to entrench itself in Esport racing, a rapidly growing but
looked over game genre. First, it acquired Ideas+Cars, leader in the Esports racing environment.
Ideas+Cars is a group of collaborators that deliver innovative ideas in the car industry. The collaborators
share their views on how to deliver content and ideas and how to work with partners. Ideas+Cars
specialty lies in strategy, brand building, gaming, motorsport, content and activation.
With the acquisition, Darren Cox, the principal of Ideas+Cars, joins Millennial Esports to act as Chief
Marketing Officer of the company as well as managing director of Millennial Esports Europe. Mr. Cox has
previously worked with Nissan and Sony to deliver GT Academy and spearheaded the way for Esports
within the racing game genre. Furthermore, Ideas+Cars has current partnership with McLaren in the
World's Fastest Gamer, and the Esports relationship with the home of British motor racing, Silverstone
Motor Racing Circuit.
To accompany this transaction, Millennial Esports announced the agreement to acquire 82.5% of Eden
Games, a French-based publisher of racing video games, most recently producing the successful mobile
racing game app, Gear.Club, giving Millennial exposure to video game development and publishing.
Eden Games was founded in Lyon, France in 1998, to develop one of the most successful game
franchises on PlayStation systems, V-Rally. In 2000, the studio expanded into the development of Need
For Speed: Porsche for EA. Eden Games experimented in other genres before returning to its roots with
Test Drive Unlimited, the first massive open world racing game franchise.
Lastly, Millennial Esports acquired 38.46% (with the option to acquire 100%) of Alt Tab, a Paris-based
company and the OGaming TV website. Alt Tab has been the leading on-line French TV network since
2010, dedicated to the broadcasting and creation of Esport programs and events. Alt Tab partners with
publishers and tournament organizers (Blizzard, Riot Games, Dreamhack), on-line talents (Youtubers,
streamers) and broadcasting platforms (Youtube, Twitch) to provide content on popular Esport titles to
a monthly average audience of 2.2 million unique and engaged viewers in 2017.

16. Alt Tab provides marketing activations through native advertising and sponsoring to brands that look for
leads and reach the target generation. Alt Tab produces Esport tournaments in venues in France since
2011.
With its recent flurry of acquisitions, Millennial Esports is the premier Esport company allowing investors
to come in ground floor. Starting from top-down, Millennial is now majority owner of one of the most
well-known and established racing game companies in the world. The acquisition of Ideas+Cars and
subsequently Darren Cox, makes Millennial the forefront innovator in Esport and automotive sector.
Lastly, with its physical tournament and hosting capabilities, the acquisition of Alt Tab Productions
further entrenches Millennial in production and access to millions of engaged viewers.
Millennial Esports offers any investor instant access to the rapidly growing Esports sector, and we
believe the company will keep its ‘foot-on-the-pedal’ and maintain its torrid M&A. In its short history,
Millennial has already shown it is the leader of the pack.
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volume this write-up may generate. The information contained in such write-ups is not intended as
individual investment advice and is not designed to meet your personal financial situation. Information
contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be
guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are
subject to change without notice. The information in this report may become outdated and there is no
obligation to update any such information. Do your own due diligence.