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eSports- More Than Just a Game -
Prepared by Luc RyuFinalized: December 18, 2016
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.
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Super Bowl NBA Finals MLB Finals NHL Finals Worlds (League of
Legends)
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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.
eSportsMethodology 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%
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50.0
2013 2014 2015 2016
Tota
l Pri
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r th
e Y
ea
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(mill
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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
Traditional Sports Team Across the Globe are Taking Action
Sept. 26
Oct. 12
Nov. 16
May 16Jan. 20
Aces
20
15
20
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FC Schalke
Elements PSG
Philly76ers
SACKings
BeşiktaşJ.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).
HighTeamHuma
TeamCoast
TeamApex
TeamDignitas
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 Fox3x NBA Champion
Owner ofEcho Fox(2000 – 2002)
De
c. 20
15
Co-InvestorsInto NRG eSports
Shaquille O’NealAlex RodriguezJimmy Rollins *formerly Team Coast
No
v. 20
15
Jonas JerebkoBoston Celtics
(2005 – Present)
Owner ofRenegades
Au
g. 2
01
6
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.
Non-Endemic Brand Case Study:ELEAGUE
ELEAGUE is a professional Counter-Strike: Global Offensive leaguestarted by Turner BroadcastingSystem and WME | IMG in 2016.
In addition to producing live streamson Twitch for the legacy audience,they have began broadcasting keymatches on their TBS channel.
ELEAGUE has been given “Major” status by Counter-Strike publishers, Valve, and will host the first Major* of2017, with the finals played out on January 29.
Snickers is the official marketing partner ofELEAGUE. They capitalize on their “You’re NotYou When You’re Hungry” tagline by acting as titlesponsors for blooper reels.
Arby’s is the official Quick Service Restaurantpartner of ELEAGUE. Their advertisements runonline and on cable broadcasts, and areCounter-Strike themed.
Sony Pictures was signed on with ELEAGUE for itsfirst season. Sony was the exclusive movie studiosponsor.
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.E
ach
sp
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sor
pa
ys
$2
Mill
ion
For
a t
wo
-ye
ar
agre
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t
* 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.
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 toproduce The BTN Invitational – a head-to-head Leagueof Legends match between rival schools Ohio Stateand Michigan State.
VS
The Collegiate StarLeague is one of the premiercollegiate eSports leagues in North America. They havepartnered with Riot Games to host the 2017 uLoLCampus Series – a collegiate League of Legendstournament.
$180,000UBC’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 NorthAmerican schools. In 2016, Tespa partnered withBlizzard Entertainment to host Heroes of the Dorm, anintercollegiate 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
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 PurchasesThe 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 TransactionDate
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.
SourcesIntroduction: eSports will be the next major source of entertainment media.SuperData – eSports the 2016 Reporthttp://time.com/4532104/most-influential-teens-2016/
Slide 1: Viewership is already beginning to challenge traditional sportshttp://esports-marketing-blog.com/esports-in-2015-attendance-figures-investments-prize-money/#.WFYftlMrJhFhttp://esports-marketing-blog.com/43-million-unique-viewers-reached-throughout-league-legends-world-championship-2016/#.WFYgE1MrJhEhttp://esports-marketing-blog.com/esports-viewership-numbers/#.WFYgK1MrJhE
Slide 2: eSports Superstars are Multi-Millionaires from Prize Money Alonehttp://www.esportsearnings.com/
Slide 3: Traditional Sports Team Across the Globe are Taking Actionhttp://www.dexerto.com/news/2016/07/06/full-list-of-professional-sports-teams-in-esports/http://www.sbnation.com/2015/11/16/9743044/nrg-esports-roster-impact-gmb-sacramento-kings-lolhttp://www.nba.com/sixers/news/sixers-acquire-merge-and-manage-esports-teams-dignitas-apex/
Slide 4: Icons from Traditional Sports are Seeing the Valuehttp://www.sporttechie.com/2016/06/14/gaming/25-examples-of-traditional-sports-invading-esports/http://www.forbes.com/sites/darrenheitner/2016/08/30/boston-celtics-forward-jonas-jerebko-buys-esports-team/#25f351336355
Slide 5: Media and Entertainment Leaders are Already Investing into the Futurehttp://www.eleague.com/https://esports.yahoo.com/riot-games-and-mlb-advanced-media-unveil-50-million-annual-league-of-legends-partnership-through-2023-150236799.htmlhttp://www.espn.com/esports/story/_/id/14934742/heroes-dorm-returns-espn-2016-heroes-storm-esports-schedule
Slide 6: Non-Endemic Brand Case Study: ELEAGUEhttp://www.sportsbusinessdaily.com/Daily/Morning-Buzz/2016/05/11/esports.aspxhttps://www.bloomberg.com/news/articles/2016-04-01/why-millennials-are-crushing-the-dreams-of-marketing-directorshttp://www.forbes.com/sites/alexkay/2016/10/31/eleague-nabs-snickers-as-latest-esports-sponsor/#184593003ec3
Slide 7: Engagement of the Target Market at the Collegiate Levelhttps://www.heroesofthedorm.com/news/heroes-of-the-dorm-teams-to-watchhttp://www.sbnation.com/2016/4/14/11414260/ohio-state-michigan-state-league-of-legends-big-ten-networkhttp://www.ubyssey.ca/sports/ubc-esports-team-wins-north-american-title-and-180000-but-lacks-ubcs-recognition/
Slide 8: Transactions in the Industry Provide Preliminary Valuation Pointshttp://www.riftherald.com/competitive/2016/10/12/13256248/psg-esports-team-lol-paris-saint-germainhttp://wwg.com/esports/2016/12/14/league-of-legends-spots-for-sale/http://www.espn.com/esports/story/_/id/18239215/league-legends-sources-bucks-co-owner-wesley-edens-buys-esports-25-millionhttp://www.sbnation.com/2015/12/18/10602006/echo-fox-league-of-legends-rick-fox-gravity
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