eSports Insights: Y’all Ready For This?

Please refer to page 22 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. GLOBAL Macquarie’s eSports Thesis eSports is becoming an important part of game publishers’ business strategy and will continue to gain mainstream traction due to growing viewership, sponsorship and investments from professional sports organizations. In the medium term, eSports could gain Olympics status as the IOC looks to add events that have global appeal. In the long term, mobile eSports will drive industry growth by catering to a broad audience with mass appeal while VR/AR will enhance eSports viewing experience and competitive dynamic. Thematic Reports Link 1, Link 2, Link 3 Analyst(s) Macquarie Capital Markets Canada Ltd. Jiang Zhang +1 416 848 3549 jiang.zhang@macquarie.com Greg MacDonald, CFA +1 416 628 3934 greg.macdonald@macquarie.com Macquarie Capital (USA) Inc. Benjamin Schachter +1 212 231 0644 ben.schachter@macquarie.com Ed Alter +1 212 231 1272 ed.alter@macquarie.com Chad Beynon +1 212 231 2634 chad.beynon@macquarie.com John Cardoso +1 212 231 0472 john.cardoso@macquarie.com Macquarie Capital Securities (Japan) Limited David Gibson, CFA +81 3 3512 7880 david.gibson@macquarie.com Damian Thong, CFA +81 3 3512 7877 damian.thong@macquarie.com Macquarie Capital Limited Wendy Huang, CFA +852 3922 3378 wendy.huang@macquarie.com Hillman Chan, CFA +852 3922 3716 hillman.chan@macquarie.com Allen Chang +852 3922 1136 allen.chang@macquarie.com Macquarie Capital Limited, Taiwan Securities Branch Jeffrey Ohlweiler +886 2 2734 7512 jeffrey.ohlweiler@macquarie.com Kaylin Tsai +886 2 2734 7523 kaylin.tsai@macquarie.com 7 June 2017 eSports Insights Y’all Ready For This? eSports’ overlapping fan base with traditional sports, its global (and growing) viewership, and an evolving economic model rivalling that of the professional sports are driving many traditional sports team owners to look to eSports as a potential hedge against the decline in traditional sports engagement within the millennial and Gen-Z segments This growing trend is global:  In North America, the NBA and TakeTwo partnered to create an eSports league based on the NBA 2K series (LINK). We expect other leagues such as the NFL and the NHL to follow (LINK) (though the structures may differ). Additionally, investments from soccer clubs (NYC FC) and motorsports (Formula One) suggest growing interest in leveraging eSports to diversify, engage, and sustain fan bases.  In Europe, Panathinaikos FC (Greece) and FC Lausanne-Sport (Switzerland) became the two latest soccer clubs to purchase eSports organizations that compete on a broad range of games such as League of Legends and Dota2 in Europe. Over 20 professional soccer clubs have invested in teams or individual players so far.  In Australia, Adelaide Football Club recently became the first Australian pro sports team to invest in eSports by acquiring Sydney-based Legacy eSports, one of eight top-tier League of Legends pro teams in the country. We think pro sports investments adds legitimacy and sustainability to the eSports theme and could enhance the profiles of the “traditional” sports genre, which is a positive for companies such as EA and TTWO. While TTWO and the NBA are aggressively entering the eSports arena, many of the other current pro sports investments, thus far, seem to be a more conservative approach of allowing the pro teams and the leagues to gain exposure to eSports and develop a better understanding of the economics. While “traditional” sports’ eSports strategies are evolving, over time, many of the pro sports teams may also diversify into the more mainstream eSports titles such as League of Legends, Dota2, StarCraft, Overwatch, Hearthstone, and Splatoon given their relatively higher viewership, which is ultimately a positive for companies such as Tencent, Activision and Nintendo Exclusive content matters – YouTube Gaming’s exclusive streaming deal for the CS:GO ESL Pro League (and the corresponding drop in CS:GO viewership on Twitch), proves that having exclusive eSports content does indeed matter and can impact Twitch’s leadership position. This may also put a premium on future exclusive deals. Key calls within Macquarie’s Global Coverage Universe Activision, Capcom, CyberAgent, EA, NetEase, Nintendo, Take-Two, and Tencent among publishers given their IP and benefits from eSports media rights. Asustek, Lenovo and Sony in hardware & technology as key beneficiaries of higher demand for gaming PCs and game consoles. Amazon, Facebook, Google, theScore, Caesars and MGM in media and entertainment due to mainstream traction and ad dollar flow into eSports. For a copy of our proprietary Twitch.TV data, please email us or contact your Macquarie account manager. Macquarie Research eSports Insights