Early Entrants: Vol. XIX – Fanatics Expresses Interest in StubHub, May Be Too Late

Editor Note: ‘Early Entrants’ is a series of sports business ‘rumblings’ before the news breaks.

Fanatics

Fanatics Expresses Interest in StubHub, May Be Too Late

Vivid Seats, KKR and Booking.com have all been reported to be sniffing around a potential StubHub acquisition, but one industry insider tells JohnWallStreet that it appears as if Fanatics “just threw their hat into the ring”, too. Michael Rubin’s e-commerce giant presumably sees an opportunity to leverage the wealth of consumer data that the secondary ticketing marketplace controls. Fanatics’ bid is said to be backed by Silver Lake Partners, who is motivated to “keep [StubHub] away from [competitor] KKR.” Fanatics may have missed the boat, though. Our source believes Vivid Seats is “close to a deal.

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NFL Ad Pricing Up in 2019 – Just Not to Level Touted During Upfront

NFL ad pricing has rebounded this season – just not to the level touted during 2019-2020 upfront. AdAge reported that “the average unit cost of a 30-second in-game spot was up between 5 percent and 10 percent compared to the year-ago bazaar”, but the director of media at one prominent buy-side agency suggests the real number is between “three percent and five percent.” He explained that the “networks are bullish during upfronts, but as negotiations go on [brands] get to where they need to be.

Reason for the increase? Brands have realized there’s simply no place else to capture an audience of 25 million people. The influx of non-traditional advertisers buying primetime in-game spots (think: Facebook, Amazon, Netflix, Hulu) and a tempered political climate (as it relates to player protests) have also helped to change the narrative just one year after the networks experienced steep declines.

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Expect NFLN to Retain Exclusive Live Rights

In week 1, Thursday Night Football on NBC averaged over 22 million viewers. In week 2, NFL Network (NFLN) had the exclusive broadcast rights to TNF and viewership declined -70% to an average of 6.6 million fans. The NFL’s media strategy is predicated on reach and the league’s cable channel is in just 41 million homes (Nielsen counted 119.9 million  for the ’18-’19 season), so it’s worth wondering how NFL Network fits into the upcoming round of media rights negotiations.

EVP of media Brian Rolapp says NFLN will continue to play a prominent role come ’23 and expects that the network will retain exclusive live broadcast rights. “The NFL Network is very important to [the NFL] for a lot of reasons. We still believe the NFL fan is somewhat underserved and NFL Network helps [us to] fill [that] need. NFL Network and the RedZone channel are great properties, but also all of our digital content is produced out of that infrastructure and [the network is] really valuable to us in [terms of] how we engage our fans. The [exclusive] games are an important part of [the NFLN content strategy], so I don’t really see that changing.” Thursday night’s Tennessee – Jacksonville game (9.19) will again be exclusive to NFLN.

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MLB Moves to New CMS, NHL May Not Be Far Behind

Major League Baseball has announced that Deltatre’s Content Management System, which powers 25 of the largest sports leagues in the world (including the NFL), is now hosting their +/- 300 digital destinations; MLB had an in-house tool, but the CMS went over to Disney as part of the BAMTech sale in 2017. The decision to settle on Deltatre came after a global search and is not surprising with WWE, PGA TOUR having recently made similar moves. It’s the ability to customize and develop on top of a platform that reached 750 million unique visitors in ’18, that makes ‘Forge’ particularly attractive to MLB.

The NHL is the last of the major leagues (save MLB.tv) still running on BAMTech with the Disney entity focused on building out its own well-publicized streaming services. Insiders tell JohnWallStreet that the league will likely make a move when their current rights deal expires in 2021-22 and speculation already exists that the company will look to follow MLB’s lead.

NLL Looking to Raise Profile Through Digital Storytelling    

The National Lacrosse League made headlines in late August when it named NHL executive Jessica Berman as the league’s deputy commissioner. This week the NLL will take another positive step forward when it hosts a business summit for its players. The event, which will take place in Philadelphia on Wednesday (the day after the 2019 NLL Entry Draft), is designed to educate players on best business practices and social media guidelines. The hope is that the digital-first league can continue to raise its profile with captivating storytelling and the support of a media partner (Turner) that has committed to creating more print and video (see: highlights) content around the NLL.

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Amazon’s Investment in YES Network Indication MLB Plans to Reassign Local DTC Streaming Rights

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Yankee Global Enterprises, along with strategic partners Sinclair Broadcast Group and Amazon, has closed on the 80% of YES Network not already owned by the club (bought from The Walt Disney Company). The group, which also counts RedBird Capital, Blackstone and Mubadala Capital as investors, bought the country’s most valuable regional sports network at a $3.47 billion valuation. It has been reported that Sinclair will work with YES team management to manage traditional and virtual distribution relationships. The press release issued by Yankee Global Enterprises (dated 8.29.19) did not address how Amazon fits into the fold, but it’s believed the company invested in the RSN with the belief that it would be receiving the rights to stream Yankees games; as it currently stands MLB controls each teams’ local digital rights.

Howie Long-Short: The Yankees involvement in the deal indicates that the organization is bullish on content monetization and that it sees value in establishing a more direct relationship with its fan base (think: ability to sell tickets, merchandise). The iconic franchise reclaimed controlling interest in YES Network at a valuation $500 million less than Fox invested at 2014, while hand selecting strategic partners to close the transaction; partners that will assume most of the financial risk as the club grows non-sharable revenues. It’s hard to argue that the team isn’t among the deal’s winners.

The deal also puts Sinclair in a position of strength. One media industry insider explained that the company “has a pretty good handle on retrans, they now control all of these valuable RSN rights [which provide leverage in carriage negotiations] and they’re looking to take advantage of opportunities that sports betting has created; particularly in-play betting.” The volume of discreet in-game bet-able opportunities in baseball is tremendous relative to most other sports and remember, New Jersey (which is generating sports betting revenues comparable to Nevada) is part of the Yankees home broadcast territory. That doesn’t mean the company intends on serving as a gaming operator. It’s far more likely Sinclair partners with a 3rd party (think: Fox and BetStars NJ) to avoid concerns relating to the games’ integrity.

As for Amazon, it’s difficult to imagine that they would have participated in this deal “without a wink and a nod” that MLB was going to reassign local direct-to-consumer standalone broadcast rights to the clubs. Our source wondered, “why else would they be doing it?” The e-commerce giant certainly isn’t looking to operate a media business – it uses content to sell products. Yankees President Randy Levine hinted that change is coming saying, “you should just stay tuned because I think the [MLB] commissioner will be speaking about that in the near future.”

Fan Marino: While on the topic of OTT, it’s the pressure on the paid television ecosystem from digital/mobile platforms that has driven content and distribution consolidation across the legacy media business. While the vast majority of consumption still occurs inside of the traditional cable bundle, substantial viewership now occurs outside of it as well. The challenge that OTT service providers face is that the monetization of sports content in digital only platforms remains substantially behind the level of consumption and it is going to take some time for that to catch up. The insider we spoke to said to “look for the next set of NHL, PGA, NFL and P5 college broadcast agreements (those coming up within the next 5 years) to address this dynamic by moving certain rights to non-traditional platforms.” We were also told to “expect those deals to reflect the enormous value of key live sports rights in the rapidly changing distribution landscape” – promising news for teams and leagues.

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Early Entrants: Vol. VI – NFL Leaning In To Amazon’s Pitch

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Early Entrantsa bi-weekly series of sports business “rumblings” before the news breaks.

NFL Leaning In To Amazon’s Pitch

The NFL appears ready to split its out of market broadcast rights package between a satellite provider (DirecTV) and an online streaming service. Commissioner Roger Goodell recently told Bloomberg that the league plans to deliver its NFL Sunday Ticket “on several different platforms.” While it’s reasonable to assume DirectTV Now would be the front-runner to acquire the streaming rights, multiple sources tell JohnWallStreet that the NFL “is leaning in to Amazon’s pitch.” Prime Video can provide the league with the widest reach (relative to DirecTV Now, DAZN) and the NFL sees value in the e-commerce giant’s ability to facilitate merchandise and ticket sales.

Turner Sports Can’t Get Enough of the AAF

Back on March 5th, Turner Sports announced that TNT would exclusively televise 2 additional regular season Alliance of American Football games – they’d initially agreed to place just a single regular season game and one playoff game on the cable network (B/R Live carries 1 game/week). But the AT&T/WarnerMedia subsidiary was pleased with viewership for its March 9th contest – it was the 2nd most watched show on the network that day – and sources tell JohnWallStreet that the company is looking to add additional broadcasts as the league’s season winds down (3 regular season, 2 post-season games remain). It’s worth mentioning that CBS has also decided to move 2 games from the CBS Sports Network to the CBS broadcast network; a regular season contest on April 6th and one of the Conference Championship games on April 27th.

Digital-Only Service Set to Buy Linear Network

There are rumors floating that DAZN is “set to buy” Fox Sports (Brazil), an acquisition that would accelerate the company’s rise in the country given the “premium rights” that would come along with it. The purchase would certainly run contrary to the company’s digital-only strategy, but in a market where TV is the preferred viewing platform and digital consumption remains an afterthought (particularly relative to the U.S. or Japan) it makes sense.

Vivid Seats Sniffing Around StubHub Acquisition

We mentioned in Early Entrants Vol. V that eBay was exploring the sale or spinoff of StubHub. Questions surrounding inclusion of the company’s foreign offices (via Ticketbis) had insiders doubting within the last week whether the company would move forward with the split, but we’re hearing separation of the 2 companies is now considered “almost a near certainty”; the “eBay elite” have tired of the fluctuations caused by StubHub in their quarterly earnings reports. Vivid Seats is said to be sniffing around a potential acquisition.

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MLB Attendance Hits 15 Year Low but Fans Still Watching on TV

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Major League Baseball attendance declined 4.1% in 2018 (from 30,042/game to 28,830/game), with fewer than 70 million people (69,625,244) visiting league parks for the first time since 2003; it was the MLB’s 5th attendance decline in the last 6 seasons. 17 clubs experienced a YoY regression, with the Marlins (-771,910 fans) and Blue Jays (-878,605 fans) reporting the largest drop-offs; it must be noted that those clubs altered the way they calculated gate receipts prior to the ’18 season.

While MLB experienced a decline in fans at the ballpark, television viewership remains strong; Nielsen reported that between March 29th (earliest opening day ever) and September 30th (final day of regular season) the league’s 29 RSNs (Toronto not included) saw ratings rise +2% YoY. MLB games remain the most watched programming in primetime on cable television in 28 of 29 U.S. markets (Miami is the exception) and 12 RSNs carrying MLB teams are tops in their market in primetime, amongst all programmers.

Howie Long-Short: MLB blamed the attendance decline on the “historically bad weather” in April (102 games were played under 50 degrees), but they should have blamed it on the Marlins and Blue Jays accounting methods; 54% of the league’s total decline can be attributed to those 2 clubs.

Of the 12 RSNs that rank first in primetime within their market, 6 are owned by Fox Sports (Cardinals, Indians, Brewers, Yankees, Royals and Diamondbacks) and will be sold. It’s been reported that Sinclair Broadcast Group (SBGI), YouTube (GOOGL), Amazon (AMZN), Blackstone Group (BX), CVC Capital Partners and Apollo Global Management (APO) have all expressed interest in acquiring the block (22) of RSNs. Bloomberg has estimated that the assets could command upwards of $20 billion.

Advertisers value sports properties because a) they’re live (so you can’t fast-forward through commercials) and b) viewership consumption is greater for sporting events than it is for entertainment programming. In fact, the average MLB club has fans tuned in longer than the top 10 primetime television shows combined in their respective markets.

Fan Marino: The St. Louis Cardinals lead the league with an 8.05 rating on Fox Sports Midwest. On the other end of the spectrum, the Chicago White Sox were the only club to post a Nielsen rating under 1 (.68); a figure that indicates fewer than 1% of the total TV households in the Chicago market are tuning in to watch the South Siders on FSN Chicago. The Atlanta Braves experienced the league’s greatest YoY rise, with viewership climbing 79% in 2018 (to a 3.46 rating); a trip to the postseason following 3 straight years of 90+ losses explains the renewed enthusiasm.

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Amazon Expands Presence in Sports World, Announces Partnership with IRONMAN

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Amazon (AMZN) has acquired title sponsorship rights to the 40th IRONMAN World Championship. As part of the agreement, the e-commerce giant will serve as the Official Sports Nutrition Retailer of the “iconic endurance event” (10.13 in Kailua-Kona, Hawaii); “providing participants access to a vast selection of nutritional products.” IRONMAN will receive a branded pop-up shop, (amazon.com/ironmanrace) featuring product from the event’s official nutrition partners (see: Gatorade, CLIF Bar), on the world’s largest e-commerce platform.

Howie Long-Short: Amazon’s shown interest in streaming sports content (see: Sunday Night Football, U.S. Open), so it’s interesting to note that this deal does not provide the company with broadcast rights; NBC Sports platforms, ironman.com and IRONMAN NOW on Facebook Watch will all have the event. That’s not to say this deal doesn’t make sense from the Amazon perspective. The demand for health/wellness/performance products is at an all-time high, it’s perfectly logical that Amazon would want to connect with the most committed of fitness enthusiasts.

Amazon posted (Q2 earnings) its largest quarterly profit in company history during Q2 ’18, surpassing $2 billion (posted $2.5 billion) for the first time. It was the 3rd straight quarter that AMZN surpassed $1 billion in profits. The company’s e-commerce division reported operating profit of $1.34 billion, shattering analyst expectations ($240 million); an increase in online ad sales (+132% YoY to $2.2 billion) and “efficiencies in generally all our fixed costs” were among the factors that drove higher profits (along with their high margin cloud services business). FYI, sales from Amazon’s Prime Day will factor into 3rd quarter financials. In late August, AMZN shares traded at over $2,000/share for the first time; they’re up 65% YTD, opening at $1,970.19 on Monday 9.17.18.

IRONMAN is owned by the Dalian Wanda Group, a privately held Chinese real-estate conglomerate which bought the endurance racing series in ’15 for $650 million.

Fan Marino: Not to be outdone by an American counterpart, Rukuten (RKUNY) has announced a multi-year global partnership with Spartan Race (obstacle racing series). The deal provides Rukuten with exposure at Spartan events (+ in digital advertising, content and merchandise), makes the company the official kit sponsor of the Spartan Pro Team and places the company logo on finisher shirts. The partnership officially begins with the “2018 Spartan World Championship powered by Rakuten” (Spartan’s biggest event); the Japanese e-commerce and internet company will also “power” the live stream of that event on Facebook Watch.

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Amazon Fails to Deliver with U.S. Open Coverage  

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English tennis fans have been utterly disappointed with Amazon’s exclusive broadcast coverage (in U.K. and Ireland) of the U.S. Open. 90% of the +/- 650 subscriber reviews posted assigned the Prime Instant Video service a one or two-star rating (80% gave it one-star), with most subscribers complaining about picture quality, sound quality, inability to record (or replay) matches and the limited choice of courts to watch. Subscribers (paying $10.50/mo.) didn’t appreciate Amazon’s separate highlights service any more than the live broadcast feeds, 96% of the reviews submitted about that service came with one or two star ratings. Amazon plans to add increase the number of matches available to its on-demand subscribers to compensate for any action missed.

Howie Long-Short: Amazon is paying $40 million (over 5 years) for the exclusive rights to broadcast the Grand Slam event. For comparison purposes, ESPN is paying $70 million/year for the exclusive broadcast rights (television, digital and streaming) to the U.S. Open and Open Series events here in the U.S, Latin America and Canada.

Earlier this week, AMZN shares traded at over $2,000/share for the 1st time ever. Morgan Stanley says there is still room to run though, as they’ve increased their price target on the company to $2,500 (+25% upside). Morgan Stanley analysts cited the company’s “rapidly growing, increasingly large, high margin revenue streams (advertising, AWS, subscriptions).” It does need to be noted that $2,500 is the highest price target for the company on Wall Street. AMZN shares are up 68% YTD, they’ll open at $2,002.38 on Friday 8.31.18.

Fan Marino: The U.S. Open is the first sporting event that Amazon (AMZN) has held exclusive rights to and they hardly look like a serious threat to overtake traditional sports broadcasters anytime soon, but it’s unfair to single out Amazon. Back in June, we wrote about the Australian OTT service Optus authorizing government-owned SBS to broadcast World Cup matches amidst public pressure, with coder issues preventing thousands of fans from watching games. YouTube (see: England/Croatia), DAZN (see: Serie A) and Formula 1 (see: Spanish Grand Prix) have all failed to deliver at times, as well.

If English sports fans are this upset about missing first round U.S. Open coverage, imagine what their reaction will be if they’re to miss English Premier League action. Back in June, Amazon acquired a package that contains the exclusive broadcast rights to 20 EPL games/season. One of the two full fixture rounds AMZN has the rights to is on Boxing Day (Dec. 26), giving the e-commerce giant less than 4 months to figure it out.

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Comcast Preparing to Divest 22 Fox RSNs, To Submit 2nd All-Cash Bid by July 27th  

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Comcast (CMCSA) is reportedly lining up buyers for 21st Century Fox’s (FOXA) regional sports networks to alleviate anti-trust concerns, as it prepares a bid that would be favorable to The Walt Disney Company’s (DIS) $71 billion dollar offer (cash and stock) for FOXA film & TV assets. CMCSA is open to divesting all 22 RSNs, but believes just 8 overlap with the existing Comcast sports footprint. Reuters is reporting that the company has held conversations with publicly-traded buyout firms Apollo Global Management (APO) and Blackstone Group (BX). Just 2 weeks ago, the U.S. Department of Justice approved DIS’ bid after reaching a settlement with the mouse house to rid itself of the regional sports networks.

Howie Long-Short: It’s been assumed that the RSNs will fetch $20 billion+ (Comcast’s first bid placed a $24 billion valuation on them), so selling them off will help Comcast coffers as the company prepares to submit a 2nd all-cash bid (no dollar amounts given). FOXA shareholders are scheduled to vote on the DIS bid on July 27th, Comcast will submit their bid prior.

Rumors of P.E. firms taking down the RSNs is relatively surprising as most of the discussions surrounding potential landing spots having focused on telecom and media companies. Everyone from Amazon (AMZN) and YouTube (GOOGL) to AT&T (T) and Dish Network (DISH) has been mentioned.

I asked T.K. Gore, sports media consultant, advisor and professor, for his thoughts on who lands the RSNs?

T.K.: The RSN world is a tricky business and experience — coupled with deep pockets — matters. Look for groups like Liberty Media and AT&T to get involved given their experiences.

MSG is among the companies that has been associated with having interest in the regional networks. James Dolan has said that he’d be interested in acquiring the assets “at the right price”, noting they’re highly profitable now but a “slow, declining revenue stream.”

Fan Marino: The 22 RSNs collectively control exclusive broadcast rights to 44 NFL, NBA, MLB & NHL franchises, including teams in Detroit, Southern California, Dallas, Cleveland and Miami. The YES Network is the most valuable of the lot, worth an estimated $4 billion; the Yankees are likely to re-acquire that network.

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BT to Carry Amazon Prime Sports Content on Cable Television

BT Group

BT has signed a carriage agreement with Amazon that will bring sports content from the Prime Video library (along with movies and television shows) to cable television (BT TV). Effective immediately, BT TV subscribers will receive complimentary access to the Amazon Prime Video streaming service, ensuring British soccer fans can to watch every ’19-’20 EPL match via their set-top boxes; Amazon recently acquired the exclusive rights to broadcast 20 matches/season in the U.K. and Ireland, beginning in 2019-2020. Financial terms of the Amazon carriage deal were not disclosed.

Howie Long-Short: It was just 3 weeks ago that the EPL announced Amazon (AMZN) and BT Sport (BT) had won exclusive rights (in U.K. and Ireland) to the last 2 broadcast packages available for 3-year period beginning in ’19-’20; each containing 20 games/season. While terms of the Amazon deal were not disclosed, BT Sport reportedly signed a pact worth $40 million/year. Back in February, the EPL announced BT won package A ($409.3 million/season, for 32 matches/season), while SKYAY took home packages B, C, D & E ($1.655 billion/season, for 132 matches/season). Content sharing agreements with both BT Sport and Sky Sports ensure BT subscribers have access to all EPL games.

As for AMZN, the company posted its most profitable quarter ever in Q1 ’18. It grew revenue +43% to $35.7 billion, while net income rose 121% to $1.6 billion. Cloud computing (+49% YoY to $5.44 billion), subscription services (+60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter. AMZN shares are down 5% since SCOTUS ruled states and local governments can collect sales tax from online retailers (’92 ruling said internet was a tax-free haven) back on Wednesday June 20th, closing on Monday at $1,663.15.

Fan Marino: In addition to the EPL, Amazon has exclusive broadcast rights (in U.K. and Ireland) to the U.S. Open Tennis Championships (through ’22) and ATP World Tour. BT subscribers will also receive access to those events at no additional charge.

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Facebook Unveils FB.gg to Compete with Twitch

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Facebook has unveiled a homepage for streaming gaming content to supplement its Gaming Creator program. The new destination FB.gg, designed to compete with Twitch (think: social network for gamers), aggregates gaming videos, suggests live streaming feeds, showcases creators (discoverability is an issue on Twitch) and enables users to search content by game title. The social media giant also announced that it would be introducing functionality offering viewers the opportunity to tip ($.01/per) broadcasters, giving emerging creators the chance to monetize their work. The Level Up program has not yet been rolled out, but a select group of gamers have been allowed to charge fans ($5) to subscribe to their channels.

Howie Long-Short: Facebook is looking to take its cut of a video game streaming market that generated $4.6 billion in revenue last year; 37% of which was controlled Twitch. The company will profit from FB.gg by taking a percentage of the transaction amount when a viewer buys Facebook Stars, the virtual currency used to tip streamers. The percentage will range from 5%-30%, depending on the number of stars included within the “pack” (more stars = lower percentage).

Back in late April, Facebook reported Q1 ’18 earnings increased +62% YoY (to $1.69/share adjusted) on revenue that grew 49% (to $11.97 billion), bouncing back strongly from the Cambridge Analytica scandal. Ad revenue (+50% YoY, avg. revenue per user was $5.53), operating margin (+5% YoY, to 46%) and usership (+13% YoY) also all rose during the most recent quarter. Shares popped 8.5% after FB posted Q1 ’18 financials and have steadily climbed since, closing Tuesday at $192.40.

Twitch was acquired by Amazon (AMZN) for $970 million in 2014. The company increased concurrent viewership +21% during Q1 ’18 (to 953,000), growing its already large lead in the game streaming market over 2nd place YouTube Gaming (GOOGL, -12% to 272,000); but, Facebook (FB, +103% to 56,000) also reported significant audience growth last quarter and will enter Q3 ’18 armed with an enhanced destination for gaming enthusiasts.

As for AMZN, they posted their most profitable quarter ever in Q1 ’18. AMZN grew revenue +43% to $35.7 billion, while net income rose 121% to $1.6 billion. Cloud computing (+49% YoY to $5.44 billion), subscription services (+60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter. AMZN shares are up 7.5% over the last 3 weeks and climbed past $1,700 for the first-time last week, before closing on Tuesday at $1,698.76.

Fan Marino: ESL (think: Dota 2, Counter-Strike: Global Offensive) signed an exclusive broadcast deal with Facebook Watch, as opposed to the market leader Twitch. Why? As World Esports Association Commissioner Ken Hershman points out, in addition to being a “tremendous streaming platform”, Facebook is “a social and engagement platform.” FB’s targeting capabilities and recommendation engine have enabled the esports federation to grow rapidly, from 750,000 viewers/mo. to more than 25 million within a year.

For those wondering, .gg stands for good game.

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