Twitch Rewarding Gamers as OWL Viewership Declines, Activision Blizzard Hits 52-Week High

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Twitch (AMZN) has begun encouraging gamers to watch exclusive Overwatch League broadcasts, by awarding Overwatch League tokens that can be used to buy team-based character skins, as the live streaming video platform seeks ways to increase viewership. OWL’s opening day drew 408,000 concurrent viewers, but that figure has steadily declined in the weeks since; compelling Twitch to run a program that encourages OWL gamers (and fans) to watch more. Viewers will earn one token per live map finish (roughly 3-4/hour), with a “percentage” of those watching the conclusion of the final map randomly winning 100 tokens during the live cast. Skins (and team specific gear) will also be awarded to users who tip (with paid emotes) during live streams. For reference purposes, users need 100 tokens to unlock OWL skins; they have a cash value of +/- $5.

Howie Long-Short: Blizzard Entertainment (ATVI) is the publisher behind Overwatch and the OWL is their most ambitious esports endeavor. Once thought to be overpriced at $20 million/franchise, CEO Michael Morhaime said on the company’s Q4 earnings call that he’s “pretty confident” the price is going up for the next group of owners that buy in; indicating there’s been an increase in global demand for OWL expansion franchises. ATVI posted Q4 ’17 earnings on February 8th, reporting an 8% YOY increase in revenue (to $2.64 billion). The company hit a 52-week high Tuesday morning ($75.41), before closing the day at $73.92.

Fan Marino: To put OWL’s opening day success in perspective, you can compare it the viewership figures Amazon (AMZN) and Twitter (TWTR) received for their initial TNF livestreams. Amazon’s first TNF game drew 372,000 viewers per 30 seconds; Twitter saw just 243,000 viewers per minute, during their first broadcast. While OWL viewership has since declined, Blizzard Entertainment managed to negotiate a 2-year, $90 million deal to stream OWL Season 1 & 2 games exclusively on Twitch.tv in English, French and Korean (they do not hold the rights to broadcast in Chinese).

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Twitch, Overwatch Agree to Biggest Deal in Esports History

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Twitch (AMZN) and the Overwatch League (OWL) have agreed upon a 2-year media rights deal worth at least $90 million dollars (the biggest deal in esports history); enabling the live-streaming video platform to broadcast all league matches, starting with the first match of the inaugural season tonight at 7p EST. Twitch will be the exclusive worldwide (minus China) digital provider of the league, broadcasting all regular-season, playoff and championship matches in 3 different languages (English, Chinese, French). To drive viewership and engagement, the league and its broadcast partner will introduce a program that rewards the league’s biggest fans and give them a chance to root on their favorite gamers/teams with OWL “cheermotes”.

Howie Long-Short: ATVI shares are up 480% (from $11.52 in ‘13) over the last 5 years (to $66.19 at Tuesday’s close), while most reporting a Q3 record $1.9 billion for revenue generated (+17% YOY) and raising full-year revenue guidance from $6.4 billion to $6.68 billion ($2.08/share), in early November. CEO Robert Kotick has tried to temper expectations for the Overwatch League saying, “the first season is really about building a solid foundation”; but news that the company has recently launched a consumer products division (which will sell OWL skins) combined with the newly signed broadcast deal, would seem to raise the bar.

Fan Marino: The league has announced 12 franchises (2 6-team divisions), with Patriots owner Bob Kraft, Mets COO Jeff Wilpin, Rams owners Stan & Josh Kroenke, Sacramento Kings co-owners Andy Miller/Mark Mastrov, Texas Rangers co-owner Neil Liebman and the CEO of Comcast Spectacor (owns Flyers) Dave Scott are among the pro sports owners that have purchased (or made an investment into) teams. Owners paid $20 million for the rights to participate in the new league.

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WSJ: Just 7 Ways to Publicly Invest in Sports, JWS: Not the Case

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The WSJ published a recent story asserting there are few ways to directly invest in sports, a notion we dispute. The article deemed just 7 publicly traded equities to be sports-related and based their conclusion, that fans are better off watching and playing sports than investing in them, on the performance of 2 exchange traded funds; one of which (FANZ) has beat the S&P since its July ’17 inception, which would seem to counter to their argument. The article cites Matt Hougan, the CEO of Inside ETFs, and his belief that most of the economic value within sports (ownership and player contracts) “comes in private transactions”, to support the author’s thesis; but fails to pay consideration to the revenue streams that support those contracts (and generate ownership profits). It’s worth noting that JohnWallStreet follows over 100 sports-related equities.

Howie Long-Short: Sports teams generate revenue from 4 sources; broadcast rights, ticket sales, sponsorships and merchandising. Several publicly traded equities use a similar business model; Churchill Downs (CHDN), International Speedway (ISCA), Dover Motorsports (DVD) and Speedway Motorsports (TRK), and thus should also be included on the list. Others, like Acushnet Holdings Corp. (GOLF) and Callaway Golf Company (ELY), are undeniably directly tied to sports; and no one would claim your basket was unfocused if companies like Nike (NKE), Lululemon (LULU) and Fitbit (FIT) were to be included. Oh, and don’t forget Activision Blizzard’s (ATVI) new esports league (Overwatch); their inaugural season starts today.

Fan Marino: The story names the New York Knicks, New York Rangers (MSG), Atlanta Braves (BATRK), Manchester United (MANU) and Borussia Dortmund (BORUF) as the teams you can purchase equity in. The Toronto Blue Jays, Toronto Maple Leafs (RCI), Juventus F.C. (JVTSF), A.S. Roma (ASRAF) and SS Lazio (BIT: SSL) are also all publicly traded.

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Candy Crush Ice Cream and Overwatch Skins, Merchandising ATVI’s Next Revenue Frontier

Activision Blizzard (ATVI) has launched a consumer products division, as the company looks to turn more than 40 billion hours (across franchise games in ’16) of gaming in to merchandising revenue. The company has begun licensing characters and game brands; introducing Candy Crush ice cream, Overwatch computer accessories and plans for a movie based on their Call of Duty franchise. ATVI, which will also debut its Overwatch esports league on January 10th, will also sell team “skins” worn in competition and event-exclusive goods. There would seem to be a market for physical merchandise; more than half of the company’s ’16 revenue (+25% YOY to $1.4 billion) came from in-game purchases (see: loot boxes).

Howie Long-Short: ATVI competitor Rovio (HEL: ROVIO) turned their Angry Birds game in to a successful consumer franchise (’16 movie grossed $350 million); generating 21% of all corporate revenue from brand licensing over the last 12 months. ROVIO reported (on Nov. 23) spending 4x more (to $26.3 million) on gamer acquisition ($26.3 million) during Q3 ‘17, while Ebitda fell 29% YOY (to $7.3 million); sending shares tumbling 20%, to their lowest price (+/-$11.50) since the September ‘17 IPO. Shares have declined an additional 2.5% since.

Fan Marino: Never heard the term loot box? It’s a virtual item (purchased with real currency) that once redeemed gives the player random virtual items, often cosmetic (i.e. avatar or character options, costumes etc.); gaming companies use the feature to monetize games post purchase. Those opposed to loot boxes argue it forces gamers to gamble to maximize the gaming experience; though Overwatch loot box rewards do not effect gameplay. Think it’s all fun and video games? China, Japan and Australia are now regulating loot boxes under gambling law.

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MGM, Professional Sports Leagues Backing Esports Development Studio

Former WME-IMG executive Tobias Sherman, backed by seed funding from MGM Resorts International (MGM), has launched Foundry IV; a studio that intends on developing games with “esports prioritized at the earliest DNA.” That philosophy differs from industry norms, which tends to see publishers use competition as a method of marketing their games. Sherman, who previously lead the esports department at WME-IMG and helped to co-found the ELeague, will act as the company’s CEO. Foundry IV is raising a Series A round, with professional sports leagues said to be invested.

Howie Long-Short: Take-Two Interactive (TTWO) reported Q2 revenue figures that beat market estimates ($577 million to $511.3 million) and the company raised full-year adjusted revenue forecasts (from $1.65 billion to $1.93 billion), as sales have been strong for both NBA2K ’18 and Grand Theft Auto 5. TTWO also reported a 31% YOY increase (to $303 million) in digitally delivered net revenue and said that it expects to record net bookings in fiscal ‘19. Shares rose 10.58% following Wednesday’s news.

Fan Marino: Activision Blizzard’s (ATVI) Call of Duty: WWII generated $500M in sales over its first 3 days on the market; while setting a day 1 record for full-game downloads on PS4. The new game sold twice as many copies as last year’s Call of Duty: Infinite Warfare did during the first weekend; which would seem to indicate that gamers are not yet tired of the 15-year old franchise. That’s good news for esports franchise owners. I’ve had difficulty envisioning scenarios in which games could remain popular over an extended period. Perhaps my concerns are overblown.

Former WME|IMG executive Tobias Sherman creates game studio Foundry IV

Editor Note: The summary for this story was co-written by our friends at The Water Coolest. Check out TheWaterCoolest.com for the latest market news and professional advice.

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Blockchain Technology Finds Niche in Esports Ecosystem, Activision Blizzard Reports Record 3rd Quarter

Companies are using blockchain technology to solve problems that have developed as esports have evolved. Network Units, whose pre-ICO begins on November 8th, has developed an online gaming platform with a built-in player conduct and reputation management system. The platform is designed to eliminate the toxic members of communities who abuse others, exploit the system and cheat the game. Esports.com, which kicked off its ICO period on November 1st, provides a platform for merchandise sales, licensed gambling and user generated educational content. The platform is sold as a solution to eliminating problems related to low community engagement. Whitepapers for both initial coin offerings are linked for your convenience.

Howie Long Short: Activision Blizzard (ATVI) reported a Q3 record with $1.9 billion in revenue generated (+17% YOY) and the company raised full-year revenue guidance from $6.4 billion to $6.68 billion ($2.08/share); crediting the growth to the success of September’s Destiny 2 launch and the King mobile games division (i.e. Candy Crush Saga), which reported growth for the first time since Q1 ‘16. Keep an eye on the company’s much anticipated Overwatch esports league which will debut in December, just don’t expect it to be an immediate revenue generator. CEO Robert Kotick has tempered expectations saying, “the first season is really about building a solid foundation.”

Fan Marino: The audience for video game streaming is 600 million and growing, so streaming sites are aggressively working to add streamers. Twitch, the Amazon (AMZN) owned streaming site, grew its number of concurrent streamers 67% in Q3 (to 25K); as the company began offering smaller streamers’ the opportunity to generate revenue. For comparison purposes, YouTube (GOOGL) Gaming (the next most popular site) had just 8,200 concurrent streamers.

The Esports Industry Is Booming — Can Blockchain Supercharge It?

Editor Note: The summary for this story was co-written by our friends at The Water Coolest. Check out TheWaterCoolest.com for the latest market news and professional advice.

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ACTIVISION BLIZZARD’S OVERWATCH LEAGUE FOLLOWING NFL, NBA, MLB & NHL TEMPLATE

Activision Blizzard (ATVI) has made some recent changes to its Overwatch League, designed to stabilize the fledging Esports ecosystem for game publishers, owners, players and sponsors.  Permanent city-based franchises (plans for at least 28 world-wide), revenue sharing agreements and franchise fees ($20 million) are among the concepts ATVI has borrowed from the NFL, NBA, MLB & NHL. Moving forward, the development of a players’ union will be necessary to ensure gamers are compensated fairly. The league has announced 9 franchises, with Patriots owner Bob Kraft, Mets COO Jeff Wilpin, Rams owners Stan & Josh Kroenke and Sacramento Kings co-owners Andy Miller/Mark Mastrov among the pro sports owners that have purchased teams.

Howie Long-Short: Unlike pro sports leagues which are a collection of individually owned franchises with an elected commissioner overseeing the league, ATVI is a publicly traded company who must act in the best interests of their shareholders and they’ve done a great job of it. Company shares are up 82% YTD (500% over the last 5 years) as ATVI has proven capable of generating revenue growth without having to release new game titles. The potential for in-game advertising, creation of the Overwatch League and soaring in-game revenues (up 100% YOY to $3.6 billion in 2016) have the company well positioned for future growth. The recent release of Destiny 2 and the upcoming blockbuster release of Call of Duty: WWII, should give the company a revenue boost in the Q4.

Fan Marino: As Howie noted last week, Comcast Spectacor’s (CMCSA) acquisition of an NLL franchise made sense because the company’s strength is in hosting events and building businesses around pro sports teams. The same can be said about pro sports team owners investing in Esports franchises. The revenue model for Esports is based on sponsorships, advertising, merchandise, ticket sales and media rights; areas which pro sports teams can leverage established relationships. In the short-term, these acquisitions seem like a no-brainer; I have long-term concerns though. I can’t envision any scenario in which a game that is popular today, remains popular in 2030. Technology evolves quickly and attention spans are short. What happens to the value of these franchises when the next big game comes along?

Esports Leagues Set To Level Up With Permanent Franchises