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BUSINESS VALUATION &

FINANCIAL ADVISORY SERVICES

eSports

Business Models

Rohan Bose

Mercer Capital

www.mercercapital.com

© 2018 Mercer Capital1www.mercercapital.com

How an eSports Team Makes Money

An eSports team can make money in a variety of ways, including broadcast revenue, sponsorships, merchandise sales, and subscriptions. The sources of revenue are detailed in Figure 1.

Sponsorships

As shown in Figure 1, sponsorships and advertising account for the bulk of revenue for eSports. the money generated by our eSports teams comes directly from ." The novelty of eSports has attracted many well-known sponsors; however, teams have struggled to make sponsor-

ships a sustainable source of revenue. The relatively short life of popular games proves to be an imped-

iment to sustained sponsorship. A game might be highly popular currently but within a year fade from public interest. we discuss various business models for eSports teams.

© 2018 Mercer Capital2www.mercercapital.com

sorships can provide long-term recurring revenue to an eSports teams.

Broadcast Revenue

eSports broadcasting on TV is still in its infancy as broadcasters look for eSports content that will appeal

to their target demographics. , an eSports content and live tournament brand, has a broad-

TV. The recently formed

. Perhaps most importantly, a broadcast TV deal does not cancel existing distribution agreements such as broadcasts on that were already in place.

© 2018 Mercer Capital3www.mercercapital.com

Merchandise Sales

As mentioned in

, consumer spending on eSports merchandise remains websites. From a valuation perspective, merchandise sales can be a source of supplemental income. because the revenue tends to be small and non-recurring.

Prize Money

Prize money typically does not go to eSports teams, but rather, to individual team members who are to generate brand awareness.

As the eSports industry

expands, so have prize pools for tourna-

Vancouver hosted The

International 8 - the

eighth annual . The total prize pool of $24.8 million sets the record for . The compared to other notable sports events from 2018 is presented in

Figure 3.

event-exclusive features and rewards. One-fourth of each Battle Pass was

Naming Rights

where players and coaching staff for a team live and practice in a single residential home."

© 2018 Mercer Capital4www.mercercapital.com

The development of a dedicated training facility represents a shift away from the current model. The training facility has provided another stream of revenue for

Arhancet indicated the

Generally speaking, eSports teams owning their training facilities is a recent trend. As eSports continue

to grow, it is likely we will see more sales of naming rights for facilities.

Successful Teams

Figure 4 shows the top teams based on prize money earned as well as four other notable teams. C692;6B@2@ (2.:$ #B?<=2 D6;;2?(52;A2?;.A6<;.9 #2D/22 +.;4-B256;.1.A./.@22@=

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© 2018 Mercer Capitalwww.mercercapital.com

Subscriptions

from his more than 160,000 paid month. Twitch subscribers receive access to exclusive badges and ad-free streams.

to more followers and eventually subscribers. Subscriptions are another source of recurring revenue for

a team.

Costs of Revenue

As with any business, there is a cost to generating revenue. eSports teams get most of their revenue

as well as be highly visible to consumers. Typical expenses for an eSports team include player salaries,

administrative personnel salaries, player housing expenses, training facility rent or operating expense,

is for Complexity to build a Complexity are not the only team to take advantage of common ownership with another pro sports in order

The Takeaway

the tournaments they enter. Merchandise sales, prize money, and broadcast revenue are other ways team usually depends on performance at the top line.

Chris Mercer, founder of Mercer Capital, states the two primary factors in the value of a business are

Mercer Capital's Professional Sports

Industry Expertise

Leaders in Sports Valuation and Related Stadium Advisory Services knowledge necessary to assist in developing industry best practices.

This knowledge relates not only to the underlying economics to the sports business, which include its esca-

lating cost structure, but most importantly, the future revenue-enhancing aspects of sports that are the key

to future success. relationships in the industry.

Services

Fairness Opinions

Buy Side Planning

Tax Advisory

Other Services

sports league. For more information about our services, visit or contact any of our senior professionals. Mercer Capital's Professional Sports Industry Team

Copyright © 2018 Mercer Capital Management, Inc. All rights reserved. It is illegal under Federal law to reproduce this publication or any portion of its contents without the

publisher's permission. Media quotations with source attribution are encouraged. Reporters requesting additional information or editorial comment should contact Barbara

Walters Price at 901.685.2120. Mercer Capital's article does not constitute legal or ?nancial consulting advice. It is offered as an information service to our clients and

friends. Those interested in speci?c guidance for legal or accounting matters should seek competent professional advice. Inquiries to discuss speci?c valuation matters

are welcomed. To add your name to our mailing list to receive additional complimentary publications, visit our web site at www.mercercapital.com.

BUSINESS VALUATION &

FINANCIAL ADVISORY SERVICES

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