Riot Games Denies It’s Slashing Esports Budget
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Riot Games Denies It’s Slashing eSports Budget
Riot Games has denied accusations that the company is cutting its eSports budget, but does acknowledge the focus has turned from growing viewership to becoming a profitable endeavor. Derrick “FearGorm” Asiedu, Head of Global Events, Riot Games, said it’s the company’s preference “to invest even more than what we do now ($100 million annually), but only if it makes sense for the business and if revenues continue to increase”; if the company is unable to grow revenues enough to turn a profit, Asiedu said it will be forced to reduce its eSports budget “by some amount.” Advertising, sponsorships and “digital experiences” are expected to drive the bulk of the revenue increase.
Howie Long-Short: Riot Games made several recent decisions implying the company was reducing spending. The company announced the group stage of the League of Legends World Championships would be condensed from 2 weeks to 8 days and that English broadcasts of the event (taking place in S. Korea) would occur remotely (from a U.S. studio) through the semi-final round. I’m on board with the decision to condense group stage competition as that should provide meaningful cost savings and if Fox can get away with calling Russian World Cup games from a studio, I see no reason why American broadcasters need to be in S. Korea. Back in May, Riot held the group stage of a midseason tournament at its EU studio, a venue that failed to reflect event’s importance; the company has since said it would not do that again.
If you listen to Team Liquid owner Steve Arhancet, Riot Games shouldn’t have an issue boosting sponsorship revenue; Arhancet sees “an ecosystem where there’s substantial revenue still being earned within the space.” Newzoo projects $360 million will be spent on eSports sponsorships in ’18. While that figure reflects the potential upside for Riot Games, League of Legends currently maintains just one North American partner (State Farm); it’s fair to ask why the company hasn’t been more successful, in terms of signing partnerships for League of Legends, to date.
Riot Games is owned by Tencent (TCEHY). Company shares are down -10.5% (to $41.35) following recommendations made by China’s Ministry of Education to restrict the number of new video games, limit internet usage and explore an age-appropriate rating system for players; the Ministry blames video games and internet usage for the increase in reported cases of myopia amongst minors. Amidst heightened regulatory risk, it’s no surprise TCEHY reported a decrease in profits for the first time in 10+ years in Q2 ’18.
Fan Marino: The founding League of Legends franchises paid $10 million to join. It’s 4 newest franchises – 100 Thieves, Clutch Gaming (owned by Houston Rockets), Golden Guardians (owned by Golden State Warriors) and OpTic Gaming – paid a $13 million expansion fee. It’s certainly worth wondering if any/all would have made the commitment had they known Riot Games was talking about reducing its eSports budget.
Amazon Expands Presence in Sports World, Announces Partnership with IRONMAN
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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