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26 June 2018 4:01AM EDTeSportsFor the exclusive use of MICHAEL.DOMIN@GS.COMFrom Wild West to MainstreameSports are moving into the mainstream. The immense popularity of survival-basedgames like Fortnite, growing prize pools for eSports tournaments, the rise oflive-streaming, and improving infrastructure for pro leagues have all paved the wayfor eSports to reach nearly 300mn viewers by 2022, on par with NFL viewershiptoday. For game publishers, we believe eSports will not only help to increaseaudience reach and engagement, but also drive direct revenue through establishedleagues. We see further tailwinds to the broader eSports ecosystem—includingonline video platforms, hardware manufacturers (core and peripheral), and chipmakers—opportunities we outline in this report.Christopher D. Merwin, CFA 1(212)357-9336 christopher.merwin@gs.comGoldman Sachs & Co. LLCMasaru Sugiyama 81(3)6437-4691 masaru.sugiyama@gs.comGoldman Sachs Japan Co., Ltd.Piyush Mubayi 852-2978-1677 piyush.mubayi@gs.comGoldman Sachs (Asia) L.L.C.Toshiya Hari 1(646)446-1759 toshiya.hari@gs.comGoldman Sachs & Co. LLCHeath P. Terry, CFA 1(212)357-1849 heath.terry@gs.comGoldman Sachs & Co. LLCAlexander Duval 44(20)7552-2995 alexander.duval@gs.comGoldman Sachs InternationalHeather Bellini, CFA 1(212)357-7710 heather.bellini@gs.comGoldman Sachs & Co. LLCDrew Borst 1(212)902-7906 drew.borst@gs.comGoldman Sachs & Co. LLCLisa Yang 44(20)7552-3713 lisa.yang@gs.comGoldman Sachs InternationalDonald Lu, Ph.D. 86(10)6627-3123 donald.lu@ghsl.cnBeijing Gao Hua Securities CompanyLimitedGarrett Clark 1(212)357-4481 garrett.clark@gs.comGoldman Sachs & Co. LLCCharles Long 1(212)902-7494 charles.long@gs.comGoldman Sachs & Co. LLCWendy Chen 852-2978-2672 wendy.chen@gs.comGoldman Sachs (Asia) L.L.C.Yusuke Noguchi 81(3)6437-9894 yusuke.noguchi@gs.comGoldman Sachs Japan Co., Ltd.Jacqueline Morea 1(212)357-0695 Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of thisreport. Investors should consider this report as only a single factor in making their investment decision. For Reg ACcertification and other important disclosures, see the Disclosure Appendix, or go towww.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as researchanalysts with FINRA in the U.S.

Goldman SachseSportsFor the exclusive use of MICHAEL.DOMIN@GS.COMTable of ContentsExecutive Summary3The Audience Opportunity7eSports Can Extend Franchise Life and Drive Audience & Engagement9League Infrastructure Will Create Opportunities for Direct Monetization11The Overwatch League Case Study18Fortnite and the “Moneymaker Effect”22A New Paradigm for Distribution24Asia is Leading the Way for eSports Globally31New Platforms for eSports34The Venture Landscape39Our Best Ideas for Investing in eSports42Disclosure Appendix5526 June 20182

Goldman SachseSportsExecutive SummaryAs defined by the Oxford English Dictionary, a sport is “an activity involving physicalexertion and skill in which an individual or team competes against another or others forentertainment.” Under this definition, we believe eSports are as much of a sport as anyother, and one that at the highest levels requires intense training and focus. ProfessionaleSports teams train for up to 8 hours a day, have coaches, trainers, and nutritionists onstaff, and players receive base salaries, just like any pro sports league. In the U.S., thereare roughly 50 colleges that have varsity eSports teams, and eSports are underdiscussion for inclusion in the 2024 Paris Olympics, according to the BBC.For the exclusive use of MICHAEL.DOMIN@GS.COMTo play a traditional sport, one typically needs access to an appropriate venue (field,court, etc.), and to be successful, it almost always helps to be big, fast, strong, orcoordinated - or better yet some combination of all four. To play multiplayer video games,all that is necessary is the requisite hardware and an internet connection — and there isa community of millions of players online that are ready to play at any hour of the day.Also, to become successful at eSports, physical stature is not as important, in our view,as reaction time, focus, and strategic thinking. Therefore, we believe professional videogame play can be appealing to a massive global audience of people who can watch andlearn from pros and try to improve their own gameplay — something that we believeisn’t as possible for most traditional sports fans. And because the distribution of eSportsare nearly 100% digital, fans can stream eSports content for free anywhere in the world,unencumbered by traditional TV rights that for most Western-based pro sports leagueshave been segmented by geography and are often lumped into an expensive cablesubscription.In short, we believe eSports are at the cross-section of some powerful trends: socialconnections being formed and maintained online, digital consumption of video, andglobal growth in the gaming audience. Looking ahead, we see numerous public andprivate investment opportunities that we believe will benefit from the structural growthof eSports, both in terms of audience and, increasingly, monetization, as the requisiteinfrastructure is built to transition eSports from the “Wild West” of sports to afull-fledged professional sport. We summarize our key takeaways below.The audience opportunity. In 2018, we estimate the global monthly audience foreSports will reach 167mn people, based on data from NewZoo, larger than that of MajorLeague Baseball and the National Hockey League. We estimate the total onlinepopulation is over 3.65bn people globally, to go along with 2.2bn gamers, but eSportsviewers represent just 5% of the online population TAM, which suggests that thereshould be plenty more runway for audience growth. By 2022, we estimate the eSportsaudience will reach 276mn, similar in size to the NFL today.Due to the growing popularity of survival-based games Fortnite and PUBG, we believeeSports viewership is moving more into the mainstream, which should support a 14%audience growth CAGR for the next 5 years. Recently, Epic games announced that itwould set aside 100mn in prize pool for the first year of Fortnite eSports tournaments,nearly the size of the entire eSports prize pool in 2017. With growing incentives for26 June 20183

Goldman SachseSportseSports players, and by extension more interest from the casual observer, we believethe eSports audience should continue to outpace the growth of traditional leagues.League infrastructure is creating meaningful opportunities for direct monetization.In the early years of eSports, there was little organization or infrastructure, and as aresult, the massive audience of eSports did not translate into meaningful revenuestreams for players, team owners, etc. But in 2017, Riot Games created the NorthAmerican and EU League of Legends leagues, while in January of 2018, Blizzardlaunched the Overwatch League. We believe these leagues created the requisiteinfrastructure that will allow eSports to finally start to close the monetization gap relativeto other established sports leagues.For the exclusive use of MICHAEL.DOMIN@GS.COMIn 2017, we estimate eSports generated 655mn in annual revenue, including 38% fromsponsorships, 14% from media rights, and 9% from ticket revenue. But by 2022, weexpect media rights to reach 40% of total eSports revenue - comparable to the averageof the four major Western sports leagues today - as massive audiences and associatedrevenue for established online video platforms like Twitch, YouTube, Douyu, and Huyawill be able to support a growing pool of media rights fees paid to top publishers fortheir content. As media rights and sponsorship continue to grow, along with theformalization of pro sports leagues, we expect total eSports monetization will reach 3bn by 2022.Exhibit 1: Our key estimateseSports audience, prize pool, and monetization E25012%2022E27610%Prize Pool ( mns)y/y growth % 17050% 25650% 30720% 35917% 41315%Monetization ( mns)y/y growth % 86933% 1,18436% 1,59235% 2,17337% 2,96336%Audience (mns)y/y growth %Source: Goldman Sachs Global Investment Research, NewzooFortnite and the “Moneymaker” effect. In 2003, Chris Moneymaker, an accountantand amateur poker player from Tennessee, outlasted a field of 839 players to win theWorld Series of Poker. His victory sparked a meteoric rise in the popularity of online andtournament poker. Just 3 years after his victory, the first place prize money for theWSOP increased to 12mn in 2006, up from 2.5mn in 2003. The relevant lesson hereis that Moneymaker elevated poker’s profile as a sport to the mainstream — and webelieve Fortnite is doing the same thing for video games and eSports.The Fortnite phenomenon has been well-documented, but by way of background, thetitle has reached more than 125mn players on across console, PC, and mobile.According to SuperData, as of April the game generated 296mn of revenue acrossplatforms, an annual run rate of 3.6bn — more annual revenue than any major consoleor PC game today. As Fortnite brings more new gamers to the ecosystem, particularlythose in younger demographics, we believe the eSports audience - and associatedrevenue streams - will benefit over time.26 June 20184