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ANALYSIS: Why The $1B eSports Industry Is Set To Explode

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The global gaming industry has seen significant changes over the last few decades. Ever since the first computer game called Nim was designed by American physicist Edward Condon in 1940, there’s no looking back for the industry.

The video game console was introduced in the 1970’s and this evolution was rapid over the next few years. As video game graphics improved, companies such as Electronic Arts [EA] and Activision Blizzard [ATVI] were found.

Heavyweights such as Sony [SNE] and Microsoft [MSFT] soon wanted a piece of the gaming pie and introduced popular consoles such as the PlayStation and Xbox. The global gaming market has grown at a spectacular pace and is expected to reach $137.9B by the end of this year, according to Newzoo.

The growth of eSports

The latest growing trend in the gaming space is eSports. eSports is a multiplayer video game played competitively by professional gamers.

While video games were traditionally played for recreation, it has now become a viable career option for gamers. The inflow of funds into eSports is set to drive prize money and sponsorship deals higher.

Gaming research company, Newzoo expects eSports to reach $905.6M by the end of 2018, a rise of 38% year-over-year. Newzoo estimates brand contribution alone to account for 77% of the eSports market or $694M this year. Better yet, the global eSports audience is expected to cross 380 million this year.

Major video game companies have entered the eSports space

The eSports segment has attracted the attention of top gaming companies. Activision Blizzard is already a market leader with its hugely successful launch of the Overwatch League.

The first season of the Overwatch League garnered attention from sponsors as well as spectators. The global audience spent 160 million hours watching matches of this league.

Activision recently announced the sale of eight new franchise teams bringing the total number of teams to 20. The gaming giant aims to have a total of 28 teams for the Overwatch League. While the first 12 teams were sold for $20M each, the next round of franchise sales was between $30M and $60M, according to ESPN.

Activision signed broadcasting deals with Amazon’s [AMZN] Twitch to stream live matches. It has a content partnership with Twitter [TWTR]. The company also bagged sponsorship deals with Intel [INTC], HP [HPQ] and T-Mobile [TMUS]. The broadcast rights and sponsorship deals have generated over $100M for Activision.

The worldwide eSports audience is estimated to reach 580 million by 2021 and this will lead to an increase in eSports tournaments.

Gaming firm’s such as Electronic Arts [EA] organized The FIFA Interactive World Cup, an annual video gaming competition. Companies including MLG, AHQ and Denial have multiple sports leagues as well.

Key drivers for eSports growth

Research company Newzoo expects the eSports market to touch $1.65B in 2021.

The company estimates that the growing industry will bring in contributions from sponsors and advertisers. Companies such as Twitch and YouTube [GOOG] will also eye media rights and broadcasting deals. Gaming publishers are paid ‘Game Publisher Fees’ to host tournaments.

There are also tickets and merchandise revenue generated via ticket sales for eSports events. The industry’s sponsorship revenue rose 55% to $250M last year while Twitch paid $90M this year to broadcast the Overwatch League.

Increase in viewership data and prize money

Twitch is an online streaming platform and primarily focuses on broadcasting eSports competitions from around the world. It has managed to grow its viewership base at a compounded rate of 21.3% in the last three years.

In 2017, viewers tuned in to watch 6 billion hours of content on Twitch. Earlier this year, YouTube made its largest eSports investment to date and signed a multi-year broadcasting deal with Faceit.

These partnerships and deals have resulted in a substantial increase in prize money. The total prize pool for the Dota 2 tournament exceeded $20M.

The above chart shows the earnings of top gaming players. Japan’s Kuro Takhasomi leads the eSports earnings with a prize money of $3.74M to date.

Tencent expects China to lead the eSports market

Tencent is the leading global gaming company in terms of revenue. The company estimates China’s eSports sector to reach 350 million users by 2020 and generate annual revenue of $1.5B. If this happens, the country will account for 59% of total viewers.

What’s more, the total number of eSports viewers might exceed Tennis viewership in the United States. As per Newzoo estimates the most popular eSports team will have a Twitter following exceeding that of Golden State Warriors.

With the game-streaming content set to exceed 10B hours across major platforms, the world’s 10 biggest cities might just invest in a dedicated eSports stadium.

Business

The Rise Of Algorithmic Trading: How Manned Trading Desks Are Seeing Their Demise

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One of the last human points of resistance to the algorithmic take-over of professional trading can be found in the fixed-income trading desk.

The deft relationship business is known for having participants with Ivy League pedigrees and a lacrosse playing background, a data point that a machine learning algorithm recently used when making hiring recommendations.

With an algorithmic transition, profit margins are being squeezed as human relationships are becoming less important. Benchmarking the transition are new hiring mandates at some of the largest banks, a recent Greenwich Associates report pointed out.

Relationships and fundamental market understanding are less important, the report noted, and algorithmic experience and data science skills are now in demand.

In this emerging environment, what are best practices for an integration framework?

When combining fundamental investment thinking with quantitative thinking unique conflicts often arise. Fundamental, discretionary fund managers often creatively connect non-correlated dots and sometimes challenge consensus thinking.

Quantitative logic, on the other hand, is often driven by if-then Boolean logic at its core and looks for mathematical consensus to guide decisions. Mixing these two disciplines can be like expecting oil and water to enjoy each other’s company.

“Relationships and balance sheet still matter, of course,” Greenwich Associates Managing Director Kevin McPartland wrote in a report title that highlights a dichotomy, “Trust and Data Drive Fixed-Income Dealer Growth.”

Trust is a human concept and data is often associated with empirical, mathematically discovered understanding is the point where a melding of the minds might occur.

The integration of the two highlights the new path forward. “But the ability to manage both in a more quantitatively driven way can mean the difference between profit growth and a year-on-year decline,” McPartland observed.

Technology is increasingly becoming an important feature on bond trading desks, particularly for sell-side banks. Fully 91% of bulge bracket banks said automating parts of the trading process was one of their “top technology priorities for 2018,” the Greenwich Associates report pointed out.

Only 44% of middle market participants, meanwhile, felt the same. This group was having slightly more difficulty “complying with new/changing regulations” and was more focused on improving client management tools and data.

Knowing what technology to integrate so as to deliver a near-term positive return on investment while positioning the firm for a longer-term shift in intelligent automation can prove challenging and, itself, might have variables that don’t easily fit into a math formula.

“Assessing the process of tech integration is always a challenge because no technology is perfect, but it is often much better than human performance,” said Evan Schnidman, CEO and Co-Founder, Prattle, a firm that uses machine learning techniques to analyze human speech patterns to provide a market edge.

Electronic equities trading has proven to be highly reliable, but very rare missteps can have catastrophic cascading effects. With bond trading, and any other technology-driven process in financial services, it is vital to build appropriate circuit breakers and human checkpoints. Simply, technology is a valuable tool, but humans still need to be in the loop.”

When integrating technology into a bond trading workflow it is important to set proper expectations that can be measured on a project plan timeline.

Often times expecting the unexpected is a discretionary skill that requires understanding technology’s limits.

“The best practice in tech integration is to remember that technology will not solve all of your problems, but it may be able to streamline the human workflow and optimize decision making,” Schnidman said. “If institutions keep that in mind, they are likely to adopt technology more readily, thereby making each additional innovation less jarring from a tech integration standpoint.”

With technological change coming at an increasingly rapid pace, the imperative is in understand what aspects of human trading can be modeled and what should remain discretionary.

“Instead of fully relying on quantitative approach at the beginning, it is a good starting point to integrate the output of quants and AI models in the human decision making process of position taking and dealing,” said Tsuyoshi Yokokawa, founder and CEO of San Francisco based Alpaca Markets, a firm that in parts helps integrate quantitative trading models into fundamental trading methodologies.

As the last refuge of human-based trading turns algorithmic, the processes and methodologies that drive these projects are likely to determine success or failure to a large degree.

In bond trading, the sell side is taking a different approach to that of the middle market.

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Alibaba’s Singles Day Records $31B Sales, Trumps Amazon’s Biggest Day

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Chinese tech and e-commerce behemoth, Alibaba, saw its one-day shopping event draw sales worth over $31B, setting a new record for the company. Labelled as its Singles Day event, the day records sales that’s bigger than Black Friday and Cyber Monday combined.

The record sales in under 24 hours dwarfs the $4B in sales Alibaba’s rival Amazon garnered during its Prime Day sale earlier this year.

Here’s why Alibaba’s CEO believes the sale is a huge winner for the company.

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[CHART] The Amazon Effect: Retail AI Startups See Record Activity in 2018

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Amazon’s meteoric rise has basically transformed the retail AI landscape.

Amazon’s expansion into grocery, the acquisition of Whole Foods, and promises of 1-hour grocery delivery have forced supermarkets to experiment with AI-run “micro-fulfillment” robots just to stay in the game.

Yes, supermarkets are really turning to robots.

Yes.

Robots.

Anyway…

Since Q1’13, retail AI startups raised $1.8B across 374 deals. In Q2 of his year, however, deal flow saw a record spike. Check it out.

 

 

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