Background
While growth in Esports has been rapid over recent years, this growth can often result in the need for adjustments to overarching strategic initiatives for Esports teams – in particular, which titles to ultimately compete in. This dynamic requires nimble reactions by Esports organizations and can often result in members of the organization finding that their vision is no longer congruent with that of the larger organization. This can result in the two parties ultimately parting ways, which can be complicated by equity incentives that may have been distributed to key team members during the course of their time with the team.
An Esports team approached Teknos with a desire to determine the value of the organization’s equity in an effort to undertake discussions pertaining to a management buy-out as a result of changing strategic initiatives.
An extensive understanding of Esports organizations, and the specifics of their business and monetization strategies, was instrumental to this engagement, as was an understanding of the unique dynamics of high growth, emerging industries.
Analysis and Recommendations
In order to develop a robust understanding of the challenge facing our client, Teknos held multiple discussions with the remaining management of the company to understand both the company itself, as well as the dynamics of the relationship with the outgoing member of the management team. This required a complex understanding of conventional qualitative and quantities factors, as well as the prevailing attitudes between involved parties.
We were also required to have strong knowledge of the particularities associated with the team’s primary revenue generation method, sponsorships. Given the lack of franchising in many Esports titles, sponsors typically pursue short-term deals with teams; this is a result of the uncertainty surrounding teams ability to participate in top flight competitions and leagues in a promotion/relegation dominated system.
Teknos ultimately validated the company’s financial forecast, adjusting our analysis for the specific risk profile of the company and the industry in which it operates.
Results
At the end of the engagement Teknos provided the company with a defensible valuation on which the company could lean when negotiating the terms of the management buy-out, as well as guidance on potential areas of focus and pain points that may arise during such discussions.
Teknos Associates provides valuation and advisory services for emerging growth companies and their venture capital backers. Clients rely on our financial expertise, knowledge of technology markets, and high standards to deliver relevant and timely valuation reports, opinions, and analyses.