Thank you, operator, and good morning, everyone, and welcome to MTG's Q2 2019 interim report presentation. My name is Lars Thorsten, and he's responsible for communication and IR at MTG AB. Today, we will start with a formal presentation followed by a Q and A. Please remember that it's not possible to ask questions via webcast and only through the telco. With me today, I have Madsen Niallmann, our Group President and CEO and Marie Elodin, CFO of MTG AB.
So without any further delay, please, can you take us through the formal presentation of our quarter?
Yes. Thank you, Lars, and good morning, everyone, and welcome to our Q2 report. I would like to start by saying that we at LPG believe that esports and gaming is the future of entertainment. That is why we invest and partner with the best entrepreneurs, most promising publishers and leading brands in these industries. And there's a good reason for it.
The number of gamers worldwide is expected to grow to 2,900,000,000 in 2022, up from €2,400,000,000 in 20.18. And the global e sport audience is also expected to grow to €645,000,000 by 2022, up from €395,000,000 in 2018, and that is defined as fans who watch esport games more than once a month. So games whether played in the home, by the commute, on the go or in an e sport arena by a professional e sporter represents a major commercial opportunity. We have set ourselves up to deliver on this opportunity, a strategic operating holdco executing a buy and build strategy, investing in companies with great potential and then operating them to add value and achieve that potential. In short, e sport and gaming together, they offer the future of entertainment and MGG is now uniquely positioned to capitalize on that exciting development.
Let's move on to our quarterly results. And if I can ask you to go to Slide number 2, then you will see that MTG's NPG's Q2 of 2019 showed good progress on the strategy laid out across our verticals. We delivered record sales and record adjusted EBITA for the quarter and continued to deliver on our operational and strategic direction with sales growth in our 2 verticals of 14 SEK1.1 billion for the group. Adjusted EBITDA was SEK71 1,000,000 and the adjusted EBITDA margin was 6%. Sales on an organic basis were up 7% year on year.
Within the e sport vertical, our owned and operated sales were up 15% and total revenue was up 8%, of which organic sales represented 4%. Now records in both new records, sorry, in both our sponsorship revenue and ticket sales show that our e sport vertical is starting to take over the natural road of traditional sports and evolving into the global arena. The Gaming vertical showed exceptionally good results with organic sales up 14% and adjusted EBITDA margin at 29%. As I highlight, ABDAU grew by 27% compared to the same period last year, showing that we are delivering when it comes to publishing and creating engaging mobile games. In the quarter, the NGG VC Fund has completed several exciting seed and CREA investments into gaming and Esports start up with a high risk but also a potential for high rewards.
Our VC fund complements our strategy to buy and build companies in the e sport and gaming vertical since it allows us to enter early into promising start up and growth companies. And investments either remain financial investments or the beginning of a longer relationship, which can also result in the company becoming part of the LPG group of companies in which we invest a majority stake. We have now also closed the sale of Nova, the last of our East European broadcast businesses. The sale of Nova allows us to go forward, focusing purely on the 2 vertical business segments, e sport and gaming. It also provides us with around SEK 1,800,000,000 of cash to pursue acquisitions and implementing our strategy.
Our operational focus during the quarter has been on creating a platform for future growth, both in e sport and gaming, and we have brought ESL and Dreamhack closer together to build the leading e sport ecosystem and create the best products. This is both exciting and necessary, and I will return to this topic later in the presentation. A challenge that we have discussed with you before is the monetization of media rights in e sports. This is taking time and the lack of qualitative data from our properties is still hammering our effort to sell and price media rights and compete effectively with traditional sports. So due to a slower development in this area, we have revised our 2019 revenue ambition for e sports to better reflect this short term reality.
With that said, this is not changing our medium- to long term view that there is a strong commercial product for e sports media rights and now and we are now making some necessary structural changes. NPG has all the assets to be able to take the lead in this area and to further commercialize commercially professionalize e sport in the future. I'll also get back to that later. Overall, we believe that the Q2 was a solid quarter and showing that our sole focus on e sport and gaming is yielding results, The split and the sale of the split of MGG and the sale of Noah are behind us. We have a clear growth strategy in place that includes acquisitions, and we see the performance improvement starting to come through in both esports and gaming.
With that said, let's move on to what we are doing more specifically in the e sport verticals. So if I can ask you to turn to Slide number 3. In the same quarter, our strategic decision to focus on our own and operated properties are being more demanding with respect to e sports services continue to yield positive results, and the business vertical grew by 8%. Sales in all and operated properties by 15% in the quarter to SEK 380,000,000 while the ESS revenue declined by 6% to SEK 77,000,000, representing 29% of total e sports revenue. We have witnessed several positive indicators for the longer term business case for e sports being reached.
1st, the trend of improving operational metrics for our market properties continue. ESL 1 in Birmingham and DreamHack Dallas were a good example of this with more fans visiting and higher viewership compared to the same events last year. Let me be a little bit more granular. ESL 1 Birmingham was our most watched ESL daughter event ever with 24,000 fans over the course of the weekend in the arena of Birmingham, 9,800,000 hours watch and the fastest selling ESL daughter event ever. Greenhag Dallas was the largest success for Greenhag so far with higher ticket sales than anticipated and very strong reviews from visitors.
The property produced 51 hours of forecast that resulted in 3,500,000 hours watch according to the ESC Watch. We do experience and can begin to document that the eyeballs and brands, the value for e sports are reality. So the market is there for the ones who can demonstrate some concrete commercial propositions around those eyeballs and document the effect.
2nd, as a result
of the growing fan base and increased viewership, more sponsors got involved in both our master and channel properties. In the quarter, our sponsorship revenue grew strongly compared to the same period last year, and we landed several new and extended many existing partnerships such as Pepsi Old Mountain Dew, AT and T Vodafone, Euronics, Chipotle and more. Endemic brands are now being complemented by more general brands. Thirdly, Dreamhack's newly launched e FIFA League in Denmark and Sweden delivered strong incremental revenue and showed promise for the prospect of a broader launch of e Leagues in traditional sports. These e Leagues won in parallel to the football leagues, and of course, this means they will be seasonal, but they attract great viewership and in some cases, higher viewership than the actual football broadcast.
These leagues demonstrate that e sports can be delivered successfully as a mainstream media product. Esports adjusted EBITDA loss of SEK 55,000,000 was broadly flat year on year. The revenue growth meant that our margin improved somewhat in the quarter. Top line growth remained our priority in e sport and owned and operated is a scalable business. So as this revenue stream grows, we expect margins steadily to improve.
With that said, we'll continue to expand and invest in our e sport vertical, both in the amount of properties and the geographical reach, which will hold back the pace of margin improvement. As an example, in the quarter, we had our 1st ESL master in India, and we introduced 10 more tenant properties in countries such as Australia, New Zealand, Malaysia and Thailand. As I said in my introduction, there's more to do to make this Emergent Sport become a more commercially attractive product. In our strategic efforts to commercially professionalize the sport even further, we all, and that means the fans, the teams, the media, partners, the sponsors, of course, ESL and DreamHack, have been asking for a schedule already now for 2020. And we will be able to deliver on that important objective for the sport by combining our ESL and DreamHack 2020 inventory of major tournaments and leagues to create a globally integrated product offering, which will make it easier for fans and relevant stakeholders around the world to follow the sport and professionalize commercial opportunities.
And just as a cliffhanger, we revealed that full product after summer in August. Another key initiative going forward is to produce and demonstrate more qualitative data for the products in order for the sport to articulate the value proposition to the media partners and sponsors just like all other entertainment products. We are therefore close to announce a global partnership with 1 of the leading research and consulting companies in order to establish a commercial currency for eSport. So measures are being taken, but as stated earlier, this would be a key challenge to tackle going forward and one we will work with in the long term perspective. If we then move on and turn to Slide number 4 and the Gaming and the Stellar which was a stellar performance in the quarter.
Reported net sales in the 2nd quarter increased by a solid 19%
to
which was 51% of the total net sales of the gaming vertical. InnoGames delivered another exceptionally strong performance in the quarter as Force of Empires maintained its momentum and primarily driven by the successful in game events in Q2 2019. The new game, Godkins, started to show early and promising results following soft launch in Q1, and we will increase our marketing effort for it in the second half of twenty nineteen. And our work to make War Horse a future success is ongoing. Forge of Empires continued to impress, as I said.
And in June, we saw the title breach the €500,000,000 lifetime value milestone. This shows that InnoGames has not just best in class ability to develop and launch a title to the market, but perhaps more importantly, the team has the ability to keep a successful title relevant and its player community thriving year after year. CombiGate, the turnaround started to yield improvements in revenue and adjusted EBITDA, both of these reflecting CombiGate's focus on a smaller number of more successful games, such as the newly acquired Bit Heroes. If we move on to Slide number 5, the action that we have taken to turn around the performance of Kongregate by focusing the company resources on a smaller number of more compelling games as well as the continued strength of InnoGames main title paid off in the quarter and reflected in several of the main strategic KPIs. DOW remained stable and decreased marginally by 1% compared to the previous quarter.
The quarter on quarter decrease in MAU was 5%. That was mainly to the seasonality and the ongoing expected decline of DAUZER users. Compared to the same quarter last year, DAUZER declined by 3% and MAU declined by 16%, and that was mainly driven by Kongregate that had more games featured in app stores and traffic generated from platforms it no longer uses. Updau increases to SEK 2.8 from SEK 2.2 in Q2 2018, growing by 19% year on year at constant currencies. The positive development was driven by better game monetization on new and existing users in our top games as well as lower DAO in Kongregate.
There was no material change in the proportion of gaming revenue generated by the top 3 title, which is Board of Empire, Elvenar and Animation Throwdown, which was broadly flat at around 74%. Adjusted EBITDA in the gaming vertical was SHK186 1,000,000 and the margin was 29%. Looking forward into the 3rd quarter, I would like to emphasize that spend will increase as a result of especially in the games promoting both classic and new titles. Regarding our classic games, we feel confident that their lifetime value is higher than we historically have assumed and leading us to making more marketing investments today to realize that value tomorrow. If we then move on to see what we have been doing in our VC fund and turn to Slide number 6.
So let me just give you a brief recap of the purpose of our VC fund. It complements our majority stake investments with Seed and CA rounds, investment in early stage start ups in gaming and in e sport. Granted as often with venture capital, we are talking high risk investment, probably potential high returns for the right bets made. Over time, these will either remain financial investments or be a greater entry into companies that might become members of our growing e sport and mobile gaming network. Our ambition is to make 10 deals in e sport and gaming per year through lead or to co investment with other top VCs.
With that said, investment in first half amounted to a total of SEK 103,000,000 including capital commitments and spend start ups and growth companies in the United States and Germany. Among the investments are Reagood, Cinepays Dorian, its Austin based game developer, Tongtong Games. It is a gamer platform Playful from Los Angeles. It's German gaming studio, Swiber, which actually is founded by ex Inno Gamers and San Diego based Home META. Today, we have made 20 investments in 16 companies totaling SEK 195,000,000 thus far.
And our largest holding in the fund are Pickref funds, its Avon Board, its Phoenix Labs and Play Venture Fund and Swiber. So that concludes my comments. So I will now hand the call over to Eummarie to take us through the numbers in more detail.
Thank you, Jorgen, and good morning, everyone. If we then move to Slide 7. Let me start with the revenue and adjusted EBITDA. Net sales in the Q2 of SEK1.1 billion were $130,000,000 higher than last year with 4% positive FX impact supporting the 7 higher sales than in the Q2 last year. So this was partially offset by higher revenues in Q2.
Together the 2 verticals achieved SEK136,000,000 higher sales than in Q2 last year, but this was partially offset by an adverse movement of negative SEK50 1,000,000 in our other operations, principally Xiamin, which reported sales down 40% to SEK23 1,000,000. Our revenue recovery and cost reduction initiative in Siamen is continuing and we're also exploring other strategic options, so you should not expect this level of losses to continue for the rest of the year. Adjusted EBITDA in the quarter was a record SEK71 1,000,000, which was 97,000,000 higher than in the Q2 last year. This resulted in an adjusted EBITDA margin of 6 percent to be compared with minus 3% for the same period last year. If excluding the positive impact on IFRS 16, the adjusted EBITDA margin was 5%.
The margin in the quarter was driven by the exceptionally strong performance mixed with relatively lower marketing costs in indie games. And as mentioned, we will increase our marketing expense in our gaming vertical going forward. Thus, you should expect the margin in the gaming vertical to go down in the second half of the year to more normalized levels and margin improvements will rather be seen in the esports vertical. If I can then have you turn to Slide 8. We will look at the rest of the income statement in a bit more detail.
Within the adjusted EBITDA, our central operation costs in the quarter were $43,000,000 which is in line with the post placed run rate that we flagged at the Capital Markets Day. There were 3 adjustments to the EBITDA in the quarter. The first was a one off cost related to the zoom in restructuring of SEK4 1,000,000 and that has been reported as an item affecting comparability. The second was the charge for the cost of the long term incentives program, which was SEK23 1,000,000 and the third was an M and A cost of SEK 4,000,000 primarily relating to activities in our VC fund and the purchase of the Big Hero's IP by Kongregate. In the quarters, there were no impairments of previously capitalized game development costs.
So the total adjustment was SEK 32,000,000 with EBITDA before adjustments of SEK 39,000,000. Depreciation and amortization was SEK 74,000,000 and included purchase price amortization of SEK 32,000,000. Depreciation and amortization excluding the PPA was SEK 30,000,000 higher than in the Q1 last year or the second quarter, and almost all of this accounted for in the change in IFRS 16 that I already mentioned. Group EBIT was minus SEK 35,000,000, which was a SEK 90,000,000 improvement versus Q2 last year. Net financial items was SEK minus SEK 10,000,000 and this is predominantly due to exchange rate changes.
Group PACCo was SEK minus $26,000,000 and the net loss for the period from continuing operation, therefore, amounted to SEK minus 71,000,000 dollars As you have seen, we completed the sale of our 90% shareholding in Nova Broadcasting Group, Advanced Media Group in April. As a result, we recognized a CapEx gain of, say, dollars 1,400,000,000 Nova has been reported as an asset held for sale since the Q1 of 2018 and from the first quarter of 2019 was reported as a discontinued operation. And if I could then have you turn to Slide 9 and the cash flow and the balance sheet. CapEx in the quarter was S67 $1,000,000 higher than in the Q2 last year following the acquisition of the Big Hero's IP. Above and beyond acquisition, Mezzar's CapEx is still in the gaming vertical, where we capitalize the game's development cost up until the game goes live, after which all the costs are expensed and the pre launch CapEx starts to get depreciated.
We invested SEK 22,000,000 in our VC fund, comprising 1 new investment and 2 follow on, and we have now invested over $195,000,000 in 16 companies into the VC fund out of the SEK 300,000,000 target that we have indicated. All of the fund investments are still carried out cost. Cash flow from continued operation was an outflow of SEK 40,000,000 And in addition, we had SEK 29,000,000 working capital outflow. Following the seg on over, we closed down a SEK 1,000,000,000 credit facility, and we subsequently also repaid the SEK 130,000,000 that was drawn. We ended the quarter with a net cash of SEK 2,100,000,000.
And that concludes my comments. So thank you, and I will now hand back to Jurgen.
Yes. Thank you, Maria. So as I said at the start, we have delivered on the strategy with a strong Q2 2019 performance in both our core verticals. E sports growing. The driver is our own and operated properties, and these are getting bigger and better and drawing in the eyeballs.
And most important of all, these viewers are attracting sponsors and media as well as new publishers. Still a lot of work to be done in shaping the different revenue streams, especially then, as mentioned, media rights. In gaming, we are happy with development in Kongregate with player numbers and sales going the right direction again. InnoGames remains a really solid performer. Forge is going well in mobile, which today is the most played and chosen platform for its user base, and the classic browser games are still delivering sales.
World is ongoing with Warlords roadmap and the soft launch game God King shows early and promising development. So the gaming vertical is in good health. In the quarter, NGG VC Fund has completed several exciting seat and series divestment into gaming and Esports startups, and we closed the sale of Nova, providing us with around SEK 1,800,000,000 of cash to pursue acquisitions and implementing our strategy. Lastly, we are taking important steps to commercially professionalize the industry through the combination of ESL and Dreamhack's 2020 inventory of major tournaments and league to create a global integrated product offer and through creating a standard for the e sport industry when it comes to quantitative data around events in order for the sport to articulate the value proposition to media partners and sponsors. This is also an opportunity for Dreamhack and ESL to work more closely together to realize the scale benefits that are there.
So to conclude, NTG is set up to build the future of entertainment. We are a unique combination of a strong operator, an investment company with an outspoken buy and build strategy. Thank you, Jorgen, and
thank you, Maria. That ends our formal presentation for the Q2 2019. And we are now ready to take any questions that you might have. So operator, could we have the first question, please?
Thank you. Your first question comes from the line of Fredrik Zavajevic from Nordea. Please go ahead. Your line is now open.
Good morning and thank you very much. I'm trying to see what happened here with the guidance. What was the base of the guidance of 15% organic growth versus now? And what has changed since? It is almost as if you had anticipated an order which was part of the guidance and which didn't follow through.
Is this the case?
Thank you for the question. So it's around guidance and what are the drivers behind that change. So would you have a first stab and Marie Antebell? Yes.
I think first of all, I think it's quite important what we have laid out here and discussed, which you already have caught, the ambitions for the revenue streams that we are having. And we see, as I said earlier, that sponsorship is doing well and continue to grow. That is also reflect the 15% owned and operated growth in Q2. And then the media rise as such. That it's not one big order.
It is in general, of course, that we are professionalizing that revenue stream as well. And the way to do that is, of course, to have a fixed schedule that people can relate to. So if you are selling this as a global product, which we are doing, there are different demand, there are different time zones, there are different areas, sponsors would like to participate in and media partners would like to see events in their area with local teams and so forth. So there's many, many components, which we now will be able to articulate for the 2020 by merging the Dreamhack and the ESL schedules. So instead of like we have seen in the Q2, we have events both for Dreamhack and ESL in the same quarter.
We will now make sure they spread out over the year and also articulate it, so where we would have those events and what kind of events it is. So that is part of the way to professionalize the revenue stream around the media right. I think 2017, media right was forecasted to stand for 14% of the revenue in esports. Sponsorship, of course, the vast majority. And sponsorship, we do see materialize, as I said, with a lot of prolongation for different sponsors.
Also, the case stories we have for media rights today with the companies in the morning, to say, an example like YLE and TV2 Denmark and so forth, who's broadcasting these events or discovery forecasting the FIFA product is very strong. So the case stories are there. And those we, of course, need to now to translate to become global currency so people understand the value of those media rights. Eyeballs are there. Eyeballs continue to grow.
Also, as I mentioned, for the events that we are having, so all the assumptions are there actually to create something meaningful, but we need to put into more system, and that is what we are doing right now. So that is on a general base. There was a long answer to your question, but that was on a general base and not that one deal will make it up for us. That is not going to be the case. It is a lot of deals globally with a lot of partners.
Thank you, Juergen. Do you want to do a follow-up there, Prajak?
Yes, yes. A couple more, if I may. If we try to bridge the growth going forward, where I mean, where do you see the biggest growth here? Is it from adding new properties from growing the existing ones or from adding meteorites partners? Where is the growth coming going to come from going forward?
Yes, just to repeat that one for everyone's benefit. So when it comes to the growth target that we have set out, what are the bridge there when it comes to driving forces there? So Jorgen, would you like to start with that one?
Yes. But again, that is the events that we're having, the big market events, there we see very strong traction, yes? We see, of course, many more data points. So we are much stronger in articulating the value. Nielsen made a research around Katowice, which demonstrated very strong, big double digit number, euro number, €1,000,000 number in terms of media value.
Unfortunately, we didn't reach all the way up there. So it is the existing event, the master events, where you will see us grow. Of course, we are adding more challenging events. Just this quarter, we added 10 more events. It was in Thailand, it was New Zealand, it was in Australia, so around the world.
So that is then both the sponsorship part and of course the media part as well. Ticketing is also increasing, but of course, it's not the same scale as you have when it comes to sponsorship and the media rights. Do you want to
add anything, Maria? No, it's both adding more gains into the events that we're doing. So it's a combination of the 3, I would say, that would drive the growth. It is to drive the monetization of existing events, add more events into new territories and also add more type of games into our event.
We have quite an interesting pipeline for the second half as well with potential and again, potential new games coming in Already now this quarter, we launched together with Riot. We launched the League of Legends tournaments with the colleges in U. S. We had the biggest global mobile esports event and the final will take place in Gamescom with Vodafone. So that's to Maria's point, a lot of new products coming in as well.
A lot of new publishers hopefully will come into us as well.
Well, I guess you can say that we are creating a lot more logic and structure around it as well. So it's not just ad hoc events, but there's much more like a world league that is going to be presented.
Yes. Also based on dialogue with sponsors and media partners also to discuss where or where do we see a need, in what regions of the world and where do our partners want to expand. And then of course also we see a lot of interest around the 5 gs networks as well, so AT and T, Vodafone and so forth and particularly the mobile game event as I said was around also the concept of 5 gs. Then the new area, of course, is T Sport as well, which we are looking at, and that is the FIFA events that we have talked about in the mornings where we have kickstarted. And there, we see more hopefully, more events coming in there as well.
There's a lot of interested parties who have seen what we have delivered there, have seen the results, both in terms of sponsorship revenue and also the media impact where sometimes those events have had higher ratings, actually than the actual football games, which, of course, we are happy about. So a very interesting product, of course, which is also an opportunity for us to do more of globally.
Thank you, Maria. And Jorgen, Fredrik, do you have you have another follow-up?
Yes. Just one more follow-up. On your new guidance, how confident are you on delivering on these targets you've set out today?
It is yes? It is a super young sport, particularly e sport parts. And when we look at the pipeline, some of the things will materialize and some of the things we might not want to materialize because that we don't get paid. But the ambition we are having around the 8% to 12% is something that we believe that we will be able to deliver again. It's more important for us to make long term good deals than make a good deal, which will do good in a quarter.
Still, we grew 15% on the owned and operated in the quarter on the back of very strong sponsorship and ticket sales. So it is a long term game, just to be clear. But the sport is growing, more audience is coming in. So there's no reason why we shouldn't grow the business. And we also do foresee to grow e sport much faster in the second half than we did in the first half.
Should not forget either the second half last year, I think we grew the eSport part of 40% and the owner operator was 60%. So to grow so to grow, what did I say, Q2? Yes, that was in Q2. Yes, sorry. So to grow 15% of our own operating is, of course, also quite strong on the back of tough comps from last year.
So thank you, Fredrik. Operator, we could have the next question please.
Certainly. Thank you. Your next question comes from the line of Martin Arnall from DNB Markets. Please go ahead. Your line is now open.
Hi and good morning everyone.
Hi there.
So my question first question I have is on based on what you see in terms of viewing ship and usage, do you think this around 10% organic growth is a sustainable level looking a bit farther out?
So the question is around viewership and usage and the impact on longer term growth prospects for esports, I would assume. Jorgen, sounds like a question for you.
Yes.
I think when you look
at it and also the growth rates that, as I said, we have seen in some of the revenue streams, obviously, it looks strong. And I was also saying the second half is going to be stronger than the first half. Looking forward, that is also why we want to establish a currency to make sure that the forecast for the industry is somewhat professionalized. But again, there's more people who have a say on that. So it is still a very young sport, and I think it fluctuates from everything from 20% to 23% CAGR the next couple of years from the different reports that you read.
Now we want to make a strategic deal with 1 of the big analyst research companies also in order to make sure that we have a say on that since we are very big in the industry and therefore we also want to make sure that we understand the growth rates and what we can express going forward. Looking at the eyeballs, the amount of eyeballs in the industry has no reason why this shouldn't be growing and continue to grow as long as we are able to articulate something meaningful around those eyeballs. More case studies coming in, more prolongation. So that is, of course, what we see. And then it should the more data you have, you should be able to price differently and price better.
So we do see the spork continue to grow, and there are different views out there on how fast it will grow. And I think right now, a range between 19% or 20% up to 23% as I have seen the latest ones.
So, Marcio, would you like to follow-up?
Yes, thanks. And you talk a lot about these initiatives to improve monetization in esports. What of these would you say are the most important for you?
Yes. Sorry about that. When it comes to monetization of esports then and what are the biggest factors to realize that, Jorgen?
But that is, as I said earlier as well, particularly around the media rights, where we see fantastic opportunities, and that is to professionalize the schedule, to make sure that people that our partners understand what they get and when they get it and what areas, what time zones and so forth. So just like all other sports that you have that you're more proactive on your scheduling. Today, the Champions League schedule is set, the Premier League schedule is set, the Formula 1 schedule is set for 2020 and so forth. And now the Esports schedule will be set as well. And that means also you can have a different dialogue because obviously your customers, your partners will have a different approach.
You can hopefully make sure you fit into the schedule because you can demonstrate some interesting KPIs for the media part. And that is something which I think will yield great returns when we can do that. Everybody has been asking for this to happen. But again, it is a very young sport with a lot of opportunistic interest as well. But I'm very happy that we finally managed to get this made now and we'll be able to announce that in August.
And do you expect a payoff from this next year?
Yes. That should be the case that you already now then can start to sell. So right now, we will actually be able to start to sell an event in December 2020. And that is a different, I think, Swedish is called Frankfurt, whatever it's called. So it is a different way of looking at it than we have done historically, where you have said, oh, by the way, to the extreme, you might have understood in April, there's good opportunity for an event in November.
Obviously, the big dollars, the sponsored dollars, wherever, will be allocated. It's not that you, as a marketing director, sit on a big pile of cash at the end of the year probably. And the same goes for the media investments as well. And let me know from our history, of course, is that hopefully you have a better view on what you would like to show than within 2 months' notice. So stuff like that, we believe, is going to professionalize the sport much more, the commercialize the sport much more to the benefit of teams and the fans, of course, as well and therefore also sponsors and media partners.
So I mean our view on media rights or the potential of media rights have not changed. It's just a question of the need to commercially professionalize it. That's what we're talking about here. Martin, do you have a follow-up?
Just a final one on gaming, and thanks for clarifying that on esports. On the gaming vertical, your EBITDA margin is quite high in the first half of the year. You talk about marketing spend increasing in the second half. Is all of this does that come together that you have a higher probably have a higher EBITDA margin for InnoGames this year than last year?
So when it comes to the development, especially for InnoGames then and EBITDA margin, how this year's EBITDA margin would compare to last year 2018? And I think that's a question for you Maria.
Hi Martin. You should expect that the Q2 was exceptionally high though because you have a combination of very successful in game events for our established events together with proportion lower marketing in the second half. And as both Jorg and I said, we will ramp up marketing both on the established games because we see the long lifetime value of our customers and as well we are rolling out in both card kings and Hoefer Warlords in the second half of the year. So you should see margins go down in the second half of the year, but it's still likely that you'll see a small margin improvement year on year.
Very good. Thanks a lot, Marianne.
Thanks, Martin. And operator, could we have the next question, please?
Certainly. Your next question comes from the line of Oscar Ericsson from Carnegie. Please go ahead. Your line is now open.
Thank you. Good morning, guys. Just a quick follow-up here on the tying together of ESL and Dreamhack. If you could elaborate a bit on what benefits you see? Is it cost synergies partly?
Or is it mainly better the sponsorship deals and media rights deals that is the long term potential here? Thank you.
Thank you, Oscar. So welcome to ESL and Dreamhack. Then working closely together, what kind of results are we assuming there, Jorgen? Is it scale benefits, commercial benefits? What can you elaborate on?
Yes. But obviously, it is both, meaning that, first of all, we will combine 2 very strong and relevant e sport companies and their schedule, yes. And also they complement each other fairly well, where we have the Dreamhack company who is doing a lot of these festivals, which we called in our structure the open tournaments. And that is something where we will see that eventually take place also at ESN events. So you can merge the 2 products.
You can have you can, as you make sure that we don't have events the same weekend. That goes from what I was saying. But you can articulate a much stronger customer journey and much stronger customer proposition by combining those two products. They are very complementary to each other. And yes, of course, by being more smart, obviously, we do believe that we also will be able to realize to do things a bit smarter.
That goes without saying. But it is to begin with, it is mainly focused on the products to create 2 very strong to make sure that those 2 very strong e sport companies have 1 unit or unified schedule. I think that will render a lot of commercial opportunities in better sponsorship sales. Just imagine what we can offer the sponsors now and better media rights sales, just imagine now again what we can offer the media people, media companies globally.
Oscar Duver, would you like to make a follow-up question?
Yes, please. Thank you. Yes, more of a sort of not just philosophical question, but I mean a long term question on media rights and the potential there. I mean given how people watch esports today, your history with Facebook, etcetera, how do you consider this in terms of is this a viable large revenue stream going forward?
Yes. I think if you the way I look at it is I look at the eyeballs. And I look at that young demographic, which, of course, for many advertisers and media as such, is difficult to get hold of. And that is something we can supply then in the e sports part. So that is, of course, commercially very interesting, and that, of course, should render or should yield great opportunities if we can demonstrate the returns, yes?
So the investments that sponsors are making with us like Mercedes and Pepsi or AT and T and DHL, whatever, is significant amount. And of course, that means that they need to make a decision as well to go with Arcelor to do something else, which they've done in the past, which have been probably successful for them. So we do need to demonstrate that there's a better return with us. We have those case stories already. You can also find them online.
DHL is one of them, which are talking about a great return on the dollar invested into e sport. And that is what we can articulate now better and better is that there is a good return so we can be at half of the media planning or the media campaign like everything else because we do have the audiences. And I think that is quite important to focus on is, of course, there's so many eyeballs in this industry. So obviously, if you are able to package those into interesting commercial opportunities, then you will be able to do better and to create a reach for out of it. And we are benefit, as I said, with the fact that we have so many young audiences as well, which are very scarce for many advertisers.
But obviously, if you want the dollars that we want, you need to be more sophisticated in articulating the returns. And that is what we are working on. Also, as I said, with this research company, which we also will announce after summer. So it would become a complete normal entertainment product. It's just a very long and very opportunistic and that is something you just have to bear in mind.
But the audiences are there, so I hope that we are smart enough to be able to present some interest in commercial opportunities around these eyeballs.
Oscar, do you like to make a follow-up?
Yes. Thank you, Jorgen. And one question for Mervidea as well perhaps. You mentioned regarding Could you say something more perhaps about sort of the mix in margins here in the second half of the year, given the quite high activity you will have in Q3, I suppose? Thank you.
Yes. I mean, as you also need to put it on high bandwidth, it is for expected as well. We had I mean, the phasing of some of our events was a little bit different last year. So you come into this year having quite tough comps. Q1, Q3 and then Q2 and Q4 was slightly easier comps due to the phasing of events last year.
So what you should expect is, of course, a drop in margin in Q3 now through wrap up marketing and then a gradual improvement Q4. But if you look holistically second half versus first half, I mean you should not expect a major difference in the margin if you look at the average in H1 versus H2. Hopefully that helps a little bit.
That's helpful. Thank you very much.
Thank you, Oscar. Operator, could we have the next question please?
Certainly. Your next question comes from the line of Rasmus Sandberg from Sibi. Please go ahead. Your line is now open.
Yes. Hi. Good morning. Can I ask two questions about the esports in particular? Your losses are a little bit up in the first half of the year.
Do you anticipate that the losses decrease in the second half? Or are they going to be roughly flattish? That's the first question.
Yes. So when it comes to losses then for the quarter, slightly up. Positively, for the second half? Maria, that's definitely a question for you. Yes.
No. And I think that's what I said. So when I briefly talk a little bit about the outlook on the margin is you should not expect margin improvement in gaming. You should rather expect that into esports, which means, of course, losses should gradually go down. And you will see that more skewed to Q4 than Q3.
Okay. Thank you. And now that you guide for only for the 2 verticals, gaming and esports. I presume that you believe that esports will grow faster than games for the year due to strong second half, right?
Yes. That is the correct assumption.
Yes. Thank you. That's all for me.
Thank you, Otmus. So operator, we have the next question please.
Certainly. Your last question comes from the line of Julia Matoszuk from Morgan Please go ahead. Your line is now open.
Hi, good morning. Thank you for taking my question. I do apologize. I will repeat again a few things, but I'm a bit confused on precisely what should we expect in Q3 and in Q4. From what I understood that we are looking at the improvement in margin in esports, but worse margins in gaming.
However, in Q4, they will be adverse again. Is it right or not? And second, when you look at the full year guidance, could we please have a bit more color? What should we expect by vertical? Thank you.
Okay. So just to repeat, Julia, when it comes to margin development for the 2 verticals, what to assume when it comes to how gaming will look in Q3, Q4 and the same thing for e sport Q3, Q4. I mean, what kind of trajectory are we looking at? And then also how the sales guidance then is broken up between the two verticals as well. Did I understand you correctly there, Juhi?
Yes. Thank you very much.
Yes. Thank you. I think that is for you to start, Maria. Maybe add some color then if Jorgi needs to.
Yes. So if you start with the margin improvements, what we said was if you look at the Engami, we will increase marketing, which then ultimately will lead to lower margins because that's a payback over 2 years' time, which means that will benefit predominant 2020, the marketing effects that we will do now in Q3 and Q4. So yes, margins will go down in Q3 in Gaming and then you will see some monetization starting in Q4. So that's the phasing on the Gaming. And if you then look more specific on Esports, we'll see a small improvement in Q3, but a big ramp up improvement will be in Q4.
So that's the weighting of scaling Esports will start in Q4 when it comes to the bottom line. And then if we look at the sales growth, I mean, what we do is we guide for the 2 verticals. That is our core Gaming and Esports, and that stays in the range between 8% 12%, which means that, of course, the second half growth rates will be higher than the first half of growth rates and eSports will grow faster than gaming. I think that's basically what we've said.
Yigal, would you like to follow-up?
Yes, please. I have a few follow-up questions. The first one is about Facebook deal. I recall you had a big Facebook deal from ESL. Was there any updates?
Is this deal renewed? And I'm asking because, again, that was predominantly media rights revenues. So that's the first question. And the second, again, it's a bit of a philosophical one, but we've already been through I6304 guidance downgrades in esports. So could you please just give a bit more color on how do you see the nature of the revenues?
How short term they are? Do you have exposure to one big sponsorship deal that we should be aware of? Thank you very much.
Just to repeat, Amit, around the commercial end of esports, then Facebook deal number 1. And then if when it comes to esports development over historically, if we are exposed to any major sponsorship agreements, for example. But Jorgen, that's
Yes. So the Facebook deal, we are in a partnership with Facebook. And that partnership has changed from being an an exclusive deal to a nonexclusive deal with them on a global scale. And obviously, deals like that and others, as I said earlier, something we are negotiating, discussing, understanding what is the best media window for us, the media rights window globally. And then when it comes to the e sport part and specific big commercial reliable customer or important customer, I think we do have significant sponsorships, but many now.
So in the old days, we had eventually 1 or 2, but now you have multiple sponsorships also depending on what products that we are having. And also if you combine DreamHack and ESL's customer base of sponsors, of course, you get even bigger. So that means also that you don't have one sponsor that you are fully reliable. I think that is quite important. We are defining what categories we want to have at each of our events and group has now as well as global sponsors and regional sponsors and whatever and also for the different games that we are having.
So you will see us add more different sponsors on as well. So we will prolong hopefully the ones we have and also you will see that more will come into the space.
So for example, I mean, as you mentioned earlier, Jorgen, I mean, we'd go from maybe being dependent on typical endemic brands now to moving to more non endemic, so to speak. Yes.
And that is a consequence, of course, of the non endemic seeing the eyeballs. And as I said earlier, for them having difficulties or not difficulties, but we have so many of those interesting eyeballs around our events. And that, of course, should be a task for us to make sure that we can articulate then an interesting commercial proposition around those eyeballs. And that is what we believe we do now with the schedule for 2020, where people can have a much longer horizon instead of having these eventually half year things you need to look at because it's also about activation of a sponsorship. It's not just going with a billboard, whatever.
It is also how you activate it. Mercedes is a good example of that. Our professionals, they have activated it. DHL, the same. And the same goes to the media partners as well.
I know that from our past, to have a 6 months contract or whatever or to get something sold 6 months in advance is difficult to market. So we do believe that it is a commercially even stronger product in 2020 now that we can combine the 2 schedules.
Thanks. Julia, would you like to follow-up?
Yes. Thank you very much. The last question,
I promise.
So again, I understand that you're doing this groundbreaking essentially job with establishing the industry. However, industry is expected to grow by just 22% per annum. It's not that much. So the question is, assuming that ESR will continue growing within industry, will it be enough to turn the business profitable?
So it's back to if the growth rate that we're currently seeing both in the industry as well as with ESL then is enough for us to reach the necessary scale to breakeven or to make money, so to speak. I believe that is for you, Maria, to elaborate on. Yes. No, but
I think that we have not changed our midterm outlook when it comes to our sales growth and our margin ambition, which means, of course, that means that you will drive esports into profitability. However, we will not do that sort of in the near term future. Our ambition right now is to grow and set this industry and then start scaling and monetizing it. So yes, we still do believe that we will make Eastbourne profitable.
Thank you very much.
Thank you, Julia. Operator, could we have the next question, please?
Certainly. We have another question from the line of Petrarakh Savanowicz from Nordea. Please go ahead. Your line is now open.
Thank you very much. Just one follow-up. On the amount of active properties you will have in Q3 and Q4, can you give a reminder on that?
Yes. Jorgi, would you like to give a reminder on the we're going to have in Q3 and Q4?
Yes. I think aggregated, you will see us having around 7 or not around, but 7 of the market events in Q3, Q4 combined. You will see us having, whatever, around 23 challenging events as it looks right now, plus minus, and you will have you will see whatever, 4, 5, 6 of these open events as well. So plusminus 4 events is something that we would that we would expect to have in Q3 and Q4. Then as I said earlier, there are some interesting opportunities which might come on top of that.
So we are, of course, constantly negotiating with publishers. And we have had, of course, deals we've been working on for some time now, which we would like to see materialize also now for the second half. So we hope that we will be able to announce that. So in all fairness, full speed ahead, and that is also what we discussed that the events that we have had historically for some time now, they're doing extremely well and doing good in terms of viewership and monetization. But we are doing more, and we are launching more new events as well and new areas.
Like India, we had the master event and like the 10 new Challenger tournaments we had this quarter. And unfortunately, not everybody was sold out of these events, to put it mildly. So it is investments, obviously, that we are doing, but we are interested in having those these channel events in order to fulfill our objective having this 0 to hero strategy where we are taking people in on a bottom level and then the end that hopefully can play the final in either New York or Costa Rica or whatever, our big event.
And also clarification on the Dreamhack event and when that is taking place, Maria?
Yes. I mean basically we moved this quarter the Dreamhack event. It was Q3 last year and Stockholm this year will be in Malmo in Q4. So I think that is a different. So you should think about that on phasing and those revenues to Dreamhack that will be phased differently year on year.
Is that answering your question, Frode?
Yes. Super. Thank you very much.
Thank you, Frode. Operator, do we have any more questions?
We have one further question from the line of Matthias Lindbergh from SEB. Please go ahead. Your line is now open.
Good morning. My question relates to the Esports segment. And in particular, if you could give us some more information about the revenue mix in Esport because you've been speaking a lot about sponsorship agreements and road costing rights. Can you share with us how your revenue split is in the e sports segment right now? Is it mainly sponsorship revenues or ticket sales, stuff like that?
Thanks, Matthias. So coming down to how we then break up revenue and the revenue mix. Would Maria like to start and then follow-up with if necessary?
Hi. If you look at it, I mean, we have to find rather localized the revenues. We looked at owned and operated properties and ease for services, which is how we define how we then monetize our properties. And that is the roughly seventythirty split you can argue. But then the actual revenue streams that goes into that, I mean what you have is this bond which is also going to use as the biggest bucket.
You have media rights, you got publishers fee, ticketing and merchandising. And that's, I mean, the same revenue bucket that we have. And of course, in owned and operated, the biggest proportion is on sponsorship, all by media rights and those also the scalable revenues. And that's why we spend a lot of time discussing that. And what we now saw in this quarter and what we're seeing this year is very strong revenue growth on the Sponsored side, but we still need to do more work on the media side to make sure that is catching up.
And of course, the growth of these two revenue streams is what's going to make our business scalable. So that's why we're focusing a lot on those two items.
Matthias, would you like to do a follow-up?
Well, could we is it correct to assume that the incremental revenue growth then would come at a very high margin? Like if you succeed in growing your broadcasting rights, that comes to a high incremental margin.
As you say, you're going to see 3 drivers of revenue growth. There is one that's to monetize existing properties better. That should come with a high incremental margin because that is then driving revenue growth, sponsor media rights on existing properties. Then you also grow adding new locations. So that is we've discussed before, that is not possibly the first time you do an event, so that will then not have a high incremental profit.
And then the 3rd revenue growth is also adding more gains. And depending on how that partnership looks like, that depends on also the gross margin. The longer sort of term of agreement that we're having, of course, the more investments we are willing to do on our side, the shorter term of the agreement, of course, the less investments we are willing to put down. So it is a hybrid in the 3 different revenue stream buckets you can argue.
Thijs, would you like to do a follow-up?
I can do one last one. Do you mainly push the split when you sell new advertising spots, do you mainly push more ad spots? Or is it the price that increases?
So maybe could you we're not certain if we got that question because it's you're saying when we are selling media rights, how that is broken up? Is that what you mean, Matthias? Or could you just rephrase it so we get it?
Yes. I can rephrase it. In regards of sponsorship and advertisements, the increase in that sort of revenue, is that mainly stemming from increase in ad spots, number of advertisers, sponsors and so? Or is it driven by higher prices?
Yes, it is both, as I said, actually when it comes to the sponsors. So you will see us onboarding more sponsors. And then when you have a sponsor onboard, you are able to articulate the outcome of that sponsorship. The sponsor is able to articulate the return on that sponsorship. Then of course that justifies better pricing.
And that is what we have said several times is the data that we are collecting right now. It is data that we in our old business had for 30 years or whatever more or less and that is what we are building up now to get those case stories that a telco operator or whatever is actually able to generate X, Y and Z with this activation. So that should help when we are selling in other areas of the world to have those documentation, those case stories. That is how you sell these sponsorships. So more will come and at better prices.
That is the idea. But as I also said at our channel tournaments, we were not sold out for sure at these new launches. So there are a lot of sponsors who like to see it. It is probably not marketed well enough. There's a lot of work to be done there as well.
But the markets we are talking about are huge. So of course, over time, you will be able to have a very relevant tournament there with very relevant commercial streams around it as well, local media or local sponsors as well even and not necessarily global. So we are expanding our opportunities constantly also by having these channel turnouts.
Okay, Matthias. Sorry. Are you happy with that answer? Or would you like to do another follow-up?
Great. Thank you.
Thank you, Matthias. Operator, could we have the last question, please?
There are no further questions at this Please continue.
Thank you. Then I will hand over back to Jorgen for some concluding remarks. Yes. So thank you very much all. That concludes the presentation for NGG's Q2 2019 interim report.
We look forward to staying in touch until we release the next quarterly report. And with that said, Q3 2019 will be presented at 23rd October. So have a great day, have a great summer and see you soon.