Modern Times Group MTG AB

STO:MTG B

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Modern Times Group Q4 2019 Results Conference Call. [Operator Instructions] I must advise you the conference is being recorded today. I would now like to hand the conference over to your first speaker today, Lars Torstensson. Please go ahead.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thank you very much, and good morning, everyone, and welcome to MTG's interim report presentation for the fourth quarter 2019. My name is Lars Torstensson, and I'm responsible for communication and IR here at MTG. With me today, I have, of course, Jørgen Madsen Lindemann, our Group President and CEO; and Maria Redin, CFO at MTG. We will start with the formal presentation, as we always do, followed by a Q&A. Please keep in mind, questions are only enabled for those participating through the dial-in today. Our webcast is listen-only.So without any further delay, please, Jørgen, can you take us through the presentation of our quarter?

[Jørgen Madsen Lindemann, President & CEO]

Yes. Thank you very much, Lars. And if I can ask you to look at Slide #1. The fourth quarter, together with the beginning of 2020, have been very intensive with a high level of activity and good progress in our business verticals. We continue the pursuit to become even better from a conversion perspective, and our focus is clear: to establish MTG as a global leader in the fast-growing industry of esport and a relevant player in the gaming space. I believe that tomorrow's entertainment is strong, and with our esports products, we are in a pull position going forward. Throughout 2019, we have made very good progress on executing on our strategy, and there's much more to be done. But let me come back to that in the end of the presentation. So let's first have a look at the quarter.If you go to Slide #2, you can see that our -- recently, our 2 business verticals, esports and gaming, have shown good progress and delivered 15% sales growth, record levels for a second quarter and for full year, which we, of course, are pleased about. Esports sales grew by 15%, with owned and operated seeing an increase by 21%. The positive development was driven by continued growing interest among fans, leading to a particular growth in sponsorship revenue. An additional contributor was the new category, Sports Games. If we then move to Slide #3. As you can see that the last 2 years have been on a transformation journey with our esport properties, leaving not a [ cheesy word ] for hire to focus on filling our owned and operated properties, our own IP product, and to work closely with selected important strategic partnership partners on the ESS products. We have delivered a quite impressive transformation of the revenue mix again in 2019, demonstrates 67% of our revenue coming from our owned and operated products, meaning more long-term revenue buildup, an increase of 63% versus 2017, where we kicked off the transformation journey. Looking at the key revenue components. Sponsorship, we have grown more than 100% since 2017, and media right has grown 54% since 2017. All in all, we have 25% more esport revenue than we had when we began the journey in 2017. So we have had good traction of the strategy making esports more commercially professional and building long-term sustainable revenue and future profits. If we move on to slide #4, we can see that gaming had a very solid quarter, with revenues growing by 17%, driven by both InnoGames and Kongregate, our largest title, Forge of Empires, continued to do well on the back of successful Christmas campaigns. The positive operational strength has continued going into the first quarter, which, to some extent, is expected as we typically, Q1, goes up against less competition from a marketing perspective. Still, this is very promising as we are seeing our largest game, Forge of Empires, performing well, also in the beginning of 2020. Our VC fund investment of SEK 14 million in the quarter is one more company we invested in and one follow-up investment. In the quarter, we also announced the sale of Zoomin to Azerion. Also, the new organization structure was put in place at the MTG headquarter. This organization that is fit for purpose will lead to significantly lower center cut. But I'll let Maria talk about that in her part of the presentation. Let's touch upon the subject on our relationship with Korea. While our plan to create a joint venture together with them did not materialize as we would have liked to see, we still believe in the logic of this transaction and its potential. And expansion into important Chinese esport market continues to be the priority of MTG and therefore, we are looking forward to sizing existing and new opportunities in the near future. This is also true for our view on expansion elsewhere, partnerships and joint ventures that can help accelerate our expansion and increase the relevance of our products. If we then move to Slide #5 and the esport business -- and you can see that ESL helped the market properties in Beijing and Hamburg and Oulx during the quarter. Beijing is actually our first real attempt to enter the Chinese market with a stand-alone product. This turned out very well in terms of viewership and the event was also very well attended.By comparing ESL, key performance indicators to the same properties last year, it is clear that the esports business has positive momentum. Most KPIs were marked by events increased sharply versus the same event one year ago, demonstrating that the properties are relevant, the audience is growing very fast, and that our esports teams are on the positive journey of transforming esport into an established sport. DreamHack net sales increased during the fourth quarter as a result of DreamHack Masters in Melbourne and DreamHack Winter in Jonkoping. At DreamHack Winter we hosted Epic's [ triple-play time ] Fortnite for the first time, and we look forward to further build on this relationship with Fortnite at DreamHack Anaheim here in Q1.DreamHack also had a significant opening event in Atlanta as well as organizing another season of its successful DreamLeague. At DreamHack, we have created a new category for esport, named Sports Games. I'll get back to that new entity on the next slide. But during the period, investment was made into both a new commercial organization and new tournaments. This had an adverse effect on the EBITDA development of the quarter, but we do expect this new category in esport to deliver interesting growth opportunities going forward. The adjusted EBITDA loss of minus SEK 55 million in the fourth quarter was a deterioration compared to last year. During the period, investment was made into a new commercial organization and new tournaments, as I mentioned. This had an adverse effect on the EBITDA development of the quarter, as I just said. Also, a lot media right opportunities that amounted to SEK 20 million in Q4 and SEK 55 million for the full year, which we didn't make up for by onboarding new media partners, was one of the key reasons for the EBITDA development. At this stage, we are finally prioritizing audience to reach our revenue in order to continue to build the sport in relevance, and then the near future, capitalize on the media partners through valid data. Therefore, we're looking forward to presenting the findings from Nielson on tournament viewership to our partners. This will help us to earn a space with the products or schedule. Demonstrating the media value of esport is just a matter of time, since we can see the interest in demographic is there. According to Nielson, esports can demonstrate in 8% of the orders between 15 and 44 years old, which is also confirmed by the interest of sponsors of the products. The focus going forward for the vertical is clear, it's to continue to commercialize the growing audience of the esport and thereby, making the sport commercial competitive. If you move to Slide #6, you can see that the level of activity in our esport vertical continued to be high, with several important announcements, all of them making our ESL and DreamHack franchises even stronger. As I said, we are investing into a new category in esport that we call Sport Games, which is to focus on traditional sports in a digital format. Consolidating existing properties such as eSuperliga and the eAllsvenskan in the quarter, we created 2 new tournaments in this category. The Dutch eFootball league, together with the Dutch Eredivisie and the European Tour Golf, we will then be launching an esport tournament called the ESL One.On the so-called generational esport games, I'm very glad to mention that we enhanced our partnership with Valve this year and are given the opportunity to run 2 Dota 2 and 1 CS:GO major in 2020. We are currently having more than 40 publisher relationship as we speak, sharing our insights into what makes a great esport game or not. Therefore, we are excited about our new long-term strategic partnership with business around the 2 epic trials StarCraft II and Warcraft III: Reforged. These 2 trials will be part of our Pro Tour format. If we move on to Slide #7, then of course, I have already touched on the subject, but our properties, especially on the market level, continue to grow and build fandom around it. As discussed with you earlier, we are on the path to build long-term sustainable properties and the first years of operation are investment by building this sport to demonstrate all areas in which you can capitalize on going forward and demonstrate the relevance we can contribute as a commercial partner. Therefore, it is encouraging to see that the viewership develops in a good manner. The IEM Beijing is a good example of this. We have been moving from big houses to our own facilities now, and the interest has been growing. The property is still loss making. But as you can see on this slide, the KPI for watched hours and viewers are excellent, the necessary foundation to have a stronger commercial pitched based on the data from 2019 when we returned to China in 2020. If we then move on to the next slide, #8, this talk about the gaming performance. But before we do that, let's recap on our strategic reviews. On October 2019, we announced a review of our gaming vertical. The purpose is -- of this is based on a range of interactions with different parties to evaluate the best ways to create and crystallize value for shareholders. The process could be solved in a joint venture partnership of our gaming vertical to enhance its competitive position and to access capital and to access new geographies. It will also result in a JV from global pure-play esport company, dedicated more resources to capitalize on the global rise of esports from our already leading market position through our ownership of ESL and DreamHack. We are currently in the process, and we will inform the market as soon as there is a conclusion. If we then move on to Slide #9, we can see that InnoGames achieved good growth in the quarter, but also notice some disappointment with new game launches. The year ended with strong development of its existing games portfolio, especially the Forge of Empires. Improved customer lifetime value throughout the year has provided us with an opportunity to invest in marketing for future growth, which paid off during the fourth quarter. In order to secure the best positive position going into 2020, InnoGames has been working in parallel with developing new games. The result is 4 exciting new games to be introduced to the market across 2020, games that will be mobile-first. Kongregate executed well on its new strategy and operating model in the fourth quarter. The turnaround is clear, thanks to an increased focus on private publisher relationship, rolling up and developing successful IPs, and by tightening up the scope of the portfolio of games. As a result, Kongregate ended the year on a high note, with a strong momentum going into 2020. If we then move on to Slide #10. You can see that EBITDA grew a strong 64% in the quarter, Kongregate posted double-digit improvement in adjusted EBITDA. This was mainly thanks to Kongregate's new title Idle Frontier, which continues to demonstrate positive results. In addition, Bit Heroes IP continued to report robust development and both net sales and game profits grew. InnoGames adjusted EBITDA improved compared to last year. This was partly driven by lower marketing costs and by the performance of Forge of Empires. Forge of Empires continues to grow, as mentioned, supported by improved in-game features and the relative high marketing investment in prior quarters. InnoGames portfolio of classic games continues to record solid performance and Warlords saw positive traction from its holiday campaign. ARPDAU at constant currencies increased by 14% year-on-year, mainly driven by better in-game monetization. MAU and DAU was down due to the complicate and the phasing of our third-party publisher relationships. And this trend would continue in 2020. Moving on to Slide #11. Our game vertical has a really strong and exciting gaming pipeline in the making. As already mentioned, InnoGames has 4 new games planned, all mobile-first, that will be introduced to the market in 2020. These games will be soft launched across the year to ensure that resources are being deployed in the best possible way and to yield the highest return.Kongregate is equally active going into 2020. 4 new idle titles based on the same game engine, improving time to market significantly. And last but not the least. The time you have all been waiting for, the Teenage Mutant Ninja Turtles, that will be promoted together with Nickelodeon. So all in all, 5 new games IP from Kongregate planned for 2020. So that concludes my comments. I will now hand the call over to Maria, to take you through the numbers in more detail.

[Maria Redin, Chief Financial Officer]

Thank you, Jørgen, and good morning, everyone. So if you can then turn to Slide #12. As we've gone through the sales and EBITDA development for the groups and segments, I would rather like to take you through the rest of the income statement in a bit more detail, along with the cash flow. So if we start with the EBITDA. The group adjusted EBITDA amounted to SEK 84 million, and this includes SEK 11 million from the application of IFRS 16, of course, which is then compared to the corresponding period when we did not include it. This IFRS 16 adjustment is lower than previous quarters, and this is due to the sale of Zoomin. The adjusted EBITDA margin for the quarter was 7% or 6% when excluding the impact on IFRS 16. The margin improvement in the quarter was driven by the gaming vertical, which reported lower marketing expenses and higher sales volumes successful execution InnoGames events at InnoGames and the new game launches from Kongregate, in addition to improvements to Kongregate's overall business operations. Esports adjusted EBITDA margin declined. This is mainly as a result of higher investment cost of events within ESL and the launch of Dream esport games, that Jørgen described. The adjusted EBITDA reflects the underlying performance of the businesses. As announced, we had extraordinary costs in the quarter of SEK 691 million. This relating to redundancy cost following the efficiency programs at the headquarter in ESL and also further write-down of assets. If we then break down this SEK 191 million. It is reported as SEK 98 million in items affecting comparability and SEK 93 million of impairment of previously capitalized costs. Further adjustments to the EBITDA amounts to SEK 11 million in costs related to LTI programs and SEK 4 million is related to M&A transaction costs. Group central operation impacted the quarter by SEK 37 million. The early announced restructuring program is progressing well, and cost reduction will start to materialize in Q1 and onwards. And as stated, we will then have a full run rate of approximately SEK 600 million by 2021, when the savings are fully realized. Group EBIT in the quarter was negative SEK 206 million, and reflects the increase in identifying comparability and impairment charges, and the EBIT margin was negative 18%. Net financial items amounted to negative SEK 23 million, predominantly driven by the exchange rates, where we've been impacted by the strengthening of the SEK versus the Euro. Group tax charges was positive SEK 22 million in the quarter. Current tax amounted to negative SEK 38 million and deferred taxes to SEK 60 million. Of the SEK 60 million, SEK 32 million relates to untaxed reserves in the Swedish entities. So if I then can ask you to move to Slide 13, and we look at the cash flow. CapEx in the quarter was SEK 66 million, mainly driven by the third downpayment for the acquisition we did of the Bit Heroes IP, and also the acquisition we made in the quarter of the Surviv.io IP at Kongregate. Above and beyond acquisitions, most of our companies is still in the gaming vertical, where we capitalized game development costs up until the game goes live, and thereafter all development costs are expensed, and thereafter also the pre-launched CapEx starts to get depreciated. In the quarter, we invested around SEK 14 million in our VC fund in 2 companies, one new portfolio company and one follow-up investment. So far, MTG has invested and committed approximately SEK 221 million in 19 different companies to complement this majority stake investment in ESL, DreamHack, Kongregate and InnoGames. Cash flow from continuing operations was an outflow of SEK 34 million in the quarter, which reflects the losses in our esports operation. And though offset by a strong quarter in the gaming vertical, we have, this quarter, extraordinary high tax payments. This relates both to taxes in arrears as well as prepayments for 2019, negatively impacting the cash flow. We ended the quarter with a net cash of SEK 1.8 billion. So that concludes my comments. Thank you. And I will now hand back to you, Jørgen.

[Jørgen Madsen Lindemann, President & CEO]

Yes. Thank you very much, Maria. And if you can turn to Slide #14. So if we look a bit at 2020, we have several strong growth levers and focus areas in both esports and in gaming. So firstly, we expect to see our gaming portfolio companies introducing no less than 9 new exciting games to the market, covering a total of 4 channels, and all of the games will be mobile-first games. Secondly, we have started our strategic relationship with Nielson, which will help us to build, improve and validate the commercial relevance of the products and start to increase monetization of media and sponsorship rights from esport. We expect continued increasing interest for the new ESL Pro Tour formats from fans and commercial partners and establish new relationships with publishers. One example of this is the latest partnership with Blizzard. Another example is a partnership with CSPPA, the Counter-Strike Player Association (sic) [ Counter-Strike Professional Players' Association ]. And last but not least, we have been working with the best Counter-Strike teams in the world in a structured manner since 2016 and we are expecting to extend and expand that partnership very shortly. Speaking of our esport calendar, we're looking at a very nice and intensive and exciting first half of 2020, especially Q2. This will probably be our busiest quarter ever, with tournaments ranging from national championships to the Cathedral of Counter-Strike in Cologne.I believe this hectic schedule is -- in a very good way, shows while we are convinced that DreamHack and ESL are the world's best esport assets. Through these levers, we have the opportunity to further establish and build on MTG as a global esport leader and to capitalize on the exciting journey for the gaming industry, providing the future of entertainment products. So now on to the last slide, Slide #15, and let me summarize the fourth quarter. So throughout '19, we have continued to develop our business verticals, esports and gaming, with an emphasis on becoming even more commercial and product relevant. And as demonstrated earlier, we are well on track. As a result, we have seen both increased sales to record high levels and improved operational performance from a strategic perspective, additional important milestones have been achieved. One highlight is our new publisher deal, which remains [ positive ]. In addition, we have prolonged media and brand partnership agreements related to the new ESL approach constructed for CS:GO.The fourth quarter of our esport vertical show a high level of activity, including 4 mark-up properties, fans show strong engagement in all the properties, with improved operational metrics as a result. In total, the esport revenue grew by 15%, driven by our owned and operated, which grew a solid 21%. Both InnoGames and Kongregate achieved good growth in Q4. The year ended with strong development of InnoGames' existing games portfolio, especially Forge of Empire, and Kongregate executed well on its new strategy and operating model in Q4 2019. The turnaround is clear, thanks to an increased focus on target publisher relationship, rolling out and developing successful IPs and by tightening up the scope of the portfolio of games. As a result, Kongregate ended the year on a high note, with a strong momentum going into 2020. Last but not least, the strategic review is ongoing, and we will inform the market as soon as we can conclude the process. All in all, we are making good progress executing on the strategy, fully committed to our mission of becoming a global leader in esport and gaming. Hence looking forward, MTG and its portfolio companies will continue to have long-term sustainable growth and to show improved operational leverage. That concludes my comments. So back to you, Lars.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thank you, Jørgen. And that ends our presentation for the fourth quarter of 2019. And we are now ready to take any questions that you might have. So operator, could we have the first question, please?

[Operator]

[Operator Instructions] The first question today is from the line of Tom Singlehurst from Citi.

[Thomas A Singlehurst, Director and Head of European Media Research]

It's Tom here from Citi. Well, obviously, a lot to talk about in terms of the operational performance, but I had a couple of questions just on strategic positioning, if it was all right. The first one is, in the aftermath of the sort of Huya transaction sort of unwinding a bit. Can you just talk about your philosophy towards getting some form of minority investment within ESL? Is that now the 100% off the agenda, and it's going to -- we should focus on the sort of esports division as is? And then linked to that, the second question is, obviously, in the last few days, few weeks, we've seen some alignments elsewhere in the industry, I'm, in particular, referring to the Activision and Google tie-up. I'm just wondering, from your perspective, how does that make you feel about esports? So do you feel that you have to be aligned with a particular streaming platform or a particular publisher? Or can you -- are you comfortable being sort of truly independent and sort of being agnostic?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Tom, just to repeat the questions, the line was maybe not the best one. But when it comes to strategic partnerships in the aftermath of the Huya announcement that we did a couple of weeks back, that's a relationship with them 100% off or is there still a dialogue ongoing? That was the first question. And the second question is following the announcement from Activision and Google/YouTube, on their relationship on the Overwatch League, the need of something similar from an ESL DreamHack perspective, it's a digital stream partner. So Jørgen, I guess, those both are yours.

[Jørgen Madsen Lindemann, President & CEO]

Yes, yes. When it comes to the strategic partnership, I think that is something we have been very clear that, that is something that we would like to seek, not only in China, but in parts of the world where we feel that we can find a partner who can help us accelerate our products and become even more relevant player in the area. China is a fantastic esport market. We have been looking for some time for a potential partner. And therefore, we were very happy when we started to discuss with Huya, who's a fantastic -- they're a fantastic company and also very relevant in the eSports market in China. Unfortunately, at this stage, we couldn't agree on some of the commercial parts of the -- and some the risk parts of the agreement. But that doesn't prevent us from having a commercial relationship, which we already have. So Huya is distributing -- or was distributing our Beijing event. They did extremely well. And also lately, they were distributing our Dota 2 tournament from livestream to the DreamHack event as well. So we will pursue new opportunities for strategic partnerships around the world. And therefore, minority partnerships or strategic investments into ESL is definitely not off the table. On the contrary, I think we are very open to talk to strategic players who can help us accelerate in -- our parts in different parts of the world. Then when it comes to the Overwatch and YouTube, I think we also, sometime, had a -- some time ago had an agreement with YouTube on some of our products, and we have an agreement with Twitch on our products, Facebook and others. So we are already, today, dealing with both those global digital distributors, but also, of course, local, as you know. So we have a range of local partnerships. And that is also what Nielson should help us execute on is, of course, to get more data. So we understand how relevant we can become for local partners as well. When we see the partners locally we already have teamed up with, they see extremely good traction on our product. So that is something that we would continue to pursue, a lot of local partnerships, but they will not prevent us from engaging in global partnerships, which we already, today, are having, as I mentioned, both with Facebook and Twitch and others.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So Tom, would you like to do it...

[Thomas A Singlehurst, Director and Head of European Media Research]

I think that's okay. I'll come back with another question.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thanks, Tom. Appreciate the questions.

[Operator]

The next question is from the line of Oscar Erixon from Carnegie.

[Oscar Erixon, Financial Analyst]

I have a follow-up question on media rights. What types of global agreements are you looking for? I mean, what are the relevant players? Is it YouTube, Facebook, Twitch, are those the main -- main players that you're looking to?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thanks, Oscar. Just to repeat the question. I mean, what type of global partners are we looking for when it comes to digital distribution?

[Jørgen Madsen Lindemann, President & CEO]

Yes. But I think you mentioned them very well. I would add Huya, of course, to that equation as well, which is a global distribution partner as well. And -- so that is one way to go is, of course, to have a global partner for some relevant products. And then you might find games which are more relevant in parts of the world where you want a regional partner or where you can capitalize better on a local partner. So it will be individual partnerships depending on interest of the games in the different parts of the world. And also, of course, for us to understand what commercial opportunities are we having in -- with our products in different parts. But today, we have good relationship with the ones that you mentioned. So that -- but again, doesn't prevent us from having relationships with others, which we are pursuing.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Would you like to follow up, Oscar?

[Oscar Erixon, Financial Analyst]

Yes. Another question on gaming. Could you say something as well about the strategical review that is ongoing? Obviously, Forge of Empires is performing well, Kongregate is performing well. But has the performance of God Kings and also Warlords, has that affected the value that you see in gaming?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So Jørgen, I guess, that question is for you. If there's an update on the strategic review?

[Jørgen Madsen Lindemann, President & CEO]

Yes. Oscar, the update is that the strategy review is ongoing, and that is what we say at this stage about the strategic review.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

We have to keep it short, Oscar, on that one because it's something that is very much ongoing, as you know. So would you like to follow-up with any other topics?

[Oscar Erixon, Financial Analyst]

Yes. Just a final question for me then. I mean, Warcraft III: Reforged has received quite a negative reaction from critics and users. Has that affected your plans for ESL Pro Tour?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Yes. Regarding the Warcraft: Reforged at -- has gotten-- when it comes to reviews on the game has been quite low when you follow-up on how the -- even fans have been taking it. And just if that question is for you, Jørgen, if you would like to elaborate. I could support on that one as well.

[Jørgen Madsen Lindemann, President & CEO]

Yes. No, there's nothing, meaning we are about to launch the different products with Activision. And we definitely have all the ambitions in the world to make that a super successful esport game. So full speed.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Yes. And you will see that also now when we launched the Pro Tour for both StarCraft and Warcraft, that Warcraft is very much in play when it comes to the schedule for next year. It should be said that, that is, of course, building a new esports scene for Warcraft, which has not been that strong before. While the StarCraft is to maintain a very strong esports scene that has been highly appreciated game for many, many years. So there's not been any change to our view on Warcraft. Thanks, Oscar. Appreciate the questions.

[Operator]

The next question is from the line of Erik Lindholm from Nordea.

[Erik Lindholm-Rojestal]

Yes. So a couple of questions from me. I'll start with -- you signed a number of media rights deals recently such as the -- like broadcasting [ Radio ] and the Maincast deal in Russia. Can you comment on how much you expect this to contribute in aggregate in 2020? And when should we expect this to start contributing?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thank you, Eric. So we -- our portfolio companies have been announcing media deals recently. And do we have anything to share when it comes to what sort of contribution that is to be expected in 2020? Maybe, Maria, for you to start on the [ Radio ], and then, Jørgen, if you would like to add to that.

[Maria Redin, Chief Financial Officer]

So. I think the way to look at them is, I think that earlier in the call, we discussed some of those global streaming partners, which is, of course, higher in the agenda when it comes to streaming esports. And then I think it's relevant to how the local partners such as the Play, such as Maincast, such as TV3 Sport. And I think it's important that we continue to make these local sort of partnership as well and also in some of those more traditional platforms. So it's a nice complement to our overall media strategy that we are continuing to build, but I think, again, we are in the early phase, which I think Jorgen also said, and I quote, "Now it's about delivering the product, delivering Pro Tour, generating the ratings and the audience share, which we're doing together with the new Nielsen tracking." And then we do the next round of media discussions, and we see the gradual wrap up.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Erik, would you like to follow up?

[Erik Lindholm-Rojestal]

Yes. So I'll take another question on another topic. Can you say approximately what level of UAC you had in relation to net sales in gaming in Q4? And what are you expecting in gaming for 2020?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Sorry, Erik. What KPI were you asking for in there?

[Erik Lindholm-Rojestal]

User acquisition costs.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

User acquisition costs. Thank you. For the gaming asset?

[Erik Lindholm-Rojestal]

Yes. Yes, exactly, like that.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Yes. Maria, it's up your alley.

[Maria Redin, Chief Financial Officer]

Yes. No, we have never actually broken on the specific percentage of marketing spend going in as part of net sales. But I mean, the way to think about it, you saw the margins went up in the quarter. We did go down a little bit, both quarter-on-quarter and also versus last year on marketing spend. I mean, that's always fluctuating a little bit depending on the return you've seen in the different channels and so forth. And also, I mean, we had a strong user momentum coming in from Q3 when we had higher marketing ramp up. So I mean, there's nothing material to comment on it. I think each quarter, a little bit depending on how [ just ] set we are in different channels and what we see with the return, it will sometimes ramp up. And then next quarter, it can then go down a little bit. But if you look in the longer-term perspective, it remains relatively flat.

[Jørgen Madsen Lindemann, President & CEO]

But also when we're looking at, how -- if you take InnoGames, in the bigger titles, they had a good performance in Q4, but also that when moving into January in 2020.

[Maria Redin, Chief Financial Officer]

No, but we are happy to see the [ raw ] level underlying. [ Raw ] levels we're happy with those. So we're happy with the marketing spend we do. We're happy with those levels. So I think that's the way to look at it. And then you can, "You can always see a little bit of fluctuations." But over the longer period of time, it is a pretty stable level that goes in as a percentage of net sales into user acquisition. What you did see is, if I commented, of course, it was down a little bit as well because we stopped the marketing on back of God Kings in the quarter.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thank you very much, Erik.

[Operator]

The next question is from the line of Martin Arnell from DNB Markets.

[Martin Arnell, Analyst]

So my first question is on InnoGames. Can you just explain the difference in the new game paddles for this year versus the most previous ones?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Yes. So gaming pipeline when it comes to -- if there's a difference when it comes to the style of the game versus what we have launched earlier. Maria, you are close to InnoGames. Maybe you could start.

[Maria Redin, Chief Financial Officer]

Yes. No, the -- I think the -- what we've been doing is, of course, to learn from the success and the failures we've done in InnoGames, in all honesty. So I think the main difference is we have changed and done an overall -- overhauling that game when it comes to tollgate process and the go-to-market strategy. They are focusing on the feasibility team and the research management. So it stays true to InnoGames' core. And I mean, the way we look at it now is that we are much more agile in the process, which also will benefit time to market, which will give us an upside. But we don't have anything too specific on the action of games because that is something that sits with the game.

[Martin Arnell, Analyst]

Okay. And second question I have is on ESL and the reorganization you've done there. Can you explain that a little bit more in detail? And what you expect will come out of that? And why it should be a positive?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So there's new -- we work on the operating model at ESL. You've been very close to that one, Jørgen. Maybe you could start answering that question.

[Jørgen Madsen Lindemann, President & CEO]

Yes. This, of course, comes along with the fact that we also now are much more proactive in terms of launching the schedule, the tournaments and so forth. So we -- I think you're going to say, we are better prepared now. We have a better understanding what is needed, 1 year, 2 years from now. So there's a lot of opportunities to streamline processes to understand different capabilities, what is needed now going forward with all the products that we have ongoing. So that we have done. We have onboarded quite interesting new executives as well as we also announced lately, was Roger, who used to run the Euro League. And as you know, our commercial officer in ESL is called Thomas, and he used be the CEO for the team for the Champions League franchise. And of course, when these executives come in, they also build their own setup, their own organizations. And therefore, you will see constantly develop organization. I think that is quite important. Also, hopefully, as we onboard more and more partners, that is also affecting how we're going to work. So the idea is to be more agile. The idea is to be more competitive and make sure that we are fit-for-purpose with these different -- the entity department that we have in the ESL. So that is the reason behind. And that has worked out well for us. But again, this is an ongoing development that will continue.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thanks, Jørgen. Martin, do you want to follow-up?

[Martin Arnell, Analyst]

Just a final question on your growth targets, mid-teens medium-term growth. And in 2020, do you expect it to be second-half tilted or more sort of evenly spread throughout the quarters?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So just to -- I know this is a question coming from many of you out there, if we were -- regarding short term guidance. So we are not providing short-term guidance. But when it comes to our long-term view, Maria, maybe you would like to elaborate?

[Maria Redin, Chief Financial Officer]

Yes. No, Martin, but I think you actually stated our marketing. So I think nothing has changed when it comes to our long-term ambition. We want to progress towards sort of the mid-teens sales growth, and nothing has changed there. And also to start seeing that operational leverage within our esport operations, which then will bring up the adjusted EBITDA margin. And I think we said 10% to 15%, and I mean, that remains true. So in the mid- to long term, nothing has changed.

[Operator]

The next is from the line of Stefan Billing from Kepler Cheuvreux.

[Stefan Billing, Research Analyst]

So I have a question. If you can say something about the revenue development from mobile esports and [ FIFA ] subsidies, how much of the esport revenues they represent? And your view on the opportunities in these segments going forward? And another question, if you can specify how much sponsorship revenues grew in Q4?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So the question is regarding revenue development for mobile esports. And then also, we have been mentioning that from time to time, you see the subsidies, and that can be a component.

[Jørgen Madsen Lindemann, President & CEO]

Yes.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So, Jørgen.

[Jørgen Madsen Lindemann, President & CEO]

Yes. I think mobile esports, you can all -- you can say, has come a positive surprise to us. I think what we also discussed was that, with vendor around 10% of the revenue in 2019, and 2017, it was very little. So that has been quite an interesting product for us. And also [ ways for us ], of course, to utilize our events better. So when we have, eventually, a big Counter-Strike tournament in the afternoon, we might have mobile tournament, like we had in Hamburg or like we had in New York, earlier in the day. So that we give the fans more, the esports fans more and that is, of course, to the benefit of all the parties. So too, then, a positive for us. When it comes to the state of the city subsidiary, I think important for us is of course, that we not only get subsidized. And that is, of course, more -- that would be more and more professionalized. So we have more and more case stories now, what do we actually bring to the city, when the circus of ESL and DreamHack comes to the city? So there, we will be, over time, more sophisticated. We are already now, have teamed up with people who are used to have that discussion. What is the tourism economy? What does it mean when you can get x amount of thousands of people into your city? So that is something we are getting more and more sophisticated about. So one thing is money, the other thing is, of course, the support from the city. Because obviously, particularly around DreamHack festivals, we would like to do more. Like I have seen when I was traveling around with the Champions League. So it was, whatever, you had big festivals, you had big screens on the square, you have big Champions League parties and so forth. That is something we -- going forward, of course, will discuss with the cities. But we are getting more refined, and we are also getting higher subsidies because that we have more case stories. And then you had a third -- was there a third question? Or there was...

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

No. There was those 2. Stefan, if I didn't miss any. Would you like to do a follow-up, Stefan?

[Stefan Billing, Research Analyst]

Yes. You missed my question on sponsorship growth in Q4?

[Jørgen Madsen Lindemann, President & CEO]

Yes. Sorry. Yes. I think, in general, we had very strong growth of sponsorship in the fourth quarter. It worked very well for us. I think what I have also tried to explain and what we talked about at the beginning is, of course, the development that we're having right now. When it comes to the journey, when it comes to the transformation around going away from becoming a work-for-hire company more to a more strategic company with owned IPs, and then therefore, also long-term sustainable revenue. And there, I think, is a good slide, is the one that we had in the beginning, where we talked about how has that actually developed the revenue streams from 2017, where we initiated that journey up until today. And if you just look at the fourth quarter, you will see this partnership was 70% higher in the fourth quarter than it was in the fourth quarter '17. So that's quite an asset. And the same goes with media rights, was up, more than doubled. And if you look at the full year basis, partnership more than doubled since 2017, and we drive this up some 50% plus. So that development, of course, is something we are very happy about. We have not given out specific target or specific figures for the growth in the quarter. But it was a very good quarter for sponsorship.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So Stefan, would like to follow-up with another question?

[Stefan Billing, Research Analyst]

No, that's it. I think you mentioned 42% in Q3, so that's why I had the question on the year-on-year growth.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Well, we kept -- maybe be a little bit open there. We are close to that level currently as well.

[Operator]

The next question from the line of Oscar Erixon.

[Oscar Erixon, Financial Analyst]

Yes, I'll take the chance to answer -- to ask 2 follow-up questions as well. You mentioned in the report that Warlords had a pretty strong holiday season. Should we interpret that as you -- that you will actually invest further in Warlords in user acquisition costs and development, and that God Kings, on the other hand, is now not in focus?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

So we referenced to Warlords having a good Christmas campaign or holiday season campaign, does that mean that we will continue to invest in Warlords? Maria?

[Maria Redin, Chief Financial Officer]

Yes. No, absolutely, we will continue to invest in Warlords, but we are scaling it down a little bit, and we are changing the focus from what we initially had planned to. So I mean, as you may have seen as well in the write-down release that we are not writing down the full value, we are writing down half of the value. Because we do still see a good potential in Warlords. And I think what was successful in Q4 and the Christmas campaign, which was positive, is that we took some of those features and campaign activities that worked very successfully in Forge and apply that in Warlords with a very good return. So we would simply work with the games differently going forward. We will have the small or less team on it, and we will spend less but still efficient marketing on the back of Warlords.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

And how will we manage God Kings going forward?

[Maria Redin, Chief Financial Officer]

God Kings, we will not do any marketing anymore behind, but we still have a very loyal fan base that likes the game. So I mean, we will keep the game for them, but they will enjoy the game. But of course, hence, there will be limited revenues coming into it. And that's why we write down the vast majority of God Kings.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thank you, Maria. And Oscar, you had 2 questions, I believe?

[Oscar Erixon, Financial Analyst]

Yes, you're right. A question on esports as well. I still haven't seen a press release on Dota 2 and the ESL Pro Tour, but that schedule is coming together. So could you shed some light on that? And also discuss the majors that you have upcoming now in 2020. Is it both CS:GO in Rio and Dota 2 in Los Angeles?

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thanks, Oscar. So Dota 2 and ESL Pro Tour format around Dota 2, and then the majors. That's you, Jørgen, I believe?

[Jørgen Madsen Lindemann, President & CEO]

Yes. We have announced, as you correctly say, we have announced the different events. The majors that we haven't, and we had livestream event with DreamHack here in January, was a Dota 2 major. And we are having the Los Angeles event, hopefully, in Q2 as well now. Then we have the Counter-Strike event in Rio. So that is the enhanced partnership that we are having with Valve. Then on the Pro Tour, we have a lineup. And also, we have the team for DreamHack. They also have their own product called DreamLeague, which is also Dota 2 products. So that is ongoing. It is not the same scale at this stage as this Counter-Strike Pro Tour and not as, what you can say, as big right now, with player union commitment and big schedules and so forth as the Counter-Strike flows. So that's just something we're working on. But we will have a range of those 2 products out there as well. And we -- the aim is to make it super relevant, Dota 2 Pro Tour as well, and we'll announce that.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Thank you, Oscar.

[Operator]

[Operator Instructions] No questions coming through currently.

[Lars Torstensson, EVP, Head of Communications & Investor Relations]

Okay. Thank you very much, operator. In that case, thank you very much for all the relevant questions being asked. And this concludes the question-and-answer session for our Q4 2019 interim results.We look forward to staying in touch until we release the next quarter report. And with that said, Q1 2020 will be presented at 28th of April, together with our Capital Markets Day that will be held in New York. And we're looking forward to see as many of you as possible there to go through all the good stuff happening at MTG. But with that said, have a great day, and see you soon. Thank you.

[Operator]

Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.