Super League Enterprise, Inc. 10-K

Item 1. Business   Overview   Super League Gaming, Inc., a leading gaming-centric creator and content platform, builds and operates networks of games, monetization tools and content channels across metaverse gaming platforms that empower developers, energize players, and entertain fans. Our solutions provide incomparable access to an audience consisting of players in the largest global metaverse environments, fans of hundreds of thousands of gaming influencers, and viewers of gameplay content across major social media and digital video platforms. Fueled by proprietary and patented technology systems, our platform includes access to vibrant in-game communities, an innovative metaverse advertising platform, a network of highly viewed channels and original shows on Instagram, TikTok, Snap, YouTube, and Twitch, cloud-based livestream production tools, and an award-winning esports invitational tournament series. In addition to our platform, our properties deliver powerful opportunities for brands and advertisers to achieve impactful insights and marketing outcomes with gamers of all ages.   We generate revenues from (i) advertising, serving as a marketing channel for brands and advertisers to reach their target audiences of gamers across our network, (ii) content, curating and distributing esports and gaming-centric entertainment content for our own network of digital channels and media and entertainment partner channels, and (iii) direct to consumer offers including digital subscriptions, in-game digital goods, and gameplay access fees.   Our Business   As an early-mover in defining the esports category for the everyday gamer since 2015, Super League focused on creating esports experiences for both young gamers, as well as the avid ten year old to thirty year old gaming demographic.  Our experience and insight led us to further develop our reach in metaverse games including Minecraft and Roblox, where a large amount of young creative and competitive players focus their time.  With that focus, we today reach 75.0 million monthly players in metaverse games and augment that reach with over 11.0 billion annual views on our social and digital channels, supported by metaverse gaming content, along with more heightened esports competitions and entertainment targeting the older gaming demographic. We believe we have successfully iterated our business model through these market insights, and our organic and inorganic growth to establish scale and ultimately drive our monetization strategies with a position that is synergistic and accretive to the greater gaming ecosystem.  Our software supports the creation and operation of our owned and operated metaverse gaming worlds and content network, along with creator tools and analytics.  These tools enable Super League to access these extended audiences with our innovative in-game and in-stream ad products, and allow our game designers and content creators to participate in our advertising economy.  Our analytics suite provides Super League, brands and advertisers, and game developers data that informs campaign measurement and insights, along with enhanced game design.  Beyond our primary advertising revenue stream, we have the opportunity to extend further downstream in the metaverse gaming worlds we operate, and generate direct to consumer revenues.  In addition, our platform, and our capability to produce and stream compelling gaming-centric broadcasts feeds and drives viewership to our own digital channels and generates content production and syndication revenues from third party partners.   Specifically, Super League’s advertising products provide a wide range of solutions for advertisers.  From branded in-game experiences, through to custom content and media, Super League can provide 360-degree solutions for brands to acquire customers, deepen brand affinity and deliver campaign performance with innovative advertising inventory.  As Super League has scaled in both metaverse player and viewing audience reach, hawse have experienced growth in both the average revenue size of advertiser programs, along with a strong percentage of repeat buyers, while upholding our premium cost per impressions (“CPM”) advertising rates, further validating our premium marketing channel allowing advertisers to reach elusive Generation Z and Millennial gamers.  Super League’s distinction centers around our expertise in successfully building metaverse gaming worlds and a related content network for ourselves, providing evidence to brands and advertisers that we can do the same for them with the scale to drive traffic and deliver campaign objectives.   -1- Table of Contents   Digital Properties and Offerings   Our network and media platform includes social media, live streaming, video-on-demand (“VOD”) and website-based offerings that provide players and creators with multiple forms of content designed to celebrate their love of play and to support their limitless creativity. Whether through gameplay highlights, live streamed esports competitions, original lifestyle programming or custom designed digital gameplay environments, Super League along with our game developer partners and content creators are constantly creating and enhancing our network’s games and content to drive more viewing audience and deeper player engagement.   Our consumer facing digital properties include:     ● Minehut : Attracting younger gamers and creators, Minehut is an “always on” social and gaming portal for over 5.0 million registered avid Minecraft players who primarily play on desktop computers. Within Minehut is a vibrant Minecraft community in which players create their own Minecraft worlds to share, socialize and play with friends, in addition to Super League operated communal game lobbies for enhanced gaming and social experiences.     ● Mineville and Pixel Paradise :  Through a relationship with Microsoft, the owner of Minecraft, we operate two additional Minecraft server worlds for players enjoying the game on consoles and tablets.  While these servers are “free to play,” we have opportunities to monetize the players through in-game micro transactions, such as gameplay passes and durable goods which run through the Microsoft marketplace.         ● Framerate : A fast-growing set of social video networks in gaming generating tens of millions of monthly views, Framerate operates multiple channels across social media, namely Instagram and Tik-Tok. Targeting more competitive, young-adult gamers and creators, Framerate, enables any gamer playing any game, anywhere to submit their own user-generated highlight reel for recognition. Once submitted, the content becomes ours to promote, repackage and monetize across other digital channels.     ● Super League Arena : Our signature esports property, Super League Arena offers esports tournaments and broadcasts for advanced amateurs and professional players and teams to drive viewership for our owned and operated content network and provide additional opportunities for advertisers to reach the more competitive, young adult gamer.         ● SuperLeagueTV :  Focused on the widest breadth of gamers and creators across all genres, ages and skill levels, SuperLeagueTV offers gaming-centric entertainment programming following the players and personalities. Content is available in both livestream and on-demand video on superleague.com and our own social channels, as well as partner web and social media reach.   Our creator facing digital properties include:   ● Mobcrush : Acquired by Super League in June of 2021, Mobcrush Streaming, Inc. (“Mobcrush”) is content creation streaming software that reduces the friction for up-and-coming streamers to multicast across their social media channels and build their audience.  In addition, it becomes an accessible pool of gaming influencers to bring into advertiser programs for greater revenue opportunities and amplified social media to achieve campaign objectives.     ● Bannerfy :  Acquired by Super League in August of 2021, Bannerfy, Ltd., (“Bannerfy”) is a technology that overlays banner ad products in YouTube creators’ VODs.  This expanded inventory, reaching tens of millions of viewers a month, augments our ad inventory and allows for enhanced campaign targeting while empowering YouTube creators to participate in our advertising economy.     ● Bloxbiz : Acquired by Super League in October of 2021, Bloxbiz Co. (“Bloxbiz”) is a suite of metaverse ad products and analytics connecting brands and advertisers to over 150 top-tier Roblox games.  Through our technology, we partner with Roblox game developers to bring innovative ad inventory and custom brand experiences into their games allowing them to participate in our advertising economy and benefit from our analytics to continually enhance player experience.   ● Virtualis Studios : Virtualis is our fully virtual production studio providing state-of-the-art, scalable solutions for video, television, and branded content. With a range of features from a fully virtual control room to remote monitoring and communications, Virtualis is an affordable, flexible solution to meet today’s production environment requirements.   -2- Table of Contents   Key Performance Indicators ( “ KPIs ” )   The KPIs driving our business model are related to scalable offers across our digital and physical footprint of gaming-centric offers and entertainment. The significant growth we achieved in 2021 reflects in part, inorganic growth in connection with our acquisitions in 2021, the continued advancement of our technology platform, and the acceleration of our audience growth through the continued expansion of our digital network of online gameplay and viewing channels. A summary of KPIs, and related growth for fiscal year 2021, compared to fiscal year 2020 is as follows:     2020 2021 Growth Views and impressions (1) 2.0 billion 11.2 billon 5.5x Increase Registered users (2) 2.9 million 5.0 million 1.7x Increase Engagement hours (3) 72.2 million 105.0 million 1.5x Increase ___________________   (1)  Views and impressions represent number of views of our video content which is distributed across multiple platforms. (2)  Registered users represent individuals who have registered on our platform, providing applicable identifying information, that have engaged with our platform at some point. (3)  Engagement hours represent time spent engaging with Super League in the form of participating in our experiences, viewing our content, and/or spending time on our website.   Monetization   Advertising and Sponsorships   The highly sought-after Millennial and Generation Z audience is increasingly difficult for brands to reach due to the proliferation of new content distribution channels, ad-blocking technology and a sentiment against overt marketing and promotion. Our ability to uniquely aggregate a diverse user base across age ranges, skill levels and game titles and embed direct authentic brand integrations creates a base of high-quality, premium advertising inventory attractive to brands and advertisers. We stand for inclusive, fair and fun gameplay and entertainment and believe that our brand is at the forefront of the mainstreaming of competitive gaming and esports entertainment, which provides a positive access point for both endemic and non-endemic brands to reach these audiences.   Throughout 2021, we experienced significant organic and inorganic growth in our audience, increasing viewership and registered users, and expanded our premium advertising inventory. We further developed our in-house direct sales capability to monetize this ad inventory, and also increased revenues generated from programmatic display and video advertising units. We expect to continue to grow our adverting pipeline across various verticals with the capability to give brands and advertisers with targeted, high-quality integrations that warrant premium CPMs.   Advertising and sponsorship revenue primarily consists of direct sales activity along with programmatic advertising. The various forms of advertising campaigns for competitive video gaming and esports entertainment, digitally and physically, include:     ● New metaverse game experiences and custom integrations into existing games;     ● In-game ad network including digital billboards and 3-D ad products;     ● In-stream and in-VOD custom and banner ad products;     ● Live gameplay broadcasts, on-demand clips for social distribution and other custom content;         ● Video and display programmatic advertising;         ● Social amplification through influencer partnerships;         ● Performance reporting and advanced analytics; and         ● Children’s Online Privacy and Protection Act (“COPPA”) compliant and kidSAFE-verified inventory.   -3- Table of Contents   Content   Content related revenue is generated in connection with our curation and distribution of esports and entertainment content for our own network of digital channels and media and entertainment partner channels. We distribute three primary types of content for syndication and licensing, including: (1) our own original programming content, (2) user generated content (“UGC”), including online gameplay and gameplay highlights, and (3) the creation of content for third parties utilizing our remote production and broadcast technology.   We generate revenues from our proprietary content by utilizing this content to drive audience growth across our network and expand our premium advertising inventory. In addition, the UGC can be repackaged for further syndication and monetization to third-parties seeking esports and entertainment content for their own distribution channels. Tens of millions of hours of proprietary content is generated through our platform per year providing us with a sizable library of gaming-centric entertainment content.   Additionally, we generate revenues from third-party partners who seek our patented remote production and broadcast technology to create content for their own digital channels to drive audience engagement.   Direct to Consumer   Direct to consumer revenues are comprised of revenues generated from the Minecraft metaverse gaming worlds we operate.   Through our owned and operated property Minehut, along with Mineville and Pixel Paradise, which we operate on behalf of Microsoft, we generate consumer revenues through in-game micro transactions, including sales of durable goods and gameplay passes, and service features such as expanded server plans more akin to a monthly subscription model.  All three of these consumer properties are “free-to-play” to drive user growth in support of our advertising model, and, as their engagement deepens, we can drive players into our consumer monetization funnel.   Our Vision   We believe the metaverse is where the next generation lives, and it is a launchpad of unlimited new gaming worlds and content fueled by fearless imaginations of our brand partners and our pioneering creators.  Our vibrant, thriving network of connected metaverse game worlds and content channels is a place where we have lived for over seven years.  While the games are digital, our players, creators and partners are human, and we understand them because we are them. We are a rocket ship to the metaverse, empowering creators, energizing players, entertaining fans and providing a hyper-sonic transport for brands.   Industry     According to NewZoo (2020), there are over 3 billion gamers on the planet and more than 400 million monthly active players in metaverse games as a dominant form of entertainment for the younger generation. Grandview Research (2020) cited the overall value of the global gaming market was $168.0 billion in 2020 and is forecasted to grow to approximately $300.0 billion by 2027, representing an estimated compound annual growth rate of 8% from 2020 to 2027. Key trends fueling this growth include:     ● The rise of metaverse gaming democratizing game design and new ways to play;     ● Massive growth in self-produced social content fueled by new creator economies;         ● The disaggregation of content and the traditional advertising model forcing advertisers to find new solutions;     ● Increased accessibility for gamers to compete and stream through cloud-based gaming and 5G broadband; and     ● Cross-generational reach of gaming and a lifestyle trend placing it at the intersection of pop culture.   -4- Table of Contents   Our Scalable Technology Platform   Our platform is focused on the creator and player journey and provides innovative ways for brands and advertisers to engage with audiences of gaming enthusiasts.  Players and creators across a wide range of ages are introduced to Super League through our digital content channels and then driven into our creator tools, economies and digital game experiences.  Our proprietary cloud-based platform serves three core functions (i) advertising technology enabling innovative in-game and in-stream ad products including digital billboards, banners and 3-D characters units supported by an analytics suite, (ii) metaverse game design and esports tournament technology to support our owned and operated metaverse game worlds and competitions for our players along with supporting our advertisers’ campaign objectives to engage with players, (iii) fully remote production and livestream broadcast technology to support our owned and operated content network to drive audience growth along with supporting our advertisers’ campaign content needs in delivering viewership.  Furthermore, our platform enables digital tools for scale including, but not limited to data services, event creation and management, ecommerce, advertising technology, COPPA compliance, search engine optimization, and email and mobile marketing.      Advertising Technology     Our advertising technology, both in the size of monetizable ad products and the creator tool suite, was materially expanded with the acquisitions of Mobcrush, Bloxbiz and Bannerfy in fiscal year 2021. In addition to Super League’s original owned and operated consumer reach, including, but not limited to, Minehut and Framerate, advertisers can now reach tens of millions of monthly metaverse players in-game and hundreds of millions of viewers in-stream distributed across social media channels including YouTube, TikTok and Instagram.  This, coupled with custom brand integrations and content, powerful campaign analytics and insights and compliance, offers an immersive and high-performing marketing channel for brands and advertisers.    Specifically, our turnkey metaverse ad products are a progressive and differentiated way for advertisers to embed into games through dynamic digital billboards and interactive 3-D characters to create a dialogue with their target audience and add to the gaming experience without interrupting the play itself.  For example in Bloxbiz, our digital billboards impressions are 10 seconds of cumulative view time offering a high benchmark for in-game advertising.  In addition, we ensure viewability with advanced technology that observes if ads are on screen, unobstructed, meet a screen coverage threshold, and other requirements set by Interactive Advertising Bureau (“IAB”) which translates into our premium CPM business model.    Game Technology   As noted, a core differentiator for Super League is our reach in metaverse games and esports entertainment through our game technology and capability.  In our early days, we focused on team and tournament technology that would allow us to execute mass-participation, geographic-agnostic game competitions across a variety of game genres and titles, including, but not limited to functionality such as, match-making, player statistics and team leaderboards.  We continue to use aspects of this technology with our signature esports property Super League Arena bringing amateur and professional players together with gaming influencers for high profile tournaments and broadcasts.     In addition, through our ownership of Minehut, we have deepened our internal capability to create custom metaverse Minecraft experiences for our player base, and this is the talent that we apply to deliver custom integrations for our brand partners as well.  With our acquisition of Mobcrush, we deepened our bench of Minecraft game developers and gained two additional Minecraft servers, Mineville and Pixel Paradise.    Content Production & Broadcasting Technology   Early in our inception, we utilized a local hardware solution to create interactive physical spaces for in-person gaming experiences.   In doing so, we created a second-screen perspective that would make the experience more immersive for players and entertaining for spectators much like professional sporting events, resulting in our Virtualis Studios, our patented, fully-remote visualization, production and broadcast technology.   Virtualis Studios technology automates and scales various gameplay processes and functions that would otherwise need to be accomplished manually. These processes and functions primarily include ways to ensure that visualizations of gameplay and other value-added data and graphics are both captured and delivered efficiently and timely supported by computer vision to glean key events, graphics and data from the game screen.  Since COVID-19, we have augmented our virtual control room with remote monitoring and communications and enhanced broadcast-level graphics, for an end-to-end, cloud-based production system built around Virtualis’s proprietary workflow.     -5- Table of Contents   Our Strengths   We differentiate ourselves through the following:     ●  Large and growing base of players and viewers offering critical mass in the gaming metaverse and our content network.     ● Mutually valuable partnerships with top-tier game developers and avid content creators augmenting our own player and viewer reach.     ●  Diversified and recurring brand partners  reinforcing our capability to deliver innovative, premium experiences, media and content to have achieve our advertisers’ objectives.     ●  Patented   Technology  that is affordable, intelligent, and scalable for fully-remote visualization, production and broadcast technology.     ●  Dynamic in-game ad products which are turnkey, innovative and supported with powerful analytics.     ● Seven years of metaverse gaming operations and expertise provides us a knowledge-base and distinctive advantage.         ●  Strong game publisher relationships providing access to existing user bases with top-tier games in the metaverse and a beyond.   Our Growth Strategy   Our core strategy is to pursue initiatives that promote the viral growth of our audience, player and creator base, and in doing so, drive our advertising, direct to consumer, and content revenue streams. Our customer acquisition and retention funnel provide the primary lens for creator and player growth, engagement and long-term brand equity.     ●  Deepen our metaverse gaming moat through expansion of our owned and operated properties and partnerships with game developers/creators.     ●  Monetizable advertising inventory expansion  in both the inventory of ad products we offer and the expansion of our own direct sales capability and our network sales channel in partnership with several international reseller partners.     ●  Continued growth in the monetization of our player-base and content to provide new revenue streams and a smoothing of the seasonality impact of our advertising model.     ●  Opportunistic acquisitions  to continually augment our organic growth strategy and accelerate player and audience reach, our creator tools and offers, and/or our advertising technology stack.   -6- Table of Contents   Intellectual Property   and Patents   Similar to other interactive entertainment and esports companies, our business depends heavily on the creation, acquisition, licensing, use and protection of intellectual property. We have developed and own various intellectual properties, including pending and issued trademarks, patents, and copyrights.  We also have obtained licenses to valuable intellectual property with game publishers.  We leverage these licenses and service agreements to operate online and location-based competitions, and in parallel, use them to generate a wide array of content.   As of the date of this Report, we have two pending patent applications and two issued patents, and various trademark applications, some granted and most of which are currently pending, covering our technologies and brands, as more specifically set forth below. We intend to file additional applications for the grant of patents and registration of our trademarks in the United States and foreign jurisdictions as our business expands. Our issued patents relate to methods of visualization of gameplay across a wide array of game titles for the purpose of content creation and broadcasting. These visualizations manifest as web streams with related textual, graphical, and video content targeted for consumption by audiences across various streaming and VOD platforms such as Twitch and YouTube.  To achieve these visualizations, we leverage patent protected technology that places “camera” characters into certain games alongside the competing players, and use the perspective of the ‘camera’ character to provide unique views into the action.  We also have pending patent applications for certain bleeding edge virtualization methods that allow us to generate, at scale, many concurrent visualizations from the cloud.   To protect our intellectual property, we rely on a combination of patent applications, published and issued patents,  copyrights, pending and issued trademarks, confidentiality provisions and procedures, other contractual provisions, trade secret laws, and restrictions on disclosure. We intend to vigorously protect our technology and proprietary rights; however, no assurances can be given that our efforts will be successful. Even if our efforts are successful, we may incur significant costs in defending our rights. From time to time, third parties may initiate litigation against us, alleging infringement of their proprietary rights or claiming they have not infringed our intellectual property rights. See the section entitled “Risk Factors” for additional information regarding the risks we face with respect to litigation related to intellectual property claims.    Our Corporate Values and Company Culture   Super League is a gamer-first company, a credo embraced by every employee. We are committed to empowering our creators, energizing our players and entertaining fans through our innovation creator tools and vibrant gameplay experiences and viewing entertainment.  Because we have built and operate our own metaverse gaming worlds and content network, we know what it takes to help brands operate where we live.  Our corporate brand values are as follows:     ● We fearlessly pioneer.   ● We excite creativity.   ● We ignite connections.   ● We live where we play.   Seasonality   Our revenue fluctuates quarterly and is generally higher in the second half of our fiscal year, with the fourth quarter typically representing our highest revenue quarter each year. Advertising spending is traditionally seasonally strong in the second half of each year, reflecting the impact of seasonal back to school, game release and holiday season advertising spending by brands and advertisers. We believe that this seasonality in advertising spending affects our quarterly results, which generally reflect relatively higher advertising revenue in second half of each year, compared to the first half of the year.   Employees and Labor Relations   As of December 31, 2021, we had 101 full-time and full-time equivalent employees. Additionally, we occasionally enter into service agreements with independent contractors, on an as-needed basis, to perform certain services. As of December 31, 2021, four of our full-time employees were subject to fixed-term employment agreements with us, and all other employees served at-will pursuant to the terms set forth in their offer letters.   We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employees are represented by labor unions.   Governmental Regulation   Our online gaming platforms, which target individuals ranging from elementary school age children to adults, are subject to laws and regulations relating to privacy and child protection. Through our website, online platforms and in person gaming activities we may monitor and collect certain information about child users of these forums. A variety of laws and regulations have been adopted in recent years aimed at protecting children using the internet, such as COPPA. COPPA sets forth, among other things, a number of restrictions related to what information may be collected with respect to children under the age of 13, as the kinds of content that website operators may present to children under such age. There are also a variety of laws and regulations governing individual privacy and the protection and use of information collected from individuals, particularly in relation to an individual’s personally identifiable information (e.g., credit card numbers). We employ a kick-out procedure during user registration whereby anyone identifying themselves as being under the age of 13 during the process is not allowed to register for a player account on our website or participate in any of our online experiences or tournaments without linking their account to that of a parent or guardian.   -7- Table of Contents   In addition, as a part of our experiences, we offer prizes and/or gifts as incentives to play. The federal Deceptive Mail Prevention and Enforcement Act and certain state prize, gift or sweepstakes statutes may apply to certain experiences we run from time to time, and other federal and state consumer protection laws applicable to online collection, use and dissemination of data, and the presentation of website or other electronic content, may require us to comply with certain standards for notice, choice, security and access. We believe that we are in compliance with any applicable law or regulation when we run these experiences.   Cost of Compliance with Environmental Laws   We have not incurred any costs associated with compliance with environmental regulations, nor do we anticipate any future costs associated with environmental compliance; however, no assurances can be given that we will not incur such costs in the future.