Introducing the Gaming Street Podcast; hosted by Menashe Kestenbaum, President & Founder of Enthusiast Gaming Inc , and Josh Chapman, Managing Parter of Konvoy Ventures. This podcast will be focused on the backgrounds of the industry, where Josh and Menashe dive into ideas such as investing in the gaming industry, the business models of successful and unsuccessful organizations, and of course video games themselves.

The first episode features Josh and Menashe catching up on life and what each others organizations have been up to as of recently, and their outlooks going forward a few years down the road. They also dive into the comparison between the competitive and content sides of the esports industry, and where the key monetization lies. They give their analysis of esports organizations valuations, and what business models fit best with the industry. Stay tuned for upcoming episodes that will feature different topics, and entertaining guests.

Christina Settimi from Forbes stated: “The purchase gives Enthusiast access to 90 million gamers, boosting its reach to a total of 300 million gamers monthly and making it the largest gaming media platform in North America, according to measurement firm Comscore.”

With its new acquisition of LA-based juggernaut “Omnia”, Enthusiast Gaming has the potential to be the most valuable Esports Media Stock in North America (and its best kept secret)

One thing is certain, Enthusiast Gaming [OTC:ENGMF] is the best kept secret in the world of Communications Media and the burgeoning world of esports stocks. According to our research at Gaming Street, Enthusiast Gaming [OTC:ENGMF] was already the biggest gaming media network in North America and the English speaking world prior to this acquisition. In fact, Comscore listed it as even larger than Twitch in the US. It has the largest combined web and video audience in the gaming space.  Adding Omnia to that base now makes them one of the largest gaming media companies in the world and a company that has incredible potential product offerings to those 300M gamer reach.

The acquisition of Omnia on sheer numbers and suitability to the business model is a great fit. Some shareholders may say that the even better piece of news is what it says about Enthusiast Gaming’s ability to execute; its management and their approach to growth. Enthusiast Gaming [OTC:ENGMF] may just have all the ingredients to grow into an enterprise with a much more prominent profile for investors. A significant strategic move is in store for Enthusiast Gaming now that it has built a sustainable foundation with fast-growing revenue and Users.  As Adrian Montgomery, CEO recently said in the acquisition, ““Gaming is the new social network, and we’re building it.”

The devastation to many companies during the coronavirus pandemic may have initially affected Enthusiast Gaming’s stock price, however the company reported that it actually saw major increases in engagement and paid subscribers due to the increase in stay-at-home gamers.

Proven YOY growth for Enthusiast Gaming [OTC:ENGMF]

Growth has been truly impressive over the last 5 years.  EG has more than doubled revenue each year since 2016. Revenue and user growth has always been a top priority and they have achieved YOY growth on both fronts considering the company is just over 5 years old.

The growth pattern has been impressive. During its first year of serious operations in 2016, the company’s ad revenue was only C$350,000. In its second year, that grew 10x to C$3.5 million. It’s continued that momentum. In 2018, their total revenue grew 3x from the previous year to $11 million. The company made more than half of that amount in just Q3 2019 alone, with $6.3 million and more than doubled their previous year with 2019 Pro Forma revenue of $23.2 million. According to Cannacord’s analyst report by Robert Young, their FY2020 projection was a conservative $35 Million.  Adding the $80M 2019 Omnia revenue to the company should translate into more than $100M 2020 Pro Forma Revenue.

The hockey stick growth chart of their users and revenue looks very real.

View the Enthusiast Gaming Investor Deck Here

Enthusiast Gaming [OTC:ENGMF] is achieving hyper engagement, attracting gamers through all mediums as an ‘Esports Social Network’

Enthusiast Gaming [OTC:ENGMF] has proven that by catering to Esports and gaming fanatics it can grow both organically and through acquisitions.  All of this leads into the social network they are building. At the core of gamers’ hearts is the affinity to share, discover, and connect within their communities and passions on different platforms and mediums.  Gamers can congregate around a platform (Xbox, Nintendo), genre (battle Royale, FPS – first person shooter) or even around a gaming influencer that they admire.  

It is these unique and diverse communities across many different platforms that Enthusiast Gaming [OTC:ENGMF] has amassed, engineered, and monetized.  Enthusiast Gaming [OTC:ENGMF] has a unique ability to organize all these communities across their websites, socials, live streaming platforms and figure out how to cross promote, increase engagement and monetize.  The Omnia deal is as much about adding 500 new unique communities of fans, gamers and content and what they will be able to do with that across their platform as it is about adding all that revenue.  

Omnia Media brings:

• 90 Million users, an astounding 3.2 Billion views
• 500+ Influencers,
• 24 Million visitors from owned and operated Youtube channels,
• $82 Million in Revenue for 2019 combined with Enthusiast Gaming that is $109 Million in Revenue

Omnia’s numbers are enormous

Omnia has 2.5 times the revenue of Enthusiast Gaming [OTC:ENGMF], that says a lot right there about acquisition mojo. There are generally two kinds of growth, organic, and growth by acquisition. How the execution of both is accomplished can be variable as to quality. The ideal growth formula is a combination of a knowledgeable operator that can execute and grow organically, but also is able to opportunistically acquire good properties.

Put it this way, Omnia’s Youtube traffic is 25% of ALL Youtube traffic.

Luminosity Gaming is its Premium Esports Team and Keeps on Making Major Moves

Enthusiast Gaming [OTC:ENGMF] branched out into esports with the merger of Luminosity Gaming last year making it one of the only public companies to own esports teams.   Luminosity brought access to the wild growth of esports. The esports market,  surpassed $1 billion this year and has grown its audience to more than 450 million worldwide. Luminosity Gaming itself reaches 70 Million fans, and 50+ esports influencers and that feeds into the media/entertainment/events flywheel that Enthusiast Gaming has created.

Seeds have been planted with Luminosity Gaming and the synergies with all the other properties will bear fruit for years to come. Luminosity has already grown grown since the acquisition from 60 to 70 Million,  added numerous brand deals, acquired 2 new teams for Fortnite and Apex Legends, and created cost efficiencies. The new Spidertech athletic tape brand deal is an indication of how utilizing their multi-faceted gaming and esports properties will continue to attract brands and allow them to profit of these new acquisitions and gaming properties.

EG now has a sustainable foundation to build upon and Reach even Higher

With the acquisition of Omnia, Enthusiast Gaming [OTC:ENGMF] has created a foundation of even greater growth. Enthusiast Gaming + Omnia will have 300M MAU. This level of Monthly Active Users compares to: 

• Snap 238 M Users 
• Twitter 186 M users 
• TikTok US 100 M users 

Why is the comparison to these names in the  social networking space? On July 21st Founder and President Menashe Kestenbaum tweeted: 

Deep in the R&D bunkers of EG we’ve been hard at work on a secret project that I think will evolve the gaming world. It’s a social network app for the 200m+ gamers that visit our sites monthly. We’re coming closer to a private alpha launch for invited guests. Stay tuned!

— Menashe Kestenbaum (@RavMenace) July 21, 2020

The CEO Adrian Montgomery has said on numerous occasions that “Multiplayer Gaming is a social network” 

A Social Network dedicated to enhancing the Gaming Experience is a Game-Changer

I believe that Enthusiast Gaming [OTC:ENGMF] has a big enough foundation to build a gaming social network. A network that has real functionality that a gamer would want to join. Finding a new worthy opponent in Fortnite across the country. Discovering someone at your skill level in Red-Dead Redemption that also plays League of Legends. Amateur leagues, contests, prizes. There are all sorts of social activities that a gaming network can support, and in the words of Founder Menashe Kestenbaum ‘”Evolve the gaming world”.

Many of the pieces are already there– there is already interactivity between users on the 100+ communities of Enthusiast Gaming [OTC:ENGMF]. They already have over 100k paying subscribers on their network.  Enthusiast Gaming [OTC:ENGMF] will have 300 million MAU and that is big enough to power a critical mass of social network members. Just one percent of the Monthly Active Users signing up per quarter gets you to 12 Million in 12 months. 12 Million users in 18 months would be a smash, even 10 Million would be a fantastic start. At that point the growth can get geometric as one user pulls in at least one other user. What is the value in that? Take the market cap of Snap divide it by the DAU then multiply it by 10 Million, what do you get? Once there is a central nexus for social interactivity that would also be the place to put special content, eSports streaming, video, leaderboards for the best amateurs, all sorts of functionality. 

Don’t expect this all at once. I suspect that Enthusiast Gaming [OTC:ENGMF] will want to start slow. Just remember Netflix started by using the US Post Office to mail out DVDs. The rest is history… 

Some recent important signals:

• Comcast testing interactive live streams on X1
• Spotify is testing interactive ads
• Hulu announces a new ad format
• YouTube announces a new direct response ad format
• Instagram expands shopping
• Project OAR for addressable TV advertising
• TikTok announces new AR advertising features similar to Snapchat’s Sponsored Lens
• Facebook and Instagram rolling out Shops

What does this mean for advertising and its future? Let’s discuss.

The genius of the media industry lies in the ability to aggregate human attention through entertainment and monetize it. Within this framework, advertising is one of the primary mechanisms to monetize aggregated attention. However, the purpose of advertising over the past 100 years has evolved with the structure of the economy and can be broadly divided into three phases, information, persuasion, and transactional.

In the early 1900s, when now staple products such as Coke, toothpaste, and Corn Flakes were new, the purpose of advertising was to inform. They needed to educate the audience on a whole use case for products that didn’t exist until then. The generation of TV in the 1950s shifted the purpose of advertising to persuasion, because the familiarity of brands was becoming more and more widespread. Today, social media (which studies have shown know more about us than our parents) able to influence movements and election results. We have reached a golden age in persuasive advertising.

The effectiveness of these tools, the change in media forms and our consumption patterns is therefore resulting in another phase shift in the process of advertising. To take it to its logical end goal, it will be focused on transactions instead of just persuasion or information.

In the coming years, the shift in focus towards transactions is likely to make the intermediation function of legacy advertising increasingly archaic with the boundary between content and advertising being blurry. Don’t agree with me? Watch any non-digital native browse through web content on their phone and watch them interact with targeted content ads. Often, they have no idea they are clicking through ads at all.

In the ‘good old days’ you always knew what was an ad. If you were watching Seinfeld, it was break time and a Coke commercial came on, if it was gameday in the NFL, it was a break in the action and a Pepsi commercial came on. Today we increasingly don’t realize that we are being advertised to at all. The lines once again, like the entire media vertical, are blurring.

The difference in today’s world is driven by greater awareness among advertisers of individual context. As consumers, the presence of internet platforms extends now to almost every device we touch (connected TVs, connected thermostats, smartphones with an increasing array of sensors, smart speakers, smart watches, connected cars, connected glasses, smart cameras with AI on street corners, etc.). Platforms are morphing to take on individualized personalities of their users enabled by the multiple layers of actionable data voluntarily provided by consumers. In this state of the world, everything we touch, we hear, or we see will be advertising in some form without breaking the activity flow of the consumer.

The next generation of consumer products, particularly Apple’s soon-to-be released AR products will only serve to deepen this customer relationship.

Who loses? Traditional media. Project OAR (traditional media’s ill fated attempt at making traditional media addressable) is an exercise in futility. The vertical integration, which the tech giants are deepening through their influence in the telecom space, in the hardware space, and in the content space is what it takes to make advertising truly targeted. It takes unprecedented scale, technology capability, and vertical integration to be truly effective. Legacy media had its day.

Who wins? Forward thinking tech businesses that understand convergence in the media space and companies that have aggregated captive sticky audiences that can provide rich analytics back to the content owner. Also, don’t forget about brands. Brands who are forward leaning enough to explore outside of the traditionally ‘safe waters’ of Nelson Ratings and traditional media will be big winners.

What about gaming? Gaming is in the earliest of innings when it comes to advertising. For the longest time the height of advertising innovation was a video ad on a mobile game. The thing is, inside of a game, the game publisher knows everything about their user. The generation behind millennials is spending more time in the gaming realm, than in the physical realm. If advertising effectiveness, convergence, and monetization are all tied to consumer data, then gaming is the single most powerful frontier for advertisers. It’s no wonder that the most highly respected VCs in the world (such as Andreesen Horowitz), who wouldn’t touch gaming years ago, are stepping into the space in a big way. Convergence is the key to the next generation.

By Sean MacGillis

It would appear that the current circumstances surrounding COVID19 and its impact on the economy, has once again slapped investors in the face with the cold hard truth that all BULL markets must come to an end. It’s also a bitter reminder of how quick sentiment can turn and how even the most sound investments can fall prey to an economic meltdown at the hands of a yet another defining moment in our history.

While most sectors have fallen victim to the unfortunate circumstances surrounding the global pandemic we have been faced with, as witnessed during the 2008 recession the esports industry is once again defying the odds and proving to be an extremely resilient industry during these challenging times. As data would suggest, not only has the esports industry been able to survive the recent onslaught of economic havoc but in many case it has thrived. To say viewership and user engagement is up would be an understatement to say the least. No matter what metric you look at, gaming has experienced unprecedented growth over the last few months and is showing no signs of slowing down. The numbers are simply OFF THE CHARTS!

At a time when social platforms are defining the way in which we communicate, it only makes sense that new mandates for social distancing would create the perfect environment for gamers and content creators alike to become the most sought after ticket in town. There is no other industry on the planet which benefits more from this environment. As such the esports industry is once again making a strong case for being one of the few recession-proof sectors in the market. Quite remarkable when one considers that the industry is still considered to be in its infancy relative its traditional sport counterparts. Not only has esports been able to “weather the storm” but it has created an environment of unprecedented growth opportunities at a time when most sectors are contracting.

The resilience we are witnessing throughout the industry during such a tumultuous macro-environment, further validates the investment opportunities that exist within the sector. While most investors seek safety in their investment portfolios during these times, based on the evidence, the esports industry makes a compelling case for investors to deploy capital. The good news for investors is that since the last recession, the esports industry has had 12 years to mature which is why we are seeing a slightly different narrative play out this time around. Unlike 2008, instead of market participants simply remaining status quo during this recessionary period of volatility, many of the top esports organizations are seizing the opportunity to scale their businesses during this time.

Enthusiast Gaming (T.EGLX) is one of those organizations that seems to be forging ahead in this environment and taking advantage of its 200+ M monthly users. Just last month Enthusiast Gaming leveraged its massive community and partnered with Twitch to host a Global Celebrity Streaming Charity Marathon. With what appears to be a well-thought out and strategic strategy, EG has quietly become N.A. largest gaming community in both the U.S and U.K. Their organic growth, coupled with their aggressive acquisition strategy, has enabled them to double their revenue in each of the last four consecutive years which is impressive in its own right. As their community continues to grow, the entire industry is beginning to take notice of their impressive collection of assets which is sure to garner more attention as streaming-wars begin to take hold throughout the gaming industry. It also appears their expansive business model is paying dividends during this recessionary period, as it continues to grow and expand its global footprint.

In the current market, there’s no better opportunity that exists, as esports continues to experience massive growth during this period. The current events we have been faced with will forever change the way we interact with others, and esports is well on its way of forever changing the sports and entertainment industry. Even as the fears of COVID19 subside, I feel the long-term economic impacts on many sectors will be felt for months, and in most cases years afterwards. Esports on the other hand will transcend all of the social barriers we will be faced with as we move forward, and will allow people an authentic platform in which they can express themselves and engage with others. As such, its hard to ignore the incredible transformation that is happening and the inherent investment opportunities it presents. No other sector is more well-positioned to experience growth in both the short and long-term. These events will not only create an influx of institutional money to flow into the industry but it will also create a flurry of M&A as new participants look to enter the proverbial ring. As such, the current landscape offers investors an incredible opportunity at a time when there aren’t many places to invest. Early data would suggest that like 2008, the esports industry is poised to write a similar script, by once again offering investors a recession-proof investment opportunity in 2020!

As most traditional sports events around the world are being cancelled, we’re seeing a rapid adaptation towards online, from the star F-1 driver to the NFL superstar firing up a live stream from his living room. The clear winners are Youtube and Twitch, taking over spaces where the old medium of TV and the likes of ESPN. Gaming continues to be a social phenomenon that transcends generations and gender, dwarfing Hollywood and poised to displace traditional sports. The trajectory we’re on is very exciting, and booming during these challenging times as more people stay home.

It’s a 28 minute interview on the evolution of media and worth a watch.  You can also download the full report and interview.

_{This article first appeared on Konvoy Ventures.}

The video game market is a $152B global industry that has grown at 11% CAGR over the last seven years. In 1995, only 100M people played video games (primarily console) but today there are over three billion people who play video games. Video gaming is also commanding a larger part of people’s days, as the average consumer spends 24 minutes per day playing video games according to data from analyst firm Newzoo.

Ten years ago, few people believed that playing video games as a competitive professional sport could become a billion dollar industry. Yet this is precisely what has happened.

Within just one decade, the esports industry has grown tremendously and is expected to make more than a billion dollars in revenue in 2019. Many investors are looking at the industry as a new investment opportunity and are establishing new esports teams to compete in official tournaments. To understand how these esport teams have achieved such financial success, this article will analyze the competitive online video game, League of Legends (LOL). This game’s success is remarkable–viewers recently spent a total of 10.65 million hours watching the games in just a span of 8 days during LOL’s biggest international tournament, the League of Legends World Championship. This is a result of both the game’s international popularity and an organized league structure that has made esports teams willing to compete.

The Revenue Side

Sponsorships

Many esports teams make a majority of their revenue, approximately 90%, from sponsorships and advertising. These revenue streams include sponsorships in exchange for advertisement on the player’s jerseys, similar to those of traditional sports. For example, the energy drink brand Red Bull and the smartphone company HTC have jersey sponsorships for Cloud 9, a legacy esports team. These sponsorships allow companies to gain nationwide recognition, and potentially international recognition as well if the esports team qualifies for international tournaments. While jersey sponsorships are not as effective as they would be in traditional sports since the camera is not centered around the players, the main reason why they still sponsor esports teams is due to the teams’ strong social media presence. In the digital age, esports teams allow sponsors to target demographics that have been traditionally difficult to reach through standard marketing tactics. Millennials typically watch less television and listen to the radio less often than older demographics, increasing the importance of social media marketing. Players and sponsors will typically collaborate on advertising campaigns; Grubhub, for example, recently posted several videos on their YouTube channel featuring Cloud9 players. Research has found that the average age of esports viewers is 29, with 39% of the total audience in the 25-34 age range, thus illustrating the effectiveness of marketing towards a young audience through esports.

Prize Money

Prize money in esports is increasing at an incredible rate. While prize pools amounted to a mere couple thousand dollars at most in the past, they now reach several million dollars for large competitions. League of Legends for example distributed a total of $4.9 million for their World Championships last year to teams according to their final standings. This money does not go directly to the players, and most of it is absorbed by the organization as revenue. The esports team in this sense acts like a company, with the players as employees on yearly contracts. This meaning that the liability/ownership of any team related events are all held by the team owners. Domestically, teams in the North American League Championship Series (NALCS), after the franchising starting from 2018, are entitled to 32.5 percent of the league’s revenues. Half of this is evenly distributed, while the other half is allocated according to each team’s standings and viewer/fan engagement contribution. The way in which the last component is measured is not explicitly stated, but is predicted to be mainly related with the peak and average viewership of the team’s games throughout the season. The fan base growth incentive is a big priority for the League’s organizers, with several the questions they ask new teams being: How does the team plan to engage with and acquire fans? What’s their strategy for providing value to fans through merchandise, content and other opportunities? Why should fans support them? The league only allowing teams who plan to work on fan engagement to compete.

Merchandise Sales

Each esports team similar to traditional sports offers apparel and other related merchandise. These include jerseys to t-shirts, and also other gaming related goods such as mouse pads which target their unique audience. Teams take various approaches such as the 100 Thieves, a new team formed in 2018, which uses a “hypebeast” style of merchandising, with high prices and limited quantity. This has been very successful for them with apparel selling out within 20 minutes of release. This is not surprising considering the low elasticity of demand that a lot of these core fans have. By setting price high and quantity low, 100 Thieves also attempts to make team merchandise into a Veblen good, a good that is demanded more when prices are high, as the good has value as a status symbol. One issue stopping many teams from getting larger income from this sector is that esports stadiums are still very small compared to traditional professional sports. Since less fans can attend the actual games in person, it lacks incentive for fans to support teams at the stadium by wearing merchandise. A research paper,  “Comparison of eSports and Traditional Sports Consumption Motives” by Donghun Lee, Ball State University and Linda J. Schoenstedt, Xavier University, addresses this difference in esports and traditional sport fan behaviors. In their analysis, it is shown that compared to traditional sports, esports consumers spend relatively little on sport merchandise and attendance. Therefore it may be fair to assume that this is not an area of priority from the esports team’s perspective. Merchandise will most likely stay a smaller portion of the team’s revenue in the long run, even as the industry continues to mature, due to the fundamental differences in consumption and fan support as discussed. This fact further justifies 100 Thieves’ stance on team merchandise as a component that improves their team value rather than one that significant profits can be made through.

Content Creation

Although very small compared to the other sectors, esports teams also make money through content creation on platforms such as Youtube and Twitch. Popular teams like Team Solo Mid have regular videos on how the teams are doing, and these videos rack up above 100,000 views each. With advertisement revenues on each view, the teams can keep funding high quality videos. Teams like Team Liquid take this onto a higher level by partnering with 1 Up Studios, an esports production company, showing just how much care they put into this sector. The income from this sector is very small and for some teams is a loss, but its spillover effects are huge in terms of reaching new audiences and expanding their fan base. The fan base, as we can see, being the number one priority in attracting sponsors.

The Cost Side

Cloud9’s League of Legends team celebrating their win at the 2018 World Championships in South Korea. CREDIT: RIOT GAMES

Initial Investments

Many new esports teams require significant investments (on top of sponsorships) in order to pay for the costs listed below. While raising cash for esports teams was very difficult in the past, this is becoming much easier with esports becoming more recognized. Cloud 9, recently raised $50 million through their series B funding round, led by Valor Equity Partners. They intend to use this money in constructing their training facility which they will also use as an office. Individuals are also investing large amounts of money into teams through these equity investments. Entrepreneur Scooter Braun and artist Drake recent became co-owners of the 100 Thieves through it’s Series A funding round. With this addition, this new team has had a total investments of more than $25 million in just one year.

Player and Staff Salaries

As esports becomes more major and accepted worldwide, player wages have increased significantly. While in the past, there were even cases where players were not paid any money other than prize money distributed, nowadays taking the example of LOL, players are paid more than an average first year undergraduate. The current minimum salary of players in the NA LCS is $75,000. Many of the more established players have higher wages, some rumored to go up to a million. This is very similar to traditional sports, where the high competition rewards “superstar” players, giving them significant negotiating power to demand high wages. Another factor for the bidding up of wages is the high labor mobility of esports players internationally, with many teams in the US having players from Europe or Korea. These players are attracted to the high wages and better job security North American teams offer, and are physically able to do so. On the other hand, there are also other costs related with labor, such as coaches and other staff. While these are smaller costs individually, they are larger in number. The number of non-technical staff is starting to increase in supply with the recognition of esports teams as a fairly stable company, so wage growth for these non-player employees is unlikely to match the pace of superstar player salaries.

2017: Riot Games, Immortals CEO, and TSM owner discuss $10 million buy-in for NA LCS permanent partnership Immortals owner Noah Whinston is ready for permanent partnership with Riot Games and the NA LCS (Photo credit: Yahoo, Jeremy Wacker)

Capital Costs

In order to increase productivity of the players, many of these teams have chosen to take a “gaming house” system, where players live in the same house and train up to 12 hours a day while other living issues are all sorted out by staff including chefs and cleaners. In order to reduce costs in this section, teams like 100 thieves have signed partnerships with housing related companies like Rocket Mortgage by Quicken Loans. On top of gaming houses, other teams have purchased training facilities such as Team Liquid’s Alienware training facility so that they can train in a setting specifically made for esports. This is another example of just how close esports is coming to traditional sports.

Advisement/Content Creation

As mentioned in the revenue section, while content creation is a source of revenue, it is also an area where teams invest a significant amount of capital and man power. Many teams have marketing teams working with the social media accounts of the team, and graphic design teams to make content such as posters of their players to advertise. The importance of content creation is almost equal to team performance as it is how the team can attempt to gain fan bases. For example, teams like Flyquest while lacking recent success, have managed to maintain popularity by producing content around their veteran players. Though players are the ones operating in the public spotlight, esports teams typically have dedicated teams operating behind-the-scenes to cultivate larger fan bases.

Franchising Costs

A recent big cost for NA LCS teams was franchising costs. The NA LCS changed the structure of the league by setting the team limit to 10 permanent teams, who will not face risks of relegation as they would have in the past. The cost in exchange for this right was $10 million, a sizable price tag for the organization. This cost is a fixed cost which could be amortized along the many years that the team competes in the league. The benefits of this $10 million is that they can expect to make long term projects around their esports teams, improving them from a mere short term investment. While there are concerns on the league’s level without relegation, it is a format that many major teams in the US use such as the MLB or NBA.

Outlook

Analysis of the revenue and costs of esports teams we can see that things are moving towards traditional sports with a lot of the costs becoming long term investments into the teams. It can also be seen that with 90% of revenues coming from sponsors, a lot of these costs go into the final goal of making the teams more popular. There are two main ways by which teams can do this, through better content creation and marketing, or by competitive success. The positives are that teams can meet these demands with long term planning now that traditional league structures such as franchising have been implemented. The franchising also incentivizes teams to improve their competitiveness and viewership numbers through prize money distribution. The enthusiasm of new investors and the fact that is it in a small bubble phase right now will also contribute to making esports into a sustainable industry in the future.

A different concern is the demand side of esports, especially whether or not esports consumption will continue growing. Looking at the general trend, viewership seems like it will continue increasing exponentially as shown in the data provided by Newzoo. However it is necessary to understand the reasons for why these people view esports and if it will continue.

An interesting study shows the differences in esports and traditional sports’ consumption. The report “What is esports and why do people watch it?” by Juho Hamari, Max Sjöblom, attempts to explain the reasons for viewing esports through the Motivational Scale for Sport Consumption (MSSC). They found that from the components of MSSC, watching sports as a means to escape everyday life, knowledge acquisition related to the sport, novelty of new players and teams, enjoyment of aggression and the aggressive behaviors the athletes exhibit, were the four highest positively and statistically significantly associated factors with the frequency of watching esports. What is particularly interesting is that this last factor, the aggression enjoyed by viewers is something that become less visible in traditional sports as they become modernized. For example, Major League Baseball has taken major steps to reduce injuries at the plate, with them implementing the collision rule in 2014 which penalises physical contacts on purpose at home base. Many sports are also implementing video replay systems in order to accurately penalize rough plays, this being emphasised most recently in the Soccer World Cup. This aggression on the other hand is automatically implemented in most video games in the form of kills or attacks. Famous esport games that build around aggression include shooting games like Counterstrike or more mild games like Fortnite. What this means in economics is that esports and traditional sports are not substitutes to each other from a consumption perspective. Therefore there will be no need for esports to steal consumers from traditional sports, reducing one of the huge potential obstacles to esports expansion. However, this also means that esports will need to make conscious efforts to amass their own consumer base as it will not simply be able to attract the same consumers as traditional sports, one of the major issues the franchising of League of Legends is attempting to tackle.

In conclusion, the demand (viewers) and supply (esports teams) for esports seem to be moving towards a more sustainable growth model with the supply side understanding what their priorities should be – competitiveness and popularity, and incentivizing it through methods such as franchising and prize money distribution. It should also be noted that while using the word “sports”, there are key differences in consumer behavior that push it into prioritizing sectors such as content creation over merchandise. Performance may catapult esports players to initial fame, but it is personality that keeps viewers coming.

Call of Duty: Warzone will be played by Richard Sherman, Luminosity Gaming’s brand ambassador, the Philadelphia Eagles’ Darius Slay, and more esports players and gaming personalities.

Enthusiast Gaming Entertainment Division EG Live President Corey Mandell issued a statement on behalf of the company:

We are honored to partner with Twitch and join forces to help support the global fight against COVID-19. Now more than ever we are committed to using our entire platform to provide support and connections for our communities. Twitch Stream Aid is an opportunity to raise funds for the World Health Organization and its fight against coronavirus.

Alongside the musical performances, guests will be running gaming events, such as Fortnite and UNO. In addition to the celebrities and personalities, Twitch will also randomly select active streamers to feature during the event. If you’re on Twitch and want a chance to participate, run a stream and use the “TwitchStreamAid” tag for a shot.

Streamers can also co-stream the event, and set up a “supporting campaign” to facilitate donations from respective audiences. Folks at home watching the main stream will also be able to donate throughout the show and presumably just watching will also generate some revenue.

After the main Twitch Stream Aid 2020 event on Saturday, a week-long event will commence. Twitch will be revealing more details later, but it states there will be more fundraising opportunities for individual streamers to help encourage donations.

For more information, check out the original blog post, which also contains links to the donation page, the COVID-19 Solidarity Response Fund, and detailed instructions for co-streaming. A full schedule for all the event’s special guests will also be posted ahead of the show.

Mobile Growth for Activision Blizzard 

“With the introduction of Call of Duty Mobile, we grew our player base from 40 million to 100 million players in less than a year,” said Bobby Kotick, CEO of Activision Blizzard. “And we expect significant growth in the Call of Duty franchise in 2020 as compared to 2019, as a result of this and from other unannounced Call of Duty initiatives.”

The mobile first-person shooter title has surpassed 150 million downloads since its release, with placements on the top of the charts. With a free to play business model, the game has monetized its community of players through digital item purchases and advertisements. Activision Blizzard is currently working on other mobile game titles, as it plans to repeat previous success. 

Success of Call of Duty: Mobile

“As for our third pillar, extending our acclaimed console and PC franchises to Mobile, the October launch of Call of Duty Mobile with one of the most successful in the industry history, driving Activision Publishing to record among the active users,” commented Coddy Johnson, President and COO of Activision Blizzard. “It also highlighted the opportunity for our other large franchises to reach hundreds of millions of new players once they expand on the mobile.”

In the year ending December 31, 2019, Activision Blizzard reported mobile revenue of $2.2 billion, with console at $1.92 billion and PC at $1.7 billion. This was led by the growth of upfront and in-game revenues from Call of Duty across all platforms. Activision had 128 million monthly active users (MAUs), Blizzard had 32 million MAUs, and King had 249 million MAUs. 

With upcoming titles like Overwatch 2, Diablo IV, Diablo Immortal, and more, Activision CFO Dennis Durkin is “confident that ongoing execution… will deliver growth… over the long term.” 

Let’s revisit Astralis Group’s [ASTGRP:CO] official IPO launch. The parent company to teams Astralis, Origen and Future FC is now live under the ticker ASTGRP. This marks the world’s first IPO for a company that is purely an esports team. Enthusiast Gaming [EGLX:TSXV] previously went public in October 2018 and currently has over a $100M market cap, but it has both an esports/gaming media business as well as esports teams, and it is on the Toronto Venture Stock Exchange as opposed to NASDAQ. Astralis focuses only on its esports teams.

Shares in Astralis Group began trading on Monday in Denmark for DKK 8.95 (US$1.33) a piece. With a valuation of US$75.5 million, Astralis Group now has a listing on the Nasdaq First Growth Market Denmark.

So what does this all mean exactly? Let’s start by breaking down the numbers.

Initial Expectations

To give a little bit of background, the group’s CS:GO team, Astralis, is the top-ranked team in the world. Meanwhile, Origen competes in the League of Legends European Championship (LEC), the top professional league in Europe.

In November, Astralis Group released the prospectus for its IPO alongside a planned share subscription period. The goal was to raise DKK 125 million (US$18.5 million) to DKK 150 million (US$22.2 million) through the sale of 13.9 million to 16.7 million new shares in the company. Astralis Group stated that 41 pre-subscribers had entered binding agreements to collectively subscribe to 46% of the new shares. A subsequent release stated that the offering was “oversubscribed” as the company hit its maximum proceeds of DKK 150 million from the sale. This shows that there was a lot of pent-up demand in European markets for an esports public investment.

In regards to their use of proceeds, 50 to 60% of the money raised was to go towards securing league placements for Astralis Group’s respective teams in Counter Strike: Global Offensive (CS:GO), League of Legends and EA’s FIFA. The remaining funds would contribute to helping Astralis Group reach a broader international audience (15-20%), developing digital products (10-15%) and broadening its current brand portfolio (10-15%). According to the prospectus, Astralis Group’s revenue for the nine months ended September 30 was DKK 29.2 million (US$4.3 million). Sponsorships and tournament earnings made up two of the company’s key revenue streams at DKK 14.5 million (US$2.1 million) and DKK 11.4 million (US$1.6 million), respectively. Despite the income, however, the group’s EBITDA margin during this time period was -66.7%. According to the company, this was due to capacity costs, “investment in developing the business,” and Origen’s team establishment.

But why does this matter? These numbers, in combination with Astralis’ future earnings projections, paint a picture of trust going into esports investments.

Looking Ahead

In the prospectus, Astralis Group laid out revenue expectations of DKK 40 to DKK 43 million (US$5.9 to US$6.4 million) for the 2019 financial year (FY19). Alongside this was an anticipated EBITDA in the red at DKK -20 million to -22.5 million (-US$3 million to -US$3.3 million). The company’s two-year outlook is in a similar boat: 2020’s net revenue is expected to land between DKK 60 million and DKK 70 million (US$8.8 million to US$10.4 million), with 2021 docketed for DKK 85 million to DKK 100 million (US$12.6 million to US$14.8 million).

However, the company’s EBITDA isn’t expected to reach the green again until 2021, at which point it’s projected to end up somewhere between DKK 0 million and DKK 4 million (US$0 to US$592,000). Despite an EBITDA that’s expected to be negative for the foreseeable future, Astralis Group’s valuation versus its revenues speaks volumes. A US$75.5 million valuation contrasted against US$6 million revenues in FY19 indicates a strong appetite for the esports market.

It also provides answers for a long-time investor question: what valuation would a public esports company earn? In the case of Astralis Group, this particular valuation justifies a near-20x trailing 12 months (TTM) gross revenue multiple. This lends even more positive sentiment towards the sector. The investment in Astralis is far from unsubstantiated, however; as previously mentioned, the company owns the top-ranking CS:GO team in the world. In turn, the group has racked up partnerships with endemic and non-endemic brands alike, including Audi, Turtle Beach and Logitech.

As the esports market continues to blossom, docketed to become a $1.1 billion market this year, once skeptical investors now seem to be getting on the bandwagon. Investor eagerness to get in on Astralis Group’s aforementioned share sale says a lot about fresh faith going into esports.

“We’re overwhelmed by the way the IPO has been received and we look forward to welcoming all new shareholders into the Astralis Group family,” Astralis Group co-CEO Nikolaj Nyholm said in a statement. “Being pioneers, we’re building on a strong foundation and this IPO enables us to invest further in building the world’s strongest esports media brands.”

Though Astralis marks the first IPO for an esports team, it’s hardly the first gaming company to become publicly traded. Others include Super League Gaming (NASDAQ: SLGG), also currently maintaining a 20x TTM gross revenue multiple, and Enthusiast Gaming (TSXV: EGLX).