Grit Capital — eSports Will Flourish

Last Thursday (December 6), Grit Capital held an event in Vancouver where the firm provided an overview of eSports, the fastest growing subvertical of video games that is set to reach 276 million viewership by 2022.

The firm talked about investment opportunities in eSports and hosted a panel discussion featuring Nolan Bushnell, founder of Atari (EPA:ATA) and CEO of X2 Games, along with Menashe Kestenbaum, CEO of Enthusiast Gaming (TSXV:EGLX). Matt Levitan, former senior director for marketing at Playstation and Victor Lucas, CEO of Electronic Playground, were also part of the discussion.

Genevieve Roch-Decter, CEO of Grit Capital, kicked off the event by highlighting that the eSport industry would flourish if media rights for it grows to 40 percent. Currently, the media and broadcasting rights for covering the tournaments and events are valued at 18 percent for this industry.

“The audience size between professional sports and eSports is roughly the same size, yet the revenues generated by eSports is tenth of a size,” she said.

Roch-Decter said that the sponsorship and advertising forms a bulk of the revenue with these two components contributing to 80 percent of the total revenues.

While revenues of eSports is pegged at US$ 1 billion, major professional sports like the National Football League (NFL) has revenue of US$ 14 billion and Major League Baseball (MLB) stands at US$ 10 billion. It was noted that these professional sports get their bulk revenues from media rights.

With eSports gaining in popularity, Roch-Decter said that investors can look at multiple verticals of eSports for opportunities to grow with the sector.

Roch-Decter said that game developers like Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI) and Tencent (HKG:0700) are natural bets as these are the biggest gaming stocks and have done “phenomenally well”.

Streaming sites like Twitch, which is owned by Amazon (NASDAQ:AMZN), was picked as the second sub sector for investors considering the eSports sector, while leagues and teams which are privately owned were also mentioned. The third sub sector highlighted was chipmakers, with companies like Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD) which are crucial to the eSports industry.

However, Thursday’s event was about highlighting emerging companies in the space with Enthusiast Gaming and X2 Games grabbing the spotlight.

Enthusiast Gaming is pitched as a platform of gaming content from over 80 sites with 75 million active visitors every month. The company has been generating over CS$ 12 billion in ad requests per month through its site and through its partner publishers.

While the company had revenues of C$ 3.5 million in 2017, Enthusiast Gaming expects to have revenues of C$ 10 million in 2018.

Kestenbaum said that eSports is one of the subsections of gaming that’s extremely engaged and passionate. Case in point, Enthusiast Gaming hosts a semi annual event which is touted as the largest gaming expo in Canada, with eSports being  a component.

“There’s cosplay, there’s retro games … there’s many different aspects,” he said. “Basically our events are these festivals of celebration of everything exciting about gaming with a huge component of it being eSports.”

Kestenbaum said the company hopes to become a dominant player in North America, provided it has access to capital.

Meanwhile, Bushnell highlighted his company, X2 Games, by calling it as a mashup between Hollywood and gaming.

Global Blockchain Technologies (CSE:BLOC) announced the acquisition of X2 Games in mid October. On Thursday, Bushnell highlighted several games of his company that are in pipeline including St. Norie, a game based on Amazon’s Alexa AI platform.

Roch-Decter said that global video game spending has reached US$ 200 billion while highlighting major titles in the sector including the likes of Fortnite that has generated US$ 1 billion revenue.

With eSports set to flourish in the next few years, it certainly seems to be a hot market for investors to consider the sector.

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Securities Disclosure: I, Bala Yogesh, hold no direct investment interest in any company mentioned in this article.

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