Enthusiast Gaming CEO on Path to Esports Leadership

According to Comscore, Enthusiast Gaming (TSXV:EGLX) is one of the fastest-growing companies in its gaming information category, with 324 percent year-over-year growth in total views in 2018.

The analytics company also reported that Enthusiast Gaming’s total unique visitors rose 56 percent during the same time period.

As those numbers show, Enthusiast Gaming, founded in 2014, is growing to become a massive esports and gaming company. In addition to running the largest gaming expo in Canada, it owns 80 websites and has 50 million YouTube visitors.

In June, the company made headlines after it merged with Aquilini Gameco and J55 Capital (TSXV:FIVE) to become one of the largest publicly traded esports and gaming companies around the world.

While new esports and gaming companies are emerging, the industry continues to be largely monopolized by the industry heavyweights. Tencent (HKEX:0700), Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ:ATVI) are among the small group of multibillion dollar companies with cushioned balance sheets and extensive esports budgets.

Enthusiast Gaming has emerged as an explosive small- to mid-sized company with a compelling revenue and streaming track record. To learn more, the Investing News Network (INN) spoke with Menashe Kestenbaum, founder and CEO of the company, about how it has emerged as one of the foremost players in the esports industry.

In the interview below, Kestenbaum discusses Enthusiast Gaming’s monetization strategy, including how his company went from C$350,000 to C$3.5 million in revenue in one year. The transcript has been edited for clarity and brevity.

INN: Can you tell me about the rapid growth of the gaming industry as a whole, and what you see happening in the gaming sector?

MK: In the 1990s, there were about 100 million gamers across the world. By now, they say the number is 3 billion. We look at that as being mostly a product of two things: the internet and mobile.

There are 2 billion people with mobile phones and 1 billion of them have games on their phones. The penetration and exposure that so many people have to gaming and getting hooked on a game is very new. The internet, with technology on computers and gaming consoles, has really expanded and allowed people to get connected with other people who are excited about gaming. Things like Twitch and YouTube allow many people to watch other people who are gaming.

It’s really the internet and mobile phones that have made gaming become so massive to the point that now it is the predominant form of entertainment in the entertainment industry. It has surpassed movies, TV (and) music, and it’s what everyone looks at as the future of entertainment.

INN: How have you seen this impact things on an international level?

MK: What I always look at is there are close to 8 billion people in the world, and only half of them right now have internet. Only 2 to 3 billion of them have phones. We have really found that the countries that have internet for the majority of their population and those that are well advanced in technology also have access to games and, therefore, have much deeper penetration.

But if you look at the rate of growth in parts of the world that are getting access to the internet, it keeps on growing. I think, one day, we might have 60 to 70 percent of the world’s population with internet and phones, so gaming will only continue to grow as more of the world has access to these technologies.

INN: How has Enthusiast Gaming risen to its success, including being publicly listed more recently? Can you tell me more about your story?

MK: We started off private, and really the truth is we weren’t even a company at the time. It grew out of a hobby, I was a big gamer since I was six years old. I found out the first big gaming website, IGN, had message boards. When I was 13, I signed up and I was all excited to find that there were other people who were really into gaming, the same as me.

We talked and debated and discussed and I made a lot of friends. I was on there, just as a hobby in between my actual gaming, until 2011. In September 2011, I decided to leave the IGN forums and make my own blog. Within a short amount of time, we had millions of users coming to the site. I had about 70 people within the community who were really good at writing who just loved to post content on the front page of the site and it became a community-led and community-created website.

In 2015, I was trying to figure out, “How do I make money from these websites?” We had to find a way to pay the bills. The way that we bootstrapped the company was through putting on gaming events. My very first event was July 2014 at the Madison Avenue Pub in Toronto, a local pub where we had about 100 people come and pay C$20 to participate and play.

Eventually we had to get a larger space so we moved to a university. Then it grew even larger so we moved to a convention space where we had 1,700 participants.

A year later we put on the convention again and we had 12,000 people. The next event had 24,000 players and the next one we had about 55,000 people in 2018. It has grown into the largest gaming tournament and gaming festival in Canada. Now we are expanding into the US as well. And that was really just a way to help pay for the costs initially in 2014 and 2015.

By the end of 2015, I convinced a few gaming site owners to come under my umbrella and let us handle all of the ads on the page. So we signed them up in January 2016 and launched the network in April 2016. Immediately we went from close to C$1,000 to C$50,000 that first month. We finished with C$350,000 by the end of that first year, and more and more sites heard about what we were doing and said, “Hey, can we join your network as well?”

The next year we had grown from C$350,000 to C$3.5 million. We had a 10 times growth from 2016 to 2017. The following year we had about C$11 million, so four times growth.

The main thing now is that we’ve grown to enough critical mass that we have over 100 sites and we reach over 150 million gamers monthly. We also process between 30 billion and 60 billion ad requests monthly.

Back in 2017, we started to acquire sites. We bought Destructoid, and then we bought another 12 sites in the past 18 months, mostly because we wanted to own our users, not just represent sites that own the users. We wanted to buy some of the largest ones. In order to do that, we had to raise capital.

INN: With this new partnership and going public, what are your plans for the future?

MK: So what we really saw was that as a standalone business we were doing really well. But what we found was that there was a whole other section to this esports and gaming industry. It was brands being built around the high-level, championship-caliber pro players who were participating in the world’s largest tournaments for massive prizes. They were building a social media following, and those types of influencers were something that were not currently part of our network.

We found that the Aquilinis had built Aquilini Gameco, where they had acquired franchise rights to an Overwatch League team. They had also acquired Luminosity, which had seven additional teams in lots of different games. So we had over 50 pro-level players and influencers, streamers with a massive reach on social media, on Twitch and YouTube. We thought that combining the two, having our data, monetization and reach along with the reach that comes through having the viral influence of social media influencers — and the brand equity that they had built with their teams — would be a recipe for success.

So that’s when we announced this merger that’s looking to close in the first week of September and give us an implied value of about C$280 million. It gives us about C$50 million of cash in the bank. It gives us over 200 million gamers that we reach across both of our universes, so I think it’s the game of growth, of consolidation and kind of being the first to market in the largest way. That was kind of the strategic rationale for doing that deal.

INN: Is there anything else aside from Enthusiast Gaming’s large cash position and its growth and consolidation strategy that the investing audience should know?

MK: What I think is a big part of our future is the data that we are collecting. We are learning more and more about our users across all the different avenues of how these users engage with us. More and more brands and advertisers are getting interested in this space. We’ve seen a flurry of activity each year from alcohol, cannabis, technology, hardware, banks, auto manufacturers and credit cards. Everyone is getting involved in this space.

And I think that the real future here is, besides the reach that we’ve been building and the brand equity, we’re really a technology company at the heart. Everything that we’ve built in the office is around that data. And I think that the data is really going to be the future of building value.

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

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.