Grit Capital: eSports Will Flourish

eSports is the fastest-growing subvertical of video games, and last Thursday (December 6) Grit Capital held an event in Vancouver focused on this rapidly developing industry.

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 eSports industry will flourish if the media rights for it grow to 40 percent. Currently, media and broadcasting rights for covering tournaments and events stand at 18 percent for this industry.

“The audience size between professional sports and eSports is roughly the same size, yet the revenue generated by eSports is a 10th of the size,” she said.

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

While eSports revenue is pegged at US$1 billion, the National Football League (NFL) has revenue of US$14 billion and Major League Baseball (MLB) stands at US$10 billion. These professional sports get the bulk of their revenue 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 noted that game developers like Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI) and Tencent (HKEX:0700) are natural bets as they are the biggest gaming stocks and have done “phenomenally well.”

Streaming sites like Twitch, which is owned by Amazon (NASDAQ:AMZN), were picked as the second subsector for eSports investors, while leagues and teams that are privately owned were also mentioned.

The third subsector 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 focused on highlighting emerging companies in the space, with Enthusiast Gaming and X2 Games grabbing the spotlight.

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

While the company had revenue of C$3.5 million in 2017, Enthusiast Gaming expects to have revenue 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 semiannual event that 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 called his company X2 Games 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 of his company’s games that are in pipeline, including St. Norie, a game based on Amazon’s Alexa artificial intelligence platform.

Roch-Decter said that global video game spending has reached US$200 billion, and highlighted major titles in the sector, including the likes of Fortnite, which 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.

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