The Gaming Recap is the world of gaming, through the eyes of an investment banker. Each week we take a look under the hood of a key theme we’re seeing in the gaming industry, and sprinkle in some news from around the street.
Some news from a few of our friends in the world of gaming:
- Aquilini GameCo / EGLX (TSXV:EGLX) – Putting a bow on the merger. Gaming Street publisher Enthusiast halted their stock this week after receiving the final court order approving the announced plan of arrangement. You can read the official press release right here. Holders of common shares of Enthusiast will receive 4.22 post-first consolidation shares. It’s expected for the pro forma company to be up and trading in early September.
- Millennial Esports (TSXV:GAME) – Bringing on a couple racing names as investors. GAME announced that Formula 1 race winners Juan Pablo Montoya and Rubens Barrichello as investors. Both will take on ambassador and special advisor roles. This is on the heels of their acquisition of Allinsports (announced last week).
- You can view the full press release right here.
A quick bit of other news before we geek out
- Let’s talk traditional sports for a second. Football season is just around the corner. I was glued to the screen in the NCAA opener that pit Miami and Florida together for an old-fashioned ACC – SEC kickoff. Then during the game, the news dropped that Andrew Luck was retiring from football. As someone who has been a fan of the Colts since Peyton Manning was drafted in ’98, this was something I paid attention to. The thing about it is this, there’s more to it than just another football player retiring. Here’s a QB who had the potential to earn potentially hundreds of millions in future contract and endorsement dollars, walking away from the sport at 29. Why? There’s a lot of speculation floating around outside of his line that he lost his love for the game. This is a great article that dives into this a little bit and explores the push-pull between glory, love for the game, and money in athletics.
- How the mobile gaming industry is about to overtake console gaming
- My 2¢: Last week we dove into the numbers behind mobile gaming. I encourage you to take a look if this is something you want to learn more about. You can read last week’s issue right here.
- A few articles on the guys who will not be part of competitive Call of Duty next year as it moves into the franchise model
- 100 Thieves
- Team Envy’s CEO discussing 100 Thieves’ departure from Call of Duty
- Gen G and Lumi also not participating in the Call of Duty franchise model
- My 2¢: It’s a push-pull for teams and brands to decide if they want to invest and double down on Call of Duty as it moves into a franchise model similar to Overwatch. As a recap, the franchise model is like the NFL, where there’s a capped number of franchises that are sold. In the case of esports, the franchise slots are determined and sold by the game creator and publisher.
- Common question: How do esports teams make money?
- Here’s a great note by the guys over at Roundhill (esports ETF) that helps to shed some light on the space
- Josh Chapman, over at Konvoy Ventures, also did a great podcast talking about investing in the picks and shovels of esports and gaming. You can listen to it right here.
- Ninja announced an apparel deal with Adidas
- Ninja recently moved from Twitch to Microsoft’s competitor broadcasting platform ‘Mixer’. This is his first major brand deal since moving to Mixer.
- My 2¢: The Overwatch League also announced a multi-year deal with Kellogg Company. Seeing major household brands align both with leagues, and players is a sign of a synchronized move by endemic brands to access the industry. This we expect only to continue.
- Loot boxes are going away and could impact Rocket League’s black market
- Loot boxes walk the fine line between gambling and game and have come under fire recently as the government looks to wrap regulation around the in-game concept. Over half of the top-grossing mobile games contain loot boxes. After purchasing Psyonix (the maker of Rocket League) earlier this year, Epic Games (the creator of Fortnite) is cleansing itself of the potential liability and moving fully to an in-app purchase model, similar to Fortnite. They are also doubling down on their video game distribution platform.
- My 2¢: We dove into this in pretty good detail a couple months back, which you can read here.
- The next major sport? Josh Kroenke confident can build big, global audiences
- My 2¢: Kroenke Sports and Entertainment owns the Rams, the Gladiators, the Denver Nuggets, the Colorado Avalanche, the Colorado Rapids, and Arsenal in London. As a diversified sports franchise organization, it’s natural for them to view esports as another vertical to grab marketshare in.
Esports, does the traditional sports model work?
Damn, here we go again
Everybody sayin’ what’s not for him
– Everything I Am, Kanye West
This week was a collaborative effort with Nick Mersch (Purpose Investments). Full credit goes to him for the idea. We’re following on to the piece we did 2 weeks ago comparing viewership numbers between Ninja (a top individual streamer) and the esports leagues as a whole. What we’re looking at this week is marketability of the different leagues, and their prize pools. It can be common for people to be long prize pools and short the Overwatch League for a variety of reasons. In this case, we suggest that the Overwatch League may actually have created quite a marketable commodity. A big thank you goes to the team at Stream Hatchet as well (owned by Millennial Esports). Without their data, this simple analysis wouldn’t be possible.
First, let’s talk about the major events: At the end of the day the data boils down to comparing the Overwatch League to The International 2019 and to the Fortnite World Cup. The Overwatch League is a franchised league competing in the game ‘Overwatch’. It is operated much like traditional sports, with a regular season, playoffs, and franchises centered around different locations (like the Vancouver Titans or the Toronto Defiant). The International 2019 (Dota 2) and the Fortnite World Cup (Fortnite) by comparison are esports events that, you could say, are run more like tennis or golf if you want to make a traditional sports analogy. They are typically centered around one big event for the year, with qualifiers to determine who can compete.
Overwatch, which is owned by Activision Blizzard, has taken heat for creating a franchise model for esports. In other words, for bringing a traditional sports model into esports that involves groups having to come up with large of sums of capital (+$30M) to purchase a ‘slot’ in the league to compete. You can think of it like purchasing a ‘slot’ in the NFL to have a team in Indianapolis and calling them the Colts. Activision-Blizzard has taken heat for this because people have suggested that it creates an uneven playing field from an access to capital standpoint, and perhaps most pertinently, that esports audiences won’t be attracted to a traditional sports model.
We thought that instead of taking one side or the other in this fight, we’d just take a peek at the data to see what people are really doing.
Now, let’s take a peek at the data: We looked at the prize pool, hours watched, views, and the total airtime for the major esports events in the past few months.
|League||Game||Prize Pool||Hours Watched||Views||Airtime (hours)|
|The International||Dota 2||$34M||52M||67M||2,674|
|Fortnite World Cup||Fortnite||$30M||46M||101M||1,938|
|LCS 2019 Summer||League of Legends||$200k||20M||19M||729|
This was all sourced from Stream Hatchet, you can see the raw data below as a screenshot:
While both The International 2019 and the Fortnite World Cup made major headlines because of their respective prize pools, the Overwatch League generated more hours watched for similar airtime. Views were higher for Fortnite, but even with a $34M prize pool, the Overwatch League had an overall higher view count with very similar airtime. The data is clear, that a traditional sports model is being consumed by an esports audience, and at a rate that is so far, in excess of that in other models.
So, are organizations like Luminosity or Overactive Media crazy for gaining exposure to the franchise model? Likely not. The Overwatch League offers a consistent product over a longer period of time, as opposed to betting on the success of a singular event as Fortnite or Dota 2 do in their respective events. The data is demonstrating that esports audiences are consuming a product delivered in a way that is similar to traditional sports. It’s also a content product that endemic brands understand, and with proper data (which Stream Hatchet is helping to solve) for a brand to conduct a similar analysis to this, you can probably expect to see more and more endemic brands become part of the Overwatch League ecosystem.
What’s out there
Enthusiast Gaming (TSXV:EGLX) – Merging with GameCo
Gaming Street collaborators helped bring our publisher company public last year, and now they are merging with Aquilini GameCo to become a premium vertically integrated esports and gaming company.
Millennial Esports (TSXV:GAME) – Acquired Allinsports in cash and stock deal
Acquired racing sim manufacturer to deepen existing integration in the racing esports value stack with a proven world-class manufacturer of racing sims.
Versus Systems (CSE:VS) – Signed a deal with HP
Versus makes the technology to let people play games for rewards.
In December they brought on Keyvan Peymani as their Executive Chairman (the former head of startup marketing for Amazon Web Services and a former VP at Warner Bros and Disney) as they began to scale their platform to new games. They allow players to win real-life rewards while playing in-game, and can be integrated into any Unity-based game.
Axion Ventures (TSXV:AXV) – Provided their corporate update and closed ~C$2.5M in debt from a shareholder loan and a 1-year 90c convert
The only Canadian publicly traded game studio with a JV with the largest gaming studio in the world (Tencent). Their marquee game Rising Fire is distributed under JV with Tencent. They also have a AAA quality mobile game made in Thailand under JV with the True Corporation.
BRAGG Gaming (TSXV:AXV) – Announced a redesigned web platform for their GiveMeSport platform
GiveMeSport now reaches more than 95M monthly unique users (up from 29M in January 2019). Bragg’s core asset is ORYX Gaming, a B2B gaming technology platform and casino content aggregator.