As noted in a previous report, members of Bowen Asset Management were in Las Vegas from September 26 through 29 attending the “Emerald Groundhogs on Tour 2019” investment conference, an annual event presented by the Lancaster County-based firm Emerald Asset Management. As always, it offered a chance to find out about investment opportunities, social trends, and emerging technologies and businesses. (As always, our aim was to learn as much as possible and use that knowledge in the service of our investors. As we report on the conference, bear in mind that any specific companies we mention are part of our continuous information-gathering process. We are not recommending any specific firms, but we are looking at them as bellwethers for investment trends.)
As noted in a previous report, members of Bowen Asset Management were in Las Vegas from September 26 through 29 attending the “Emerald Groundhogs on Tour 2019” investment conference, an annual event presented by the Lancaster County-based firm Emerald Asset Management. As always, it offered a chance to find out about investment opportunities, social trends, and emerging technologies and businesses. (As always, our aim was to learn as much as possible and use that knowledge in the service of our investors. As we report on the conference, bear in mind that any specific companies we mention are part of our continuous information-gathering process. We are not recommending any specific firms, but we are looking at them as bellwethers for investment trends.)
A main theme of this year’s conference turned out to be the growth possibilities for esports.
What is esports? It’s short for “electronic sports,” and it basically takes playing video games to a professional level, with sponsors, prize money, arenas, and broadcasts (primarily through streaming sites such as Amazon’s Twitch, which is free and draws millions of viewers daily). Those involved claim participation and viewing numbers could rival the NFL or NBA someday, though that remains to be seen. The numbers are quite compelling from a marketing-revenue standpoint. It is a booming phenomenon, from teams forming at high schools to some professional competitors earning millions of dollars through sponsorships. The numbers show there is a growing global audience for esports, both online and live.
The first presentation on esports was from Mark Vela, the vice president of strategy at aXiomatic Gaming LLC, a sports management company whose investors include NBA, MLB, and MLS team owner Peter Guber, NHL team owner Jeff Vinik, Oaktree Capital manager Bruce Karsh, and entrepreneur Ted Leonsis. Vela spoke about his firm’s acquisition of Team Liquid, a pro esports organization (one of the first, in fact). Team Liquid competes internationally with over 500 eponymous teams, including world-class squads in Defense of the Ancients (DotA) and League of Legends, plus top-ranked rosters for games including Fortnite, StarCraft, Street Fighter, and more. The organization features a Los Angeles academy, the Alienware Training Facility, to develop young players for its growing team rosters.
Team Liquid squads have played in Barclays Center in Brooklyn before a packed house of live spectators. Vela sees the growth of esports as heralding a generational change for consuming media, one he claims will be “bigger than the jump from radio to TV.” While 40 percent of revenue comes from sponsorship and advertising, 20 percent comes from media rights, and this is where Vela sees the biggest growth possibilities that may rival the NFL. The audience, which is 65 percent male and averaging 25 years old, is part of a demographic that has long stymied traditional advertisers, so esports offers an opportunity for marketers willing to innovate (for example, on Twitch, viewers can be asked if they want to view ads, with the reminder that it will help the players). Half of the audience is married, and it is an affluent, working demographic.
We also heard from Jud Hannigan, COO of Allied Esports Entertainment, which operates the state-of-the-art HyperX Esports Arena at the Luxor Hotel and Casino in Las Vegas, along with two other arenas in California, two mobile gaming trucks, and a production facility and event center in Germany. The firm also runs the World Poker Tour, a television hit, and is basing its approach for esports on that model. The company also has operations in Latin America, Australia, and China.
Allied Esports is teaming with mall operator Simon Properties to build out game-play arenas in traditional retail destinations (target size: 10,00 square feet) starting in 2020, with all those assets creating content that can be monetized. Allied Esports aims to leverage its live experience to create content that can be distributed online through services such as YouTube and Twitch. In other words, livestreams of tournaments can be repackaged in various forms for the audience, estimated to be in the billions, including gamers and spectators who will watch videos of game play. As with the poker tour, any content generated can be filed in a digital library, recut and repackaged. Compared to established sports such as football and basketball, monetization is currently lagging, though global viewership is growing at a rate outpacing the NFL and NBA. One event in Mexico, presented in partnership with TV Azteca, topped four million viewers. Allied Esports also launched an original series, Playtime with KittyPlays, with popular pro esports player Kristen “KittyPlays” Michaela. The show, streamed live from the Luxor, features Michaela interviewing players and audience members, teaching celebrity visitors how to play various games, and commenting on industry news.
The focus is on generating multiplatform content, with digital the primary focus. For example, a 2018 Las Vegas appearance by top player Tyler “Ninja” Blevins set a new record for viewers on Twitch, with 2.4 million unique viewers tuning in over the seven-hour livestream event. Those seven hours were cut into smaller segments and repackaged, as well. The future includes interactive services and subscription-based models.
At Allied Esports invitation, we attended a Fortnite tournament at its Luxor venue. The arena is a cross between a nightclub and arcade, with selected players on a stage competing for prizes ranging from $80 to $450. All the Fortnite players paid a $30 (early) or $35 (late) registration fee. There was also a front room with consoles, all occupied by players absorbed in various games. Though there is no fee for spectators, there is a bar/waiting area serving food and beverages. We took in a behind-the-scenes tour of the top-notch broadcasting facility, which rivaled the NFL. We talked to management and staff (many of them former players), competitors, and competitors’ parents. (The age range of participants is from 12 to 20, and the winner of the tournament we saw was 15 years old and already being recruited to leave school and turn pro by sponsors). The young winner was given a post-game interview by one of the broadcasters that was worthy any you might after an NFL or NBA win, both in questions and quality.
It was loud, exciting, and fun, even though we understood little of the pixelated action unfolding on the jumbo screen behind the onstage players. In other words, it was like any sporting event.
But is it likely to rival the NFL or NBA? Perhaps, given time. The NFL, after all, started in an auto showroom, with the game largely seen as a barnstorming spectacle; the league was run from a storefront office in a Philadelphia suburb until the advent of TV made it a national obsession. Professional basketball began as a loose association of factory squads that eventually coalesced into the NBA.
We may not have been able to follow the Fortnite spectacle we saw, but as former players — such as those we met managing the Luxor site — have families, raise their children to play the games, and as the audience for broadcast and live events grows, esports may one day challenge the traditional sports for cultural dominance. As for now, though the current audience numbers are impressive, structurally esports more closely resembles niche sports such as figure skating or chess in promotion and revenue possibilities (for example, entrance fees supporting prize packages). Esports backers are still trying to figure out other ways to monetize. ETFs for esports are oriented toward the companies that make the games, rather than those presenting and packaging competitions.
As the audience matures, that may change. It’s certainly a phenomenon that bears watching.
If you have any questions or comments, please contact us at (610) 793-1001 or info@bowenasset.com.
Disclaimer: While this article may concern an area of investing or investment strategy in which we supply advice to clients, this document is not intended to constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we and/or our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Past performance should not be taken as an indicator or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. As with any investment strategy or portion thereof, there is potential for profit as well as the possibility of loss. The price, value of and income from investments mentioned in this report (if any) can fall as well as rise. To the extent that any financial projections are contained herein, such projections are dependent on the occurrence of future events, which cannot be predicted or assumed; therefore, the actual results achieved during the projection period, if applicable, may vary materially from the projections.
As noted in a previous report, members of Bowen Asset Management were in Las Vegas from September 26 through 29 attending the “Emerald Groundhogs on Tour 2019” investment conference, an annual event presented by the Lancaster County-based firm Emerald Asset Management. As always, it offered a chance to find out about investment opportunities, social trends, and emerging technologies and businesses. (As always, our aim was to learn as much as possible and use that knowledge in the service of our investors. As we report on the conference, bear in mind that any specific companies we mention are part of our continuous information-gathering process. We are not recommending any specific firms, but we are looking at them as bellwethers for investment trends.)
A main theme of this year’s conference turned out to be the growth possibilities for esports.
What is esports? It’s short for “electronic sports,” and it basically takes playing video games to a professional level, with sponsors, prize money, arenas, and broadcasts (primarily through streaming sites such as Amazon’s Twitch, which is free and draws millions of viewers daily). Those involved claim participation and viewing numbers could rival the NFL or NBA someday, though that remains to be seen. The numbers are quite compelling from a marketing-revenue standpoint. It is a booming phenomenon, from teams forming at high schools to some professional competitors earning millions of dollars through sponsorships. The numbers show there is a growing global audience for esports, both online and live.
The first presentation on esports was from Mark Vela, the vice president of strategy at aXiomatic Gaming LLC, a sports management company whose investors include NBA, MLB, and MLS team owner Peter Guber, NHL team owner Jeff Vinik, Oaktree Capital manager Bruce Karsh, and entrepreneur Ted Leonsis. Vela spoke about his firm’s acquisition of Team Liquid, a pro esports organization (one of the first, in fact). Team Liquid competes internationally with over 500 eponymous teams, including world-class squads in Defense of the Ancients (DotA) and League of Legends, plus top-ranked rosters for games including Fortnite, StarCraft, Street Fighter, and more. The organization features a Los Angeles academy, the Alienware Training Facility, to develop young players for its growing team rosters.
Team Liquid squads have played in Barclays Center in Brooklyn before a packed house of live spectators. Vela sees the growth of esports as heralding a generational change for consuming media, one he claims will be “bigger than the jump from radio to TV.” While 40 percent of revenue comes from sponsorship and advertising, 20 percent comes from media rights, and this is where Vela sees the biggest growth possibilities that may rival the NFL. The audience, which is 65 percent male and averaging 25 years old, is part of a demographic that has long stymied traditional advertisers, so esports offers an opportunity for marketers willing to innovate (for example, on Twitch, viewers can be asked if they want to view ads, with the reminder that it will help the players). Half of the audience is married, and it is an affluent, working demographic.
We also heard from Jud Hannigan, COO of Allied Esports Entertainment, which operates the state-of-the-art HyperX Esports Arena at the Luxor Hotel and Casino in Las Vegas, along with two other arenas in California, two mobile gaming trucks, and a production facility and event center in Germany. The firm also runs the World Poker Tour, a television hit, and is basing its approach for esports on that model. The company also has operations in Latin America, Australia, and China.
Allied Esports is teaming with mall operator Simon Properties to build out game-play arenas in traditional retail destinations (target size: 10,00 square feet) starting in 2020, with all those assets creating content that can be monetized. Allied Esports aims to leverage its live experience to create content that can be distributed online through services such as YouTube and Twitch. In other words, livestreams of tournaments can be repackaged in various forms for the audience, estimated to be in the billions, including gamers and spectators who will watch videos of game play. As with the poker tour, any content generated can be filed in a digital library, recut and repackaged. Compared to established sports such as football and basketball, monetization is currently lagging, though global viewership is growing at a rate outpacing the NFL and NBA. One event in Mexico, presented in partnership with TV Azteca, topped four million viewers. Allied Esports also launched an original series, Playtime with KittyPlays, with popular pro esports player Kristen “KittyPlays” Michaela. The show, streamed live from the Luxor, features Michaela interviewing players and audience members, teaching celebrity visitors how to play various games, and commenting on industry news.
The focus is on generating multiplatform content, with digital the primary focus. For example, a 2018 Las Vegas appearance by top player Tyler “Ninja” Blevins set a new record for viewers on Twitch, with 2.4 million unique viewers tuning in over the seven-hour livestream event. Those seven hours were cut into smaller segments and repackaged, as well. The future includes interactive services and subscription-based models.
At Allied Esports invitation, we attended a Fortnite tournament at its Luxor venue. The arena is a cross between a nightclub and arcade, with selected players on a stage competing for prizes ranging from $80 to $450. All the Fortnite players paid a $30 (early) or $35 (late) registration fee. There was also a front room with consoles, all occupied by players absorbed in various games. Though there is no fee for spectators, there is a bar/waiting area serving food and beverages. We took in a behind-the-scenes tour of the top-notch broadcasting facility, which rivaled the NFL. We talked to management and staff (many of them former players), competitors, and competitors’ parents. (The age range of participants is from 12 to 20, and the winner of the tournament we saw was 15 years old and already being recruited to leave school and turn pro by sponsors). The young winner was given a post-game interview by one of the broadcasters that was worthy any you might after an NFL or NBA win, both in questions and quality.
It was loud, exciting, and fun, even though we understood little of the pixelated action unfolding on the jumbo screen behind the onstage players. In other words, it was like any sporting event.
But is it likely to rival the NFL or NBA? Perhaps, given time. The NFL, after all, started in an auto showroom, with the game largely seen as a barnstorming spectacle; the league was run from a storefront office in a Philadelphia suburb until the advent of TV made it a national obsession. Professional basketball began as a loose association of factory squads that eventually coalesced into the NBA.
We may not have been able to follow the Fortnite spectacle we saw, but as former players — such as those we met managing the Luxor site — have families, raise their children to play the games, and as the audience for broadcast and live events grows, esports may one day challenge the traditional sports for cultural dominance. As for now, though the current audience numbers are impressive, structurally esports more closely resembles niche sports such as figure skating or chess in promotion and revenue possibilities (for example, entrance fees supporting prize packages). Esports backers are still trying to figure out other ways to monetize. ETFs for esports are oriented toward the companies that make the games, rather than those presenting and packaging competitions.
As the audience matures, that may change. It’s certainly a phenomenon that bears watching.
If you have any questions or comments, please contact us at (610) 793-1001 or info@bowenasset.com.
Disclaimer: While this article may concern an area of investing or investment strategy in which we supply advice to clients, this document is not intended to constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we and/or our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Past performance should not be taken as an indicator or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. As with any investment strategy or portion thereof, there is potential for profit as well as the possibility of loss. The price, value of and income from investments mentioned in this report (if any) can fall as well as rise. To the extent that any financial projections are contained herein, such projections are dependent on the occurrence of future events, which cannot be predicted or assumed; therefore, the actual results achieved during the projection period, if applicable, may vary materially from the projections.