As a growing number of people fight the COVID-19 pandemic by staying home, one of the winners in the new social-distancing economy could be Canadian e-sports firm Enthusiast Gaming.
The Toronto-based company, which owns YouTube channels and gaming websites that collectively attract 150 million monthly viewers, has seen a 40 per cent week-over-week increase in views on some of its larger sites.
“The early signals we’re getting from our user base is that they’re locking themselves up at home and playing more online,” said Menashe Kestenbaum, president of Enthusiast Gaming. “Now that kids are home there’s going to be a lot of extra downtime for them to play using their screens.” The company says it has also had an influx of requests from people who typically follow the NHL and NBA — both of whose seasons have been suspended — who are looking for e-sports tournaments to watch.
Enthusiast is hoping the surge will help it become a billion-dollar business, and one of the largest e-sports firms in a global industry that’s projected to be worth US$300 billion by 2025, and whose market value is already larger than those of both the music and movie industries combined.
It currently has a market cap of $105 million, graduating in January from the TSX Venture Exchange to the Toronto Stock Exchange. Its stock has dropped about 25 per cent since, trading at $1.46 Thursday close; the TSX as a whole has lost about 30 per cent over the same period.
Enthusiast says it’s well-capitalized, however, with about $10 million in cash, and could take advantage of plummeting stock markets to make acquisitions.
It’s also hoping that a growing interest in e-sports and an influx of advertisers trying to reach its audience — many of whom are young men — will help propel its growth.
“Forty-three per cent of American male[s] between 13 and 34 [visit] at least one of our sites per month,” said the firm’s CEO, Adrian Montgomery. Enthusiast is particularly hoping to grow in Europe and the U.S., and is in discussions with Democratic and Republican political action committees in the U.S. that are trying to reach that demographic via advertising.
“They’re falling all over themselves, trying to figure out how to find Gen Z to get them to vote,” said Montgomery. “We might be in a situation very soon where our biggest client is the U.S election cycle, which is really cool for a little Canadian company.”
Enthusiast’s plan is to build a portfolio of complementary businesses. Along with its channels and websites, it owns seven e-sports teams, including the Vancouver Titans Overwatch team — which plays at Rogers Arena, a 20,000-seat venue that’s also home to the NHL’s Vancouver Canucks — and the Seattle Surge Call of Duty team. On Wednesday, it announced it had signed an exclusive representation agreement with MCPE DL, one of the biggest online Minecraft communities in the world.
The firm also runs Canada’s largest video-gaming and e-sports expo, which attracted 30,000 in-person attendees last October, as well as seven million online viewers. It’s now looking to do more virtual events to capitalize on the influx of interest.
Up until recently, these businesses were relatively separate. In September 2019, Enthusiast Gaming Holdings arose out of a four-way merger of J55 Capital, Enthusiast Gaming Holdings, Luminosity Gaming and Aquilini GameCo. The mergers were spearheaded by Vancouver’s Aquilini family, which has a net worth of $3.3 billion and, as of 2018, was the 27th richest in Canada.
Its patriarch, Luigi Aquilini, has taken a particular interest in Enthusiast. In August 2018 the Aquilini-owned Rogers Arena hosted the Dota 2 world championships. The event sold out within an hour, with so many lined up around the building that Aquilini couldn’t access his office.
“You can imagine an 87-year-old seeing people dressed as medieval knights and carrying swords. So he called me and he was like, ‘What the hell is going on? What have you done with my building?’” said Montgomery.
“First he said, ‘How much money are you gonna make me?’ And I told him, and then he said, ‘This is the future.’ He said, ‘You’ve got to get my family all the way into it.’”
Gaming usage is up 75 per cent week-over-week in the U.S. and is surging in China, as well, where one popular game, Mahjong, has seen a 109 per cent increase in daily active users in the two months since February. This surge is building on significant existing interest. In 2018, for example, the League of Legends world championship finals attracted double the number of viewers as the Super Bowl.
Earlier this month, Paradigm Capital analyst Corey Hammill, who has a buy rating for Enthusiast, issued an update outlining why he thinks the firm is in a strong position to expand.
“Enthusiast Gaming Holdings (EGLX) is uniquely positioned as one of the largest public pure-play gaming-media and eSports companies,” said Hamill.
“The Enthusiast Gaming Properties segment holds one of the largest gaming-related media platforms in North America, while the eSports Luminosity segment brings direct exposure to the rapid growth of the eSports industry.”
Montgomery is similarly bullish.
“Six months ago, if you were the chief marketing officer of a Fortune 100 company, you could get away with not paying attention to gaming,” said Montgomery. “Today, you cannot do it anymore. And so from the business world, we’re seeing this shift that we’re giddy about because we’re going to take advantage of it.”
It’s not the only e-sports company hoping to capitalize on the surge of interest. There are at least a dozen firms with greater valuations than Enthusiast and two — Cloud9 and Team SoloMid — are valued at US$400 million each. But Montgomery argues Enthusiast has an advantage that none of its competitors do: the combination of its events and dedicated user base coming to its more than 1,000 websites and YouTube channels.
“No one has 150 million monthly viewers; nobody has 30 events around the world. And so when you’re going out to present yourself as a business, to a Procter & Gamble or to a Coca-Cola, and you can give them a diverse array of assets where they can play with tangible opportunities to see the results of it in terms of metrics and scale — nobody else has that,” he said.