The $13 Billion Market Opportunity in ESPORTS and emerging Leaders | Singular Research
(The 30,000-square-foot HyperX Esports Arena opened inside the Luxor hotel and casino in 2018.)
Video gamers have come a long way from their elementary days of Pong, Pac-Man and Donkey Kong.
Technologically absorbed millennials have taken today’s games to another level, engaging in esports tournaments with substantial monetary rewards and driving a global video gaming market projected to surpass $138 billion by 2021.
Grant Johnson, chief executive officer of Esports Entertainment Group (NASDAQ: GMBL), based in Malta, orchestrated strategic acquisitions to position his company for a share of the estimated $13 billion in global wagering on electronic gaming, or eGaming.
Using a licensed and secure wagering system, Esports Entertainment offers fans the ability to bet real money on professional esports events, but the company has yet to enter the U.S. market due to the regulatory process.
That could change following a partnership formed in August with Twin River Worldwide Holdings. Esports Entertainment hopes to launch online sports betting in New Jersey in first quarter 2021, pending Twin River’s necessary regulatory approval to acquire Bally’s Atlantic City hotel and casino.
The partnership delivers on Esports’ goal of expanding U.S. operations when the company completed its IPO on Nasdaq earlier this year, Johnson said. The company also acquired a skill-based European esports tournament platform that it hopes to bring to the United States, though each state has its own regulations.
With demand for eGaming entertainment increasing during the COVID-19 pandemic, Esports Entertainment completed the acquisition of AHG Entertainment Associates in July. The company paid $1.25 million in cash to AHG, a Florida limited liability company, and issued warrants to AHG to purchase up to 1 million shares of common stock of Esports at $8 a share.
War game generals
Not to be confused with fantasy sports, eGaming is evolving into a lucrative industry with intense competition among dynamic, young players who shed the couch-potato stereotype holed up at home with a game console.
There’s a highly skilled subset of players who excel at war games such as Call of Duty, League of Legends, Valorant, Dota 2 and Counter Strike: Global Offensive. Some compete as teams; individually, Dota 2 professional Johan Sundstein (gamer name NOtail) has won nearly $7 million in tournament play at age 26.
Recognizing that young adults favor video games over slot machines and table games, MGM Resorts opened the 30,000-square-foot HyperX Esports Arena at Luxor Hotel and Casino in Las Vegas in 2018. MGM partnered with Allied Esports, which specializes in esports event production and facility management.
The multi-level venue features a state-of-the-art gaming and broadcast center, competition stage and 50-foot LED video wall. It targets gaming enthusiasts with weekly tournaments, esports exhibition show matches, VIP events and a vintage video game cocktail lounge.
Esports Entertainment Group signed a sponsorship with Allied Esports in July for the inaugural VIE.gg Counter Strike: Global Offensive Legend Series tournament that began Aug. 31 at HyperX Esports Studio in Hamburg, Germany.
“We’re excited to partner with an industry leader, Allied Esports, as the title sponsor of their newest esports tournament,” Esports Entertainment CEO Johnson said in a company statement.
Increased footprint
With AHG, Esports also acquired LHE Enterprises, holding company of online sportsbook and casino operator Argyll Entertainment AG, based in the United Kingdom, and its operating subsidiaries. Those holdings include SportNation.bet, a major contributor to Argyll’s $12 million revenue in 2019.
“They were an example of our aggressive M&A strategy and provided us with $12 million in 2019 revenue and U.K. and Ireland licenses,” said Jeff Cohen, vice president of strategy and investor relations at Esports. “Argyll is part of our three-pillar strategy.”
The first pillar is Esports Entertainment’s gaming tournament platform; the second is Esports’ VIE.gg gambling platform; and the third is traditional internet gaming and sports betting through Argyll, Cohen explained.
Esports competes against established online sports betting platforms such as Draft Kings and Fan Duel, along with apps specific to esports such as Rivalry, Luck Box, Lootbet and Unikrn, for the estimated $13 billion global handle, or total amount wagered, according to Narus Advisors.
“We don’t have specific targets in terms of market share, but we intend to build a best-in-class platform that should attract a significant number of the 500 million-plus esports fans globally,” Cohen said.
Draft Kings soars
During the lockdown on professional sports that impacted sports gaming, Draft Kings (DKNG) benefitted significantly from the iGaming trend, posting revenues for the quarter ended in June that beat expectations by 22%.
As management stated in its Q2 earnings call: “In addition, our iGaming product offering was especially resilient in the second quarter, as it was not impacted by the sports calendar and perhaps even benefited from people staying at home.
“As you might expect given the COVID pandemic, our B2C monthly unique payers in the quarter declined 35% year-over-year to 295,000. More than 100% of the decline was from our daily fantasy sports MUPs, which is both our largest source of monthly unique payers and the product offering that has been most impacted by the disruption in the sports calendar.
“MUPs improved in late May and June as some sports resumed their schedules. On the other hand, ARPMUP increased 51% in Q2 to $63 from $42 in the same period in 2019, which was predominantly driven by a mix shift into our iGaming product offering.”
Other industry competitors include:
William Hill PLC (WIMHY.PK) is well positioned as a global powerhouse in betting and gaming online and retail. William Hill’s growth has suffered from betting caps in the U.K. and is motivated to seek new avenues of growth. The company operates through three business divisions: online, retail and William Hill US. William Hill currently derives over 50% of gross revenues from “non- real world” sports gaming such as football, basketball, soccer, etc.
And privately held:
Unikrn Inc., headquartered in Redmond, Wash., is an esports betting company and software publisher founded in 2014. Betting options include sports, video games and raffles.
Bet365 Group Ltd., headquartered in United Kingdom, is a provider of gambling services. The company’s key areas of interest are sports betting, soccer highlights, casinos, poker games and bingo. The company was founded in 2001.
Betway Ltd., headquartered in Gzira, Malta, is engaged in the spectator sports sector. The company was founded in 2006. Betway Group Ltd. is its ultimate parent.
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