The Global E-sports Market
With eSports being declared a billion-dollar industry, it’s become even more important to look at what it’s managed to bring to the table for those willing to deploy their capital in the space. Back then the eSports space was seen as a small-tier idea that was not going to grow past a few million dollars. But as the chart above shows this minor sector is predicted to get to $1.6 billion in global sales by 2024. That’s a compounded growth rate of 12% annually!
The big question for most investors is how to get exposure to this explosive growth?
Gaming stocks tend to fall into either the consumer discretionary or communications services sectors for gambling and video gaming companies, respectively. As such, there is no single benchmark that fully captures the performance of the gaming industry. That’s why I thought it is beneficial to look at all investable options we have as 21st-century capital allocators.
ETFs and Index Funds
The first way and probably the most popular method to gain exposure to the E-sports market is through exchange-traded funds or ETF’s. There are currently five popular ETF’s that I could find, and the table is below.
I have added descriptions of each company from their prospectus and the current price, the structure of the asset, the expense ratio, and the price to earnings ratio.
The most striking thing to me is that all the exchange-traded funds have underperformed the S&P 500 and the TSX 60 excluding the BETZ and BJK ETFs.
Keep in mind this is before fees, of which on average the fees are around 0.5% of your initial investment.
VanEck Vectors Video Gaming & eSports ETF – “tracks a market-cap weighted index of fewer than 30 companies involved in gaming and esports development, hardware, and software, including casinos and online betting.”
Expense Ratio: 0.55%
P/E Ratio: 31X
Global X Video Games & Esports ETF – “seeks to invest in companies that develop or publish video games, facilitate the streaming and distribution of video gaming or esports content, own and operate within competitive esports leagues, or produce hardware used in video games and esports, including augmented and virtual reality.”
Expense Ratio: 0.50%
P/E Ratio: 32X
Roundhill Sports Betting & iGaming ETF – “is designed to offer investors exposure to sports betting and iGaming industries”
Expense Ratio: 0.75%
P/E Ratio: 29X
VanEck Vectors Gaming ETF – “This fund offers concentrated exposure to the global gaming industry, focusing on casino operators but also holding technology firms and sports & racebook operators as well.”
Expense Ratio: 0.65%
P/E Ratio: 41X
Roundhill BITKRAFT Esports & Digital Entertainment ETF – “is designed to offer investors exposure to esports & digital entertainment by providing investment results that closely correspond, before fees and expenses, to the performance of the Roundhill BITKRAFT Esports Index”
Expense Ratio: 0.25%
P/E Ratio: 25X
Next week I will go more into detail about the benefits and disadvantages of using an ETF and how to analyze them using one of the above is an example. For now, the main focus is just identifying the options that we do have.
Games Distributors and Publishers
The next option that we have for his investors is directly investing in companies that are either publishers or distributors of the actual games.
In this list, we have the likes of Electronic Arts, Nintendo, and Activision Blizzard. The list of 10 massive companies generated an average total sale of $7.2 billion in the last 12 months with average earnings per share of $5.26 trading at a multiple of 45.42 or 29.05.
Although these behemoths of industry are well recognized their stocks have underperformed generally. The one-year stock price returns have ranged between negative 14.8% to positive 29%.
In a separate article, we will go through an analysis of one of these large companies with the lens of an investor who’s trying to get exposure to the Esports market and hopefully benefit from investing in the middle man.
Of course, we can forget we can also invest in companies that are directly exposed to the esports and online gaming sector. These are specific companies that engage in the distribution, marketing, and sales of E-sports products in the United States, Canada, or internationally
The list is obviously longer than the one I provide below but here are just some examples that I could find but quickly doing a Google search. For now, I’ve given just a ticker symbol, the market cap, the sales for the last 12 months, and the stock performance over the last year. On top of that, I’ve added a description that is used by the company in their annual reports just as a starting point.
Bragg Gaming Group Inc. (BRAG)
Market Cap: $182 million
Sales LTM: $55 million
Stock 1-year Performance: +98%
Bragg Gaming Group Inc. provides business-to-business online gaming solutions worldwide. It offers a turnkey solution for retail, online, and mobile iGaming platform, as well as casino content aggregator, sportsbook, lottery, marketing, and operational services. Bragg Gaming Group Inc. is headquartered in Toronto, Canada.
Enthusiast Gaming Holdings Inc (EGLX)
Market Cap: $774 million
Sales LTM: $125 million
Stock 1-year Performance: +198%
Enthusiast Gaming Holdings Inc. engages in the media, content, entertainment, and esports businesses in the United States, Canada, and internationally. The company operates an online network of approximately 100 gaming-related websites; owns and operates Enthusiast Gaming Live Expo, a video-gaming expo; provides management and support services to players involved in professional gaming; and owns and manages esports teams, which cover games comprising Call of Duty, Madden, Fortnite, Overwatch, Apex, and Valorant; and produces and programs approximately 30 weekly shows across AVOD and OTT channels, and represents approximately 500 gaming influencers across YouTube and Twitch.
ePlay Digital Inc. (EPY)
Market Cap: $10 million
Sales LTM: $50K
Stock 1-year Performance: +266%
ePlay Digital Inc., through its subsidiary, Mobovivo Inc., provides a social game engine and content marketing platform to engage audiences in Canada. Its solutions integrate TV, video, sports, daily fantasy, and social games into multiplatform destinations and campaigns for brands, sports teams, and venues. The company also operates an augmented reality sports, esports, and entertainment game platform. ePlay Digital Inc. is headquartered in Calgary, Canada.
UMG Media Ltd. (ESPT)
Market Cap: $4 million
Sales: $1.6 million
Stock 1-year Performance: -79%
UMG Media Ltd. operates as an esports company in North America. It is involved in live tournaments, online esports contests, casino esports operations, creation and distribution of original content, and esports tournament operations through its tournament management app. The company is based in Calgary, Canada. As of December 31, 2019, UMG Media Ltd. operates as a subsidiary of Torque Esports Corp.
Fandom Sports Media Corp. (FDM)
Market Cap: $15 million
Stock 1-year Performance: -19%
Fandom Sports Media Corp., an esports entertainment company, aggregates, curates, and produces fan-focused content in Canada. The company’s principal product is FANDOM SPORTS App, a mobile application for unfiltered raw esports predictions and data interactions. It also develops a blockchain protocol-based entertainment platform solution for commercial development. The company was formerly known as Hatch Interactive Technologies Corp. and changed its name to Fandom Sports Media Corp. in August 2016. Fandom Sports Media Corp. is headquartered in Vancouver, Canada.
Engine Media Holdings, Inc. (GAME)
Market Cap: $118 million
Sales: $33 million
Stock 1-year Performance: -35%
Engine Media Holdings, Inc., together with its subsidiaries, engages in the development and sale of gaming applications. It provides e-sport or sporting event or tournament services; offers content management system, video software, mobile applications, and e-sports data platform solutions; sources, creates, and places advertising campaigns that run in the company’s network of publisher sites; and provides installation and website design services, as well as data analysis report delivery.
Global Gaming Technologies Corp. (GGAM.U)
Market Cap: $3 million
Stock 1-year Performance: -98%
Global Gaming Technologies Corp., a gaming industry holding company, engages in eSports, mobile and console games, and digital interactive entertainment businesses. It publishes mobile games; offers St. Noire, a cinematic board game; and provides Gamesquare, a video game API solution that enables electronic sports games, as well as operates an eSports betting platform.
Kidoz Inc. (KIDZ)
Market Cap: $72 million
Sales: $9 million
Stock 1-year Performance: +233%
Kidoz Inc. develops and sells kid-tech software products in Western Europe; Central, Eastern, and Southern Europe; North America; and internationally. It also owns and develops a mobile KidSafe advertising network, the Kidoz kid-mode operating system, the Kidoz publisher SDK, the Rooplay Edu-games platform, and the Rooplay originals games library.
Now that we have all the options available to us and some of the examples in each option, my goal is now to go through each section over the next few weeks to fully appreciate which are the better ways to gain exposure for everyone according to their preferences.
I think it goes without saying E-sports sector is obviously going rapidly, as shown by the graph at the beginning of this article, but the hardest thing as an investor is picking the right exposure for your expected risk and return profile. Although this task is daunting I do like myself a challenge and I’m willing to take a few weeks to do a deep dive into the sector and how we can best utilize our 21st-century stimulus checks oops I meant 21st-century capital.