AIM’s new entrant Gfinity (GFIN:AIM) is tapping into the rapidly-growing eSports market but its lack of sponsorship deals, limited operating history and low revenues make investing in the company look extremely risky.
WHAT IS ESPORTS?
The eSports industry is an exciting one to watch – it has gone through tremendous growth in the US and South Korea and it’s starting to take off in the UK – but unless you’re male and under the age of 35 you probably won’t know much about it. In a nutshell it’s video gaming on a competitive level.Competitions used to be largely between amateurs but now there are a significant number of professional players who are centre stage at live eSports tournaments. To give you an idea of its popularity, the League of Legends Season 4 World Championships held in South Korea in 2014 sold out a stadium of over 40,000 spectators. Gamers compete for prize pots of up to $11 million and the so-called ‘star players’ are paid an average salary of $200,000 and can even get US visas under the ‘internationally recognised athletes’ category.
SHOW ME THE MONEY
So how does Gfinity, which hosts online video game competitions and a few live tournaments, intend to make money from this? The group claims it can do so in four key ways:
- Getting sponsorship for its events/ tournaments
- selling the broadcasting rights to its events
- Securing online advertising
- Ticket sales from spectators who attend events in person
Winning sponsors for its events will be critical to Gfinity’s success. Chief executive Neville Upton says it has partnered with sports marketing agency Pitch International to drive sponsorship and advertising deals but although it’s having ‘good conversations with people’ so far it hasn’t secured any. ‘We’re comfortable we’ll attract the sponsorship necessary to achieve our cost base,’ he says.
Upton, the former chief executive of call centre business The Listening Company which was sold to Serco (SRP) in 2011, believes the events will be attractive to advertisers and sponsors because they get millions of viewers and it’s a targeted audience – 80% are males aged between 18 and 34 years old. The League of Legends fi nals in South Korea were sponsored by Samsung and Coca-Cola Zero.
So far Gfinity has only hosted three events. In July 2013 it staged G1 at Millbank Tower in London which attracted 2.5 million online views. In October 2013 it held G2 at the Film Museum in Covent Garden which was attended by 600 spectators and got 2.8 million online views. In August 2014 G3 at the Copperbox in London’s Olympic Park was attended by nearly 4,000 paying spectators across two days and it received 8.7 million online views from over 25 countries. Gfinity organised the Call of Duty European Championships in March 2014 and it will run the 2015 championships at the Royal Opera House, replacing operatic singers with 28 teams of video gamers battling it out for a $10,000 prize pot.
The £14.8 million cap recently announced a deal with cinema operator Vue Entertainment to develop and launch the UK’s fi rst eSports arena in London. Part of the Vue cinema in Fulham Broadway is being turned into a dedicated 600-capacity venue, to be named Gfinity Arena.The arena is scheduled to open in March for the start of the Gfi nity Championships which will comprise 25 events culminating in September 2015. Vue and Gfi nity say they’ll explore the opportunity to roll-out other Vue locations in London as well as in other city centres.
In terms of selling broadcasting rights to its events Upton says it’s ‘just starting the journey’ – in other words no contracts have been signed yet. The 8.7 million online views it got for G3 exceeds the total UK viewership for live matches of Premiership. Rugby on BT Sport for th entire 2013/14 season.
Gfinity’s AIM admission document states it would only need to achieve a fraction of the value per view paid for traditional sports to ‘signifi cantly’ exceed its own business plan. Gfi nity also gets a small amount of revenue from tickets, merchandising and online users. It has 300,000 registered online users and it’s gaining around 30,000 new players a month the popularity of its events. Copyright Shares Magazine only 1% of these pay for premium access to the site – either by way of a monthly fee of £2.49 or an annual fee of £20.
The growth in viewers and venues is encouraging news for investors in the December IPO which raised £3.5 million, but Gfi nity is still in its infancy. Relatively uncertain future income streams mean it’s not likely to be profi table for some time. The company made a loss before tax of £345,000 in the fi rst six months of 2014 on revenue of £197,000. Net cash outfl ows (excluding major events) are expected to be approximately £200,000 per month.
Its success depends on its ability to win major deals in a market that already looks competitive. There are several UK eSports operators such as the European Gaming League, Multi-Play and epic.LAN. There’s also a pan-European competitor, Electronics Sports League (ESL), which is based in Germany with recently-launched operations in the US.
Another risk is the group’s ability to host the most popular gamers. At the momentGfi nity has strong relations with some of the top gamers on YouTube – they include PewDiePie who has 27 million subscribers and allegedly earns $4 million a year – but if it loses their support it could affect the popularity f its events
The eSports market
In 2013 people watched eSports for a total of 2.4 billion hours. The League of Legends Season 3 World Championship in 2013 was attended by 18,000 people in the Staples Centre in Los Angeles. This event sold out in one hour and achieved 32 million online views.
A 2014 Defence of the Ancients event in the US saw a prize pot of just under $11 million, the largest prize fund yet secured for an eSports event.
The League of Legends Season 4 World Championships in 2014 held in South Korea sold out a stadium of over 40,000 spectators.There are 17.5 billion gamers globally, of which 16 million are in the UK. The number of eSports tournaments increased from 10 in 2000 to about 260 in 2010. The most popular games are League of Legends, Dota 2, Smite, Counter-Strike: Global Offensive and StarCraft II. In 2013 the US started to grant visas to eSports participants under their visa category reserved for ‘internationally recognised athletes’.Twitch, an eSport streaming website bought by Amazon (AMZN:NDQ) last year, had 100 million unique users per month in 2014 – more than double the 45 million in 2013.