James Black (00:03):
Welcome back to the Exchange for Entrepreneurs Podcast. I'm your host, James Black, and this week we're discussing Esports with Ben Feferman. Now, Ben is actually a repeat guest. He was one of our moderators on an event a couple years ago now called Esports the Sequel, What Investors Can Expect for 2021 and Beyond. That topic of beyond is where we're situated today. At that time, Ben asked some very telling and pressing questions about the industry to his peers in the Esports sector. Let me play those now and we'll come back to it in just one moment.
Ben Feferman (00:34):
Probably agree there's a lot of volatility for Esports companies that are publicly traded. Could be that a lot of them are small caps, could be because of COVID. And correct me if I'm wrong, I don't think there's one single publicly traded Esports or gaming company, again, not including game publishers, that's got positive EBITDA.
James Black (00:54):
Now, in hindsight, those are great questions to ask. This has been an industry that has had some significant headwinds over the last year and a half since we recorded that session. Today we're going to talk to Ben about the opportunities that are still available in the Esport sector. It's not dead by any stretch of the imagination, but there are some fundamentals that do need to be considered as this industry seeks growth in 2023 and beyond.
(01:18):
Join me today with Ben as we discuss Esports, the capital markets, and what lies ahead. Enjoy the show. Today I'm joined by Ben Feferman. Ben is known for many things, but in particular his industry experience in the Esports space. Ben, welcome to the show.
Ben Feferman (01:35):
Hi. Thanks so much for having me.
James Black (01:37):
Yes, our pleasure. The reason, Ben, I wanted to have you join the show today because I know you're from your life at Amuka, but you've done a lot of things since then. We've connected on the Esports thing for I guess the last four years. If you take a look back, I think of what most investors probably think of four years ago when there was a huge hype curve. I remember there was this Newzoo report that came out that was talking about this stratospheric growth numbers and eyeballs and people coming into the Esport space. A lot of money came into the sector, invested into Esport startups. Some of these companies went public.
(02:13):
Today it's not such a rosy picture. Maybe just for our listeners who weren't on that ride, can you describe to me what the life of the Esports industry has been over the last few years as you've seen it?
Ben Feferman (02:27):
Yeah, sure. Let's just define Esports for people who don't know. When we talk about Esports, we are referring to people who are playing video games competitively at a competitive level. The general video game industry is a 160, $170 billion industry. That's all the companies that make the games, publish the games, et cetera. But when we talk about Esports, which is still a very small subset of that bigger industry, call it a billion or so, that's what we're talking about, people who are playing games at a competitive level.
(03:04):
The industry started, you can go back to the '70s when people were playing video games competitively in different capacities, but really it ramped up with the internet, with multiplayer and things like that. The investment I think really started to pour in the past really 10 years, where now there's an audience, and now these big Esports events are broadcasted on ESPN and filling 100,000 person stadiums. And everyone's excited. I think was a big [inaudible 00:03:38].
(03:39):
I really think the climax was, you have the Fortnite, which is one of the most popular games. You have the championship at Arthur Ashe Stadium. A 16-year-old kid wins a million bucks. And it's like, wow, this thing is off its rockers. Everyone wants to cash in on what's new and what's sexy.
James Black (03:59):
Yeah, absolutely. I look at a company like FaZe Clan, which is not listed on the CSE, it's listed on NASDAQ. That's a company that's had to battle through some sentiment with its own shareholders. What I'm observing as someone that came into this four years as really excited, I played video games growing up, obviously, I'm too old and slow to be good at some of these online games, but I could see in Vancouver we had this tipping point when I was living there. They had, I think, a Dota 2 tournament. Those who follow Esports know Dota. This thing packed the same stadium that packs the hockey team, the Vancouver Canucks. So you're going, okay, there's something here. There's something here.
(04:41):
But then you start looking a few years down the road and even through COVID, the numbers were actually heading in the wrong direction. You wonder if maybe that the metrics or the fundamental business model that was being applied here, it's not just a game of eyeballs, but are sponsor dollars going to come in? Can you get people to pay to watch this content? Can you get people to actually go physically back into spaces to follow?
(05:03):
From your perspective, and maybe you can tell us what you're doing at your current gig, but what is the tangible business model on Esports that people can really sink their teeth into that would make an investor or someone who follows the industry financially get excited?
Ben Feferman (05:18):
Yeah, sure. A lot to unpack, but in one word, it's sponsorship. Over 70% of revenue from the Esports industry comes from sponsorship. Now, if you were to sort of draw the comparison between Esports organizations and traditional Esports organizations, traditional sports, let's call it in the major franchise leagues, NFL, NHL, NBA, et cetera, you have definitely, you have your sponsorships, but you have ticket sales, which generate a big part of that revenue. On the Esports side, that's almost like nothing. It's almost nil. I think it's a little bit different.
(05:57):
Maybe that's one of the reasons that pretty much in North America, there aren't any publicly traded sports organizations. I mean, you can argue Bell and Rogers own MLSE, but there's no pure play with sports. They tried. I think the Celtics were publicly traded at one point. The Green Bay Packers, it's a whole weird thing.
(06:18):
I think one of the reasons is that sports and Esports, these are appreciating assets that are doing great. I would still argue that Esports franchises that were purchased, even in Call of Duty and Overwatch leagues, are great assets, but the P&L might not look good.
(06:36):
Operationally, these leagues are still ramping up, so there's a lot of red ink, and that's not really reflective on financials where these franchise slots are very valuable and will appreciate significantly. But short term, there's going to be a lot of red ink as they work out media rights, sponsorship deals, and try to figure out how to get ticket sales.
James Black (06:56):
Right. I've always thought of it in the terms of hockey is hockey, you're playing with a puck and sticks, and it's on a regulated ice surface and all that. Esports sort of has this buffet of different games that can be used as the core playing field. Obviously I mentioned Dota and there's Call of Duty and there's all sorts of different games.
(07:20):
I'm wondering from your perspective, how has the Esports industry managed that I'm going to call it a problem? How do you build enough of a platform off a single game like Overwatch, which had quite an organized league and system to catalyze it to make it clear that, okay, there's enough industry here in this one game? Or is it the other side where it's all about the talent and wherever they go? I still can't understand the industry from that perspective. There's so many options.
Ben Feferman (07:51):
Actually, in the case of the Overwatch league, the owners are trying to sue the league [inaudible 00:07:56]. I think they're right to do that. If none of your teams in your league are financially viable, then you need to change the terms. And these contracts, which are shockingly very secret, even though most of the game publishers except for Valve all publicly traded companies, have not really been released.
(08:18):
Number one is I think the Esports teams, which again do reflect a lot of the public trading companies, need to band together and get a better deal from the game publishers. And then the second part is they should also and are diversifying. Don't put all your eggs into one game. Great. Call of Duty is a great game right now, and I do think it'll be around in 10 years as a top game, but it might not.
(08:41):
So I think as just like you would in any industry, you need to diversify. I think teams are looking to then place their bets in multiple leagues so that they can in a way play one off the other and make sure they're not at risk to changing tastes in games.
James Black (08:58):
Yeah. Do you have a particular league or game that you at least have good prospects for?
Ben Feferman (09:05):
Yeah. I mean, in general, mobile. Mobile is massive, the numbers, especially in regions outside North America, games like Free Fire, games like PUBG Mobile. PCs are limiting to North America, Europe, and groups that have higher disposable income to afford high-end gaming PCs. Mobile is played by the everyday man everywhere in the world.
(09:30):
Mobile titles are going to be very strong. So what I'm doing with GamerSaloon, and we have a team Dot City game actually focusing on sports, which is, the audience is way smaller, but it's a very niche and strong community. I think the same thing with other communities, whether it's fighting games or Smash, the biggest, flashiest games may not always have the best ROI for you. And sometimes when you find and able to specialize in niche games and niche communities, you can monetize that fan base much better.
James Black (10:03):
Yeah, that's an interesting point. I know the issues around Smash Bros. and Nintendo and some litigious stuff going on there where it's hard for people to independently organize tournaments around this game.
(10:15):
Now, that aside, we're talking about pure competition. There's ancillaries around this. When I look at Enthusiast Gaming or some of these other sort of umbrella gaming companies, what are some of the other areas of the business where you see growth potential, or at least as an investor, something that interests you on the ancillary side? You take it from there.
Ben Feferman (10:37):
Yeah, sure. A lot of companies are moving a little bit away from the competitive side and moving to content. What that means is signing content creators that are putting out videos on Twitch and YouTube and then monetizing them through brand deals. It's a much better business model.
(10:56):
Just anecdotally, I have four kids. Three of them are watching gaming online content. I can't pay them to watch Netflix. They only want to watch Minecraft videos and Roblox videos and things like that. They're seven and six. That's this generation that's just starting to watch online content have zero interest in scripted cartoons and things like that.
(11:24):
Those verticals are really great. Talent agencies are great, so managing influencers, online tournament platforms. I think things that feed the grassroots communities or that feed sort of everyday gamers are going to have a much bigger opportunity. We're seeing a lot of online tournaments and leagues. Those verticals I think are going to have a lot of potential.
James Black (11:48):
What about stadium experiences? Because I know my son's the same way. He's eight years old and he's constantly on his iPad and he's not watching, as you said, He-Man or anything that we grew up watching. He's watching, I guess, almost like reality TV stuff, like Jesser. I'm trying to keep up with everything. Dude Perfect. Stuff like that.
(12:12):
I mean, these guys look like they're doing pretty good financially. I can imagine the content side on this whole business is pretty exciting. I mean, even MrBeast, I believe, didn't he get a start as a Minecraft YouTuber?
Ben Feferman (12:23):
For sure. Yeah, for sure. Big gamer. Yeah.
James Black (12:26):
Yeah. I wish someone paid me as a kid to play games and watch me stream.
Ben Feferman (12:32):
We all do. That's the dream. Yeah, they're living the dream, these kids.
James Black (12:35):
It is. But it's sort of the dark side of the business as far as I observed, was talent curation in this business. So getting the people who are the best, and then those people maintaining their position as the best.
(12:50):
Every generation, a Michael Jordan comes along, or LeBron James, and they play 20 years or whatever, and they're the best. And then below them, there's a lot of great players as well, but they have long careers. In Esports, I think what's been difficult, not only because you're a human, but also then you're an online persona and you have a different name and all this, but it's very competitive to keep up and keep your skills sharp in this sector.
(13:13):
I wonder if you've seen or shared my observation, which is it's very difficult to maintain that level of talent in the leagues, whereas as you just mentioned, some of these people just go off. I think of Nasher and someone who's a big NHL YouTuber. The guy's just going and playing YouTube by himself promos of the time cutting videos, and he's very successful. Why would he bother trying to compete? Do you see that as a problem as far as the talent curation and trying to keep up that high level of player versus player competition?
Ben Feferman (13:46):
Yeah, I wouldn't say it's a problem. I would just say it's a different system. I mean, in Esports, again, you would think, okay, they're sitting at a computer or at a console, they're playing games. They must be able to do this for 20, 30 years. It's actually the opposite. It's that your response times significantly drop off way faster, and your ability to compete is much shorter.
(14:07):
The good thing for an Esports player is that let's say you can compete at your highest level for I'm going to be honest, it's like two, three years, two, three, four years on average. But then you build up a great following and there's an easier transition to sort of life after Esports. That's as a content creator or a caster or analyst. There's so many areas that you can go in post a professional career.
(14:34):
I would say for traditional sports athletes, if you are a great defensive lineman for the Dolphins, I don't know, you're not sort of guaranteed a good career after you're done playing. I think that's the challenge that traditional athletes have is what does life look like after basketball? Not all of them can move up to front office jobs or work in the media, versus with Esports, it's very easy that transition. Again, there's pros and cons to both systems, but that's the main difference between the two.
James Black (15:06):
Yeah, no, fair enough. Any trends? Again, I'm thinking as an investor, I'm thinking of someone in the public markets that either directly will impact growth in Esports or maybe will contribute to growth in other ways for this sector.
Ben Feferman (15:21):
Yeah, lot of trends. You mentioned MrBeast. Let's start with that. I think there's going to be a trend where individual personalities are going to be raising capital for their media entity. And MrBeast, he threw it, I can't remember if it was a billion valuation or two billion, something like that. But that's a brand that everybody wants to get in.
(15:43):
If I had the opportunity to invest in 100 Thieves or FaZe, some of the top Esports organizations, or MrBeast, TimTheTatman, Dr DisRespect, some of the top gaming influencers, I'm taking the influencers because they've already proved out their model and they've built a great empire that's very authentic with their own brand. That's one is that individual creators we're already seeing, they're building their own massive studios. That's going to be a big trend where those are going to be the next, I think, future companies is investing in them.
(16:16):
Second is that we talked about game publishers having too much control and too much control over the IP teams and other orgs are really going to be creating their own games. Whether it's Dr DisRespect in his own studio, 100 Thieves creating a game, people have had enough of the big three, Activision Blizzard and Sony and Microsoft controlling too much of this ecosystem. They're saying, "We're going to do it ourselves." I think those new, let's maybe call them indie studios or gaming studios are going to start to take more share of the market.
(16:52):
And then I'll throw out maybe one wild card that maybe you didn't hear before. There's apps like Zwift, for example, that are really gamifying the fitness industry. I think that intersection between health, fitness, and gaming is still very much in its infancy.
(17:11):
Firstly, I find going on the treadmill to be the most boring activity in the world, but hey, let's say you and I, we could go for a run and you look like you're in pretty good shape. So I would see you go faster, and I'd have to work hard to chase and catch up to your avatar that I'm watching in real time and customize and all that. And we can run anywhere in the world. Gamifying just in general, or even at the competitive level, that intersection between health and gaming is going to be massive. And I think that's where investors would want to be.
James Black (17:42):
Yeah, no, fair enough. I know in Peloton, not that I use it as often as you might think, there is almost like a game they have in there now almost like a rhythm game, looks like Guitar Hero for those of you that know that game. We're at that point now where everything's sort of been quantified, gamified, and then maybe this human competition thing kicks in a little bit. We're all gamers at heart is the way I look at it.
(18:10):
I think there'll always be an industry there. Just as you said, it's gotten so heavy at the top with the Microsoft, Sony, Nintendo stuff, and them trying to buy everyone, specifically Microsoft, that at some point an independent movement will likely have to come through to recapture what they've lost because they've just gone so broad with how they develop products. Okay.
Ben Feferman (18:33):
Just to add, sorry, if I can squeeze just a fourth one in there is everyone I think really understands they need to better empower the creator economy. We're using StreamYard right now. I think tools and technologies that help improve help creators monetize better, and even for players, what we're doing at GamerSaloon is you can make a living playing Madden and other games for money.
(19:02):
I think that's the trend, is to empower everyone to be able to monetize better in whatever they're doing, whether it's playing Esports competitively, casually, or creating their own content.
James Black (19:13):
Yeah, 100%. In my own little addiction, this is a little admission here on the show, is that I've actually fell into really following retro gaming podcasts over the last year.
Ben Feferman (19:25):
Nice. That's great. Yeah.
James Black (19:27):
Yeah. Just because, man, that's what I grew up with. I think most people in my vintage, I'm around 40, it's you grow up having that experience in your basement, playing these games, and then in college, and then you start losing time because you have families as you mentioned.
(19:42):
But it's satisfying to kind of go back and just recollect on these things. To me, again, it's such a great medium. Hopefully that purity of that experience continues to go forward with my children and others where in my heart, I think the best part of gaming is a social aspect of it, was having friends with you or even being online and having a positive experience. I would think just if we can keep that going and be a part of this and not completely ruin it through commercialization, we might get somewhere.
Ben Feferman (20:13):
Well said. Yeah.
James Black (20:14):
Yeah, my PSA for the day. Well, Ben, any last things you want to plug or points you want to make before we sign off for the show?
Ben Feferman (20:23):
No, that's it. You can check out gamersaloon.com. That's one of the platforms that I'm working on, as well as Dot City Gaming, which is our Esports team. And you can find me on social media. Most of the time it's @bocaben, Twitter, LinkedIn, Instagram, YouTube.
James Black (20:45):
Thank you again for listening to the Exchange for Entrepreneurs' podcast, a proud presentation from CNSX Markets Inc, operator of the Canadian Securities Exchange. As a reminder, the viewpoints on this show do not reflect those of the exchange and are solely those of the guests and do not constitute investment advice.
(21:01):
For more information about the exchange and services and listed companies, please visit www.thecsc.com. Until the next show, thank you for listening, and don't forget to hit the like or subscribe button on your favorite listening platform. Thank you so much.