October 12, 2018

VIDEO: Enthusiast Gaming Holdings Inc (CVE:EGLX) CEO on eSports Boom

Midas Letter
Midas Letter
VIDEO: Enthusiast Gaming Holdings Inc (CVE:EGLX) CEO on eSports Boom

Enthusiast Gaming Holdings (CVE:EGLX) CEO Menashe Kestenbaum explains that eSports refers to virtual versions of traditional sports that has recently reached mainstream audiences. As Kestenbaum notes, more people are watching gaming on digital platforms such as Twitch than playing. Kesetenbaum believes with increased corporate investment in eSports leagues and tournaments, eSports will eclipse traditional gaming. Enthusiast Gaming owns one of the largest gaming content networks online, where its 75 million users can consume content similar to how sports fans consume content on sites such as ESPN. On its network, Enthusiast Gaming has 85 sites, including Destructoid, a website for gaming news and reviews with 5 million monthly visitors. Enthusiast Gaming’s revenue has grown exponentially and the company now earns $1 million per month and owns one of Canada’s largest gaming expos.


James West:   Hey, welcome back. My guest in this segment is Menashe Kestenbaum. He’s the CEO of Enthusiast Gaming Holdings, trading on the TSX Venture as of today under the symbol EGLX. Menashe, welcome to the show.

Menashe Kestenbaum: Thank you.

[stock_chart symbol=”EGLX:TSV” align=”left” range=”5D”]

James West:   Menashe, can we start with an overview of what is, exactly, eSports and e-gaming?

Menashe Kestenbaum: Sure. ESports is, think of real sports, or classic sports that everyone knows – baseball, basketball, football – but instead of having physical activity, running around, it’s all done virtually inside of video game.

What that enables is that you could do all kinds of crazy stuff. You know, the sky is the limit to what’s possible, the type of stadiums that could be created, the type of games and game play mechanics, and this has been going on for a while now in underground and smaller scenes. But recently, it’s reached the mainstream and it’s just getting larger and large support, and I think we’re going to see it being something massive in this industry very soon.

James West:   So this means people are competing in a sort of forum environment on games like Xbox and Wii and these various things?

Menashe Kestenbaum: Yeah. Well, let’s take computer, for example. So imagine you have been playing a peewee hockey game, right? You played it at home, and then maybe you’ve taken a little bit more professionally and really put time into it, and you got really good. And then you start to weed out the people who are kind of B-level, and you get to the A-level players, and there, the skill is unprecedented, and quick thinking, strategy…

Now, take all that and put it into video games, where you have, let’s say, a game that 30 million are playing. Now, out of those 30 million people, you’re going to have those who are almost peewee level or bantam league; the minor leagues; and then you’re going to have people who are really world class. And if you have heard of Twitch, where people could watch other people playing, it’s actually something people are just fascinated by. There’s more people watching gaming than actually playing gaming.

James West:   Oh.

Menashe Kestenbaum: People sit and stare at these world-class gamers playing all day, and there’s big prize money and leagues cropping up from big companies trying to create this new model, which I think is going to eclipse traditional gaming.

James West:   Interesting. So what would you say is the global sort of value of the marketplace?

Menashe Kestenbaum: Well, the figure that they give right now is that 1 billion people in the world are gamers right now.

James West:   That’s like one-sixth or -seventh of the world.

Menashe Kestenbaum: One-seventh of the world, I think they’re saying. So the entertainment sector just in North America, last I checked, was something like $600 billion. That’s made up of movies, film, television, music, sports…movies and television used to be the biggest, and now gaming has surpassed that in the past ten years, and just continues to grow.

James West:   Okay. So what – just to get a sense of, what is the most valuable purse for what most valuable sort of gaming environment?

Menashe Kestenbaum: So the biggest one right now is the Dota 2 tournament held by Valve, called The International. I forget the number, but it’s north of 20 million, because it grows.

James West:   First prize is 20 million?

Menashe Kestenbaum: Yeah, over 20 million.

James West:   So one guy wins 20 million?

Menashe Kestenbaum: One team will win the majority of that, and the second place, you know, they will have for second and third place.

James West:   Okay. So how do the economics work for a public company? So, what is it you actually do?

Menashe Kestenbaum: So we actually aren’t the ones who own a game; we’re not a game developer, and we don’t own a team. What we own is, we have one of the largest gaming networks online where passionate enthusiast gamers come online to one of our 85 sites, and they consume content about the games. So, think ESPN: you’re not actually playing football on ESPN, but if you’re a hardcore fan, you’re going to ESPN to catch up on the latest updates, to read editorials, to speak in the comments, go onto the forums and chat with like-minded people. So we have 85 of those sites, and each are dedicated to something different.

James West:   85 sites? So, each one is sort of game-specific?

Menashe Kestenbaum: We typically stray away from the games and we go more for platform or a genre. We don’t want to be in a space where a game is popular one year and the next year, it’s gone, and we’ve invested in the site. So we may have more like a Nintendo site, or three Nintendo sites, that are the largest Nintendo community sites out there, and whatever comes into the Nintendo switch, you know, that’s what they talk about. And they meet like-minded Nintendo players.

Same thing on eSports or sports games and Playstation XBOX. So we have about 75 million gamers, visitor, monthly across the network, and growing.

James West:   Really? Wow, that’s impressive. So how do you monetize that audience? Is it all advertising?

Menashe Kestenbaum: So right now the majority of it is advertising. There’s about 12 billion ad requests across the network, and most of that is taken from gaming companies who want to get in front of these gamers. Gamers don’t want to see things that are completely irrelevant to them; they hate those kind of ads, but if you have an ad that’s about a game that they actually like, then that’s okay with them. So, relevant content speaks to them.

James West:   Sure. There was an incident where there was a shooting at an eSports event in Florida; is that kind of the, is it fair to categorize the industry as that kind of representative type of crowd? Is it, like, gangsters and kids with guns who take each other too seriously and actually start popping each other off, is that common? Or is that just a rare instance that happened to happen at a gaming event?

Menashe Kestenbaum: I think any kind of, like, it could be sports fans, it could be anything where you’re going to have some people that are unwell, unbalanced –

James West:   A billion gamers? There’s got to be a couple in there.

Menashe Kestenbaum: A billion gamers, you’re going to have a lot of human beings, there. I would say more like, if people who come home and watch two hours of Netflix or watch TV, are they more the types who, you know, based on the fact that they watch TV, does that mean they’re going to kill someone? I don’t think so. So I think that’s, you know, you do have to have security. Like at our events, we have a lot of security just because there’s a lot of people there. So it’s just something you have to take into account.

James West:   Okay. So my computer is going to be appearing on the screen that the audience is watching; where do I go to see one of your sites, here?

Menashe Kestenbaum: Well, let’s take Destructoid.com. So that’s a site, it’s been around, it’s one of the Top 10 gaming journalism sites in the world for about the past ten years. Oh, you could actually see an ad on the sides from Namaste. [laughter] The stock exchange, so now you can see who one of our advertisers are.

James West:   Right, right. Well, that’s proof of concept right there, isn’t it?

Menashe Kestenbaum: Yeah.

James West:   So these are all news articles on different video games?

Menashe Kestenbaum: Yeah.

James West:   It’s all video games.

Menashe Kestenbaum: All video games. You’ll see on the right side, that sidebar, you’ll see some of the reviews. So, these reviews, a lot of game companies put it onto the box, you know, in the accolades: Destructoid is, you know, it’s like an ESPN. They want to get the accolades from here.

We bought this site last year, along with Escapist Magazine.

James West:   You bought the site?

Menashe Kestenbaum: We bought the two sites.

James West:   Okay, because it came with a huge audience relevant to –

Menashe Kestenbaum: T-dot-ians, a lot of revenue, and a phenomenal founder who had built it up from scratch over 10 years and built a fantastic team; he’s now our Director of Content.

So the 85 sites, you know, I started my own blog and, at the time, it grew to a sizeable audience – 10 million, Enthusiast.com. But there was no one really monetizing it well that I could live off of, despite the amount of eyeballs I was getting. So in 2016, we kind of identified that a lot of these homegrown community grassroots sites with sizeable audiences needed some kind of a vehicle or an aggregator to come in and help them make money so that they could continue building their sites.

So we created, in April 2016, this network, which immediately took off and had tons of sites joining it the next few years. So we want from five sites to 85 sites in two years, and 75 million gamers. But then we started identifying opportunities to acquire sites where you would have a founder of a site who had built up a staff, who’s making some money, but you know, he would love to be part of something bigger. He would like to have a little bit of a nest egg to, you know, invest in the future. You know, maybe they started off when they were 18 in gaming and putting a lot of time into this, and now, you know, maybe they’re 28 and looking to potentially start putting down roots.

So that’s where we would come in, offer them something to kind of join our network as an acquired site. We would also, of course, instead of taking a cut of the revenue or a commission, we would be taking 100 percent of it, and that’s where we started to amass our own portfolio of sites that we actually own. And we like to choose strategic ones.

James West:   Right. So, do you generate all of this content internally, or is it outsourced?

Menashe Kestenbaum: Yeah, we have something like 200 freelance and contract writers.

James West:   Oh, so you can actually find that number of talented writers that bring a sufficient literary quality to this? Or is it more that it’s not required to have a high level – I’m sounding condescending here accidentally, I don’t mean to, but it strikes me as mostly kids.

Menashe Kestenbaum: No, think of the billion gamers out there; there must be some who have a knack for writing, and those ones, the cream of the crop will rise to the top. And those are the ones that, you know, they rise through the ranks, whether they’re starting off writing as a blogger on a forum community, as we identify them. We start giving them an opportunity on the front page of the sites, and then maybe they work their way up to a bigger position.

So it’s actually created, through Destructoid, a lot of the current gaming journalism industry has been created through the sites over the past ten years.

James West:   That’s interesting. So you’re actually at the forefront of the birth of a whole new sector. Interesting.

Menashe Kestenbaum: You know what the number one job that people want to have, is? They did a study recently: it’s being a YouTuber.

James West:   Really?

Menashe Kestenbaum: Yeah. That’s the number one thing that people want to be. And you have –

James West:   Makes sense to me! We are! Interesting. So you’re not actually involved in the management of teams and capturing that prize pool. Are there companies out there that do that?

Menashe Kestenbaum: There are companies that want to be team management that, you know, they draft the players, they sign them to contracts, they manage them, and there’s a lot of skills involved there. And then they’ll be flying them out to different events, where they hope to take home a prize pool.

There’s a lot of different e-sport games out there, and the prize pool is not as high for all of them; there are some that are more grassroots or fledgling. You need a lot of support, so when you have a publisher who made the game really wanting to support this community, and usually it’s a loss leader. You know, Riot Games, the League of Legends, one of the largest e-sport games of the past decade, had incredible prize pools, but they weren’t making money from that; they were doing that because 75 million people were playing their game, and it built a whole ecosystem where people wanted to buy skins. They bought, you know, the – skins are, you can kind of dress up a gun or put on a uniform that are exclusive, your friends all see it, and you pay money for that.

James West:   Oh, so that’s your new sort of persona?

Menashe Kestenbaum: Yeah, that’s your avatar online, you know? This is who you are in real life and off online.

So you know, a lot of that is just to foster the community and get more people playing the game, even if they’re not at that high echelon of talents.

James West:   Interesting. So then, from an investor perspective, if I’m an investor in Enthusiast Gaming, what am I going to look for in the next 6, 12, 24 months that are representative of value catalysts?

Menashe Kestenbaum: In the industry, or in the company?

James West:   In your company specifically.

Menashe Kestenbaum: Well you know, the big thing is that I started this little blog, and you know, when we started April 2016, we had $350,000 in revenue. A year later, we had 3.5 million, in 2017. Now we’re doing over a million a month, and in comScore, where they verify third party traffic, they’re listing us as Number 5 in North American gaming traffic. So, you know, the ones above us, like Number One is Twitch, which was acquired for $1 billion by Amazon years ago. They’re worth way more now, and you have IGN, Game Spot, Curse – all institutional – and then you have us as the independent who just recently appeared on there, and climbing up the ranks.

So I think our goal is to continue growing our user base, our 75 million visitors to a larger number, and get up there, you know, with the top one or two. So user growth is important to us, revenue growth, as we’ve continued growing extremely aggressively. Then we also continue to have Canada’s largest gaming convention, which was kind of an offshoot for our community of saying, Hey, why don’t you guys meet offline, in person, and, you know, come face to face?

James West:   Make it real.

Menashe Kestenbaum: Yeah. The first time we did that, we had 1,700 gamers come to it; a year later we put it on, we had 12,000 people come.

James West:   Wow.

Menashe Kestenbaum: And this past one we had was 25,000.

James West:   Wow!

Menashe Kestenbaum: Yeah. So our next one is happening end of this month, October 26th to 28th. We actually moved from the airport in Toronto to downtown Toronto, and we expect 40,000 people.

James West:   At the Convention Centre?

Menashe Kestenbaum: At the Convention Centre.

James West:   Yeah, you need a big venue. Wow!

Menashe Kestenbaum: It’s pretty much a combination of the whole gaming scene in Canada.

James West:   That’s incredible. So, at the end of the day, this is a media company.

Menashe Kestenbaum: This is a media company with tech being built on top of it to give you one account and ID as a gamer across the internet, across all of our sites. But we’re really a community platform. So right now it’s mostly media and content, but as we move on, I think it’s going to be a lot more of tech and events that help power the community. So I would say it’s a blend of three different industries all together, forming one community.

James West:   Okay, Menashe, that a fascinating interview. I’ve got to say, I’m newly enlightened in the whole realm of eSports.

Menashe Kestenbaum: You’re going to have to digest that.

James West:   Yes, I am. I am going to have to. At least I’m going to learn the language now.

Menashe Kestenbaum: Yeah.

James West:   We’re going to leave it there for now. We’ll come back to you in a quarter’s time, and maybe we’ll come down and shoot some segments at your convention, if we can.

Menashe Kestenbaum: Sure. 100 percent.

James West:   And we’ll follow the story with interest and have you back soon. Thanks for joining me today.

Menashe Kestenbaum: Thanks so much, thanks for having me.

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