February 5, 2019

Chris Parry on the Viability of Esports Investing

Midas Letter
Midas Letter
Chris Parry on the Viability of Esports Investing

Equity.Guru consulting journalist Chris Parry shares his impressions of the Cantech Investment Conference and the viability of esports as an investment opportunity. Parry notes that esports garnered considerable attention at the conference but warns investors to avoid making the same mistakes many experienced during the cryptocurrency boom. Parry believes there is money to be made in the esports world but doesn’t think esports teams or competitions will generate much profit for investors. He sees owning games as profitable but highlights the significance of esports infrastructure as an investment opportunity. Parry anticipates companies that host esports games will prove lucrative as will companies that build the data storage infrastructure for gaming as it grows in size.


James West:   Is the Chief Editor, Proprietor and…

Chris Parry:  Publisher…

James West:   Publisher, chief cook and bottle-washer of all things Equity.Guru, Chris, welcome back.

Chris Parry:       How’s it going?

James West:   [laughter] It’s going fantastically. We have been observing from across the country, like from our various positions across the country, the unfolding of the cannabis market. You and I have both been in some deals together, we have been on opposite sites of the opinion ladder on a couple of things.

Chris Parry:  Oh boy, have we!

James West:   Couple of things…yet we remain friends. Why is that?

Chris Parry:  Because you went the pack of Lewis kind of loose hit, and I appreciate that about you.

James West:   [laughter] I see. Well, I’m going to have to send you my tailor, then, aren’t I? No, so you were down at the Cantech conference –

Chris Parry:  It’s okay to disagree with each other, because opinions are based on due diligence, and that doesn’t have to black or white.

James West:   Well yours aren’t; mine are just based on who’s paying me. No just kidding me (laughter) That’s a joke I’ve been wanting to make for years. Um, you just came from the Cantech conference; what did you see down there that you liked?

Chris Parry:  I mean…the buzzword is esports. Everyone is looking for where they can put their money in esports, and I guess the title of my keener was don’t make the same mistake you made in Blockchain in export, you rubes.

James West:   You rubes. In case anyone was wondering who that refers to, that’s you!

Chris Parry:  Well, let’s just not be effing idiots about things, right, like we were last year? Look at the cannabis industry had this moment in 2014 where everyone was high on cannabis, no pun intended, but didn’t really know what they were going to do with it all, and eventually there was an industry. Blockchain, same thing, eventually there’s an industry. Lithium and cobalt had their moments; they’ve gone away now, but eventually there will be an industry. And esports is going to be the same thing. There’ll be lots of money made on lots of real shitty deals that have no real business attached to, and then there’ll be loads of money lost, and in amongst that there’ll be some real companies that actually extend it.

James West:   Sure. I plan to lose some money in esports.

Chris Parry:  I plan to lose a lot of money esports. I actually already lost a lot of money in esports; my kids spent $6,000 on my credit card on purchases, individually with one another, without telling, at the same time. 1500 at my door or 4500 by my –

James West:   Geez, you’ve got to keep better care of your credit cards, eh?

Chris Parry:  Well, they’re doing 600 hours of community service in the backyard as a result.

James West:   Yeah. Community service.

Chris Parry:  When you lose that much money on something, the first thought is, ‘I’m going to kill them’. The second thought is ‘How I get on the other end of that?’

James West:   Sure. The esports thing is interesting to me because I had a young fellow start to DM me on Twitter –

Chris Parry:  We don’t need to talk about that, James.

James West:   Well this is interesting. That didn’t go anywhere, but he had this idea: he was trying to get me to fund his esports team. And at that point I said, well, what is esports? And he explains to me that he has got a bunch of young guys who are proficient competitors at various video games, and that some of the video game producers have started to put up big purses and he had created a business where he was basically putting these teams together, giving them a living wage, which for a 14 go 16 year old kid is almost Nirvana from heaven, and manna from heaven – somebody pointed out that I was mixing that metaphor – anyways, and I said, So, great, that sounds great. What size purses are you winning?

And he says well, the biggest one coming up this year is going to be $55,000. And I’m like, you know, that’s not really the essence of a public company.

So then I had a conversation actually on the weekend down in the Southern United States with a gentleman who’s probably one of the more prolific promoters in the street, and he told me about a deal where he was going to partner up with one of the major franchise in professional motor sports. And he laid out sort of a business model that made perfect sense and sounded like it could be worth hundreds of millions of dollars.

Chris Parry:  Just like Blockchain.

James West:   Well, just like Blockchain, I never bought into, because Blockchain to me, the fallacy was –

Chris Parry:  But you missed out on so much money on the way up.

James West:   Well, I did, I did, but my objective is always to buy low and sell a little lower. So Blockchain just didn’t meet that, because the stocks were all going too high.

Chris Parry:  Right.

James West:   The esports, show me a business model I can wrap my head around, that doesn’t base itself on the idea that if you can program something and explain it to me in such a complicated way that I have zero hope of understanding it – and that’s worth billions of dollars – I’m out. And if you can explain it to me in a way that makes total sense and actually, you know, something that a simpleton like I can wrap my head around, then I’m in. So I’m on the fence about esports, and I want to ask you: is there any esports company that you can talk to that’s publicly traded, that looks like a winner?

Chris Parry:  There’s a couple of the literal dozens that are floating around, there are certain ones that I would not touch. There was one I heard about recently where they were planning to up a gambling operation on e-sport, and the last thing I ca think of that I want to put $100 on is an Eastern European 15 year old black Fortnite not throwing a game.

To me, owning the games is where the real money’s at. If I own Fortnite to sponsors in the game.

James West:   So the way to play esports is to buy the publishers of the games?

Chris Parry:  Yeah! Like if you’re running a team and you put a sponsor on someone’s sleeve, that’s not making you anywhere near as much money as if the sponsor is in the game itself. Or if it’s running an ad in the middle of the tournament that you don’t run.

So that’s my one problem with the ‘let’s build teams for esports mode’.

The second one is, you’re holding 15 year olds to contracts. I don’t know about you, abut any 15 year old I’ve ever met, the drama quotient is extremely high. So when you’re going into a World Championship and suddenly the 15 year old says, look, I’ve got exams, I can’t come. Now you’ve got to go and find another 15 year old, you know, they have drama, they get toxic with each other, they’re in and out.

James West:   They do drugs, they shoot each other, they bang each other.

Chris Parry:  It’s all terrible, but…

James West: All those horrible things these rotten kids things do that we never did!

Chris Parry:  It’s like House Street all over again.

James West:   So right, we do that now when we’re adults.

Chris Parry:  I don’t want to be holding 15 year olds to contracts and expecting them to behave like 25 year old professional athletes. The other side of it is, we’ve got to run tournaments, we’re going ho have tournaments all over the place there’s 100 tournaments out there, and 100 games out there. The only ones that really have he massive audience and prize money are Dota 2, which fills stadiums, and League of Legends, which fills stadiums. As you get down the levels there, there’s a whole lot of games that have an audience and people will watch, but there’s not real great must- have, it’s like if somebody told you they were starting an arena football team you would be like, ‘why?’ If you win the whole thing, maybe you win $50,000 and that’s where we are with these sports;.

James West:   Right, right. So I just say to people, how many professional sports franchises are publicly traded? And there’s your answer as to the value proposition for some esports models.

Chris Parry:  And the vast majority of professional esports teams that are even recognizable are funded by retired NBA players or actors or people who’ve got a lot of disposable income. I kind of put it back to the 1980s when professional wrestling suddenly became a big thing, and there were 100 money marks out there who were like “I’m going to recreate the WWF! It’s going to be great!” And they all lost their money, because they didn’t actually know how to compete with somebody who has a broadcast deal and a sales force and owns all the talent.

So to me that while team structure of things, there’s  a couple of companies , Title Gaming is one, that is dealing with the team side of things, and they actually own some big-known teams in well-known games, and have a model there that makes some sense, because they have the ability to bring in big sponsors for big money.

As you get further down the chain, that rolls right out to zero. James, hosting it the games is the important thing. I’ve spent a lot of time with my kids playing games, watching games, and server outages are the biggest problem in the entire area, because we’ve built this internet that is mostly one-way, all right? You tell Netflix what movie you want, it sends you that movie. It does’ require you send them a movie back. Video games, we’re going to have the Netflix of video games, you have to back and forth, and we don’t have the structure to do that, yet.

Some companies out there that are starting to plan the next iteration of the internet. On Mobile, 5G is coming, but it’s going to be a battle over five years. On the other side, a company that I’ve been working for for about a year and a half, this is the first company that we’ve had go public, a company called Amped Gaming Technologies; Varsity Capital just raised $4 million for them, they’re going public in March, and their whole thing is, they’re going to build small data centres instead of massive ones. And the data centres, the heat that comes from them, we can put them in the ground floor of a condo development and the heat will heat the building. And the condensation of clean drinking water at the surface creates clean drinking water for the building, so he cost of actually maintaining that service is offset by those things, and you actually get the data centres to a lace where there might be 50 of them in a city as opposed to one in Iceland. If you’re playing a game and you’re sending your thing out to Iceland, and you’re waiting for it to to come back, that’s when you have our realm.

James West:   The infrastructure of these sports –

Chris Parry:  The infrastructure of esports, nobody talks about infrastructure anywhere.

James West:   Nobody even told me about that. Who’s doing the infrastructures of cannabis?

Chris Parry:  Nobody, that’s who!

James West:   We’re going to leave it here right now. My next gust is here. Chris, is was great to see you, we’re going to have to catch up gain at the end of day after the show, maybe at the Prabda event tonight?

Chris Parry:  The last time I went drinking with you, it was not a good scene.

James West: [laughter] No, you became a legend last night!

Chris Parry:  For all the wrong reasons.  People still tell me what I did that night.

James West:   You bet.

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