COVID changed nearly every business across the marketplace for better and worse, but a market that has seen incredible growth in the last two years is esports.
One of the latest companies in this space to go public in Canada can attest to the fact that while the sights and sounds of the crowd cheering were missed, the excitement remained.
There is more to esports than just games on computer systems and X-1 Esports & Entertainment (CSE:XONE, Forum) is a diversified portfolio company with three main business units: media and network, agency services, as well as gaming and esports.
X-1 acquired U-K-based Rix G-G, a competitive esports organization last year and this year, the company is working to acquire agency service Tyrus dot T-V and media network Shift R-L-E.
The Market Herald was recently joined by the company’s CEO Mark Elfenbein to learn more about the company’s plan to build upon its existing portfolio of assets via a combination of organic growth and accretive M and A.
TMH: Thank you for joining us today. X-1 went public on the Canadian Securities Exchange on June 29th. For those new to your business, can you tell us a bit about the company?
ME: Well, really it’s been about a one-year process in terms of growing the business, getting it in state that you’d actually want to take a video game business like this public and then somewhat of a process to do an actual IPO listing versus an RTO listing but we think there’s great benefits of the IPO.
TMH: Could you tell us about yourself and your history in the industry?
ME: Well interestingly, my family started what became the largest music business in all of Canada. It started in Winnipeg, it was a business called K-Tel records and really kind of jumped me into the entertainment business, became a public company. It was a multi hundred million dollar business but from there I co-founded a video game company that is quite similar to what we’re doing at X1 and that business was called Fun Technologies and traded on the TSX under the symbol FUN and the company IPO at a very similar valuation, we rolled up seven to eight gaming assets that were in the e-sports and pay to play gaming and fantasy sports area and we sold that business within about three years of being public to Liberty media for just under 500 million.
TMH: Let’s talk about some of your completed and potential acquisitions, starting with Rix G-G?
ME: Yeah, sure and Rix G-G was really our first foray into the video game industry and just one nice thing about the video game industry is that this industry now dwarfs the size of the combined music and filmed entertainment industry at about $180 billion in 2021 and obviously as technology advances, the video game industry keeps reinventing itself to the point where there’s thousands of startup companies that are quite successful and operate in the video game industry, which led us to Rix G-G which specifically operates eSports teams in Europe and interestingly one of our most popular team is an all women’s team that competes in a first person shooter game called Valorant, which is a top three competitive video game in Europe and we also have another team that competes in the League of Legends mobile version of that team sport in Europe and is a top two team in Europe. So this e-sport category is a very exciting category but really compromises a piece of the overall video game industry.
Additionally moving from there, we have our site set on a few very interesting acquisition targets in our prospectus we noted that we signed you know, term sheets to acquire two very interesting businesses. One of the businesses really competes in this content creator economy, which also is a very exciting theme out there and very connected to video game industry and really what this industry is If you think about it years ago as a choice as a viewer, you had maybe a few different networks you can pick from and maybe 10 or 15 really popular shows fast forward to today, you have over 50 million people that consider themselves content creators. They may be experts in home gardening tips, cooking but a big piece of them are these video game streamers that broadcast themselves playing video games or comment on others. One of the first acquisitions that we’re looking at, that we signed a term sheet on operates specifically in this area and manages all this tremendous talent, deploys the content, optimizes it for TikTok and Twitch and Instagram and YouTube and we see this as a tremendous growing area.
TMH: That is the big part, right? Tiktok is the big thing right now.
ME: It really is and if you look at TikTok, there’s over, I think the last stat I saw, there’s over a billion installations of TikTok And if you look at the most recent Netflix numbers, the Netflix users are moving from long form content to short form user generated content that TikTok has. So we think those are great tailwinds for the businesses that we’re participating in
TMH: What drove the decision to do an IPO instead of an RTO?
ME: Well, really we liked the IPO. So on day one, we’re going to have a very tight share structure of less than 10 million shares in the float. Everybody that invested on the IPO are also early investors In our case. in the case of an RTO, a lot of times you’re inheriting a shell you’re inheriting legacy shareholders that are not invested into the future and maybe have very low cost basis to sell their stock. In our case, everybody’s invested into the future. We have this low share count and while it takes more work to do the IPO, we think there’s great benefits for the new investors in the company.
TMH: What are some of the top games that draw the biggest audiences?
ME: Yeah and this is evolving. So if you go back to the day, Atari was popular, it was very rudimentary fast forward. Now you’re in virtual reality, incredibly immersive games. The most popular game out there is a game called League of Legends, which is kind of like a fantasy role playing dungeon and dragons game with incredible capabilities. One of the pro eSports we operate in is the mobile version of that game but the viewership for the championship of this game was larger than Las year’s super bowl. So incredible eyes, there’s a broadcasting channel called Twitch, which was acquired by Amazon. There are over 130 million monthly unique users that watch people play video games live and when you log into Twitch at any concurrent time, there’s a hundred thousand different channels available to users. So incredible popularity.
TMH: I feel that the world of the virtual reality is just insane. I feel like you have probably played virtual reality quite a bit or you have it at your home. You just strike me as that type of person, maybe I’m wrong.
ME: I’m kind of maybe one of those more early adopters but it’s really tremendous. If you look at the Oculus Quest and what you could do there, you can really see the future of where this is moving. It’s also incredible just for community social activity. You can connect with anybody across the world and literally virtually meet up and play a game together wherever you want, which is just a tremendous way to spend time with your friends.
TMH: Yeah. That’s what people were wanting basically during COVID to be with people without being with people.
ME: Yeah and that really accelerated the video game industry during that period of time, it’s growing around 10% to 15% annually. And I can’t think of many other industries that are growing at that rate.
TMH: Could you tell us a bit more about the creator economy of X1?
ME: Yeah And so the creator economy really ties into one of the first companies that we’ve signed that term sheet to acquire and just digging into that a little bit more creator economy really refers to people that have special interests that are broadcasting themselves direct. so it’s really the decentralization of media where you would traditionally have to go through a big filmed entertainment company to reach people to become a celebrity. Now creators are reaching huge audiences from their own homes and in some cases have tens of thousands to over a million followers and in fact, specifically in the video game creator economy, where people are broadcasting themselves playing games or commentating, some of these content creators are making well over a million dollars a year on sponsorship revenues.
TMH: Many were tracking the gaming industry since the start of the pandemic. From your experience, how has it grown in the past two years?
ME: Yeah, so one thing that’s very interesting back in 2016, when all the industry numbers came out, they were predicting the industry to be at about $90 billion in 2021. However, the real number was %180 billion in 2021 And the new estimate show that the industry in 2025 will hit about $275 billion in valuation.
TMH: What do you predict for the industry’s growth for the rest of the year into the next?
ME: Well, I think we’re seeing continued growth. What’s really nice for our company because we’re looking at acquiring a lot of these businesses. It’s very fragmented. There’s lots of startups out there that weren’t around a year ago that are getting a lot of traction and maybe have just a little bit of difficulty growing, not as wise in the capital markets but as part of our X1 ecosystem could really realize all of the upside of what they can obtain.
TMH: Thank you again for your time today, anything further to add?
ME: For anybody that is thinking about investing into the video game industry or this new burgeoning content creator economy, we think X1 could be a great proxy for that And think it’s a great opportunity.
For regular updates, visit x1esports.com.
FULL DISCLOSURE: This is a paid article produced by The Market Herald.