SMALL CAP IDEAS: Beckham-backed Guild Esports

Competitive video games such as Fortnite, Rocket League and League of Legend, combined with the enduring popularity of Call of Duty and Super Smash Bros mean traditional sport is facing unprecedented competition for viewers’ eyeballs from the high-octane digital world of Esports.

Just don’t call it niche.

‘I don’t see that we’re niche,’ said Jasmine Skee, chief executive of standard market-listed team organisation and lifestyle brand Guild Esports in response to using the term to describe her chosen industry.

‘When you look at the numbers, you’re looking at 600million fans globally, which is just behind basketball and cricket, and we’re ahead of the NFL and baseball.’

Guild Esports signed around £10.7m worth of sponsorship deals in 2022

Point taken. But when valued at less than $1.5billion globally, the budding industry is clearly struggling to capture value from this legion of digital-native spectators.

The overwhelming majority of Esports team organisations’ revenues come from the sponsorship deals they are able to ink, while tickets and merchandising make up only 8 per cent, despite being the fastest-growing segment.

However, things are changing rapidly. Global Esports revenues are expected to show a compound annual growth rate (CAGR) of 13.4 per cent, with global audience size projected at 8.1 per cent  CAGR, skewed towards young men, though women comprise around 34 per cent of fans.

China makes up around a third of the addressable market, while Southeast Asia, Central Southern Asia, and Latin America are the fastest-growing regions.

Barclays researchers suggested a $9.6billion total addressable market (TAM) in the Esports sector by 2030, or $11.4billion if including Esports betting.

On the player front, Johan Sundstein (aka N0tail), who rose to prominence in the battle arena shooter Dota 2, is considered the wealthiest Esports player of all time with over $7million in prized money amassed over his career.

Jaden Ashman is the highest-paid UK Esports player overall with a total of over $1.3million (£1.08million) earned from online shooter Fortnite in his career, according to Guinness World Records.

Team organisations do take a cut of their players’ winnings, but the bottom lines live and die on the sponsorships deals they are able to ink, at least for now.

So far, big-name global brands have not shied away from the opportunity to get their products to the eyeballs of this massive audience.

Guild, for instance, signed around £10.7million worth of sponsorship deals in 2022 with the likes of Coca-Cola, Sky UK, Samsung and cryptocurrency exchange Bitstamp.

The group also renegotiated its own brand ambassador agreement with football legend David Beckham.

The group renegotiated its brand ambassador agreement with football legend David Beckham

The group renegotiated its brand ambassador agreement with football legend David Beckham

Even so, Esports sector’s greatest potential – and challenge – remains in fan monetisation.

While sponsorship deals have proved to be lucrative, those 600 million fans worldwide represent an opportunity of massive scale that has yet to be properly realised.

Perhaps the industry has a stigma to overcome before Rocket League and Fortnite tournaments are able to bring in the broadcasting rights revenues enjoyed by ‘real’ sporting tournaments.

Despite the wider video gaming sector comprising over three billion customers generating more revenues than the entire film industry, mainstream press coverage is still comparatively small, while moral panics around video game violence and their addictive nature persist.

Additionally, experienced journalists are few and far between.

According to Skee: ‘Journalists need to be able to explain the game that they write about, but Esports changes so quickly… So one of the challenges we have for becoming mainstream is finding journalists who understand Esports to the level that it needs to be understood so that it can be written about in the mainstream press.’

For the moment, investors seeking exposure to this engaging, rapidly growing sector should look at the pedigree of sponsorship deals these team organisations are able to secure.

Therefore, marketing, advertising and branding expertise at the executive level is also important especially as more and more Esports organisations are looking to the stock market to raise funds.

Care is also needed. One of the biggest names in Esports globally, FaZe Clan listed on Nasdaq in July 2022 through a reverse merger with a B. Riley-owned special purpose acquisition vehicle (SPAC).

The deal valued FaZe Clan at $725million, nearly 30 per cent lower than its initial $1billion valuation. FaZe Clan’s share price has since dropped 95 per cent and faces being delisted.

Here in the UK, Guild is quoted on the junior market with a market capitalisation of around £6million. Guild shares are changing hands at 1.15p currently.

Clearly, Guild is a small player in the grand scheme of things but with high-profile competition wins and top-tier sponsorship deals under its belt, it is worth keeping an eye on.

This year, it is targeting an annual sponsorship revenue run rate of approximately £5million with a reduced cash burn. Discussions for an equity fundraising are also in their early stages.

Make no mistake, Esports is a high-risk, potentially high-reward play with a bumpy road ahead before generating consistent returns, but at some point all that latent sector potential will be tapped.

As for the fate of the industry, ‘I think the future is Esports,’ said Skee. Game on!