Lurking in the shadows of a darkened room, the image of video gamers in the popular imagination is of geeks hunkering down to play for hours on end, ignoring calls from parents for lunch, dinner or parties. As technology got better, they would play with their friends online and video gaming evolved.
That picture is now changing rapidly and Esports Entertainment Group (OTCMKTS:GMBL), or EEG, hopes to rake it in on the estimated 350 million game enthusiasts worldwide. The numbers are exploding exponentially and EEG's president and chief executive, Grant Johnson, hopes this will allow his company to cash in.
"It's very global in its approach," Johnson said in an interview with Proactive Investors. "My belief is that the rate of adoption will happen more quickly."
As an experienced industry veteran, Johnson enjoys playing video games himself. He used to play as long as six hours in his earlier days but now keeps it down to two hours at a time. "I am not over the top," he said.
EEG is an internet gambling company for the new world of professional video games. Much like traditional sports gamblers betting on their favorite EPL team, EEG allows e-sports fans to bet against each other in support of their favorite e-sports team. Sounds far-fetched? Wagering is already in the billions and is expected to surpass US$23bn by 2020. Johnson said the numbers favor the growth of EEG.
The average age of those who dive into e-sports are people in their twenties, and many are in their prime between the ages of 18 to 28. The professional e-sports player would go as long as eight hours playing in front of the screen.
"Our thesis is there is no reason to believe the e-sport enthusiast is no less passionate than your traditional sports fan," he explained.
With many US universities having already set up e-sport teams and offering scholarships to their players and the Paris 2024 Olympics considering e-sports as a full medal event, Johnson believes the future of e-sports is
sound. This is further supported by the fact 100 e-sports teams around the world have already become affiliate partners of the company for the purpose of generating income from their fans' wagering. No e-sports team has ever signed with any wagering site in history.
In an era driven by technology stocks ranging from giant retailer Amazon.com Inc (NASDAQ:AMZN) to iPhone maker Apple Inc (NASDAQ:AAPL), EEG is targeting video game enthusiasts to drive the company's growth and traditional investors to profit from it.
Johnson is not sanguine about making the company a runaway success, there are headwinds.
Among them, he pointed to banking and government regulatory interference, which were significantly diminished earlier this year when the US Supreme Court eliminated a 1992 federal law on sports betting. Though many states plan to take advantage to set up their own sports books, the only places where sporting books have been legal all these years is Las Vegas, Nevada, and Atlantic City, New Jersey.
Connecticut, Mississippi, New York, Pennsylvania and West Virginia have passed laws allowing sports betting and about a dozen other states may soon join them. Despite the fact EEG will seek out opportunities from this, the company's business model never contemplated any revenue from the United States at this time and is continuing its focus on the enormous global online audience of e-sports fans and people already placing bets and growing very rapidly.
Another factor the EEG chief executive is looking at would be "the big gambling houses trying to move in" on e-sports betting. However, he points to the fact that traditional online casinos have failed to penetrate the e-sports world due to a clash of cultures in which e-sports enthusiasts look at such providers as outsiders simply looking to take their money. This is further exacerbated by the fact they use a "house" model in which players
play against the casinos, which can put the odds in their favor.
EEG, on the other hand, uses a Player-to-Player model (P2P) in which e-sports fans wager against each other. EEG simply takes a percentage of the wager but otherwise has no interest in the outcomes. E-sports enthusiasts overwhelmingly approve of this model.
EEG's 10Q quarterly statements filed with US regulators showed total operating expenses of US$2.06mln in the first nine months ending on March 31, 2018. Those expenses are sharply up from US$484,726 over the same period a year ago.
Johnson said they are growing just like a technology company that is focused on being first to market, ramping up operations and signing as many partnerships as possible. Hard numbers that will accurately reflect how they actually performed will only become available in 18 months to two years down the road.
"We just got all the pieces together. We want to make sure all the pieces are in place," he said. "I believe we will be one of the top 10 operators" as an online gambling exchange in the coming years.
Focusing on Europe
Johnson told Proactive Investors their focus for the moment is on the European markets along with the Asian market as well. With that in mind, the company staged exhibits at Gamescom 2018 in Cologne, Germany, from August 21 to 25 and just announced the signing of an additional 193 affiliates, a 220% increase over the same conference in 2017.
On its website, EEG said it is governed by the US Securities and Exchange Commission, as well as gambling commissions and regulators in multiple jurisdictions. It is also planning to uplist in the coming months. Esports Entertainment Group is the next generation online gambling company designed for the purpose of facilitating as much of this wagering as possible. It is licensed and regulated to legally conduct e-sports wagering.
"The e-sports betting community will be on par with the other sports," he said. Johnson compared establishing a betting exchange with "building a stock exchange."
"We know there's demand," he said of betting on e-sports. "Now it comes down to execution. With 100 e-sports teams and 250-plus e-sports influencers as our partners already, we're well on our way to becoming a dominant player in this space."