When worlds collide: Esports Entertainment Group on M&A, Nasdaq and the future

“Having the two worlds collide will be an interesting journey,” says Stuart Tilly, whose Argyll Entertainment business was recently acquired for a cool $4.5m by Esports Entertainment Group. Argyll, whose brands include SportNation and RedZone, is the first successful acquisition from Malta-based esports operator Esports Entertainment Group, in a move which has seen Argyll CEO Tilly and CFO Dan Marks onboarded as new executives. It signals just one rung on the ladder to domination for EEG CEO Grant Johnson, whose five-year journey to a Nasdaq listing is becoming a new start, instead of a grand finish. A US licence procurement arm has been launched in New Jersey, a 10-year Maltese licence has been secured, and an affiliate programme for its flagship VIE.gg esports betting platform has gone live in recent months. For Johnson and Tilly, esports’ ability to capture the attention of sports-starved bettors during the peak of the coronavirus pandemic points towards a positive future for the vertical. Speaking to EGR Intel, the pair discuss further M&A and what lies ahead for the Argyll brands, as well as what the future holds for esports following its heightened attention during Covid-19. EGR Intel: What convinced EEG to make Argyll its first acquisition and how did it come about? Grant Johnson (GJ): In the autumn of 2019, we determined that the best way for us to grow with a high level of velocity was going to be through M&A. At the time, we reached out to a number of advisors in the M&A industry and through that network a number of operators were brought to our attention to review, with Argyll being one of them. There were a number of elements in Argyll that made it unique for our purposes. It had $12m in revenue, it had a highly coveted UK licence, and 100,000 depositing players. But what made a key difference was they also had some executives that we wanted to bring to the C-level to further accelerate our M&A – such as Stuart Tilly and Dan Marks. Stuart Tilly (ST): We had been looking ourselves for investment as we had taken the business pretty far in the UK and wanted to embark on a new stage of growth. Being introduced to EEG, there was a natural synergy for both parties. They were hugely optimistic in where they could take us, and we really bought into their strategy of how they wanted to use Argyll and where they wanted to take the group and esports more generally. EGR Intel: How has the merger of the senior leadership teams been so far, especially for Stuart moving into the role of chief legal counsel? ST: In terms of transition, it has been quite natural and a pretty smooth process. We’ve done a lot of what we’re doing now during our time at Argyll, so there has been no real change in our roles. The life stage of EEG now reminds me of what Argyll was two or three years ago, so it is comforting to know that what we’ve been through with Argyll will add benefit right at the start of this journey. GJ: There is a phrase – it’s just like old slippers. Our team was highly directed towards esports, so Stuart and Dan and their team shores up our expertise on the gambling side. EGR Intel: What does the future hold for the SportNation and RedZone brands? Will they be taking on an esports spin? ST: From our point of view, the strategy through acquisition has always been to try and keep things business as usual. Where synergies exist, we will take advantage of those. There is an opportunity to leverage the esports knowledge and perhaps bring that in for traditional punters. Esports has been important to Argyll during the sports shutdown, so we don’t want to leave it to one side. GJ: Traditional punters are betting on esports that reflect real sport such as FIFA and NBA2K. We will be exploring ways of how to use the UK licence to bring the VIE.gg platform in for esports fans.

EGR Intel: EEG has partnered with Akur Capital. Is there more M&A on the cards or is this part of a longer-term strategy? GJ: Both. It’s to keep the pipeline of opportunities filled and is part of our aggressive long-term growth strategy. The focus is on regulated egaming companies that have a value to our shareholders. We are on the hunt for operators in jurisdictions and operators with something to offer EEG via synergies. EGR Intel: How important was it for EEG to launch on the Nasdaq? And does this $6.2m that has been raised give a validation to esports? GJ: For me, it was a five-year journey to get there and it means everything. It is a validation for esports and online gambling – no question. The reason for going to Nasdaq was two-fold, with the main one being access to capital. Access to the US capital market puts us in a unique position both in getting cash and also having a liquid stock we can use in M&A. ST: Capital is king right now and there is going to be a lot of opportunities presenting themselves as a result of Covid-19. As a vehicle to go out and grow, there is no better vehicle to do so. EGR Intel: You’ve launched the US licence procurement arm so how exciting is the US and how big of a target is it for EEG? GJ: The US market is a massive and unique opportunity. We’ve set up an office in New Jersey and that is where the focus is to start. We will also look at other states in the US as and when it makes sense. We are taking a polymathic approach in that we are looking at Europe too – there’s no reason we can’t do both. EGR Intel: Are there any more market penetrations and licences that you are interested in and exploring following on from the securing of your Malta licence? ST: The UK and Maltese licences give us a pretty big geographical target market already, so there isn’t a pressing need for additional licences. As we grow via acquisition, we will acquire new licences and it may give us opportunities for new markets, but I am comfortable with where we sit today. But never say never. EGR Intel: How is the affiliate programme shaping up for VIE.gg and SportNation? GJ: Our affiliates are on a revenue share arrangement and they’re overwhelmingly smaller influencers and teams. These include around 190 esports teams and another 400 influencers including Twitch streamers. In the esports business, only the top echelon gets sponsorship attention. As soon as you drop out of the top-20 teams, it gets pretty skinny. We’ve developed a model whereby they market EEG and they share the revenue for sending us traffic. We are going through the training process for our affiliate programme now and have about a third fully up to speed. It is a big component in terms of our organic growth. ST: Argyll has grown phenomenally through traditional affiliates in the UK and they will always be important. Coming under the EEG umbrella will bring new opportunities for new customer acquisitions strategies that we’ve never had before. We are excited to see what this brings for us. Affiliates have always been important, and they aren’t going anywhere any time soon. EGR Intel: More generally, where do you expect to see esports betting this time next year? Is this a flash in the pan or is there some sticking power? ST: I think for the traditional bettor, esports was more of a novelty product before Covid-19. But with the loss of mainstream sports during the pandemic, the vertical has been introduced to a new customer base. It’s too early to tell where esports may rank versus other traditional sports in the long term, but it is going to grow exponentially from where it was. The figures of growth are incredible. Covid-19 has brought that growth to mainstream users quicker than it would have done organically, which can only be a positive for us. The key is to see how we keep traditional bettors engaged with the product. The more traditional esports products such as CS:GO weren’t that popular; it was more the sports titles like FIFA and the NBA2K they engaged with. GJ: There’s no question that esports has been enjoying a heightened level of attention. In the US, NBA2K teams are being broadcast on network TV. If somebody had said that six months ago, you wouldn’t have believed it. Tens of millions of people have been exposed to esports that otherwise wouldn’t have. The fact people are sequestered away in their homes, everybody gets bored, you go online, and if you’re online, you’re probably gaming or on social media. Will it return to previous levels? I don’t think so, simply because the awareness is heightened. I think the percentage will drop down again due to people only having ‘x’ amount of dollars and traditional sports returning, but it won’t return to previous levels. There is an appetite and willingness to bet on esports. It isn’t a flash in the pan and we will continue to see an upward trajectory for certain. EGR Intel: What does the next 12 to 24 months look like for EEG? GJ: My personal objective is to have EEG be EBITDA-positive by the anniversary of our listing. We’re going to be taking advantage of our access to capital and the heightened profile we have on Nasdaq to acquire profits. We have also entered into a partnership with Allied Esports for a tournament at the end of August that is aimed at lower tier teams. This will give the teams a big financial boost and improves the esports ecosystem, but for us, as a gambling company, it will bring millions of viewers and they will be able to bet on these teams for the first time. If it works out, we will plan to do one tournament a month, moving it around the world. In the second year, we intend to go after larger targets. By the end of year two or year three, we intend to be the largest player in esports, and we expect to be a substantial player with multiple licences in the US and Europe. ST: In the short term, I need to figure out what these esports guys are talking about with all their acronyms! I’m excited to get on board with this journey; it’s aggressive and achievable and I think we have the structure in place to capitalise on the current situation.