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OverActive Media and the fast growing opportunity in e-sports

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Canadian-listed OverActive Media [TSXV:OAM] is active in the already red hot e-gaming and online sports sector, which is enjoying massive growth globally. In its last set of results it reported a 3.5% growth in Q3 revenues and adjusted EBITDA of CAD 0.8m.

Founded in 2018, OverActive Media controls a number of interesting e-sports subsidiaries. For example, it owns a franchise in the Overwatch League, in which permanent, city-based teams compete in an international league based on Blizzard Entertainment’s Overwatch gaming franchise.

The company also owns MAD Lions, a Spanish esports team, which competes primarily in League of Legends competitions.

Moving from investor to owner

OverActive Media was originally a Canadian e-gaming venture called the Ledger Group. It rebranded when it decided to move from an investment model to take more of an ownership role in the sector. This was marked by its $1.5m investment in Splyce, a professional e-sports and media company in New York.

Since then OverActive Media has been moving aggressively into the space. acquiring a team later to be called Toronto Defiant, which competes in the aforementioned Overwatch League. It has also picked up a franchise spot in the Call of Duty League (Toronto Ultra).

OverActive recently announced it was trying to acquire Spanish esports brands KOI and Movistar Riders, which have now entered into definitive agreements. Spain’s Telefonica has just signed a multi-year partnership with Movistar Riders. In this case, if the deal does go through, Telefonica will pick up a stake in OverActive Media. This represents potentially the largest partnership in OverActive’s history to date.

Going even further, the company has unveiled plans for a dedicated e-sports venue in Toronto, which can host its teams in front of audiences of up to 10,000 people, as well as doubling as a music venue. This is expected to be completed in 2025.


The fast-growing e-sports investment story

For older investors, e-gaming may seem like an incredible idea as a field for lucrative professional sports, but its spectacular growth over the last five years has demonstrated the clear opportunity for investors.

The real key to e-sports from a revenue perspective is the live streaming of professional events. This has seen remarkable growth during the pandemic, when it was not possible to host live events in physical venues. In 2019, according to figures from industry specialists Newzoo, there were over 200m e-sports casual viewers, plus over 190m enthusiasts. By 2022, that combined international audience had exceeded 520m.

Newzoo is predicting that the CAGR for global e-sports audiences is around 8% for the period 2020-25, and that total global e-sports audience will break 640m by the end of 2025. This could be a conservative estimate in my view. For example, we are seeing the fastest growth in markets like Latin America, the Middle East and Asia, and these represent huge potential markets for e-gaming and advertisers going forward.

For companies that want to reach a younger audience with disposable income, e-sports represents a dream come true. And we’re seeing that in the revenue numbers. Average revenue increase was over 30% in 2018.

Revenues have been creeping up steadily. Industry specialists had expected them to drop during the pandemic, because of the closure of live e-sports venues, but this has not been the case, with advertisers leaping on the online opportunity during 2020-21.

In 2022 the industry brought in US$1.38bn in revenue, with China accounting for approximately a third of that. This is anticipated to hit US$1.8bn in 2025, with a CAGR of 13%+.

A few things about professional e-sports jump out here:

  • Steady industry growth numbers, including right through a pandemic, and the subsequent global economic difficulties
  • Limited impact from China’s zero COVID policies
  • Young and growing market
  • A sector seemingly not dented by the slowdown in retail spending
  • At the cutting edge of the rapid changes in technology and communications
  • Exposure to the relatively young (and increasingly affluent) population dynamics enjoyed by economies in areas like Asia, Africa and Latin America

What makes OverActive Media look interesting

OverActive Media is carving itself a very interesting niche in this fast-growing market. Just taking one example: it recently hosted a Call of Duty league event in Toronto at the Mattamy Athletic Centre, which was sold out over two days, with a capacity of 9000 fans per day.

Year to date, OverActive Media’s own professional e-sports teams have reached more than 42m hours watched across all its tournaments.

In its latest set of results, the company reported almost CAD 10m in cash. CEO Adam Adamou, also the company’s co-founder, said OverActive Media was in a strong financial position and should be receiving CAD 7.3m from the Overwatch League shortly. He added that the operating profitability that OverActive Media now enjoys [the first time as a public company] is a direct results of the company’s focused approach on operational efficiencies.

OverActive Media’s leadership role in discussions between leagues and publishers regarding a sustainable esports ecosystem was highlighted when the company struck an agreement with the Overwatch League in June valued at CAD10.8 million, most of which will be recorded in the second half of 2023.

Since then, Activision Blizzard has further disclosed that an additional CAD7.9 million (US$6 million) may be payable to each team participating in the league, including OverActive Media.

This entire industry is still very young, and in many respects it is still finding its way (e.g. in the relationships between teams, leagues and the software groups). But this has always been the way with emergent professional sports leagues. Technology has provided the platform for what I consider to be an extremely dynamic growth story over the next few years which is already starting to prove its credentials for savvy investors.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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