By 
Red 7
“I don’t know what ‘Red 7’ means”. — John Beckwith, Wedding Crashers
Around the Street
- Earlier this month LEAF announced their LOI to acquire ESG, a cornerstone Canadian mobile gaming asset as a first major step in creating a ‘Constellation of gaming’. This week they announced that Birgit Troy (CFO of the largest operating group under Constellation Software) was joining the Board along with Jason Bailey (ESG founder) and Jonathan Bixby (co-founder of Koho). link
- Bragg Gaming (BRAG) printed their $12.5M financing (Haywood 15 points) this week and announced an upsize to $18M. Congrats to the Adam, Yaniv, and the team. link
- EGLX corporate update from Adrian, Menashe, and the team. The tl;dr here is 300M gamer MAUs. A lot of interesting folks want to access that network. Have a look at HSBC initiating coverage report on Bilibili. They started out as a niche community for Japanese anime fans, and now have 196M MAUs (research link).
- Mike Cotton and Jon Dwyer announced their transaction with Transglobe Internet and Telecom. They are good buddies and want to congratulate them on this big step. 1Wondr Gaming is now on the go-public highway as they build a rewards platform for the gaming industry. link
- Scopely (private gaming consolidator) raises US$340M at a US$3.3B val (2020E bookings: ~US$900M / 2019A bookings: ~US$450M) link
Weekly Note
In the Globe this past week from Cathal Kelly on sports:
1) What if fans start to enjoy going cold turkey in this impending nearly sports-less winter? link
- Once a fan discovers her team, sports viewership provides her life with ballast. Season starts in October. Ends in April. Hopefully, really ends in July. A few months to recharge, and then you’re off again. But not anymore.
- The longer people go without all sports, it is only natural that they are more likely to find something else to fill that entertainment void. Perhaps permanently.
2) Sports culture is becoming hostile to casual fans, and maybe that’s why the ratings are so bad. link
- And yet Game 1 of this World Series was the lowest rated in history. According to Nielsen, fewer than 10 million Americans tuned in. The only other time that happened was 12 years ago – Rays vs. Phillies. And the first pitch of that game was rain-delayed by an hour and a half.
- This is part of a broader pandemic trend in which TV ratings are down – in some cases, have cratered – across all major leagues.
- That fan, the one who just wanted to turn off his brain and watch a game, is still going to find sports a chore whenever things get back to normal. Except now, he knows he can live without it.
Let’s unpack this. It’s not the first time I’ve written about sports during covid. At first I thought it was just me, a hopeless Irish fan and a hater of the perennial Patriots bandwagon, who had lost the ability to care about sports. So I took off my rose coloured glasses, did some reading, and realized it wasn’t. Unless you’ve been living under a rock you’re most likely up to speed that nobody cared that Lebron was in the Finals, that most people have already forgotten who won the Stanley Cup or it even existed in the first place, and that football just isn’t quite what it used to be. Across the board we are talking about record low ratings for sports. This is at a time where, in theory, many more people are working from home and therefore should have time to care about sports. Except, they aren’t. Let’s quickly recap the cold hard facts:
- NBA Finals ratings plummet to 5.6M, the lowest on record
- Bundesliga international (soccer) media rights deal reset 20% lower after domestic rights price was also reset lower. Serie A set to lose $500M due to COVID
- MLB could lose $3B in revenues due to COVID. MLB postseason opened to weak ratings
- Stanley Cup ratings down 61%
- NFL ratings down 8% on average. SEC regular season opens to weak rating
So, what’s happening here? To quote Cathal Kelly, “Netflix is getting so desperate it is pumping out documentaries instead of the usual addictive trash. So, what are you going to do? Read? Don’t even try lying to me.” With a captive audience at home, this was supposed to be the time for sports. People were tapped on Netflix, or Crave, or Apple TV+ (yes that exists). The movie industry was gripped by the simple fact that actors can get covid, and post-production isn’t quite what it used to be when everyone is all over the map. So, there’s been no new movies, Netflix content is getting stale, and nobody reads anyways. Sports was what was supposed to unite everyone in typical sports fashion and guide us through the pandemic. It was supposed to be March Madness on steroids. Yet it was exactly the opposite.
The really interesting question is: why is sports struggling?
The common answer is ‘covid’, and that it will come back next year. But what if it doesn’t? What if this truly is part of a broader trend. Covid has brought ten years of transformation forward in ten months. Is sports part of that transformation? The data says that sports was already under pressure:
Source: Street Research
The simple reality is that sports competes for our most precious resource: time. So does Netflix. As does gaming. That is the nature of the entertainment business. All content verticals are competing for consumer time. When an entertainment vertical is struggling in the face of a macro change that has legally forced people indoors to consume digital entertainment, and they’re not consuming your brand, that is a strong basis for deep concern. That is where you quite literally have to think about adapting or dying the slow death.
You know where this is going, because I’m the gaming guy. I’ve printed the quant all day long on the performance of gaming out of covid (record breaking growth), the performance the last ten years (gaming eats entertainment), and the continued projected growth (gaming eats the world). All you need to do is look at your kids. They tell you exactly what all the numbers are telling you. They vote with their eyes, and their vote is gaming. They couldn’t tell you who threw a pick six on 4th and goal on the wrong side of the 2-minute warning, but they can tell you who won the LoL Worlds.
Which brings us to the key question: what are the cool kids doing? This is the social question that is fundamental to the lens through which to look at entertainment. We are fundamentally socially beings. We like, for the most part anyways, human interaction. Most of us value our choices based on what other people think, whether we like it or not, it’s a cognitive bias. For those of us who grew up in sports, we certainly defined our relationships with many people, in part by their view on sports. Who we cheered for, what sports we liked, what games we had been to. We would regale our friends with stories, and the social experience of sports became this glue that not only helped hold us together, but also held sports together. Even if you were just meeting someone for the first time, by phone or in person, if they were a Cheesehead, you instantly knew something about them.
Ladies and gentlemen, that is disappearing for sports, and blame your kids.
Let me explain this with a story. When I was in high school on the backside of the 2000s, there was a kid named Tyler in our school. There was nothing special about him. He wasn’t the QB on the football team. He wasn’t on the basketball team. In fact, he didn’t play any sports at all. But somehow all of us knew that he was top 100 in the world in Call of Duty Modern Warfare (the og version that changed everything, not the flashy re-skin the kids play now). Our parents had no idea what this meant, but to us gamers, this guy had cred. This was still in the very infancy of widespread online play. In fact, CoD Modern Warfare and Halo 2, brought online console gaming to reality.
Today, there are now Tylers everywhere, for every game. More people watch the Tylers of the world on Twitch, than watch Russell Wilson on primetime. We have entered the era of the celebrity gamer. What that says to all of media is very profound because it reaches into that social fabric that is most important to us: gaming is cool and gamers are cool. When the playground of, not the future, but today, is in the digital realm, it makes sense that the best in the playground gain social clout. The social binds that made sports what it is for us today, are the same social binds that are making gaming cool and pro gamers wealthy.
This simple dynamic is what keeps the stakeholders of traditional sports up at night, and if it isn’t, it should be. Sports will not die, but will just be relegated, changed and diminished. It will be forced to tie in with gaming, not for growth, but for survival.
I’ll leave you with a question. Think back to when you were a kid, what you did for fun, what defined your social circles, and what defined who was ‘cool’ and who wasn’t. Now look at your kids today and ask that same question. What do you think will be the glue that holds them together in the future?
