Midas Letter Interview Transcript Below

Fraser Toms – Executive Producer: Hey in this segment. We’re joined by Menashe Kestenbaum who’s the founder and CEO of enthusiasts gaming which trades on the TSX V under the ticker: EGLX – how’s it going?

Menashe Kestenbaum – Enthusiast Gaming CEO: It’s going well amazing

Fraser Toms: great. So you’ve been on the show before but just quickly will go over sort of what the assets the company has; you have a ton of websites under your belt with a ton of users, but why don’t you just rattle off a couple of names and numbers?

Menashe Kestenbaum: Yeah. I mean right now we’re a massive ecosystem of Gamers representing sites social media channels and and YouTube channels; 900 YouTube and twitch channels and eighty or so massive online websites that gives us a hundred fifty million visitors monthly with us engaging creating content in this ecosystem and gathering data on everything. Some of our sites are big influential Media or Community type sites such as Destructoid, Escapist, Daily Esports, Operation Sports, The Sims Resource. So each of them represent different segmentations micro segmenting our demographic focusing on different aspects of and really engaging in providing them with the social online community to talk about Esports, talk about their favorite gaming companies and games.

Fraser Toms: Yeah, like some of these sites like Destructoid, you may go to get a review on a game you’re interested in and Operation Sports, I’ve been a member since 2007 you have a community of people are really into sports and sports games and they talk about it and post and so it’s quite the audience is a little bit different from maybe like a sitcom fan. These people actually are engaged in kind of contribute to an ongoing discussion.

Menashe Kestenbaum: Exactly. Yeah, it’s always exciting to find someone in the wild (laughs). It is like a member of one of our communities, you know, like on a plane, you know sitting next to someone says, oh, yeah Icey Veins? I’m part of that community for 10 years already. So it’s cool to see you know, these people aren’t just online. They actually exist in real life.

Fraser Toms: yeah. Yeah for sure. So let’s just dive into this big press release you guys put out there’s a lot of stuff going on, so we’re going to try to dissect it. Yeah, you’ve announced a merger with Aquilini Gameo and Luminosity to sort of become a major Esports Global leader. Yeah. So let’s dive into that first just initially the decision to go with these groups

Menashe Kestenbaum: So we spent a lot of time with the Aquilini group to understand kind of their Vision. Obviously, you know, we’ve done 12 Acquisitions over the past 18 months or so pretty much every deal comes across our plate our desk and we look at it and analyze and see what to make sense many many different Esports organizations reached out to us, but a lot of Esports organizations are just trying to get a team and do some franchise appreciation kind of a traditional sports model. We’re very data-centric analytics-Centric and user Engagement online Centric. We have our 55,000 people who came last year to our events, but that’s part of our community. It’s an ecosystem. So our understanding of the Esports world was always that the teams are really made up of people who are influencers in their own rights their massive celebrities, you know, some of them, you know, like the name everyone knows is Ninja who was part of Luminosity was founded-Steve made of the presidents of Luminosity who you know has is becoming right now part of the Aquilini group as part of this deal. He’s a expert at finding this rare talent people who are going to become stars or just on their way to becoming stars and to have those kind of influencers and that kind of a brand Equity is something that you know brings 50 million new social media followers, but it’s not just what we have in our wheelhouse right now, which is people coming to our websites and reading content. These are people who are interacting directly with their favorite stars and they have rich data; They have rich engagement. You take what we have with our data analytics and our ability to monetize because a big part of our office if you came to our office you’ll see our monetization team is quite strong. And obviously, we’re one of the first few in this space to have significant revenue streams; and even understanding our business model, we said if  we could take all of that and our sales team is able to take the data and sell across all this to provide to sponsors advertisers whether already buying from us, but now not only are you able to put ads in front of them, not only are we able to put memberships in front of them, you’re able to directly interact with them with the players. So the teams competing are part of something that gives them a championship caliber level that people really adore them. People are looking up to them puts them right in the global World stage. But if you take that kind of content of those influencers and you couple them with us, we think that’s the real model to go. It’s not something we have to guess at how we’re going to make money. We already know how to earn the revenue and how to monetize. So the team winnings is great. The sponsorships are great the attendees coming to watch them is great, but if you take all the data and all the eyeballs on there and the engagements, that’s our bread and butter. So we think that’s the real move forward in the sea Sports.

Fraser Toms: For sure, so we’ll get a little bit more into that sort of Revenue model and a bit but the Aquilini group and Luminosity just for those who might not understand, you know Luminosity a lot of people recognize it as that brain game app as and the Aquilini group. Well, why don’t you just explain like who’s involved in and why they’re noteworthy within the space.

Menashe Kestenbaum: So the Luminosity bringing that is actually different company. This one is Luminosity the Esports brand they have seven Championship caliber teams. So think of games like CS:GO, Call of Duty, OverWatch, Madden, Apex, Fortnight all the top e sports games that are being competed on the highest level of globally. They have championship-caliber teams that are winning and competing at the highest level. So you have a hundred plus different E-Sports organizations and teams in the world right now, you know ranking them various levels Luminosity is one at the Forefront in that top level Championship caliber and there’s only so many of those out there right now, we’ve built an organization’s at that level so it’s all these teams competing across the full spectrum of Esports tournaments and creating star power with with their players.

Fraser Toms: Okay, and the Aquilini Group.

Menashe Kestenbaum: Yeah. So the Aquilini Group the Aquilini’s of course are very well known for being the owners of the Vancouver Canucks the Rogers Arena. They’re one of the most prestigious Canadian families. They bring a certain Panache and a certain clout and exposure the ability to open doors as strategic Partners at a different level. So while we’ve been the scrappy, you know startup in the gaming world and growing from a Grassroots level to taking it public, Revenue Etc. There’s a whole new league that we want to be able to play on. We would like to be a global Force dominant dominant force in the space. We have very broad vision of what we like to really achieve over the next few years. So having that kind of a backing of that kind of a family that kind of an organization was really important. So the Aquilini’s set out to create this Aquilini game Co where they acquired Luminosity, they acquired the rights to the franchise in the OverWatch league for Vancouver and they were very gung-ho on becoming one of the top brands backing and creating a top brand in the Esports sector, but then they also have you know, they’re able to have the insight into Live Nation who of course puts on a lot of events at their stadium and they saw how there was this play of Live Nation being the owner of all these live entertainments events that go on and then they merged with Ticketmaster who was all these users and all this data when you put them together the data, the user base plus the content of the events became the global leader in live entertainment. So seeing that they got a certain, you know, when they saw the Esports side of it they said well if we can plug that into a user base with data who are already focused on this and and already achieving it we could really create a big monster here, you know, we could really become a dominant industry leader. So that Vision when we spoke to multiple Esports organizations and said, who would we like to pick as our horse in the race that really understands the same value system as us provides that backing we thought the Aquilini group was the one to go with for sure.

Fraser Toms: So let’s talk about the money a little bit and the way it affects the share price and so on and so forth. Yeah, so I’m seeing here. Because of the acquisition there’s 22 million in pro forma Revenue and 36 million in cash on the closing of the merger. So how does that work?

Menashe Kestenbaum: So the 22 million Pro forma is 2018. Yeah, we’re not giving guidance for we’re just saying if you took Luminosity Enthusiast gaming and our acquisition of the Sims resource in 2018, all of our revenues – that combined is 22 million. Okay. So that’s a pro forma. You know, we’ve all been growing at a rapid rate. So we will hopefully continue to achieve that growth. So what happened with the Aquilini gameCo and Luminosity was they did their last round privately at 30 cents. They set out to raise 15 million or so, I believe it was oversubscribed multiple big institutions wanted to be a part of it it got cut back significantly, but they raised 25 million at 30 cents. They continued operating and acquiring Luminosity furthering the business to this point, you know, there’s the now are in the middle of a underwritten bought deal at 45 cents that’s open right now. It’s in the middle, you know potentially could be up sizeds. We’ll see where that lands. It’s not closed. So, you know, we can’t really talk about that much in terms of a press release because it’s not closed but that’s at 45 cents and essentially values them in our exchange ratio giving us kind of the 1.90 rates. So the $0.30 round would have been a buck-fifty if an exchange ratio, but with the new financing that they’re in the middle of completing that actually puts us at a buck ninety in this deal. So the combined entity, the implied market cap post consolidation at that buck-Ninety is about 300 million valuation for the total company and that kind of puts that puts us one level higher. Where we are right now at our 75 million or so market cap on fully diluted basis will put us into a different league and we kind of take it from there of additional consolidation and MandA almost on a completely different level. We really would like to get that Head Start be first in the space be one of the largest in the space and that gives us that ability to be vertically integrated on every level and the team level, the events level, the player level, the community and websites level and then the actual EGLX -our Festival level. So there’s a full supply chain here on a very large scale that gives us that consolidation

Fraser Toms: A that’s what’s interesting. There’s so many different aspects to it at the website the events and well I’ll bring up the event in a second. But before we move on the how does this change the management structure if at all and sort of the direction that company is going in

Menashe Kestenbaum: so on a fully diluted basis, we’re at 50/50 in terms of ownership. So You have to take all the warrants options everything fully diluted. We priced the deal at 50/50. The management is also equal management, equal board. So we’re taking you know, one of the hardest things in terms of scaling the company for myself was we’re growing at such a rapid rate, you know, the first round we did early 2016 was at one point three million dollar valuation and we quickly rent we did a 10x in growth, you know, so it went from from that to three million dollar valuation to 13 million to 47 million to you know, 75 million and now we’re taking that to 300 million. Now to grow that quickly in three and a half years with that amount of onboarding staff and bringing on talent and figuring out the processes of how we can we really scale this as aggressively as possible while maintaining our execution abilities meant that you really need strong resources, and I’m more of a self taught Entrepreneur, you know, I love it I enjoy it and learned on the fly as best as I could but you take AJ Montgomery the other CEO and he’s someone who’s operated billion dollar companies already. He’s someone who could bring a different level and we see very much eye-to-eye in this partnership. So with him focusing along the capital markets and the vision and the Strategic Partnerships, you know, really being up there and then me bringing kind of the operational side and helping grow internally the business; I had to do both sides of the capital markets and the operations but this really allows me to focus as the president as the internal operations, which is what I Really Love is growing the actual business, and then you know, we have multiple parts of the management. They’re bringing their CFO and they are bringing Steve who understands influencers, like no other and then we’re bringing our COO Eric. Was SVP of Finance on this CIO. So we have these two really talented teams coming together, I think for me that’s That’s what we really needed to take this to a completely new stage and new level. We’re not satisfied with that status quo or being a small player. We want to aggressively become a dominant player in the whole thing.

Fraser Toms: Yeah, and one of your most outward-facing I guess things that you do is the the EGLX event, which is Toronto in October. Is that right? It’s an October. Yeah. Yeah and just given an idea of the size and scale of that and how that’s grown.

Menashe Kestenbaum: I mean that’s the same way that our revenues and our user base has grown so aggressively over three years. It’s the same on the event side. Our first event was in a little bar with hundred people – a year later we had 1,700 people in 30,000 square feet in the International Center. A year later we had 12,000 in 2016. This past year we had 55,000 people and now we would like to explore moving to multiple cities. We have a lot of negotiations going on of the format and you know, we always want to be taking it to an entirely new league. We don’t want to just grow in a linear way. We want this to grow bigger and what we’re trying to create the way we also look at it; It’s not just a trade show with like a bunch of booths, right? This is a festival to Celebration of our community our online community who we understand and I personally am a part of it many of our staff members are part of because we love gaming and the Esports world. We love Competitive Gaming and regular gaming. It’s just a passion. So that’s what we tried. We really try to create this event because we wanted what we loved. And of course the gamers sense that so that’s a big part of it and we’ll have Luminosity part of that and all their influencers and it’s a natural tie-in to have them. Rising stars is our new tournament series. We announced which is blending all of our online communities on the content side capturing footage of the narratives and story lines along with finding that Low-level Hidden Gem who wants to become a rising star and actually interact and be mentored by the pros so, you know luminosity and all their influencers actually help for us to create the vision of that tournament series.

Fraser Toms: Yeah, and these events you know, that’s one of the easier ways to understand how you make money because people buy tickets they go there and spend money there are sponsors and so on. So yeah expanding that sort of seems like a no-brainer although you need more Capital to do that type of thing right

Menashe Kestenbaum: for sure and this gives us the about 36 million War chest witch we could start deploying to you know, continue realizing our dreams and our vision. Yeah. So yeah.

Fraser Toms: and I guess just one last thing is just for people to help them understand a little bit. I mean in Asia, you have things like people taking courses at a university on like how to game. So where do you see the space and like maybe five years or however long you think they’ll be some kind of a drastic change?

Menashe Kestenbaum: yeah, well my my famous saying that I always say in most of my presentations is always that there are the four types of Gamers from casual to hardcore extreme, which is gaming as a fun distraction, gaming as a hobby, gaming as a passion and gaming as a lifestyle and Esports falls into that new segment of gaming as a lifestyle. People living it, breathing it, competing in it, watching broadcasts and creating broadcasts, living online on our website, day and night it’s literally their lifestyle which is me as well growing up so in that Lifestyle brand that’s where we’d like to play in. So I think our events and our online forums; they’re all kind of merging into one entity of how do we capture this lifestyle gamer?

Fraser Toms: Great. Well Manashe, thanks for coming in and give us an update. That’s sounds like some really exciting things in the works. So we’ll keep an eye on the company and hopefully you’ll come back in and let us know the next big thing that’s coming around.

Menashe Kestenbaum: Thank you will do. Cheers

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