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On Nov. 24-25, 2018, a sold-out crowd witnessed Astralis defeating MiBR 2-0 to take home the winner’s share of the $600K USD prize pool of the sixth season finals of the Counter-Strike: Global Offensive competition, Esports Championship Series (ECS). This event marked the opening of the largest esports specific venue in the U.S., the Esports Stadium Arlington in Arlington, Texas.
While top esports tournaments have a history of renting large sports and entertainment venues such as Madison Square Garden in New York City for the North American League of Legends Championships finals in 2015; the Spodek in Katowice, Poland, for the yearly Intel Extreme Masters Season Finals since 2014; and the Mercedes-Benz Arena in Shanghai, China, for the 2019 edition of Dota 2’s The International; the esports ecosystem is building a growing number of esports dedicated venues.
Catalyzing this trend are franchised leagues such as the Overwatch League and the Call of Duty League premiering in 2020, which will feature a home and away format requiring each franchise participating to provide its home venue. Consequently, multiple esports venues are currently in the planning and construction stages such as the $50M esports arena for the OWL’s Philadelphia Fusion, which is scheduled to be opened in 2021.
Sample list of esports dedicated venues with 400+ seating capacity, venues in bold are owned by or affiliated with Allied Esports Entertainment.
Taking Esports Venues Public
Recently, Allied Esports Entertainment, owner of multiple esports specific venues, went public in a business combination in which Allied Esports Entertainment (named Black Ridge Acquisition Corp. (BRAC) before the transaction) acquired Allied Esports and World Poker Tour operator WPT Enterprises. The company now trades on the NASDAQ with the ticker AESE.
With this business combination, Allied Esports Entertainment sets itself up to scale its business that is reliant on long-term investments due to the nature of purpose-built venues binding large amounts of investments in illiquid assets. “We are simply committed to executing our business plan and long-term strategy, which we believe will benefit all stakeholders involved in the company,” explained a company representative in an email to The Esports Observer.
In its first 10-Q filing with the U.S. Securities and Exchange Commission (SEC) after the business combination, Allied Esports Entertainment states that Allied Esports and WPT Enterprises generated a net loss of $3.9M during the first quarter of 2019 and accumulated a net loss of $31M during 2018. That number was impacted by a few key events in 2018, including the cost of opening the dedicated esports venue, Esports Arena Las Vegas. In 2018, Allied Esports had non-cash losses amounting to $17.4M consisting of depreciation and amortization, and impairment on investment. Allied Esports Entertainment told The Esports Observer that “moving forward, we are confident in our strategy and plan to continue to build off the momentum of the first half of 2019 where revenue was up 40%.”
Bringing On Strategic Investors
Subsequent to the business combination of Allied Esports Entertainment, the company closed $18M in investments. The amount of $5M each were raised from Mexican media company TV Azteca and American property company Simon Property Group. Furthermore, Lyle Berman—a member of the board of directors of both Black Ridge Acquisition Corp. and its sponsor Black Ridge Oil & Gas, and the largest shareholder of the sponsor—invested $3M; while Morris Goldfarb, chairman and CEO of American clothing company Ga-III Apparel Group, invested $2M. The source of the remaining $3M was not disclosed by Allied Esports Entertainment.
Besides their equity investments, TV Azteca and Simon Property will enter into strategic alliances with Allied Esports Entertainment.
Simon: Esports Experiences for Shoppers
Simon’s exploration of esports is approached with a relatively small investment compared to the revenues of $5.66B Simon generated in 2018. The company is looking to examine the impact esports experiences will have on visitor numbers and shopping behavior at its malls. “Our centers play a powerful role as community gathering spaces, bringing together people of all backgrounds for shopping, dining, and entertainment,” said Executive Vice President and COO of Development at Simon, Mark Silvestri, “Esports is an innovative way for us to further enhance the communal aspect of our centers in an exciting and interesting format that appeals to a wide variety of visitors.”
In collaboration with Allied Esports Entertainment, Simon is establishing Allied Esports lounges in properties throughout the U.S. “We’re committed to adding new and dynamic experiential activations at our shopping destinations, and the collaboration with Allied Esports is exactly the type of innovation our customers want and expect from us. Simon is offering unique game-play that can only be found at our centers and other exclusive elements to elevate the gaming experience and drive traffic to our locations,” said Silvestri.
The largest shopping mall operator in the U.S. will determine whether or not the investment pays off by how well its esports experiences will be received by the gaming audience visiting Simon malls. Silvestri phrased Simon’s measurement of success as, “ultimately, the true yardstick of success will the response of the over 2 billion gamers worldwide and our centers are perfectly poised to create the type of venues and experiences that gamers love and know they can’t replicate at home.”
TV Azteca: 24/7 Esports for Mexico
In May, TV Azteca and Allied Esports collaborated to create a PLAYERUNKNOWN’S BATTLEGROUNDS esports series called NATION VS NATION, which featured 40 competitors in a “USA vs. Mexico” format. According to the company, the tournament’s Mexican broadcast reached over 2M viewers.
Building on that success, TV Azteca and Allied Esports Entertainment will expand their work together through several projects including building a flagship esports venue in Mexico and creating a 24-hour digital esports channel for the Mexican market. The mass media company informed The Esports Observer that it has no planned date to launch the digital esports channel yet and is currently working on generating the content to be broadcasted.
“For TV Azteca, a priority is to bring to the audience the content they are looking for. Given the growth of esports consumption TV Azteca sees an opportunity to connect with this audience,” answered a TV Azteca representative, when asked by The Esports Observer about the value it sees in esports. “TV Azteca has extensive experience in the innovation of new markets, hence the challenge of being part of esports is very attractive.”
According to the company, it was an easy decision to invest in the space considering the rapid growth of esports globally, as well as the demand for it in Mexico.
Breakdown of a Long-Winded Process
Originally announced in December 2018, Allied Esports Entertainment’s business combination deal experienced some difficulties before being realized.
Black Ridge Acquisition Corp. (BRAC) was incorporated in Delaware on May 9, 2017, as a blank check company to effect a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization, or other similar business combination with one or more businesses or entities. With its sponsor Black Ridge Oil & Gas operating in the energy sector, the prospective targets of the company were originally focused on businesses in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America.
Later that year on Oct. 10, 2017, the company went public in an Initial Public Offering (IPO) on the NASDAQ. BRAC sold 12M shares generating gross proceeds of $120M while costs for the IPO amounted to $2.9M. Simultaneously, BRAC sold 400K shares to its sponsor in a private placement for an additional $4M in gross proceeds. Following the IPO, an amount of $120.6M was placed in a trust account. After the sale of an additional 1.8M units on Oct. 18, $18.09M was added to the trust account, bringing the total in the account to $138.69M at that time.
Within 21 months from the consummation of the IPO, the company was required to consummate a business combination. According to the NASDAQ Capital Markets listing rules, the company’s initial business combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the trust account.
Additionally, BRAC had to provide its shareholders with an opportunity to redeem all or a portion of their public shares in connection with a stockholder meeting called to approve the business combination irrespective of whether they vote for or against the proposed business combination, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account.
On Dec. 19, 2018, BRAC entered into a business combination agreement with Black Ridge Merger Sub, Allied Esports Entertainment, Ourgame International Holdings, Noble Link Global Limited, and Primo Vital Ltd. to which BRAC would acquire two of Ourgame’s global esports and entertainment assets, Allied Esports and WPT Enterprises.
On July 9th, Black Ridge Acquisition Corp. held a special investors meeting to approve an amendment to the deal proposed to Ourgame in December as the 21-month deadline to consume a business combination was on July 10. Brac’s shareholders voted for an extension of the date to consume a business combination to Aug. 10.
Also during the meeting, shareholders were given the option to convert their shares for cash, which was done for 9,246,727 shares at a conversion rate of approximately $10.29 per share, amounting to $95M of the company’s $142M assets in its trust account being paid out to the investors converting their shares. The high ratio of shareholders converting their shares can be explained by the fact that investors participated in the IPO assuming the company would enter into a business combination with a company in the energy or energy-related sector and did not want to take their chances investing in esports.
During July and August, the company entered into investment agreements to raise $18M by several third-parties including Simon Property and TV Azteca, as well as Lyle Berman and Morris Goldfarb.
On Aug. 5, a further amendment was drafted. The amendment reduced the closing conditions the original agreement contained. Instead of minimum cash of $80M on hand, BRAC is now required to have $22M minimum cash on hand. Additionally, the agreement to repay $35M of indebtedness of Allied Esports and WPT Enterprises in cash at the closing of the deal was changed into BRAC assuming $11.2M of the debt obligations of Ourgame International including accrued interest and repayment of the remaining $23.8M by paying $3.5M in cash, issuing ~3M shares of BRAC’s common stock, and Ourgame retaining $1M of the proceeds of loans to pay its transaction expenses incurred in the transaction.
The Transaction
On Aug. 9, following another special shareholders’ meeting, BRAC announced that it had finally closed its business combination. Noble Link Global, an Ourgame International subsidiary, merged with and into Allied Esport, with Allied Esports being the surviving entity. This was done to redomesticate the surviving entity from Nevada to Delaware and to amalgamate WPT Enterprises and Allied Esports. Following the redomestication merger, the Black Ridge Merger Sub (a subsidiary wholly owned by BRAC) merged with and into Allied Esports, with Allied Esports being the surviving entity – making Allied a wholly-owned subsidiary of BRAC. With that transaction, BRAC acquired Allied Esports and WPT Enterprises from Ourgame International and immediately renamed to Allied Esports Entertainment.
Accounting for all shareholder redemptions at the closing of the transaction, gross proceeds of the business combination were $20.8M. As of today, the company has a market capitalization of $80.58M at a share price of $3.49 before markets open.
Allied Esports Entertainment appointed Frank Ng, CEO at Ourgame International, as its new CEO. Former BRAC Chairman and CEO Ken DeCubellis serves as CFO for the combined company. Adam Pliska, CEO of WPT Enterprises, additionally serves as president.
Pliska is entitled to receive 290,069 shares of the company’s common stock as well as $5.15M. The sum consists of $1.5M for WPT Enterprises’ performance before the closing of the business combination. As well as $950K for a payment equal to 2% of the total gross proceeds from the sale of the WPT business up to $45 million, and an additional 1% of any amounts over $45M. Additionally, $2M as part of a profit participation agreement with Ourgame. And $700K as well as 290,069 shares of Allied Esports Entertainment’s common stock as a finder’s fee for introducing Ourgame to Black Ridge Acquisition Corp.
