Orange County’s role as a hub in the fast-growing esports industry will become even more pronounced after one of its main corporate players, Allied Esports International Inc., sets up headquarters in Irvine and goes public this year via a reverse merger.
Black Ridge Acquisition Corp. (Nasdaq: BRAC), a publicly traded blank check company based in Minneapolis with nearly $140 million in the bank and a mandate to complete an acquisition in the not-too-distant future, recently announced plans to buy Allied Esports and its affiliated gaming company, the World Poker Tour.
Allied Esports and World Poker Tour are currently owned by China-based Ourgame International Holdings Ltd., but have local operations in Irvine.
They employ roughly 75 people here on a combined basis, company officials told the Business Journal last week.
Allied Esports runs a variety of esports venues, mobile esports trucks and content production facilities that are for online video game playing and watching, with a self-described mission to “connect players, streamers and fans.”
A few years ago, the company set up the first dedicated gaming venue in North America in downtown Santa Ana. The Esports Arena is about 15,000 square feet and often draws hundreds of attendees for weekly events and competitions.
Allied Esports’ largest venue is in Las Vegas, a 30,000-square-foot, multilevel venue at the Luxor Hotel & Casino that holds about 1,500 people.
Nasdaq Listing
Under terms of the reverse merger, Blackrock will issue 11.6 million shares—valued at $118 million—to Ourgame as part of the transaction.
Factoring in repayment of $32.5 million of debt, additional warrants being issued and about $50 million in milestone payments, the deal is valued at nearly $214 million.
Following completion of the reverse merger, the two companies will operate under a new corporate banner, Allied Esports Entertainment, and their stock will trade on Nasdaq under the stock symbol “AESE.”
When the deal is completed—likely this quarter—the public company will officially designate its headquarters as Irvine, officials told the Business Journal.
Frank Ng, chief executive of Ourgame and an Orange County resident, will become chief executive of the publicly traded company.
“I have been [serving] as a senior executive for an online game company for almost 18 years,” Ng said at the time the deal was announced. “More importantly, personally, I am a very hardcore gamer. I’ve been playing video games for 35 years and I still love it.”
Casino Operator
Black Ridge Director Lyle Berman is a well-known professional poker player, initial financier of the Rainforest Café restaurant chain, and the co-founder of Grand Casinos Inc., the developer of numerous casinos outside Las Vegas.
He and other existing Black Ridge executives will remain on the board of Allied Esports and will remain investors in the public company.
While Berman has plenty of familiarity with the World Poker Tour—he was a co-founder of its predecessor company in 2002—he said it’s the esports business that’s the key in the forthcoming transaction.
“This is the most exciting business I’ve seen,” Berman told investors during a conference call announcing the planned acquisition.
“Esports is the fastest-growing segment of the global entertainment market. The size of the market is huge, with 2.2 billion gamers globally.”
Esports viewership, estimated around 380 million globally, is growing by more than 13% annually, according to figures cited by Black Ridge in a presentation announcing the acquisition.
“I lived through the World Poker Tour,” Berman said. “It established the proof points that are applicable to a much bigger global business with esports.”
The combined revenue for WPT and Allied Esports International will be about $35.1 million this year, according to company projections cited in regulatory filings.
Revenue is projected to triple to $108 million by 2020 and then almost double again to $208 million by 2021, according to Black Ridge.
Why the growth?
“I think the first reason is that games today, they are designed, making gamers play against another human being through the internet. So, today, playing competitively online is the norm,” Ng said.
“More importantly, publishers are making games watchable. So, when you are playing games, it is extremely easy for any gamer, through mobile or any other devices, to share their gameplay, so that the viewing process is much more enjoyable and viral.”
“I think these are the two main reasons why esports has been growing so fast in the past few years and esports is becoming the mainstream entertainment for everyone now,” Ng said.
Other area businesses are taking notice.
HyperX, the gaming unit of Fountain Valley-based Kingston Technology Co.—Orange County’s largest consumer electronics maker—announced in November that it won exclusive naming rights through 2020 to Allied Esports’ property at the Luxor Hotel. The venue is now called HyperX Esports Arena Las Vegas.
The naming rights deal is worth nearly $2 million a year, according to Black Ridge Chief Executive Ken DeCubellis.
HyperX provides gaming peripherals, like headsets and microphones, to the esports industry.
SPAC Attack
Black Ridge is known as a Special Purpose Acquisition Corp., or SPAC, a blank check firm that goes public via an initial public offering without having an existing business in place.
The SPAC’s executives typically have about two years to identify and complete an acquisition that utilizes much of the IPO proceeds, otherwise the public company is liquidated and the money goes back to the investors.
Shareholders of the SPAC must approve the deal. Essentially, investors are betting on the ability of the blank check firm’s management team to find an attractive acquisition candidate within a relatively short period.
Lake Forest-based Del Taco Restaurants Inc. (Nasdaq: TACO) went public via a similar reverse merger mechanism four years ago, through a $500 million reverse merger with SPAC Levy Acquisition Corp.
Allied Esports intends to be the first and largest public company in the growing gaming sector, thanks to the soon-to-be-completed transaction, according to Berrman, who has helped take other companies public over his career.
“With the Nasdaq listing and capital from the SPAC, this is a billion-dollar business in the next couple of years,” Berman said.
