The New Social Media: Video Games

at Bloomberg dot com Slash Podcast. Paul Matt Miller is going to be really bummed he's not here today because I know for a fact that he is a big Call of Duty Slash video game fan, and we're going to talk about video games. Now. Joining us as Adrian Montgomery. He is CEO of Enthusiast Gaming, which is a gaming

company that is based in Toronto, Canada. Adrian, it's great to talk to you, and I just want to talk about the video gaming industry broadly because clearly it got a big boost during the pandemic because, let's face it, over the last year, there wasn't much else better to do than sit on your couch and play video games. Right now that the world is reopening and you can go out to bars, you can travel, are we about to see a significant pullback in demand? Uh? The short

answer to that question is no. Uh. And the good news for people like me and companies like Enthusiast Gaming is you needn't um believe me. Just ask any parents. Ask any parents if their children's love of their smartphone and love of their video games has anything to do with the weather or anything to do with the pandemic, And the answer is is ten times that attend. No. This is a visceral connection that young people have with video games. Um. It is their favorite sport, it is

their favorite pastime. It is how they connect with their friends, it is how they spend their money, it's how they spend their parents money. So um, yes, we saw a surge during the pandemic, but but that is not going to going to claw backwards. Adrian, give us a sense of kind of the future as you see it of video games, whether it's you know, the mobility of it, kind of the platform agnostic kind of how do you

think about that? Well, first of all, the thing that needs to be understood among people who perhaps didn't grow up with video games is that video games is the new social network. Yeah, you, you and me both video games is the new social network. Young people are staying in touch, making new friends, my CFO. He had two people at his wedding last year he only ever met over the Xbox console. This is this is real, This is this is and and try telling him those relationships

aren't worthy of a wedding invitation. Um, this is how people connect with each other. And so, as you know, three out of four gen zears don't watch television, they don't listen to the radio, they don't read things called newspapers. But they they watch video games and they congregate in communities to discuss them. And so as we move forward, video games will be the nexus for fashion, for music, for pop culture. Um, they're going to be pervasive for politics.

Adrian certainly m our company Enthusiast Gaming played UM an interesting role with the Biden Harris campaign in the fall of two thousand and twenty. Um, they had aggressively targeted the gen Z vote. Um. Alongside them, you had you know, Congresswoman AOC gaining lots of traction and attention by playing video games with famous gamers. The Biden campaign took took ads out in Animal Crossing and yes, seventy two hours

before the vote. Believe it or not, the Biden campaign did a customized map in the game of Fortnite four years ago, if you had extra money to burn for four days before a vote, you'd take out an hour of primetime on NBC. This time, they took over a map in Fortnite, and I think that just shows you, um,

where this is going. So, Adrian, I'm looking at a chart of your stock and again the symbol for your company e g l X is the ticker kind of over the trillion, twelve months, not much going on until November and then it goes from you know, roughly a dollar up to eight. Did you guys get caught up in that meme trading kind of frenzy? I don't think so. Um, certainly, much to artist's appointment, we don't seem to have a whole lot of followers yet in those US based reddit forums,

like like the other memes stocks do. I think people we were telling people for the longest time we have three hundred million monthly visitors to our platform, um, and I think at some point that started to register and people started to understand the power and the rarity of our platform. And then shortly thereafter, Enthusiast Gaming was added to the list of the calm score one hundred, which is the list of the hundred largest Internet properties in America.

And alongside Twitch, which is owned by Amazon, as you know, it's it's the only gaming platform to be on that list. So I think people kind of woke up and said, maybe what these guys are telling us is is the real deal. And of course last week you had that share offering eight million shares price a little lower than where your stockrustrating at the time. Do you plan to continue to raise capital or issue shares in that way

going forward? Yeah, we see in front of us, we see an incredible opportunity to aggregate and consolidate more and more of these fan communities, the digital fan communities um AND and fan communities in all shapes and sizes are are going to be, in our opinion, are going to be more valuable. Uh, certainly as as third party data becomes harder and harder to access and privacy revolution uh

sweeps the Internet. And so we want to aggregate as many of these fan communities and in many ways were looked at because we're a gaming company as as an acquirer of choice. So we want to press that advantage um AND and continual access to capital from great shareholders. Helps us do that, Adrian, give us a sense for people don't know kind of how you guys generate revenue. Is it advertising as it events? Is I know e sports are going part of the business. Give us a

sense of how you guys at your company generate revenue. Sure. Well, again, very difficult. Corporate America of the corporate world is pulling their hair out trying to figure out how to get in front of gen Z's and how to get gen zs to pay attention to them. So when you when you reach three million of them, sixty million in the US alone. UM. We we sell a lot of advertising, a lot of digital advertising UM. And we were encouraged today to read in the journal that that's expected to

increase this year. So so that's a good sign. But we sell a lot of advertising UM. And the other thing, we're starting to sell more and more and more of

his subscriptions and freemium content. UM. We've built a business around avid video gamers, and avid gamers will pay extra for extra content, and so these premium offerings, we've seen our subscribers double year over year UH, and we're looking at more and more subscription packages to offer UH content licensing is starting to become a significant growth area for us. It seems every O T T platform in the world

wants more and more gaming content. So we're putting our channel channels on SAM some of the smart TVs UM and then we're going to migrate to e commerce and social networking and all those sorts of things. Lots of areas to grow. It's a fast growing segment of consumer spending for Shore. Adrian Montgomery, CEO of Enthusiast Gaming, they have the largest gaming media platform in North America. This

is Bloomberg. Let's dive into the high yield market. Ken Monahan, He's co had a global high yield for a MUNDI about two trillion dollars in assets under management. So they do a treat or too, I think every day. Ken, Thanks so much for joining us here. Looking at the high old market, it's been a risk on market for a long time. Is there any juice left there? Or am I just clipping coupons on my high yield piece of paper? You know, Paul, it's a good question. I

think the answer is you're right. Is it has been a risk on market for a year plus now, after obviously a big fade in uh In in March of last year. UM, so we're up quite substantially and spreads her back to pretty close to tight levels. UM. You know, I think we think they can get a little tighter from here, not dramatically, um, but they can still get a little tighter from where they are UM. And I

think that there's a couple of reasons for that. In particular, if you have to recognize that the marketplaces, even over the last eighteen months, has become increasingly double B centric. A lot of that came from downgrades, but the quality of the markets improved, and that would argue that spreads a little tighter, tighter than two basis points for high yield,

that that is something right there. But of worse, what has driven spreads in part to be this tight from where they blew out last March was the FED and the fact that the FED said, hey, I got your back. We're going to have this corporate credit facility that's unwinding. Now, what's the impact of that. You know, I think that the Fed's decision just stepped into the high yield market was important at that point in time and obviously provided a flora not only for high yield but for other

asset classes at the same time. Um, So that was critical at that juncture, but I don't think it's been critical for the last hand, for the months or even quarters. I think that the economy is momentum on its own, is supporting in the direction of spreads. So can again, the FED has been supporting, you know, providing liquidity for this marketplace, and I guess that's resulted in credit quality.

You know, it's been much better than I would have expected. Certainly, you know, fifteen months into this pandemic, is it potentially masking Is the FED support potentially masking credit quality issues that the high market's going to have to deal with at some point? You know, there's there's a there's an ideal here there that's coming to marketplace that you kind of raise your eyebrows at. Um. You can see that there's maybe a little bit more coming to market and

triple cs, but it's on the margin. It's I would tell you, by and large, most of the credit quality of the things that have been coming to market are pretty reasonable. Now, we could argue about pricing whether you're getting paid for the risk, but in terms of the credit risk itself, it's not all that it's not it's not all that sour UM And the other thing I think you need to look at is um and we've

had an explosion of issuance this year. We're running in a record pace and a lot of that relates to refinancing. So companies are making use of the low rates for treasuries and then the low spreads for credit to to refinance their debt, even refinancing their term loans. Yeah, and just borrow because it's cheap to do so. So why not, right exactly, you were talking about triple cs there in the issue as we've seen, but we've also seen outperformance in that risky is debt. What do you chalk that

up to? Way, I like to think if you look at it was obviously on its on its rear end last year and particular in the first quarter and to a certain extent in the second quarter as well, so

I think it's a recovery from that. In addition, I think that there's been a level of of cleansing that's taken place in the triple V space, particularly if you look at energy um SO, a lot of the more problematic companies in the energy sector UM filed last year and I think so that cleansing process really allowed spreads to tighten and gave the triple sea markets winded. It's back can talk to us about the funds flows into

the high yield space. Our investors still keen that they can get some return in hiotas or is money going

perhaps even farther out on the re spectrum. Well, you know, that's interesting to look at because if you look at the high yield marketplace, you would see then as it relates to mutual funds, which is let's say about a quarter of the market high yield funds, whether you're looking at actively managed ones which we're focused on, or ets, there's been outflows, um, not in warm as outflows, but there's been outlaws pretty much eaching every week this year.

Um and uh it amounts to not insignificant amount. But I would argue if you look what's happening on the other side, is it's clear that there are other buyers in the market. So who's buying I think that their crossover investors in particular that are coming in and that's really been the big support of the market. And I think the reason for that is if you look at where triple bees are. They're trading at very tight levels.

And if you look at the spread relationship between triple bes and double bes in particular, those are much closer to historic averages than they are historic tights, and I think that that's been very supportive of flows. Can we only have about thirty seconds left, but if we get a hawkish surprise from the Fed on Wednesday, what's the

read through to credit? Well, let's let's recognize that, you know, the the on the high yill side, we're talking about bonds with a duration that's half of that of an investment grade, So does it not um the investment grade market on its rear end? Potentially it has much more negative impact though on i G. Than it does on high yields. So that I think that that's our viue

as to what moment if that in fact happens. That's very ratrically all right, Ken, Thanks, We appreciate you coming on as always giving us the latest on the high yield market. Ken Monahan, co head of Global high Yield at a mundy U s Uh, that's interesting question because we're gonna have you know, is a market you think expecting anything like that? It's not priced for it right now, I'm looking at a ten year yield at one point for eight percent. That to me looks like it's expecting

a devish. That's right, right, that would be consistent what I guess the rhetoric we're certainly getting from the FED historically. Well, during the pandemic, it just seems like we're all buying more online Amazon boxes. As far as the hi can see. You see the Amazon Prime trucks all over the place. Um, but that raises the issue not just for Amazon, but for all e tailing, and that's counterfeit. It's been big in the luxury market. What's happened here during the pandemic?

Ronya set Home, she's managing partner I've set Home Law Group. She joins us here. Ronnie, thanks so much for joining us, UM, talk to us about counterfeit luxury goods. I know it's always been an issue for e commerce. Kind of where are we today? First? Thank you so much for having me on the show today. Well, the luxury space is quite fascinating when it comes to counterfeiting, particularly on Amazon.

And what I find of particular interest is that the counterfeit items on Amazon are sometimes double the M S R P. In the store. So I just think that UH is very fascinating and someone should study why individuals are purchasing items for more money on Amazon. Is it just convenience or is it something else? I have no idea. Well, I Ranya must summit. I am a convenience shopper and I probably get six Amazon packages a week. How would I know if I'm buying something counterfeit? That is a

great question. So there are two things that consumers can do. And I do purchase some items on Amazon, but not all items on Amazon. And this is what I do. Whether I want to buy a luxury good or I want to buy a consumer good like christ tooth taste or whichever tooth taste you like. The first thing I do is determine whether or not those items are actually for sale on the Amazon site. UM with the permission

of the brand. At the bottom of several UM brand name websites, there's something called stockists or find us, and

it'll lift it out for you. So, for example, HP, very well known brand, if you go to the HV website, it does tell you that there are real Amazon products, real products of Amazon Amazon, and that might give you some comfort, and it should but the biggest problem them with buying anything on Amazon is that if it is fulfilled by Amazon, it means that the legitimate product is sitting in a warehouse with fake products, and you don't

know which product you're going to get. Even worse, when you see, uh the reviews for the product, it's for the product, not for the product from this particular seller. So consumers are at a disadvantage. What I customarily tell people is, first check the price doesn't make sense in comparison to the brand name that you know. Secondarily, you know, check the reviews. If everyone loves the review and it's

thousands of people, you're probably buying an authentic product. And then third you know, ask yourself, does it make sense that this product would be on Amazon? So run you. When someone finds themselves the victim of counterfeit, what recourse do they have to say Amazon? Well, Amazon does have a very generous refund policy, and I think that's what they've been hanging their hat on as that term is used to them. I think, again, this is just an educated guess. If you can get a refund, the really

really isn't that much of an issue. But the problem is that some of the items that you're purchasing, not the luxury ones, but the consumer good products. Some of them can harm you, and the refund may not be enough, you know, depending on what it is you're suffering from the purchase of the counterfeit good So it's just refunding isn't enough. How can Amazon get a better handle on this?

What do they need to do? I think it would be a very helpful if there was an easy way for consumers to report UH fake goods or counterfeit goods to Amazon. Right now, they are listening to the brands, which means you would have to call the brand and you'd have to tell the brand as a consumer, oh, I purchased a fraudulent item from Ammazon, and then they need to investigate, and then the brand needs to work

with Amazon. That UH takes a lot of effort. It would be great if there was a mechanism for consumers to go directly to Amazon and have their voice heard. That's, you know, the first thing. The second thing would be UH allow us to purchase items that are not just fulfilled by Amazon. So we know if ABC seller is selling this, and we've had you know, good experience with ABC seller, we know, we're getting ABC sellers product as

opposed to a random product in the warehouse. So ron you just give us a sense of Like on the luxury side, I'm always shocked at people would buy a luxury item, you know, worth thousands or tens of thousands of dollars without actually seeing it. But is this a

growing part of e commerce? I think that it is, And I think what's happening is that some of the luxury brands are so well known that the consumer likely already saw the product at some point in time, and they remember it and they're still pining for it, and then there it is on Amazon and they purchase it. There's no need to to look any further. Fascinating story, Ronna, thanks so much for joining us. Really appreciate that this

is a I guess a big issue, Kaylene. People spend more and more time online shopping online, and you know online has just grown dramatically over the past fifteen months, kind of pool maybe three years of growth forward that this can be a bigger issue. Yeah. Now I'm going to go home and check all the products on Amazon over the last six months or so exactly, Ronne said, Home managing partner for said, Home Wall Group joining us there,

and we appreciate that. Again, Uh, we've seen this at you know, the e commerce traffic just skyrocket and as everybody when they were forced to stay at home, buying more and more uh products, different types of products than perhaps they were comfortable buying in the past, all because of the pandemic, but a big change to retail. We'll have more coming up. This is Bloomberg when the pandemic hit. One of the areas of the economy that was hit, you know, probably just so hard and so brutally was

the real estate market what we had. Obviously, if we can all remember back, people leaving cities looking for the burbs, looking for more room, uh, looking just to get away from the congestion and the uh, you know, the density of the cities. The question is how long term uh is that. Let's check in with Brad Dillman. He's a chief economist for the real estate firm Courtland. Brad, thanks so much for joining us here. Again here in New York City, we saw it firsthand, people leaving uh the

city for the suburbs. Rents plunged. If you want to get an apartment in the city, it was a good time, uh, to be a renter. Give us a sense of how you think this market is going to play out as we come out to the other side of this pandemic. Yeah, definitely, and I'm glad to be here. You know. I think we need to first recognize that this is a trend that was occurring prior to the pandemic. The pandemic, of course, accentuated it. It is something that we see across markets.

We see a migration from more expensive markets too cheaper metropolitan areas, and then also within these markets from the core out to the geographic periphery. So in many ways, it's trends been underway since two thousand twelve. If you look at pricing, it really is kind of compressing across the spectrum in some ways. And I mean that between markets and also within markets. So when we look ahead, some people would say, hey, you know, maybe this is

gonna reverse. People are going to come back into the city. The reality is there doesn't seem to be that much supply. The bulk of multifamily supply, as an example, is in the urban core. But if you look at it in terms of units, it's really not enough to really move the needle in an under house market. Again, You've got estimates that the US is under built to the tune of about a million housing units are more? Are we going to see that supply and demand gap narrow at

any point? I think we will if we were to. If we look at our gauges of of cumulative under supply right now, it does look like we hit peak under supply a few years ago. And then as we see these excellent prints and things like housing starts, uh, you know, particularly on the single family side, that this country's housing situation and will slowly right size from a

supply demand perspective. You know. One of the things Brad, that I think I've learned over the last several years, and we talked to folks in the home business, is yes, new homes are getting built, but they're not getting built for the entry buyer, the first time buyer, and that's really where the supply issues are. Is that changing at all or a builders still going for them the higher margin McMansion. Well, builders are always going to switch their strategies,

you know, based on on short term fluctuations. Believe it or not. They are actually little more nimble than we would think. I think if We're looking at millennials, for example, and just the age that they already are with the vast bulk over thirty. Um, you know, the buyer the the home builders are going to have to shift their strategy at different times based on where where not only costs are coming in, but also where mortgage rates are going for where and when these millennials are able to buy.

So I don't know if I would call it make a systematic call on that kind of shift. I do think you look at smaller oscillations that define that kind of uh strategy on the part of homebuilders. Yeah, I'm in here guiltily raising my hand as a millennial who is nowhere close to buying my first home. So how if I'm a builder, how would you play me? Do I need to build for renters? So you do have

home builders building four renters. This was really an opportunity that emerged called it five six years ago, but really only got steam in the last two years. And uh, I do think there's a strategy there for home builders. But I think what they're gonna find is that rather than building single filming attached you're gonna slowly actually migrate

more towards a traditional multi family structure. That's to say, something like a town home style community where you can fit more housing units onto the same into the same geographic area of the community. I do think there's a strategy there. I think we're going to see more of it. At the same time, when you have really low mortgage rates like we do now, we've had very low mortgage

rates the last two years. It's priced off of a ten year Treasury rate that's negative and real terms, there is the occasional opportunity to deliver in scale to first time home buyers or just you know, new buyers in general. You know, out here in the New York metro market, the story is Florida, Florida, Florida. It seems like everybody is leaving for Florida. What are some of the other I guess hot areas of the country that you're seeing in terms of demand both for rentals and ownership. Yeah,

Florida flags well for US UM also. But you know, an area that's been a little bit overlooked has actually been the Northwest, and not just the Seattle Cascadia, but really the peripheral northwest Idaho. So you've got Spokane, Washington, and Eastern Washington, You've got Boise. These are markets that are looking really attractive right now. So I think we're gonna see a little bit more focused on that area. I do know that there's some smaller homebuilders really focusing

on places like Cort Lane. Uh. And of course these areas are supported by excellent migration out of California. But if we get that migration and more people are going there, how long is the cost of living that makes it so attractive actually going to stay relatively lower. That's exactly the point. It really is converging very quickly. If you're

a local in those markets. This is in many respects that does us or four years as people bring kind of California purchasing power, you know to Boise, Idaho, it's a it's a bit tough tough if you've been, you know, living and working in Boise on a Boise income and saving a Boise rates. So we don't know. I think that the clearest indication that we do have is just how long it's going to take to right size the overall supply environment in this country. If we're undersupplied by

about a million units, that's my estimate. There's other estimates out there. It's going to take about four or five years to right size the overall market, and until that happens, you're gonna see a continued flight of people to the periphery until such times that things like you know, energy shocks or things like this drive them back into the

city when commute to become too arduous. But if we can see right now, commute truly aren't the issue, as people can work from home more and that kind of trend is only going to support movement to the periphery. All right, Bratt, thanks so much for joining us to really appreciate getting your perspective on the residential real estate market. Renters, buyers, worthy, growth is um and you know, interesting to see how this plays out as would come out on the other

side of this pandemic. Uh, what will the market look like? And Uh, it's gonna be interest to see which markets do well and which lag Brad Delman, he's a chief economist for Courtland giving us an update there. This is Bloomberg. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller I'm on Twitter at Matt Miller three. Put on fall Sweeney I'm on

Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio