HERO's Quest: Behind The Launch Of Canada's First Gaming And Esports ETF

Video Gaming’s largest and most exciting trade conference, The Electronic Entertainment Expo (or E3 as it’s more commonly called) just wrapped up its 2019 showcase. On its heels, Canadian ETF provider Evolve ETFs has launched Canada’s first ever e-gaming and esports ETF, which launched on the Toronto Stock Exchange on June 17.

The Evolve E-Gaming Index ETF HERO aims to capture the performance of the Solactive eGaming Index. The passive fund incorporates global securities with exposure to the video game and esports markets, including tent poles like Sony Corp SNE and Nintendo, Ltd. NTDOY and publishers like Activision Blizzard, Inc. ATVI and Tencent Holdings, Ltd. TCEHY.

Benzinga caught up with Evolve ETFs President & CEO Raj Lala to get a better sense of the genesis of the ETF and the evolution of video games from a niche novelty to a full-blown entertainment industry.

Insert Coin

According to Lala, the idea for a gaming ETF began with a string of conversations he had with several investment advisors who noted the huge growth potential underlying the gaming industry, likening the investment opportunity to that of cannabis. After doing some research, Lala discovered just how pervasive the revenue potential in gaming had become since the nascent days of the industry.

“Ten, fifteen years ago, you would go to the store and buy a video game and then you would take that cartridge or that CD, plug it into your console and away you go,” said Lala. “That’s kind of where the revenue would stop for the game manufacturer.

“Fast forward to today and people can download the game, oftentimes they are able to download the game for free. Now, where the revenue starts to get generated is by buying boosters, weapons, things like that where it’s all these extra sources of revenue to keep the game going. Instead of buying that cartridge for like $60, they’re now spending hundreds of dollars, if not thousands, on that game.”

A Princess In Every Castle

It wasn’t simply the internet that changed gaming, but also new technology that increased the accessibility and acceptability of gaming.

According to Lala, nearly a third of the world’s population—2.2 billion people—are considered active gamers, people who spend at least an hour a week playing video games, either on a home console or their smartphone.

“Definitely there’s a younger audience, but there’s also a large older audience as well that are competing,” Lala said. “I have a number of friends that are in their mid-40s and on Saturday morning they wake up and get into a game online together. It’s really transcended multiple demographics.”

All Your Base

Of course, beyond the consumer side of gaming, investors have become increasingly aware of esports as a token of gaming's emergence into the mainstream. Events for professional esports leagues around games like Dota 2 and League of Legends routinely fill stadiums and draw in millions of viewers.

“It’s estimated that League Of Legends had about 100 million online viewers,” said Lala. “That rivals the Super Bowl. That’s more people than tune in to watch the NBA finals, or the World Series, or the Stanley Cup finals. It’s become such a massive business. When you’ve got that many eyeballs glued to the space, then it opens up the doors to other revenue sources, like media rights and sponsorship sources and so on.”

When asked about who might invest in HERO, Lala was optimistic that the esports industry is large enough and diverse enough to appeal to a large swath of investors, young and old.

“Anybody that’s got a child who’s a gamer, and they’re lending out their credit card to them and they’re seeing how much money is being spent on these games, that’s definitely a target audience,” said Lala, “I think young investors, who are spending money themselves, probably recognize the potential of the overall space as well.”

Evolve ETFs is a content partner of Benzinga