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Are eSports behind Sports Direct's interest in GAME Digital?

picture of eSports
eSports events are huge gatherings

Game Digital PLC (LON:GMD) better stock up the boardroom drinks cabinet now that Mike Ashley has taken a 25.75% stake.

It is the latest in a series of shareholdings in rival retailers taken by the Sports Direct PLC (LON:SPD) owner and self-confessed ‘power drinker’ Ashley

Game Digital is a video game and console specialist, where trading is governed largely by the cycle of new hardware released by the giants of the sector: Microsoft’s Xbox, Sony’s Playstation and Nintendo’s Wi.

Sports Direct, meanwhile, is best known for its bargain basement range of sportswear and clothing, something that at first glance seems some distance from the GAME portfolio.

Game’s trading is also under pressure after three profit warnings and the latest just a few weeks ago.

Sports Direct itself has not been short of trading disappointments recently, so the need for a new direction maybe has become more pressing.

And by taking such a large stake in GAME, Ashley is handily positioning himself in what is set to become one the fastest growing parts of the consumer market, esports.

At least that is what broker Liberum thinks and as house broker to both companies it should have a decent view of the argument.

 

eSports growing rapidily

“We believe the rapid growth of eSports, while offering a key long-term opportunity for GAME, also likely provides an attractive angle for Sports Direct as sportswear and equipment retailer.”

With 256mln players globally, a total expected to reach 350mln within 3 years, some of the giant US entertainment firms are starting to wake up to the esports opportunity.

The UK is moving a bit slower, though now there are 6.5mln participants and the Insomnia gaming events in the UK attract 100,000 very dedicated fans.

Handily, GAME runs that event and Liberum can see lots of merchandise opportunities for a clothing supplier such as Sports Direct, especially with team shirts (yes there are esports teams) seemingly priced on a par with those who play on grass.

And given the short time left on many of GAME's leases, taking space in some of the 450 Sports Direct stores in the UK might be an option.

Admittedly GAME’s response to its new shareholder appeared less than welcoming and may be it is no more than just a share price flipping exercise.

But there seems enough logic to suggest that however distasteful to some are Ashley’s business practices, his eye for a money making opportunity remains.

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