Bend it like Beckham with Blue Star Capital and Guild eSports

I took a small punt, or really I should say gamble, on Blue Star Capital this week, betting that the company’s investments in eSports will give it some nice short-term share price uplift. More specifically, I’m interested in the company’s investment in Guild eSports, a company which has just gone through a placing and expects to start trading on the 2 October 2020, according to a regulatory filing.

Guild eSports raised £20m through a placing it said was oversubscribed, with 250m shares sold at 8p per share. In an update on its investment, Blue Star Capital said this values the fledging eSports company at £41.2m, making its 5.95% stake worth £2.45m. Not a bad return on investment, giving Blue Star Capital more than 3 times its original investment of £706,000.

What I’m interested in is the uplift in share price for Guild eSports when it starts trading on Friday. Given the fact that the company is supported and co-owned by David Beckham, as well as the interest surrounding eSports, I think there’s likely to be a considerable pop in the share price. That should, I hope, filter through to Blue Star Capital as a major holder. However, the investment company is traded on AIM, so you never really know!

Let’s take a look at some of the major shareholders before the placing:

NameOrdinary Shares as at the date of this documentPercentage of Existing Ordinary SharesOrdinary Shares on AdmissionPercentage of Enlarged Share Capital
Toro Consulting Ltd
(controlled by Jonathan Bixby and Shannon Wall)
48,000,00018.14%48,000,0009.33%
David Beckham24,573,5299.29%24,573,5294.78%
Blue Star Capital Plc30,626,50011.57%30,626,5005.95%
Pioneer Media Holdings Inc.
(controlled by Mike Edwards)
15,500,0005.86%15,500,0003.01%
Table via Guild eSports prospectus

And here are some of the >3% holders who participated in the placing:

NameOrdinary Shares on AdmissionPercentage of Enlarged Share Capital
Schroder Investment Management Limited25,000,0004.86%
SFM (UK) Management Ltd18,750,0003.64%
Zeus Capital Ltd Private Clients (KFO)20,875,0004.06%
Table via Guild eSports prospectus

It appears reassuring that Schroders and SFM (a fund linked to George Soros) took stakes in Guild eSports. Zeus Capital, who acted as broker for the placing, are also listed as a major holder, although this refers to private clients.

Digging deeper into the prospectus reveals a little bit more on the company. Guild eSports has already issued warrants with an exercise price of between 1p and 6p, representing 4.84% of the share capital, with the warrants exercisable between three months and five years. So shareholders should expect some dilution, but not for at least one financial quarter.

Upon trading on the London Stock Exchange, 25% of the shares are expected to be in public hands, according to the documentation from Guild eSports.

Lock-in agreements

The prospectus says directors and some shareholders have agreed to lock-in agreements, preventing them from selling their shares. These agreements are between three months to two years, depending on the shareholder, and represent 41.39% of the share capital, according to my calculations. To me, this appears to be a positive thing for the share price of Guild eSports in the short-term.

The company says it won’t raise any further funds within the first year of trading, which again seems to be positive for shareholders. According to estimated figures on expenditure in the prospectus, Guild eSports aims to use the £18.75m from the placing to meet operating costs for the first two years. The company expects its main source of revenue to be from sponsorship.

Beckham’s transfer fee

David Beckham himself is tied into the company, not only through his shareholding, but through an “Influencer” agreement, outlining the conditions for the use of his image in marketing, etc. As such, Guild eSports will owe Beckham £2.5m in the first year and £10.5m between year two and five. Beckham will therefore take home at least £13m over five years, representing almost 70% of the net proceeds of the placing. His association better be worth it!

Section 12.17 of the prospectus notes a curious detail about an investment agreement entered into on 13 October 2019, mentioning Blue Star Capital and various other eSports companies that Blue Star Capital had announced investments in, as revealed by a RNS filed on 14 October 2020. This had outlined the original investment in The Lords eSports Plc, which was later renamed Guild eSports. The wording of this isn’t entirely clear to me. I’m not sure whether it means that Guild eSports also has investment agreements with Googly eSports Plc, The Dibs eSports Corp, Dynasty eSports Pte Ltd, The Cubs eSports Pty Ltd and Drops eSports Inc. It seems slightly confusing – Blue Star Capital does indeed have investments in those five companies. But does this section of the Guild eSports prospectus reveal that it also has an agreement? Or is this just awkward wording that just intends to refer to the anti-dilution clause Blue Star Capital had secured at the time? I’m not sure.

Nevertheless, another element of the prospectus does indeed refer to a clear alignment of interests between Blue Star Capital and Guild eSports regarding the agreement made with Dynasty. Dynasty eSports Pte Ltd will be providing Guild eSports with its services, using the Singapore-based company’s platform for running eSports leagues and tournaments. The fee for this is worth $40,000 per month, or $480,000 a year.

The Concert Party

The prospectus outlines a so-called “Concert Party”, a phrase usually used in connection with a takeover bid, but in this case simply those shareholders who are believed to be acting in concert with one another. The list of those in this Concert Party is considerable:

  • Toro Consulting Ltd
  • Kies Technology Holdings SA
  • Pallasite Ventures Inc
  • 1219626 BC Ltd
  • Alexis Abraham
  • Timothy Le Druillenec
  • Paniolo Ventures Inc
  • Smaller Company Capital Limited
  • DFJ Capital Inc
  • Andrew Frangos
  • Blue Star Capital plc
  • Pello Capital Limited
  • Pioneer Media Holdings Inc
  • Pioneer Acquisition 1 Inc
  • Haymarket Investments Inc
  • James Savage
  • Jocelin Caldwell
  • Derek Lew
  • Lesoza Enterprises Ltd
  • Marallo Holdings Inc
  • Joshua Bixby

You’ll notice Blue Star Capital and Derek Lew, the chairman of Blue Star Capital are both on the list. The Concert Party is expected to hold 35.34% following admission to trading, with certain further conditions. Derek Lew has warrants he intends to exercise upon admission, increasing the Concert Party’s holding, and Blue Star Capital also has an anti-dilution clause that is mentioned. Slight contradiction here as I also see Derek Lew’s name in the list for the lock-in agreements.

Anti-dilution clause

Blue Star Capital has 15 business days from admission to subscribe for as many shares as is necessary to maintain the same percentage of shareholding from before the placing, the Guild eSports prospectus says. But it doesn’t detail at what price per share it is entitled to maintain that holding, which stood at 11.7% before the fundraising. Blue Star Capital had originally made its initial investment at 1p per share.

Blue Star Capital then said on 25 June 2020 that it was putting in more cash at 6p per share to maintain that 11.7% shareholding of Guild eSports, and then on 29 September 2020 said it would hold approximately 5.95% on admission to the stock exchange.

So what price can Blue Star Capital subscribe to shares following admission? And will it indeed exercise those anti-dilution rights? The other pertinent question is whether Guild eSports also has a holding in those other aforementioned eSports companies, I’m confused by the wording of that.

The links between the Concert Party, Guild eSports and Blue Star Capital is very curious. Toro Consulting Ltd, which will hold 9.33% of Guild eSports upon admission, was awarded warrants for 620m shares in Blue Star Capital, as announced on 14 October 2019, representing 15% of the company (based on issued share capital of 4,049,299,518, as outlined in a RNS on 11 September 2020). Pioneer Media Holdings Inc, which holds 3.01% in Guild eSports, is also a holder of shares in Googly eSports Plc, The Dibs eSports Corp, Dynasty eSports Pte Ltd, The Cubs eSports Pty Ltd and Drops eSports Inc, and furthermore, has 114,583,333 shares in Blue Star Capital, according to a Management’s Discussion and Analysis filed on 28 September 2020 in Sedar, the Alberta Securities Commission. Pioneer Media Holdings Inc therefore holds 2.83% of Blue Star Capital.

The circular relationships are dizzying. If I were to guess, these additional eSports companies are perhaps phase two of a plan for a worldwide eSports team franchise, but that’s just pure speculation.

Anyway, I took my position in Blue Star Capital at 0.22p earlier this week and am expecting a rise in the share price based on the listing of Guild eSports. I’m not so interested in the company’s other investments in SatoshiPay, Sthaler or Leaf Mobile. Instead I’m betting that the holding in Guild eSports, and a subsequent share price rise upon trading, will push up Blue Star Capital’s £8.91m market capitalisation.

Main photo: David Beckham III by Yahoo Pressebilder in 14 July 2010 licensed under Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0).

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