Welcome to the January 2020 newsletter for the Waterhouse VC Fund.
The Fund specialises in gambling assets and businesses that are related to the gambling industry. We leverage our unique expertise and existing assets to create high growth opportunities for investors.
Since inception, the Waterhouse VC Fund has gained over 30%. If you would like more information on the Fund, please get in touch.
Video gaming: like gambling, but without the regulations
At first glance, video gaming and gambling seem like completely unrelated activities. Sure, both are forms of entertainment, but most don’t give thought to the other similarities.
Both use psychological and behavioural tricks, such as variable reinforcement schedules, to reward and prolong play.[1] They also include repeated cycles of uncertainty, anticipation, and feedback, and the 'wins' are just enough to keep you going.
So, while gambling is generally frowned upon and highly regulated, gamers are free to use real-life money to buy credits for what are essentially in-game betting activities.
The most striking example of these gambling mechanics at work are so-called ‘loot boxes’. Gamers pay anywhere from a few dollars to over $100 for the chance of obtaining a desired virtual item. This reward is often randomised and may be unattainable outside of winning it in a loot box, so you keep ‘betting’. Anticipation of a potential win activates the brain’s chemical reward system, and loot boxes use the same psychology.
And gambling is not just happening in the video games, but on the outcomes of competitive video games, known as e-sports.[2] As these two worlds converge, we’re seeing new business models and opportunities in game development, gambling and media.
At the DotA 2 Championships in Shanghai, 2017
One story we’ve been following closely is that of French video game publisher Ubisoft. With huge demand for video gaming but only limited hours to play, content owners compete on quality rather than price. Ubisoft is among those to benefit most, with huge scale and hit franchises like Assassin’s Creed, Tom Clancy and Far Cry.
Scale is important so you can spread game development costs over many fans. Plus, the games get better as more players play them. The best experiences drive further loyalty and community, creating a virtuous cycle for the best franchises, of which the €7.3 billion Ubisoft has many.
We particularly like that Ubisoft is managed by the founding family, and insiders own over 20% of the company. Management have demonstrated willingness to forgo the sugar hit of shorter release cycles to invest in deeper and broader interactive experiences, protecting the long-term value of their franchises.[3]
If you're a wholesale investor, interested in opportunities in the gambling industry's growth markets, and want to partner with someone who knows the space intimately, please get in touch.
[1] http://jgi.camh.net/index.php/jgi/article/view/3962/4190
[2] https://www.bloomberg.com/features/2016-virtual-guns-counterstrike-gambling/
[3] https://masterthemeta.substack.com/p/my-challenge-to-ubisoft