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Biggest chess investment ever

07 Oct 2020

The Play Magnus Group is the first ever chess company that is going public. With an evaluation of NOK 1,1 billion (€ 100 million) it starts to trade this Thursday at the Oslo Stock Exchange. Questions and answers by Conrad Schormann, Stefan Löffler and financial journalist Thorsten Cmiel.

This Thursday Magnus Carlsen will be watching attentively how Play Magnus fares on its first day at the stock exchange.
This Thursday Magnus Carlsen will be watching attentively how Play Magnus fares on its first day at the stock exchange. (Lennart Ootes / Altibox Norway Chess)

Why is the Play Magnus Group turning to the stock exchange? To finance growth. New investors bring in money to drive developments, expand to new markets, and acquire other companies. For the future, the company now has its own currency: shares. Shares can be used to pay staff, attract new talent or make aquisitions.

The Play Magnus shares will be traded on a special segment of the Oslo Stock Exchange. What is behind the “Merkur market”? Stock exchanges usually have several segments that apply different regulations. The Merkur market is Oslo’s beginner’s segment for young companies. If a company is growing and its share price is performing well, it can move up to a higher index, which will then attract bigger funds and international investors. Publication requirements in the Merkur market are not quite as high as for the bigger, more established companies, who have to report every quarter. One reason why going public on the Merkur market is quicker and cheaper is that it doesn’t require a sales prospectus. Play Magnus has published a press release and is answering questions from potential investors and journalists. We spoke to Sebastian Kuhnert, the Chief Coordinating Officer (CCO), and Dmitri Shneider, the Chief Financial Officer, answered questions by email.

Kuhnert told ChessTech in an earlier interview in April “it’s neither a good time nor are there concrete plans right now” for bringing Play Magnus on the stock exchange. What has changed? The moment seems good because Play Magnus is reporting fast growth, and the Oslo stock exchange is seeing a lot of initial public offerings (IPO) at the moment. Last week three new companies were listed. This Monday, Tuesday and Wednesday each saw an IPO, making Play Magnus the fourth in this week alone. The process of going public was started in June on initiative by investors.

Play Magnus founders Espen Agdestein, Magnus Carlsen and Anders Brandt were received by Øivind Amundsen, the CEO of the Oslo Stock Exchange (from left to right)
Play Magnus founders Espen Agdestein, Magnus Carlsen and Anders Brandt were received by Øivind Amundsen, the CEO of the Oslo Stock Exchange (from left to right) (photo: Play Magnus)

Will foreign investors have the same access as Norwegians? Transaction fees will probably be a bit higher than for someone ordering shares through a Norwegian bank or broker, but everything will be published in English. As a rule of thumb, every listed company is expected to report every information relevant for investors, unless that information helps competitors and undermines the company’s market position.

The shares in Play Magnus are placed in two steps, first to institutional investors and, probably from Thursday, to the public. Is that common? It is not unusual. A first round for big investors ensures that enough money is raised to justify the IPO and also builds trust among private investors. In exchange for exclusive access, the big investors commit to hold the shares for a minimum time, in this case for 12 months. The American fund, Luxor Capital, invested NOK 120 Million (€ 10,8 million) and is now the biggest shareholder. Three Norwegian funds entered with a combined NOK 85 million (€ 7,7 million). Another Norwegian fund, Investinor, added NOK 27 million (€ 2,4 million) to its prior investment.

How much is a Play Magnus share worth? In the first placement it is NOK 21 (€ 1,90) per share. Update: The stock notation can be followed here. Thanks to the publicity in Norway, where Magnus is one of the biggest celebrities and major chess events like the ongoing Altibox Norway Chess are on primetime TV, the interest is high. On its first public trading day it spiked briefly near NOK 25, then stuck around its original prize and eventually dropped by 15% to NOK 17,90 (€ 1,62).

How many shares are being placed? 21,5 million out of which 14,250,000 are newly issued, which is the number that the funds have picked up. Founders and early investors pass on 7,250,000 shares, which is the number that is going into the open sale. Norwegian newspapers reported that Magnus Carlsen is cashing in shares worth NOK 25 million (€ 2,3 million). When Play Magnus was founded in 2013, he had invested NOK 120,000 (at the time equivalent to € 15,000). Noone is selling off more than half of what they have. The world champion is keeping shares worth NOK 110 million (€ 10 million). This is roughly half of his overall worth.

How many shares are there after the second placement? 52,133,800. This number number will grow a bit. The founders and early investors have 4,3 million warrants that allow them to buy shares at NOK 16 (€ 1,45) during the next months. Some staff members have been paid with options that allow them to buy shares at a certain prize.

How much is the Play Magnus Group worth now? If you multiply the number of shares and the prize of the first placement you get an evaluation of NOK 1,1 billion (€ 100 million). The future evaluation is now up to the stock market.

Play Magnus is bullish about its future revenues as this slide from a presentations to investors shows.
Play Magnus is bullish about its future revenues as this slide from a presentations to investors shows.

Is this in line with what the earnings?
The Play Magnus Group is not profitable yet, but its numbers are developing well. The revenues of the last 12 months have been reported as $ 7 million and 120 per cent more than Play Magnus, chess24 and Chessable had in the previous 12 months. For the year 2020 the group expects revenues of $ 8 million (€ 6,8 million). Play Magnus has now just over fifty employees in offices in Oslo, Hamburg, London, Barcelona, Riga and Copenhagen, plus plenty of freelancers who contribute content or coding. Since we are talking about digital products and services that are mostly delivered online, the material costs are insignificant. There is much potential for scaling up. A presentation that has been shown to investors sees Play Magnus on a steep growth path with revenues of $ 60 million by 2025.

Is Play Magnus a solid or a speculative investment? Certainly a speculative one, as the company is not profitable, and it has yet to pick up quarterly reporting, which is planned from mid November with the numbers of the third quarter of 2020. Magnus Carlsen’s popularity helped a lot, and it will also help sell shares to his compatriots. If he looses the world champion title or even retire from competing, the company will suffer.

Since there are no other publicly traded chess companies, does it make sense to compare Play Magnus with computer game companies? Not really. Game developers have the advantage that players have to buy the game before they can play it. Chess is certainly a growing niche, but the game is in the public domain, and there are plenty of options to play online for free. Play Magnus is certainly an important player in chess, but there are also federations, other platforms, investors and sponsors with their own agendas. The group itself stresses that its companies together have three million registered users but only 35,000 of them have paid for a product or subscription in the last month.

How can the conversion from free-riding chess fans to paying customers be improved?
A second Magnus Carlsen Chess Tour will start soon and keep attracting fans, but how to monetize on them will be the hard part. Of some importance will be the relaunch of the playing zone that chess24 has been working on for at least a year. And on possible aquisitions of cool start-ups or apps that may be out there.