AFK Weekly: Deciphering ESL FACEIT’s $1.5B Acquisition
Hello everyone! All eyes in the esports industry are on the monumental merger of ESL and FACEIT as part of a $1.5B USD sale to Savvy Gaming Group, a company backed by the Saudi Arabian government's Public Investment Fund. Though the added capital may be beneficial to the industry, many are concerned about Saudi Arabia's involvement, particularly given the country's human rights record.
This news also comes right on the heels of the massive $68.7B deal that will see Microsoft acquiring Activision Blizzard. These new players could drive major changes in the industry with this huge influx of capital that could affect and influence multiple esports titles.
Here’s a breakdown of this week’s most impactful and important esports business news and more in the latest edition of Esports Business Insights by AFK Gaming.
- Vignesh Raghuram, Supervising Editor, AFK Gaming
ESL x FACEIT: The Biggest Deal in Esports History
It was revealed Monday that Sweden-based Modern Times Group (MTG) plans to divest tournament organizer ESL Gaming to Savvy Gaming Group (SGG) for approximately $1B USD, and that the investment group signed an agreement to buy UK-based tournament organizer FACEIT for approximately $500M. The deals are expected to close in Q2 of this year, following regulatory reviews and approvals in multiple countries. The story, first reported by SBJ Esports’ Kevin Hitt in the west, also revealed that both FACEIT and ESL Gaming (which includes events and tournament company DreamHack) will be merged under a new entity called the “ESL FACEIT Group,” according to SGG.
MTG owns 91.46% of ESL Gaming, which will net the company around $960M, or $875M after "transaction related costs and fees." MTG said in a release on Monday that it would give back approximately 40% of the divestment to shareholders, with the remainder of the funds going towards growing its “pure-play gaming business.” MTG bought a 74% stake in ESL in 2015 for €78M ($87M), and later that year purchased a 100% stake in DreamHack for kr244M SEK ($25.8M). The divestment of ESL Gaming represents approximately a 660% return on acquisition investment for MTG.
One of the most notable things about this deal is that SGG is fully funded by the Saudi government-backed Public Investment Fund, which was established in 1971, reworked in 2015 and placed under the administration of the government’s Council of Economic and Development Affairs (CEDA), with Saudi Crown Prince HRH Mohammed bin Salman bin Abdulaziz serving as its as chairman. The fund currently has approximately $500B in assets under management. The Saudi Crown Prince has been criticized for human rights violations; the country’s mistreatment of LGBTQ+ citizens; imprisoning political rivals and activists, the 2018 murder of Saudi dissident and journalist Jamal Khashoggi; and some questionable foreign policy decisions.
Let’s drill down into the potential advantages and challenges this deal brings across the entire esports ecosystem.
Regulatory and foreign investment reviews
The deal will face the typical regulatory reviews in Sweden (MTG’s home country) associated with divesting major assets from publicly-traded companies by authorities such as the Swedish Financial Supervisory Authority (SFSA), The Takeover Panel, Swedish Competition Authority, and the European Commission (which reviews mergers). There may also be additional regulatory hurdles that SGG might have to jump through related to foreign investments in the UK (FACEIT’s home country) and Germany (ESL Gaming). Sweden doesn’t currently have enforcement on examining foreign investments.
In January, the National Security and Investment Act came into effect in the UK, creating a "foreign investment screening regime" to review transactions "related to 17 key sectors of the UK economy." The FACEIT acquisition could come under scrutiny because the transaction is being funded by the PIF, which is controlled by the Saudi government, and because the company stores private user data from consumers in the UK and around the world. While this is a possibility, it is unlikely to unravel the deal, as the PIF was used to purchase the Premier League soccer club Newcastle United for roughly $409M in late 2021–of course these new foreign investment rules weren't in place. In October of 2021, international human rights organization Amnesty International called the deal "a clear attempt by the Saudi authorities to sportswash their appalling human rights record with the glamor of top-flight football."
Similarly, Germany has laws on the books to review foreign investments/transactions, as well as rules concerning the safety and security of employment for workers.
The ghosts of NEOM and PIF investments
In August of 2020, the League of Legends European Championship (LEC) and tournament organizer BLAST announced partnerships with NEOM, a cross-border city project in the Tabuk Province of northwestern Saudi Arabia. The deal was quickly met with outrage and public criticism from the esports community, talent that worked with Riot, influential esports journalists, and even Riot employees. The outrage was mostly focused on Saudi Arabia's human rights record, its treatment of women and members of LGBTQ+ community. Many in the LGBTQ+ community who worked for/with Riot expressed concerns about their safety in NEOM and vowed not to take part in any activities there if it held events there. Inevitably Riot ended the partnership and apologized to the community and BLAST also eventually acquiesced under the intense public pressure.
The backlash to NEOM could potentially pale in comparison to what awaits those who work with ESL and FACEIT in the future, as they are going to be owned by a Saudi government-backed company. Collectively these companies have worked with Intel, Riot Games (League of Legends, Valorant, Wild Rift), Ubisoft (Rainbow Six), Microsoft (Halo), EA (Apex Legends, FIFA), Epic Games (Fortnite, Rocket League), Valve (Dota 2, Counter-Strike: Global Offensive), Tencent (PUBG Mobile), Activision Blizzard (Hearthstone, StaCraft II, Warcraft III), and many more (including partners and sponsors) to organize some of the biggest esports competitions in the world.
As the biggest tournament organizers in the world tied to every major esport on the planet, one suspects that not everyone that works in those esports is going to be pleased with the new PIF affiliation. In addition to community backlash, workers at these companies will have a lot to say about it, and may force their employers to take stands that they’d rather not take.
For Riot this will be a challenge because it denounced the LEC-NEOM deal and made major adjustments on how it now approaches these kinds of partnerships in the wake of that controversy.
Beyond public backlash, it will be hard for rights holders such as Activision Blizzard, and EA to take an honest stand against working with ESL FACEIT because they too have significant investments from the PIF fund; in February of 2021, the Saudi wealth fund pumped $3.3B in investments into video game stocks including the purchase of 7.4M EA shares, 14.9M Activision Blizzard shares, and 3.9M Take-Two Interactive shares. In November 2020, the Mohammed bin Salman Foundation–a charity founded by the crown prince–purchased a one-third stake in King of Fighters and Samurai Shodown maker SNK Corp. Of course, the PIF invests in a lot of major companies outside of gaming that people against this ESL-FACEIT deal engage with every day, including Disney, Uber, Facebook, Starbucks, and Pfizer, among many others.
Gambling/betting sponsorships and silver linings
As pointed out by betting-esports newsletter Sharpr, it is not completely clear how this deal will impact the myriad of gambling and betting sponsors tied to ESL, FACEIT and numerous CS:GO and Dota 2 teams, because under Islamic law, gambling is strictly prohibited, but the Saudi government had a more liberal view when it comes to investing in the sector. For example, the PIF-owned Newcastle United is sponsored not by one, but by three gambling platforms with bet365, FUN88, and BoyleSports.
Finally, the silver lining of this deal is that it will ultimately help the middle east grow its presence as an integral competitive region in the global esports ecosystem. And if there is major backlash against this new ESL FACEIT entity, other tournament organizers such as BLAST, WePlay, NODWIN Gaming, and many more could ride the wave of negativity to establish new relationships and grow their global footprints.
Key Takeaway: It is hard to figure out if this deal is a play to build out the Middle East as a major player in the esports ecosystem, if SGG just thinks this is a great investment, or if this is simply a case of the Saudi government using the popularity of gaming to engage in “esportswashing” much like it has been accused of doing with sports. No matter what we think it is, there is no denying that it is the biggest, most impactful deal in esports history and will have ramifications across the entire industry for years to come.
- James Fudge
TSM enters Dota 2 with North American team
League of Legends stalwart TSM has finally entered the Dota 2 competitive space by signing Team Undying, one of the top teams in the North American Dota 2 Pro Circuit. Currently, the California-based organization also hosts rosters in League of Legends, Apex Legends, Valorant, PUBG Mobile, and Free Fire.
PUBG Mobile Global Championship experiences steep viewership decline
The PMGC 2021 Finals concluded last week with a viewership peaking at 646.6K and averaging 376.8K. This is down from the numbers posted by PUBG Mobile Global Championship Season 0 which peaked at 3.8M and had an average of 528K viewers. This is despite featuring teams from various regions including China, India, Southeast Asia, Latin America and Europe.
Astralis extends Esportal partnership
Astralis has extended its partnership with matchmaking platform Esportal. The Danish esports organization plans to host monthly and quarterly tournaments at Astralis Nexus, the organization’s new headquarters in Copenhagen. According to a release, viewing parties, meet and greets, and increased content on its social media platforms are some of the activations that fans can expect, moving forward.
BLAST extends partnerships with CS.MONEY and EPOS
Following the renewal of its partnership with Coinbase, BLAST has also extended its partnerships with skin trading platform CS.MONEY and audio peripherals brand EPOS. CS.MONEY will be integrated across seven CS:GO-related events in 2022, including BLAST Premier’s 'Play of the Day' broadcast segment. EPOS will continue to be integrated with the ‘Push to Talk’ podcast series.
Call of Duty League viewership tanks
The Call of Duty League 2022’s opener, the Kickoff Classic tournament, saw a surprising dip in viewership. The event's stream on YouTube peaked at just under 80K concurrent viewers, down from the 2021 Kickoff Classic, which had a peak viewership of 107K. With the event only averaging less than 50K through the weekend, CDL stakeholders have cause for concern.
Version1 strikes multi-year partnership with eFuse
Rocket League Championship Series’ Version1 has signed a multi-year agreement with esports platform eFuse making it the organization’s official strategic branding and competition partner. As a result, the platform’s branding will appear on Version1’s Rocket League content, live streams, and in-game cosmetics.
Riot Games sues Vietnamese developer over League of Legends knockoff
Riot Games has filed a lawsuit against Vietnam-based mobile app developer Imba Technology for copying from its game and infringing its copyrights. Riot has alleged that Imba’s ‘I Am Hero: AFK Tactical Teamfight’ lifts characters, text, and other features from League of Legends.
Call of Duty will continue to be on PlayStation despite Microsoft deal
According to a report from Bloomberg, Activision intends to release at least the next three Call of Duty titles on both PlayStation and Xbox consoles, given that it had already committed to releasing "the next few" Call of Duty games on PlayStation some time before Microsoft's acquisition.
Call of Duty Pro slams CDL for mishandling COVID-19 testing at Kickoff Classic
Call of Duty pro player Clayster criticized the Call of Duty League (CDL) Kickoff Classic event for its “braindead” COVID-19 testing regulations, which required players to get tested, but fans to not. The player has alleged that this may have resulted in a number of CDL players and fans contracting the virus.
U.S. Congressman comments on Microsoft’s Acquisition of Activision Blizzard
Jerry Nadler, who represents New York’s 10th congressional district and is serving as the Chair of the House Judiciary Committee, has called for Microsoft’s acquisition of Activision Blizzard to be “closely scrutinized.”
Through social media, the sitting politician also noted that Activision Blizzard has “a pattern of bullying workers to evade accountability for rampant sexual misconduct.”
On the Horizon
The esports year is in full swing with many of the world’s most prominent leagues and circuits kicking off their seasons. As the top tier esports roll on, this weekend sees several communities come together for unique events. The world championship of Super Smash Bros., Genesis, was canceled earlier this month, so popular streamer Ludwig has organized a $30K online tournament to raise funds for that team. Super Smash Bros. lacks any developer support from Nintendo, so canceling any event is a devastating blow to the grassroots organizers that support it.
While many throughout the world speculate on the impact ESL’s acquisition will have on women’s esports, the Mobile Legends scene is pushing that conversation forward. Moonton and ONE Esports have come together to host the first-ever MLBB Women’s Invitational featuring top teams from around Southeast Asia competing for a $15K prize pool.
People on the Move
It’s been a relatively quiet week for moves and hires in the esports industry compared to previous weeks. Here are the most notable:
Scotty Tidwell leaves G FUEL to join Enthusiast Gaming as VP of talent.
Isabel Krause has left her role as senior PR communications manager at ESL Gaming.
Daniel Sanders leaves Red Bull to join Tencent Games as senior global marketing lead.
Alyssa Sweetman is leaving her role as director of social impact at Twitch in February.
Lucy Dodson has exited her role as platform manager (OWL, CDL) at Activision Blizzard.
Nicolas Estrup is named chief innovation officer at BLAST.
Maximilian Peter Schmidt is looking for the next LEC commissioner.
Drew Boehm program director, esports at the University of Texas at Arlington.
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