Text/North Force
Recently, the world's esports landscape has ushered in a huge shock.
On January 25, Savvy Gaming Group announced the acquisition of ESL Gaming and Faceit for $1.5 billion, which will merge to form the ESL FACEIT Group after the transaction closes. The transaction is expected to close in the second quarter of 2022, subject to regulatory approval.
This is the first acquisition in the history of esports to exceed 1 billion.
In terms of amount, this acquisition even ranks in the top 15 in the history of gaming/esports. According to Dexerto, citing people familiar with the matter, ESL Gaming made a $1 billion deal and Faceit made $500 million. EsL CEO Craig Levine and Faceit CEO Nicolo Maisto will be co-CEOs of the new group.
Craig Levine (left) and Nicolo Maisto (right)
In an official statement, ESL FACEIT Group said: "We are committed to being a pioneer in the gaming and esports industry, providing development opportunities for the industry and promoting diversified economic revenue sources."
After the "groundbreaking" merger merger, a giant was born in the e-sports industry. Of course, because of the uniqueness of Saudi capital, controversy surrounding capital, politics and morality has also followed.
01
The ambition behind $500 billion
To deconstruct the deal, we need to start with the most basic information: Who are the acquirers, Savy Gaming, and the acquired ESL and Faceit?
Founded in 2021, Savy Gaming is wholly owned by the Saudi Public Investment Fund (PIF). PIF, one of the world's largest sovereign wealth funds with assets expected to exceed $500 billion, invests on behalf of the Saudi Arabian government and is overseen and operated by Crown Prince Mohammed bin Salman.
It is worth mentioning that in a previous interview with the New Yorker, Mohammed bin Salman had said that he was a "first generation" gamer in Saudi Arabia, while revealing that his favorite game was the Call of Duty series. PIF also owns shares in Activision Blizzard and Take Two (parent company of R Star), worth $3.3 billion.
Savy Gaming is led by CEO Brian Ward. It is reported that Ward previously worked at Activision, and in 2008 participated in the merger of Activision and Blizzard to establish Activision Blizzard, he also served as a studio business director at EA and Microsoft, and his resume is quite brilliant.
Commenting on the acquisition, Ward said, "Savy Gaming has committed significant investments in the gaming and esports industries and substantially strengthened the global gaming community. We are delighted to be working with ESL FACEIT Group to create a world-class esports ecosystem."
As the first major acquisition since the establishment of Savy Gaming, PIF announced its ambitions in the esports industry with such a deal.
The acquisition of ESL and Faceit are important parts of the world's esports map.
Founded in 2000 in Cologne, Germany, ESL is one of the world's largest third-party event organizers, covering a wide range of events, but its most well-known projects are CSGO and DOTA2, and almost all major events are participated by ESL. In 2015, Swedish-listed esports company Modern Time Group acquired a 74 percent stake in ESL for $86 million. In 2020, MTG announced that ESL would merge with its tournament company DreamHack to form ESL Gaming.
The other side of the acquisition, Faceit, is a london-based match platform and event company founded in 2012. According to official data, Faceit has more than 15 million monthly active users and is one of the most active battle platforms in the world. In addition to the number of users, Faceit's biggest advantage is anti-cheat technology. In the statement about the acquisition, the two sides repeatedly mentioned the importance of anti-cheating, saying that they will play the advantages of Faceit's anti-cheat technology to bring a better experience to players. It is reported that ESL Gaming and Faceit brands will maintain independent operations and optimize the organizational structure, committed to improving operational efficiency.
Of course, around this deal, its $1.5 billion price is undoubtedly the most concerned point in the industry. Judging from the current public opinion, many practitioners have expressed the same view: ESL Gaming and Faceit are not worth $1.5 billion.
So, is this really the case?
As the parent company of ESL Gaming, MTG's financial report shows that its esports division had negative EBITDA of $29.8 million in fiscal 2021, but MTG did not separately publish ESL Gaming's financial data, so we have no specific information. Similarly, Faceit, as a private company, does not publish the relevant data.
It is worth mentioning that MTG said in 2020 that it owns 91.46% of ESL Gaming, worth $960 million. Therefore, from the official caliber, ESL Gaming's valuation of 1 billion in this transaction does not have a premium.
With specific financial data missing, it is difficult to give a systematic review of the $1.5 billion valuation. But what is certain is that after such a merger, ESL Faceit will further consolidate its position in the third-party event market, and a giant will be born.
02
"Blood-stained" life-saving money
Of course, when it comes to Saudi capital, we cannot ignore the political and moral controversy behind it.
In recent years, Saudi Arabia has been on the cusp of international public opinion. The most controversial incident was the bloody case at the Saudi Embassy in Turkey.
Jamal Ahmad Khashoggi is a prominent Saudi journalist who has often criticized and attacked Crown Prince Bin Salman and the Saudi government. On October 2, 2018, Khashoggi went to the Saudi Embassy in Istanbul to apply for divorce certificates. However, when he walked into the embassy, he did not come out alive. Inside the embassy, Khashoggi was tortured by a team on a murder mission, eventually died of an overdose, dismembered and quietly transported out of the embassy.
Bin Salman (left) and Jamal Khashoggi (right)
This murder, which was a sensation around the world at the time, brought countless condemnations and questions to the Saudi authorities and the royal family. Since then, the Saudi government has arrested 18 suspects and sentenced five people to death, one of whom was a close associate of Crown Prince Bin Salman.
Therefore, in the eyes of many people in the outside world, the Saudi Public Investment Fund, run by Bin Salman, is a wealth stained with blood. For example, PIF led the acquisition of Premier League side Newcastle in 2021, a £305 million acquisition that went through multiple rounds of regulatory and social turmoil due to the complex political, economic and ethical turmoil involved.
As things stand, Savy Gaming's acquisition of ESL and Faceit will go through similar scrutiny, with variables remaining on the horizon as the deal is expected to close in Q2 2022. However, on the other hand, if the PIF can pass the Premier League review with a stricter review system, it can also "smoothly pass" in the e-sports industry where the audit system is not yet perfect.
However, before the relevant departments spoke out, the deal had already caused a huge storm in the esports community, and many practitioners in the CS:GO and DOTA2 e-sports ecosystems said that they would stop participating in ESL Gaming and Faceit-related work. Since CS:GO and DOTA2 are core parts of ESL and Faceit's business, there are also calls for Valve to "step up" to block the deal. So far, Valve has not spoken out on the deal.
CS:GO commentator Frankie Ward said that he will no longer be involved in ESL and Faceit-related work
It is worth mentioning that Faceit core staff Mik said in a podcast, "We can't sign this contract without Valve's approval", which may imply Valve's attitude to this.
It's hard not to think of another controversy in the esports industry related to Saudi capital.
In September 2020, the European League of Legends Pro League (LEC) announced a cooperation agreement with NEOM. Simply put, NEOM (New Future City) is a planned cross-border city in northwest Saudi Arabia, which is planned as a smart city and a tourist city, and is part of the Saudi Arabian government's "Plan 2025".
The deal was widely criticized after it was announced because of its ties to the Saudi Arabian government, with practitioners in the LEC ecosystem saying that "LEC betrayed them". Subsequently, under widespread criticism, Fist and LEC had to re-evaluate the deal. Eventually, under pressure from all sides, LEC issued a second statement saying it had terminated its cooperation with the NEOM project. Among the money and values, Fist and LEC chose the latter.
In the public opinion related to ESL and Faceit, many people also came up with the "NEOM incident" to question these two companies. However, it should be pointed out that the scale of funds involved in this acquisition is much higher than that of the NEOM and LEC agreements. British "celebrity" Richard Lewis said that in the case of relatively low revenue in the e-sports industry, "fools" will not accept $1.5 billion.
Of course, the world is not black and white, and there are many middle ground. More broadly, Savy Gaming's acquisition of ESL and Faceit is part of Saudi Arabia's "Grand International Strategy".
In recent years, Saudi Arabia, which has rarely been involved in the sports industry, has begun to invest frequently, seeking to speak and improve its international image. In this process, Saudi capital has also brought a lot of positive impacts on the ecology of the sports industry.
For example, after the acquisition of Manchester City in 2008, the Abu Dhabi sheikh al-Mansour gradually expanded its sports footprint through its City Group, while helping the city as a whole and the whole of the UK.
In June 2014, Abu Dhabi Group announced an agreement with the City of Manchester to invest £1 billion over the next decade in the construction of at least 830 new residential buildings in the Ancocks area of Manchester city to improve the living conditions and quality of life of the future residents of the surrounding area. With the help of City Football Group, the City of Manchester was able to successfully complete its goal of upgrading the eastern suburban community by 2027.
After this, the new Manchester City Football Academy, established by City Football Group in cooperation with the British government, was officially put into use. City Football Group invested almost £200 million in the project. Since 2015, City Football Group, in partnership with the Uk House, has invested a total of £8 million a year in 150 sports centres in 30 cities across the UK to promote the development of grassroots football, the training of grassroots football coaches and the popularization of women's football.
From this perspective, Savy Gaming's acquisitions of ESL and Faceit will also have a positive impact on the esports industry in Saudi Arabia and the Middle East. According to market research firm Niko Partners, Saudi Arabia's gaming market will reach $1 billion in 2021 and has considerable consumption potential.
But corresponding to this is the lack of e-sports-related forces. Now, with the entry of capital, this situation is expected to change.
On the one hand, choosing to start from the event and game platform, Savy Gaming is expected to reach more players and fans in a short period of time and increase the voice of Middle East e-sports; On the other hand, its investment in infrastructure and the establishment of related companies will also provide more jobs for Saudi Arabia and even the Middle East, and promote the development of the Middle East e-sports industry. In this sense, there is a positive side to this merger.
Last year, Middle Eastern team Nigma Galaxy partnered with Etihad Airways to create a new sponsorship category
The world is not black and white, and there are also many middle groundes. A $1.5 billion merger that intertwines economic, political, and moral events in society. Because of this, the merger case will always be repeatedly discussed and examined in the controversy. And the impact will become clearer over time.