The e-sports venture deal sparks hope for the industry amid investor and regulatory concerns
The e-sports venture deal sparks hope for the industry amid investor and regulatory concerns
Saudi Arabia has upped the ante in its ambitions to become a global e-sports hub by 2030 through a $265mn investment in Chinese e-sports firm VSPN last month. Fully-backed by Saudi Arabia sovereign wealth fund the Public Investment Fund (PIF), Savvy Games Group has become the largest equity holder in VSPN through venture funding.
The venture deal marks a gaming milestone as the first commercial partnership between Saudi Arabia and China, the world’s largest e-sports market. It is also the largest e-sports venture financing in APAC since August 2020. The deal alone has exceeded 2022's full-year aggregate deal value of $204.8mn across 37 deals (Fig. 1).
Saudi Arabia’s gaming market appears promising, thanks to its large and youthful population of gamers. At a world forum in Riyadh, Saud Al-Tamimi, governor of Saudi Arabia’s Communications and Information Technology Commission said, "89% of the Saudi population is gamers, the highest per capita globally". According to the Boston Consulting Group, gaming consumption in Saudi Arabia is expected to reach $6.7bn (SAR 25bn) by 2030, representing a seven-fold growth from a decade ago.
Both parties stand to benefit from the deal. VSPN, which is backed by Chinese tech giant Tencent, will utilize the funding to expand globally, including venturing into mobile e-sports in Saudi Arabia. Tencent has been actively acquiring stakes in foreign gaming assets to offset sluggish domestic growth.
E-sports in China
The transaction follows Beijing’s recent change in attitude toward video gaming and e-sports after years of major crackdowns to combat online gaming addiction.
APAC e-sports venture capital had a record year in 2016, attracting over $1.6bn in investment (Fig. 1). This figure was buoyed by a $1.2bn series B deal in Chinese online video-streaming giant LeTv Sports Culture Develop (Beijing). The firm has since ceased operations, with a full write-off exit in 2019.
Following this record year, Tencent began restricting the playtime of underage players for its flagship mobile game, Honor of Kings, in 2017. This came after complaints that young people were developing serious gaming addictions. Beijing then rolled out more regulations to limit gaming time for minors in 2019, on top of restrictions to gaming licenses already put in place the previous year. These measures cooled investor sentiment, with concerns that the world's largest gaming market could be negatively impacted.
As expected, the aggregate deal value of e-sports in APAC began to drop as these restrictions were introduced in 2017, then subsequently plunged to a five-year low of $107.3mn in 2019. The aggregate deal value did rebound to $1.42bn in 2020 following two consecutive PIPE deals worth $1.1bn in Chinese game live-streaming giant Huya. However, excluding these outlier deals, the aggregate deal value for the years 2020 and 2022 was between $200mn and $500mn, some of the lowest levels seen since 2015.
Despite this six-year slump, the tide began to turn in 2022. The People’s Daily released a commentary acknowledging the video gaming industry as a key pillar in shaping China's technological landscape. A Chinese video gaming association, China Game Publishers Association Publications Committee, also published a report indicating that the issue of ‘gaming addiction’ among minors had, for the most part, been addressed. These factors helped to begin to revive the industry.
While Beijing's easing of gaming regulations and reopening of borders to support overseas tournaments may have lifted hopes among e-sports investors, those years of crackdown have undoubtedly damaged the domestic gaming industry. And while Chinese companies have long maintained a dominant position in the e-sports market, holding all top five of the largest venture deals between 2013 and 2020, there has been a clear shift in recent years. Between 2021 and now, it has been Indian e-sports start-ups that have secured some of the largest deals, holding four of the top five today.
The partnership between VSPN and Saudi Arabia points toward a growing eagerness of both parties to secure a significant portion of the e-sports market. Eyes will be on Saudi Arabia’s promising gaming industry as it continues to expand.
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