More Financial Records Show Extent of ESL / FACEIT Group Spending

Recently released financial records confirm the scale of spending on acquisitions and expansion but also show that cost cutting measures have been implemented

Photo courtesy ESL Press Kit

The ESLFACEIT Group (EFG), owned by the Saudi Arabian Public Investment Fund (PIF) and operated by parent company Savvy Games Group, have made more financial records publicly available. The records run from January to December of 2023 and give an idea of the amount of spending the project has engaged in and has definitively confirmed that as of the start of 2024 the company was engaged in several cost-cutting exercises designed to make the project more sustainable.

Previously published records showed the details of the FACEIT side of the business, but these newer documents give a much more comprehensive view of the entire EFG portfolio.

The full document is available for download in this report but what will follow is a summary of the key details:

Esl 2023

138KB ∙ PDF file

Download

Download

Cost Cutting

The report confirms that EFG have enacted a number of cost cutting measures that began in February 2024, outside the scope of the numbers contained within the document due to its filing date. This publication has covered a number of these which include a reduction in freelance talent rates, a 15% companywide reduction in staff size and closures of multiple superfluous components of the company.

“At the end of February 2024, EFG implemented a cost reduction program to reduce expenditures and achieve performance expectations, as well as adapt its size to current market conditions, which also impacted the entities part of the SGG Esports AB Group. A reduction of 15% of the workforce was implemented, by means of non-replacement where possible.”

The report also confirms that there was a commitment of funding that would last at least twelve months after the end of 2023, the results of which we won’t know until we have the filing likely to be made available in approximately one year.

“For the purpose of the audit of the statutory financial statements of ESL Gaming GmbH, as of and for the year ended 31 December 2023, we, SGG Esports AB, in our capacity as parent company of ESL Gaming GmbH, confirm that our policy is to provide continued financial support for ESL Gaming GmbH. We herewith confirm our intention and ability to support ESL Gaming GmbH for at least, but not limited to, the next twelve months, subject to ESL Gaming GmbH continuing to be a subsidiary of us.”

The auditing component of the report reiterates that the company is considered “liquid” due to the cash available from the PIF.

“Liquidity risk is the Group's risk of not being able to meet the short-term payment obligations due to insuficient funds. The Group relies on its ultimate parent PIF's internal processes and controls for managing liquidity risk. A centralized cash management process managed by PIF enables the Group to manage liquidity surpluses and deficits according to the actual needs. The liquidity management takes into account the maturities of financial assets and financial liabilities and estimates of cash flows from operations. The Group's ultimate parent PIF has a strong liquidity position in terms of available cash and cash equivalents, and short-term investments.”

Revenue

While cost cutting measures have been implemented overall revenue has increased. This is attributed to having emerged from the market downturn, colloquially known as “esports winter,” and by an increase in publisher and partner contributions. The report also credits the company’s expansion into Riyadh, via the Esports World Cup (still referred to here via its former branding Gamers8 or G8), as being responsible for growth, although it doesn’t attach a metric to that statement.

“The year has been impacted by macroeconomic headwinds which has created challenges to the industry as a whole, and to the Group in terms of reduced scope and budget of planned projects. Despite these challenges, the Group has seen a year-on-year increase of revenues of 15.91 % which is primarily driven by publisher and partner contributions and revenue from gaming operations, such as ticket sales and other event related revenues. Especially the group's expansion in the MENA region with one of the biggest Esports events globally, "G8" in Riyadh, continues to support this growth. Cost of revenues increased by 25.76 % as EFG continued the strategy of investing revenues in personnel and the products to make our events some of the most iconic and remembered esports events. However, following the conditions arising during 2023 challenging the market, cost optimization has been an increasing focus within EFG.”

Also in good news for the company they cite expanded multi-year deals with game publishers, most likely partnerships where the company will produce their esports broadcasts for them, as having served up a decent share of that revenue.

“Over the past few months, we've continued to grow our portfolio of publisher products, including multi-year partnerships with Activation Blizzard to build its Overwatch Champions Series; Moonton to expand MLBB through the Snapdragon Pro Series in partnership with Qualcomm and Samsung Galaxy; deals with EA to enhance the Apex Legends esports fan experience; and Epic through our Unreal Engine Fortnite collaboration.”

Overall though the operating loss widened by 43.18% to €123.84 million due to increased costs and administrative expenses across the company.

Photo courtesy ESL Press Kit

Risks And Uncertainty

The report also acknowledges how precarious at times the esports business model can be. It explicitly states that should games developers decide to close off relationships that could certainly leave them in a difficult place. This is especially worth noting while rumours of a fractious relationship between EFG and Valve continue to circulate among industry experts. This has been covered in previous reports by this publication.

“The Group is dependent on the cooperation with popular game manufacturers and should one of the Group's main relationships discontinue it would negatively impact sales.”

The record also states that the company has continued to invest its budget into “expansion,” a move that has led to a lot of expensive acquisitions that have ultimately not held their value once folded into the company. They state that “profitable earnings” are in “the foreseeable future” although currently looking at these numbers, especially when compared to previous years filings, it’s not clear how.

“The Company is still considered to be in a developing stage and continuing to explore new growth opportunities, which require large cash investments. Management acknowledges that a projected negative operating cash flow and the aggressive expansion strategy is dependent on cash contributions from its shareholders, which has been granted. However, Management is convinced that the investments are the correct strategy based on the positive development in the interest of esports and gaming. The Company is striving towards positive cash flows and profitable earnings in the foreseeable future.”

Legal Disputes

While it’s not clear what they may be about, the records do state that EFG is involved in a number of legal disputes for which they have reserved a set amount aside for. One case is likely involving the Global Esports Federation (GEF) which agreed to pay a $470,000 settlement to ESL over a dispute regarding a tournament. Beyond that any other litigation is not known about at this time.

“EFG is party to a number of legal disputes for which Management has recognized total provisions of 14,210 EUR as of 31 December, 2023. Management's estimate of the provisions for legal disputes is based on the knowledge available on the substance of the cases and a legal assessment of these. The resolution of legal disputes through either negotiations or litigation can take several years to be reached and the outcomes are subject to considerable uncertainty.”

ESL Impact may soon be part of a Saudi Arabian tournament (Photo courtesy ESL Press Kit)

Diversity & Inclusion

Many in the esports industry have raised concerns about having such a prominent company controlled by the Saudi Arabian government given their record on human rights, women’s rights and the persecution of the LGBT community that is ongoing in their country. The report reiterates a somewhat hollow commitment to inclusiveness although it doesn’t explain how that remains compatible with the actions towards Saudi citizens within the kingdom.

“At EFG, everyone is welcome to play. We are committed to leading the industry by creating safe spaces where women can compete, watch, and win. Our flagship program, #GGFORALL, is integrating inclusivity across all our platforms to inspire greater equity across the industry. From its landmark women-only global Counter-Strike league, ESL Impact, to diversifying programming across DreamHack festivals, to building first-of-its-kind moderation AI Minerva on FACEIT, #GGFORALL has gone from a vision to an industry-defining initiative. While there is more work to do, the impact of #GGFORALL can be felt throughout EFG's addressable audience of millions of gamers, and offers more opportunities for historically underrepresented groups in gaming than ever before. We remain confident in our ability to grow and advance our strategic priorities and are committed to continuing to build worlds beyond gameplay that serve and bring value to our fans, our community, and our partners.”

Several sources, speaking under condition of anonymity, have stated that it has been the desire to host the ESL Impact finals in Riyadh, either separately or as part of the Esports World Cup competitions, in order to demonstrate the theoretical progress the country has made. This has been met with some resistance internally although that is said to be eroding as more and more parties agree to participate.

Zakat

Confirming that the company is entirely run and owned by the Kingdom of Saudi Arabia the company’s financials also show that they have been subject to the religious practice of Zakat. Zakat is a form of almsgiving in the Muslim faith in which 2.5% of an eligible individual or company’s wealth is taken for the purposes of charitable causes and redistribution to the poor. This is done via the kingdom’s Social Security Agency, where the money is held and then made available to applicable parties via applications.

This tithe shows that not only is the Saudi Arabian state funding EFG and SGG but it also shows that money raised by these companies is also returned to the state and distributed among Saudi citizens as deemed appropriate.