How topical is eSports? In China, it has now become a popular backdrop for many TV dramas. First there was Dt.Appledog’s Time, an idol series about eSports. Last week, Youku announced that Falling into Your Smile – which tells the story of a female League of Legends eSports gamer – will soon debut on the site.
It is against this backdrop that eSports company VSPN is rumoured to be considering an initial public offering in the US.
Founded in 2016, Bloomberg reported last month that VSPN’s planned listing could raise up to “hundreds of millions” of dollars. Reportedly it has just raised $60 million in a pre-IPO fundraising round. It also closed a $100 million investment round led by Tencent in October last year.
The Shanghai-based company aspires to become China’s ESPN, although the lucrative broadcasting rights to popular games in the country have mostly been snapped up by Huya and Douyu, a pair of rivals and portfolio firms that Tencent has been pushing to merge. That’s why for the time being, VSPN has focused on organising tournaments for popular games like Tencent’s Honor of Kings and Peacekeeper Elite as well as doing content creation.
Last week, VSPN announced that it had acquired Famulei, a talent agency for eSports teams, athletes and hosts, for an undisclosed amount. Famulei’s roster of clients includes WE (China’s first eSports club) and South Korean teams like T1 and Gen.G. Following the acquisition, VSPN says it plans to work with Famulei to focus on influencer monetisation and cultivate livestream talents and other eSports content.
The acquisition is not the first that VSPN has made this year as it seeks to bulk itself up before going public. In January, it bought Banana Gaming & Media – one of China’s biggest eSports production companies – from Wang Sicong, son of property tycoon Dalian Wanda’s Wang Jianlin. Banana Gaming has been involved in eSports competitions for PUBG Mobile, FIFA 4 Online, and many other major titles.
VSPN has also set up offices in Saudi Arabia, South Korea, Indonesia and the US. In addition to its core business, it also owns and operates branded eSports venues in Chengdu, Xi’an, Shanghai and Seoul. VSPN handles production for some of the biggest competitions in Asia including League of Legends Rift Rivals, King Pro League (KPL) and the PUBG Mobile Club Open (PMCO) Global Finals. Its studios are so sophisticated that they rival cable networks, says Tencent News (the studios include dressing rooms and make-up chairs).
Even though VSPN is the leading tournament organiser in Chinese eSports, that is increasingly a less lucrative endeavour. “Event management is hard work, with a lot of high fixed costs and low profit margin. There is also no sign of significant growth in demand every year,” one industry insider revealed to TMT Post.
According to VSPN’s own statistics, the company hosted 4,000 games in 2016. Yet in the following four years the total number of tournaments it organised was 10,000. That means, on average, between 2017 and 2020, the company hosted just 2,000 games a year, a far cry from the peak in 2016.
In 2020, the global eSports market recorded a drop in revenue for the first time: China accounted for 35% of the market, which is sized at around $331 million. On the other hand, Xinhua reports that China’s video gaming industry grew 20.7%, to Rmb278.7 billion ($43.81 billion) last year. Market researcher Newzoo, which specialises in eSports, now reckons that the market will grow just 12.6% in 2021.
Perhaps that explains VSPN’s rush to IPO as well as its recent moves to vertically integrate. Tencent and Riot’s TJ Sports, for instance, are increasingly involved in eSports production and broadcasting as well as operating a talent agency. Video streaming platform Bilibili, too, has it own eSports unit and is hoping to leverage its exclusive broadcasting rights to League of Legends to extend its reach in event operations and talent management.
“As capital market’s love for the sport starts to fade, it is going to be more difficult for smaller eSports firms [such as VSPN] to go public,” Zhang Shule, an industry analyst, told news website Lanjing Caijing.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.