"Games-Services has almost always lost money"

Deutsche Version: "Games-Services hat fast immer Geld verloren"
Article: The End of a Great Dotcom-Idea
Mister Dallon, which factor was in the end the main reason for the liquidation of Games-Services? The end of the sponsorship of Nvidia or the general economic surrounding?

Matthieu Dallon: We have been directly affected two times by the global crisis. The first wave was in the first semester of 2008, in the USA, during the sponsorship prospecting for the San José Finals. Everyone noticed we had only Nvidia as partner of the event. The second wave was in Europe between September 2008 and March 2009, during the prospecting for ESWC 2009. We have contacted several dozen of potential partners, big and small brands. We always received the same answer: "Our stock value is in free fall, the sales decline, we are going to lose money this quarter, nobody knows when all will restart, so we have to reduce all our marketing and communication budgets, we have to target our direct consumers, and we have to cut all special budgets as sponsoring or alternate advertising." Our licensed partners all around the world faced the same difficulties, what has doubly impacted our financing. We were a small company, a surviving start-up of year 2000, whose business model was still not totally fulfilled, so the crisis has been lethal to us. Yes, the general economic surrounding clearly is the reason of the ESWC bankruptcy.

Following a very difficult season in 2007 with massive losses, we managed the company with almost no cash flow during the past two years. Even though we made a good financial recovery in 2008, compared to 2007, in detail a plus of 30 percent of turnover increase and 400 percent of losses decrease – thanks to the Masters of Paris and our activity's diversifying, we've lost again money in 2008. Without cash flow, without sponsor's commitment, we couldn't continue in 2009.

Games-Services has almost always lost money, more than one million Euro combined in six years of ESWC. First it was a choice, then it became a handicap for the company's development, and finally it has been a real issue during the crisis. Nevertheless, in six seasons, we have produced around ten million Euro of revenues, fully invested in ESWC: the projects spread out in over 50 countries, seven major international events – which means grand finals or masters – five ESWC general assemblies, six years of preliminaries in France, a web-based software to manage tournaments, more than 1.2 million dollars of prize money paid to video gaming champions.

As you said the situation in 2009 was already very difficult. But in March you only announced the postponement of the Grand Final. At the end of the month your company had to declare the bankrupt. What happened in this two weeks?

Dallon: We were looking for funds for several months beside new venture capitalists. We also opened discussions with other major eSports leagues to find a way to merge, to save the project and be stronger together for the upcoming years. Those opportunities maintained some hope and we had to postpone the Grand Final because we needed more time. Meanwhile, as we had no more cash flow, neither for the offices expenses nor staff salaries, we had to submit to the Commercial Court of Paris a declaration of cessation of payments. The opening of the liquidation has been declared March 30, the day we were called in the court for the first time, which is pretty uncommon. There are so many smashups nowadays that it has been managed in one hearing, without any probation.

Is it impossible to get sponsors for such events in the times of the financial crisis?

Dallon: I guess it's not impossible … but for us it was, even more because of our very limited resources for the commercial prospecting. For all the brands outside of the IT and video games sector, I would say that it is impossible in times of crisis. They all target their reduced investments on their native consumers.

Is it more difficult to get sponsors for a big tournament than for a league like the ESL?

Dallon: It is always a tricky job to sale a sponsorship offer, whatever is the amount. If it is sponsorship, it is precisely because it's not traditional advertising. A sponsorship strategy for a brand is linked to values, messages, to a vision. And the Return on Investment is pretty hard to work out.

Some people critisize your business model which seemed to base nearly complete on the big sponsors. What do you think about that critic? Are different financial strategies even possible in eSport?

Dallon: Our business model, as most of the other big organizations of eSports, was based on the sales of marketing rights, the sales of licensing rights, and the sales of media rights. Sponsorships revenues are a part of the marketing rights. We have well developed the licensing rights. There has never been any media right. All sports, or events, that generate sustainable business, are based on media rights, which are mostly TV rights. The main part of the incomes of international federation like FIFA are based on media rights, I think 70% of their hole budget.

So the stake for any eSports organization is to cause and to wait for media rights. Media rights make the Korean eSports ecosystem. We have, with our means, made a lot to make a video game match exciting, thrilling and attractive for the spectators. We have set champions on stage, we have dramatized the games, we have developed live audience, we have programmed applications to provide real time info and instant emotions, we have filmed the matches, we have given for free the pictures to broadcasting networks to educate them and to create a demand. It never came.

The game is like that: being strong enough to survive until the advent of media rights and even stronger to negotiate the final royalties to the game owners. I think this is the long-term strategy of WCG – and that has been the short term strategy of CGS. It also seems to be the strategy on a national scale of MLG in USA. These three examples reveal that you need a lot of resources to be a serious challenger.

On second thought today and moreover because of the crisis, I think there won't be any sustainable international media rights for eSports. First, real-TV crushes all new concepts – look at Play Us with the Seules, CGS, or WCG Ultimate Gamer. Secondly, Internet, its issues on properties and the outburst of individual broadcasting are changing all the rules. Future will be different.

In conclusion, we did ESWC with money coming from sponsorship and licensing but that was not our entire business model. Finally, we have produced ten times more turnover than losses, which is a reasonable ratio for an international start-up on Internet, and which might be the most competitive ratio compared to the other international projects as WCG, CGS or MLG, whose budgets and losses reach several million per year. If we had the time and the resources, we would have invested the past years on a platform of online services.

Another strategy might have been a bigger cooperation with game publishers, like the WCG do it.

Dallon: We wanted to remain independent from the publishers, more precisely from the games owners. In my opinion, it is a precondition if you want to last, to keep some legitimacy towards the communities, to choose the best games and their best mods, and if you want to develop your own story. Being independent from the games owners shall be the keystone of any eSports business model, otherwise players will forever be clients and champions only puppets. And this is obviously the main condition to negotiate favorably, one day, media rights. I think that WCG cooperates with publishers for strategic reasons of institutional communication, to legitimate their brand at a global scale.

The relation between games owners and eSports organizations is the most important question of all for the future. And I think it is even more important for the champions than for leagues producers.

And what about a smaller ESWC event? Less prize money, smaller location.

Dallon: You know, each edition shall provide something new, something better, something innovative. It's very difficult to introduce a project to a potential partner and to tell him that it won't be as tremendous as the previous year. However, yes, of course, months after months, meetings after meetings, we have reduced our ambitions and cut down on company's expenses, but it was not enough.

What will happen now? Can you already tell if there are some serious interested investors for a trade-in or a resale of the ESWC?

Dallon: Yes, there are serious offers, and some are coming from Germany. There are also callow requests, which show up that some communication was necessary. We are at the beginning of the process that may last until this summer.

Do you think that we can see an ESWC event in the near future?

Dallon: Considering the necessary time for a potential trade-in and then, the minimum time to sale sponsorships offers and to produce the event, we shall wait until the end of the year.

What about the prize money? Many winners of the Masters and Grand Final 08 didn't get the money until now. Is there a chance that they will receive it in the next months?

Dallon: Since 2007 and the massive losses of the company, we paid the prize money in a staggered schedule of eight to twelve months. This was an unhappy effect of the company's schedule of expenses and incomes, and of our low-level of cash. We did it in an open manner by informing players before the tournaments. But the sudden crisis stopped the process. I'm sincerely personally affected by that, much more than by all I've lost in that crisis. It is unfair and harmful to all the champions. Even though I have no personal liability in that process of payment, I do my best to make it happen. I help the liquidator to find the best new business owner. I help him to give the best values to all the company's assets. Then, in the best scenario, two possibilities: The liquidator directly pays the prizes with the money gathered at the end of the liquidation, or the new business owner pays the prizes as single debt of ESWC to cover.

Which effect would the liquidation of Games-Services have on your license partners if the ESWC would really disappear?

Dallon: This is not the ongoing process, but if it has to be that way, the licensing agreements would be canceled and the brand would probably be officially destroyed. It would add more sadness and consternation. I think that, in the meanwhile, the national operations that can happen shall end in the best possible conditions for the players and their national titles.

What about you and your former staff? Will you continue working in the eSport business or is it time for something new?

Dallon: All the team has been laid off, including the management. The shareholders have lost all their investments. I experienced extraordinary moments with that team, like most widely with all the people that made ESWC. It is a real wrench for everyone to leave this company and this project. We were all very young at the beginning of the story. I was 26 and the average age was around 22. Today we are all thirty years or more. A new life shall begin.

On a personal level, I do my best to put things into perspective, to consider the past year with detachment, but I feel deeply sad, and no word can express my frustration. Since almost 10 years now, I work to develop eSports, to structure it at a global scale, to shape it as a human experience first, as a live show. I work to legitimate video games champions as genuine athletes and new icons of our digital society. I do all this because I know what it is to have sweat between the palm and the mouse and what tremblings before a victory are. I also know that all these emotions can be shared. eSports are at the crossroads of all the most exciting fields of my generation: sport, entertainment, Internet, new technologies, video games. So even if it is hard, and even if I have a handicap now, I don't want to do anything else.

Mister Dallon, thank you for the interview.