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MLG Legacy Holdings, Inc.

in glhf

I simply haven’t had the time before now to really break down any part of last month’s big scene-altering news, so here it is now. The dust is now rather settled, and the high points of the transaction have been pretty well picked over; you won’t find better material on the topic than the original report and subsequent breakdown, both of which I had a small hand in reviewing. Still, there’s a few aspects of the deal and the subsequent reactions and discussions that I feel deserve a few more words.

 

Ellis’ characterization of the transaction as a “fire sale” is closer to the truth than the very glossy treatment practically all mainstream reports gave it, but I think this is even a bit extreme, and that reality lies somewhere between a triumphant exit from the venture capital phase, and popping every last bolt off the corpse to be sold as scraps.

The complete makeup of MLG’s shareholder body is pretty impossible to determine, but based on several aspects of the nature of the sale, I find the most reasonable conclusion to be that the venture capital firms involved had lost patience, wanted out, and now was a great time to cut this loose from their portfolio with things in esports on the upswing. Since they still held the vast majority of the voting power, at minimum by the way these sorts of things are structured through different classes of shares, they could act unilaterally towards this end.

 

It’s clear that MLG in recent quarters had reached some semblance of equilibrium with their finances and operations. The fact still stands that they were in the position of trying to sell tranches of debt in order to front the cash needed to stage events and run the Columbus studio (links in aforementioned breakdown above). Yes, large healthy companies are often seen issuing bonds for various reasons, but there’s very little evidence to suggest any of those reasons would apply to MLG, who had just begun to let hints slip that they’d managed to break even.

Turning to debt financing is a clear indication that further venture capital rounds were ruled out; the few firms that had been behind the bulk of the existing venture capital rounds appeared to be uninterested in fronting more cash after 2012, and given they were six funding rounds in, the deal would have been exceedingly poor for any new potential funding sources. The gravy train had run out of steam.

Merely needing to service interest payments in order to maintain cashflow is a far cry from hemorrhaging large amounts of cash and struggling to keep the lights on, but it also tends to mean that the quick growth has already been had, and a spendthrift past has come home to roost. Large early bets on Halo, CoD, and the console scene getting its collective shit together did not pay off (ed: SHOCKER), with the result being an ability to tread water, but also an inability to court more investment to really goose the parts of the model that did finally work.

Combined with MLG’s positioning in the overall esports market come mid-2015, the signal to the venture capital firms involved would be that things have plateaued, and it was time to flip it. The other option would have been to wait for another 20 years, perhaps, to merely get out what they collectively had put in, with significant risk that competitors simply overrun them in that time; it would be better to get out now and put that money to work elsewhere.

That’s why, despite not coming to fruition, I don’t doubt reports from September that talks were on with Yahoo!. At the same time, I can’t imagine Yahoo! were interested in anything more than the streaming platform itself, and could give or take all this esports crap. Perhaps it was just a decoy, or an attempt to fish out an offer in order to better leverage a deal with Activision, where it was already clear Sepso was headed, and would be a much more obvious fit on balance, since they had a use for all of the esports-specific operational experience wrapped up in MLG’s employees.

 

The fact still stands that it took Major League Gaming $70 million in venture capital funding to build a break-even business, of which the useful bits were worth a little more than half the investment it took to build.

Mentioned nowhere are the (literally) countless millions spent by individuals and teams on equipment, airfare, and accommodations in the service of completing a model that was inequitable for them on practically every level, and ultimately failed in the US across multiple games. Lost in the shuffle on every analysis of Major League Gaming, and any other tournament organizer really, is all the capital spent by third parties who themselves never find sustainable models, yet were integral to the very existence of the core product. They did so because esports.

And that, boys and girls, is why we don’t equate landing venture capital rounds with unbridled success.

I think I’d take less umbrage with it all if weren’t for the constant condescension about how they ‘got it;’ if it weren’t for the endless changes in product and direction sold as necessary for the future health of the scene only to be reversed months later; if it weren’t for the utter refusal to speak to the reality of the situation at any point.

For me, the end effectively reflects the feeling of the entire decade long ordeal and all it produced: heavily trumped up, horrifically wasteful, and still somehow ultimately unsatisfying.