The move to levy 28 per cent GST on the full face value of online gaming has already started creating problems in the sector even before its execution. With the onset of retrenchment, cases like closure and shutdown of companies and lack of funding have started coming to the fore. Bengaluru based unicorn company Mobile Premier League (MPL) has fired 350 employees citing extra tax.
Kavin Bharti Mittal's Rush Gaming Universe has also laid off 55 employees fearing the impact of GST. Which is about 25 percent of the company's workforce. Many small companies are either shutting down or are considering merging with larger platforms.
On the other hand, Capital Ventures have also pulled out of funding in these companies and are investing money in gaming companies which are not affected by GST. Investors estimate that there may be a decline in the valuation of big players of this sector as well.
Investors are pulling out of such companies
Rajiv Suri, managing partner of Orios Venture Partners, says that there may be a big decline in the valuation of the big players present in the ecosystem. He said that due to lack of liquidity in the market, further decline can be seen in it. Apart from this, capital ventures are moving towards such businesses which are more stable. Leaving the gaming sector, they are moving towards investing in such sectors, in which the effect of GST is less, even if it is related to the gaming sector itself. Orios is an investor in Gurugram based real money gaming startup Jupi.
Came to a decision
On July 11, the GST Council decided to levy 28 per cent tax on full face value instead of levying GST on gross gaming revenue or platform charges. At another meeting on 2 August, the council clarified that the tax would apply to deposits made by players to participate in a game, thus repeating the same principle when they use their winnings to play more games. Going tax can be avoided. After this decision, some big players got some relief.
Cost cutting phase begins
MPL's co-founder and CEO Sai Srinivas wrote to its employees on Tuesday that the company has posted its best ever business performance in the months of June and July. The impact of GST implementation means that the company is going through a phase of cost cutting. Which also includes laying off and reducing the expenses of its server and work place infra – which is effectively a sign of reducing the size of the company.
Estimates of decline in revenue and profit
The Bengaluru-based venture investor said that depending on the operating model, companies in the ecosystem are anticipating a 30-50 per cent drop in revenue and profits. He said that on one hand the users will be afraid to spend on the platform and on the other hand a large part of the platform's earnings will go to tax. So, on every front and every metric, you are losing money, conversion levels are falling and earnings are draining.
Small companies closing
Sachin Yadav, co-founder of real money gaming startup Quizzy, announced the closure of his venture in a LinkedIn post last week. He wrote that over the last three important years of our lives, Amit Kumar and I poured our heart and soul into building Quizzes, which captured the excitement of over a million users and scale well.
We were looking to build an innovative gaming platform and turn it into a profitable venture. Yadav said that however, it is sad to say that the recent developments in the tax scenario and regulatory environment have left us with no option but to bid goodbye to our gaming venture. According to Traxon, Quizzes raised approximately $317,000 in seed money last year.
Companies returning money to investors
Gurgaon-based angel investor Rajesh Sahni wrote on microblogging platform X (earlier Twitter) that one of his portfolio companies in the real money gaming segment has decided to shut down and return the balance money to its investors. Sahni said that half the industry will end soon. A venture investor said that many acquisitions can be seen to get talent cheaply. Staying in the real money gaming category can be very difficult.
Gaming economy is getting reset
Nitish Mittersain, CEO of mobile gaming company Nazara Technologies, said during the June-quarter earnings call that I think the economy of the skill-based money gaming business is definitely going to reset. He said that we have already started working on it and soon you will see many changes. He said that there may be an impact on revenue in the short term, but with time the actual cost will come to the fore. Along with this, many opportunities will also come to the fore.
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