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Two esports companies received PPP loans, but should they have?

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By many metrics, the esports industry appears to be in a period of growth due to the Coronavirus pandemic. Many people are forced to stay at home, so many have turned to esports as a way to burn away the long hours. But while it would appear that many esports organizations are growing, two accepted loans through the Paycheck Protection Program (PPP) enacted by Congress. Was it right of them to do so? Let’s take a look.

Super League Gaming has thrived when it comes to registered users and engagement hours. The company runs a platform for organizing amateur esports tournaments and appears to be doing quite well. But on May 4, they received a $1,200,047 PPP loan. Another esports organization, Allied Esports, also received around $907,129 via two subsidiaries in May. Allied Esports owns and operates benues focused on esports and poker, most notably the HyperX Esports Arena in Las Vegas.

Image via SuperLeague Gaming

The inefficiencies of the program

These loans were first flagged by government watchdog group Accountable.US, which tracks companies that have taken taxpayer money. While the loan applications were not necessarily fraudulent or illegal in any way, they seem to run counter to the narrative going on that esports is in a state of booming. But this does seem to highlight the inefficiency of the government’s administration of the PPP loan program.

There is no actual test to determine whether or not you should ethically apply for a loan. Some businesses are free to apply, whereas others like hedge funds are not. And even if one applies for the loan, they’ve had until May 18 to return the loan with no questions asked. The government assumed all applications for loans under $2 million “were made in good faith.”

But there is still significant back-and-forth on guidance as to whether a business should apply for a PPP loan. It isn’t just a matter of whether business has been poor since the pandemic started.

Is the esports industry growing or not?

Still, both organizations indicated that they were operating with losses in the multiple millions, both during and before the pandemic. According to a quarterly filing by Super League, “We have experienced net losses and negative cash flows from operations since our inception.” That filing shows a revenue of $243,000 for the first three months of 2020, against operating expenses of more than $5,274,000.

Although esports appears to be in a significant state of growth at this point in time, it is still debatable whether that engagement and audience growth equates to revenue. It isn’t entirely clear that this is the case. Allied Esports reports that 38 percent of its revenue comes from in-person events, which would make things understandable as to why they wanted to file for the PPP.

Some areas of the esports industry are actually thriving. Take Twitch for example. The streaming website experienced a 23% surge in viewership during March 2020. In mid-May, its jobs page listed more than 115 open positions, from senior software engineer to advertising sales directors. This company is undoubtedly feeling significant growth during the pandemic. But not every organization is thriving as easily.

Image via Allied Entertainment

Ethically applying for a PPP loan

When filing for a PPP loan, applicants are encouraged to ask the hypothetical question. “If I didn’t take this money, would I lay off workers?” If the answer is yes, then organizations have a good argument for applying for a PPP loan.

So while one might think that all is well with the esports industry as many turn to it during this epidemic, there still lies the question about whether esports has become profitable enough. Some organizations are still heavily dependent on physical events to turn a profit. So while myriad online-only tournaments may be taking place and engaging the public, that doesn’t necessarily equate to revenue for all esports organizations.

Loan money obtained via the PPP can effectively turn a loan into nothing more than a grant. And not needing to pay it off can make a world of difference to any business. It essentially becomes free money from the government, which is a huge incentive. And if one’s business is struggling in the first place, then it makes sense why one would ask for a handout. But, to accept such funds, now such organizations are put under scrutiny and expected to find a way to survive.

So let’s see if these two esports organizations can find a way to get by over the coming year.

Ryan Goodrich

Ryan has been writing since long before he could even write. He's written resumes, software user guides, consumer electronic reviews, and myriad web content spanning a variety of industries. But now he's writing about video games, which is much more interesting.

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