Grinding Gear Games' Path of Exile. Image / Supplied
Grinding Gear Games' Path of Exile. Image / Supplied
Grinding Gear Games - the West Auckland firm behind the multiplayer hit Path of Exile, played by millions worldwide - has reported an after-tax profit of $48.9 million on $83.8m revenue for the year to September 30, 2022, according to accounts filed with the Companies Office overnight.
Those numbers weresharply down on 2021, when the firm reported a $44.8m after-tax profit on $105m revenue. In 2020, with global lockdowns fuelling a gaming boom, after-tax profit was $51.9m as revenue hit a record $113.4m.
Why the slide?
“Our revenue fluctuates from year to year based on factors such as global foreign currency rates, the state of the economy, lockdowns, and the timing of how many of our roughly-quarterly releases fall inside the calendar year,” co-founder and chief executive Chris Wilson told the Herald this morning.
Grinding Gear Games actually realised an $11.7m gain from currency movements in the year to September 30, versus a $658,000 foreign exchange loss in 2021.
Income tax expense was $15.3m vs the year-before $17.5m.
Cash reserves slipped from $105.5m to $93.0m.
A separate filing revealed that Chinese conglomerate Tencent raised its stake from 87 per cent to 93 per cent shortly before Christmas. Co-founders Chris Wilson, Jonathan Rogers and Eric Olofsson saw their minority stake reduced. Tencent originally invested in 2018,, when it took an 80 holding in a $100m-plus deal. In 2020, it upped its stake to 87 per cent.
That move came at a time when China’s Government is moving to take “golden shares” in Tencent and Alibaba as Beijing formalises a greater role in overseeing the country’s powerful technology groups, according to a January 15 Financial Timesreport.
The Chinese Government has responded to a stuttering economy by backing away from the tough fines and sanctions that were a hallmark of its campaign to rein in the country’s largest tech groups, but which also scared off foreign investors, the Times said.
While the heavy-handed crackdown has ebbed, the Government is increasingly snapping up small equity stakes in the local operations of big tech companies, as it recently did with TikTok owner ByteDance.
The stakes, usually involving a 1 per cent share of internet groups’ key entities, are akin to “golden shares” as they come with special rights over certain business decisions.
Within China the stakes are known as “special management shares” and since 2015 have become a common tool used by the state to exert influence over private news and content companies, according to the Times.
Wilson had no comment on the FT report and the “golden share” issue, or Tencent’s increase in its Grinding Gear holding.
Tencent also holds a minority 47 per cent stake in Dunedin-founded global hit-maker RocketWerkz (with the balance owned by founder and CEO Dean Hall). And in October last year, Tencent took a minority stake in Digital Confectioner, a Christchurch-based game studio with a dozen staff.
Grinding Gear Games CEO and co-founder Chris Wilson. Photo / Dean Purcell
Grinding Gear Games was founded in West Auckland in 2006 after Wilson and co-founders Jonathan Rogers and Erik Olofsson decided that, unable to find their ideal multiplayer game, they should make their own.
Crowdfunding campaigns in 2012 (US$200,000) and 2013 (US$2.5m) let early Exile fans help fund the game’s early expansion by buying supporter packs.
In 2018, Tencent took an 80 per cent stake, with the founders retaining the balance of the shares, plus assurances that they could keep control and keep and expand their NZ staff (and indeed the number of employees has swelled from 114 at the time of the deal to some 160 today).
No financial details of the deal were released, other than that it was above the Overseas Investment Office’s $100m approval threshold.
Wilson has recently been a staunch critic of our Government’s failure to match incentives introduced across the Tasman - where a A$1.2 billion scheme sees game developers able to claim back 40 cents for every $1 they spend on developing a title.
“We’re certainly tempted to open an office in Australia because of the significant game development tax subsidies over there,” Wilson told the Herald.
“It makes hiring staff very difficult because Australian companies can offer so much more for the same position, paying for the difference out of their tax subsidies so that their profitability isn’t affected.”
Wilson’s sentiments have been echoed by others in the industry including Rocketwerkz’s Hall - who has also questioned why NZ’s Government spends hundreds of millions per year on film industry rebates while only offering single-digit million incentives for game companies as the two sectors compete for staff.
Late last year, outgoing Digital Economy Minister David Clark announced a $1m per year funding boost for gaming startups.
