Vitality: the Cost of Performance

There have been no financial updates from Team Vitality since the close of its 2019 fiscal year, a year marked by the entry of billionaire Tej Kohli into the capital of the French club, realizing a first historic fundraising in Europe of 20 million euros through Rewired.GG.

The creation and opening of the V.Hive in the heart of Paris, as well as the establishment of residency at the Stade de France through V.Performance, illustrates the impressive trajectory of the club. In parallel, Fabien "Neo" Devide made his appearance in the famous Forbes "30 under 30" list, making him one of the rare representatives of French esports in the "Sports & Games" category.

Financially, new fundraising rounds took place, first in November 2019 with 14 million euros, then Paul Arrivé announced on L'Équipe a new historic fundraising campaign of 50 million euros over three years, aiming in particular to develop its League of Legends and CS:GO teams, which compete at the highest European level.

These cash influxes bring the club's equity resources related to the investment rounds to over 84 million euros. Following these different stakes, Team Vitality is now 71% owned by Rewired Ventures SA, Tej Kohli's investment vehicle, a company based in Nyon, Switzerland.

The closing of 2019 marked the starting point, with 5.7 million euros in revenue generated by the structure, steadily increasing until 2022, when they reached just over 14 million euros.

These figures show a net growth in revenue, most likely due to the sponsorship of major brands such as Orange, Adidas, and Tezos. Team Vitality is developing rapidly and can boast a growth of almost 150% over four years with its partners. However, such rapid growth can sometimes be dangerous for the stability of an operation, as the needs for human, financial, and organizational resources become significant over a very short period.

From reading the different team reports, it is clear that profitability in esports is more a matter of accounting, indeed, revenues primarily determine the value of a club. Despite this, Team Vitality recorded record losses of over 15 million euros at the end of 2022, even exceeding its revenue, a rather unusual situation that should be highlighted.

For the literate minds, this means that the French club's operating expenses are approximately twice its revenues, almost 30 million euros in total. These losses follow a similar trend over the years, with losses closely approaching the level of revenue.

These expenses are explained in particular by the club's desire to be a pioneer in France in terms of sports performance support, and infrastructure development while maintaining optimal competitiveness in all the games they participate in.

But all this comes at a cost, and when losses accumulate, the company's resources decrease. The closing of 2022 marked a significant change in the equity line, which became negative: -13.9 million euros.

Regarding negative equity, it is important to remember the necessity, under French law, to restore it quickly.

This can be done by:

In 2022, Vitality would have contracted a new long-term financial debt, with an amount remaining to be repaid at the closing of 14.8 million euros. On the treasury side, the volume increased at the end of 2022, with almost 4 million euros available, in response to a growing demand for short-term financing due to the increase in general operating budgets (the BFR 2022 close to 20 million euros).

Far from the club's forecast of financial balance by 2021, the financial indicators since 2019 are very mixed, even worrying, and seem to call for rapid strategic interventions.

The 2023 forecasts for the historic club of Neo Devide are a little more reassuring, notably thanks to their entry into the franchised VCT EMEA league and their success in CS:GO at the Major Blast in Paris, which, according to rumors, should generate several million euros in revenue, Not to mention their most recent world championship title, which offers excellent visibility to the Rocket League team, sparking interest in the esports scene.

Whatever investments are made this year by the team, good sports performances can become a new marketing lever for the club, allowing it to develop new commercial relationships and increase its revenues to offset considerable expenses.

The French brand also attracts partners, as evidenced by the new premium commercial partnerships announced for 2023, with brands such as Hummel and KIA, demonstrating a good capacity to sell the Vitality brand despite mixed sports performances, especially in League Of Legends.

The last four years of Team Vitality are characterized by a very strong growth in revenue. However, as is often the case for many companies that grow too quickly in uncertain environments, Vitality displays significant losses due to excessive operating costs. This situation has a direct impact on the financial structure of the company and could ultimately force shareholder intervention unless there are adjustments at the level of expenses or revenues.

The year 2023 seems promising, fueled by excellent results in CS:GO and Rocket League competitions. These performances could open new commercial opportunities that would reduce the need to resort to debt refinancing or dilution.

However, if I were to anticipate a financial landing for 2023, it would also be in a deficit of several million euros given the difficulty of turning around an operation like Vitality, which seems entrenched in a deep deficit model, probably linked to the quest for leadership in the multi-game esports sector.