Video games sector set for growth following government tax credit announcement

Ireland’s video games sector continues to develop and a recently announced tax break for companies will only make them more attractive to domestic and international investors.

Ireland has a long history in the video games sector, dating back to the dawn of modern gaming in the late 1970s. The iconic Atari 2600 was manufactured in Limerick and was one of the systems that helped to bring video games into people’s homes on a widespread basis. Since then, Ireland’s video games sector has continued to develop, and many of the leading developers in the world have a base in the country, including Electronic Arts and Activision Blizzard. There is also a community of indigenous small to medium-sized developers in Ireland.

Tax credit

But despite this, Ireland’s video game sector hasn’t kept pace with the global boom in the sector in the past decade in terms of employment growth. However, the government has looked to address this and, with a new tax credit coming, sent a message to developers all over the world – come to Ireland to develop your games.

When the Budget for 2022 was outlined by the government on October 12, there was a measure announced that garnered little attention in the mainstream media, but in the video games sector created a lot of attention – a tax credit for companies in the sector. The government’s new tax credit will give games developers a refundable corporation tax credit for expenses incurred while they design, produce and test a game prior to its release. The relief will be at a rate of 32%, up to a limit of €25 million spent on individual projects. This move has been largely welcomed as it will give a significant boost to Ireland’s developers and will help them to compete on a global footing – and with the expertise already present in the country, they are well placed to do that.

Acquisitions

There has been plenty of activity in the Irish video games sector this year, with companies looking to buy rivals or receive investment. One of the most acquisitive companies has been Keywords Studios. The Leopardstown-based company has completed three acquisitions so far in 2021. The most recent deal saw the company expand its footprint into Romania with the acquisition of AMC, a Bucharest-based art creation studio.

AMC focuses on characters, environment, buildings, vehicle and weapons assets in a variety of styles including realistic 3D, photo-realistic 3D, stylized 2D and illustration. The company works for a range of leading developers including Activision and Wargaming, and on major games franchises including Call of Duty, World of Tanks, Spider Man, Mafia and Planet of the Apes.

The acquisition furthers Keywords’ strategy to become the ‘go-to’ technical and creative services platform for the global video games industry and establishing its presence in Eastern Europe.

Jon Hauck, joint interim CEO of Keywords Studios, said: “We are excited by the expertise and experience that AMC will bring to our art service line and by the growth opportunities for the service line as well as for Keywords’ wider business in the region.”

In March, Keywords acquired an 85% stake in long-established Australian game developer Tantalus, the company’s first foray into the country. This was followed in April with the acquisition of UK-based Climax Studios, which provides full game development, co-development, porting and technical consulting services to some of the world’s largest games publishers. The considerations for these deals was not disclosed.

It isn’t just among game developers that there has been M&A activity in Ireland this year. In October, Swedish gaming group Evolution announced it had agreed to acquire Irish firm DigiWheel, which has developed the world’s first patented HD spinning gaming wheel, for an initial consideration of €1 million.

The deal is set to complete before the end of the year, subject to certain conditions. The total price for DigiWheel could increase, as Evolution will pay an earn-out payment, based on DigiWheel’s EBITDA during the next three years.

The DigiWheel product itself is a 360-degrees, fully rotating HD gaming wheel that can operate as a live online game. The spinning wheel is an HD screen, that can run any money wheel or prize wheel game.

Evolution acquired DigiWheel to strengthen its online gaming portfolio through DigiWheel’s innovative digital technology being blended into Evolution’s online Live Casino games and game shows. The Evolution portfolio already includes wheel-based games such as Dream Catcher and Crazy Time.

Post-deal, DigiWheel will continue as a brand in its own right within the Evolution group.

John Purcell, DigiWheel’s CEO, said: “For almost nine years our team have worked tirelessly to create a standout product that is a unique, one-of-a-kind digital gaming innovation. This deal will see our unique products and technology brought into the Evolution Group and exposed to an even wider global audience of operators and players, which is enormously exciting.”

Investments

There are also numerous Irish video games developers that have secured funding to fuel further development of their business this year. One of the biggest came in June when Dublin-based Vela Games closed its Series A funding round, which raised €14.1 million. The round was led by Novator with additional investment from Ubisoft and LVP. [vela.games/vela-games-reveals-major-new-investment-and-plans-to-expand-the-project-v-team/] The funding will be used to continue building the Vela Games team as it progresses towards launching its first game, codenamed Project-V. Project-V is an ambitious project, touted as a MOCO – multiplayer online co-op game – which is now open for beta sign-ups. It is set in a sci-fi fantasy world, with an evolving narrative and has PvP (players versus players) and PvE (players versus environment) elements to it.

This funding adds to previous seed funding rounds the company has had, in April 2020 and June 2018, which raised more than €5 million.

Why invest in an Irish video games business

Vela is typical of many of the video games businesses in Ireland – small to medium-sized start-ups with ambitious plans to develop new games.

With such businesses, they often require outside investment to be able to reach the next stage in their growth. There are, of course, risks – if the game takes off, be that online or on one of the main gaming platforms (Nintendo Switch, Sony PlayStation 5, Microsoft Xbox) then there can be very health revenues – and profits – to be made. However, the games market is crowded and some will not reach the heights that others do.

There is also a well-developed infrastructure in Ireland. Irish businesses have been leaders in software for many years, and there are many allied technical companies that provide services to developers.

Likewise, there is a large pool of well-qualified talent in Ireland. Many Irish universities provide courses in relevant technical subjects, which means that there is a fresh cohort of graduates joining the labour market each year.

Future prospects

With the government’s announcement of the new tax credit, it should give a timely boost to the video games sector in Ireland. Such incentives should attract international interest, both from acquirers and investors who will see Irish developers as even more attractive prospects now.

Likewise, it should attract existing companies to set up offices in Ireland, especially those in the UK that want to have unrestricted access to the rest of the European Union. UK businesses are finding the increased red tape they face thanks to the UK’s exit from the EU last year costly and time consuming and may well look to Ireland, as the only native English-speaking country in the bloc, as a place to set up international operations.