Guild Esports: The $20M Partnership Blurring The Line Between Investor & Endorser

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Friends,

Prior to going public earlier this month, British esports organization Guild Esports excited potential investors with the announcement of British soccer legend David Beckham investing $312,000 for a “significant minority stake” in the company.

But what if the structure of invested capital was poorly designed, misaligning the interest of key stakeholders and viewed as a publicity stunt?

A recent report from Tobias Seck of The Esports Observer provides details surrounding a previous endorsement agreement between Beckham and Guild Esports that might suggest just that.

Let’s break it down…

(📸 / Top Betting Esports)

Prior to his $312,000 equity investment in June 2020, David Beckham and Guild Esports entered into a influencer marketing agreement via Footwork Productions — a Beckham owned company that is set up for “the exploitation of David Beckham’s name and image rights.”

Here are the details (source):

• David Beckham signed a 5-yr deal to become the “face of Guild Esports”, entitling Beckham to 15% of all proceeds from activities related to merchandising sales and sponsorship revenue.

• In the event Beckham’s 15% revenue cut doesn’t measure up, Guild built in minimum payments totaling $19.78M over the 5 years — or $2.9M in the first year, $3.2M in the second year, $3.89M in the third year, $4.54M in the fourth year, and $5.19M in the fifth year.

• The deal allows Guild Esports to use Beckham’s name, voice, biography, image, likeness and signature to advertise and promote the company.

• Beckham is contractually obligated to participate in 1 photoshoot, 1 TV/video content shoot, 2 public appearances, and 12 social media posts annually.

So what’s the problem?

Each annual payment is due in advance, meaning Guild Esports paid Beckham $2.92M months prior to his $312,000 equity investment — or in other terms, Beckham was paid the difference, roughly $2.6M, to invest in Guild Esports.

Do you see the dilemma now?

To make matters worse, Beckham also negotiated a safety feature to cover future payments should Guild become insolvent — Guild deposited $7.13M into an escrow account, which covers the minimum payments for years 2 & 3 of Beckham’s endorsement contract.

With a significant portion of their capital tied up, Guild has continued to fundraise through private rounds and their IPO on the London Stock Exchange. A total of ~$32M has been raised, with about $17M already committed to Beckham via their existing influencer partnership agreement.

You can call it what you want — I choose to call it foolish, misleading, and potentially detrimental to the overall structure of their business.

Let me clarify — I’m all for companies linking up with celebrity co-founders, or endorsers, to infiltrate their audience through an authoritative voice given all the benefits: ability to drive customer acquisition costs down, lifetime value up, organic marketing, and much more.

My issue is when the lines between celebrity co-founder and celebrity endorser become blurred, with a natural misaligning of incentives occurring.

For instance, is David Beckham a co-owner or celebrity endorser of Guild Esports?

The answer is both, and that’s the problem.

It’s way too early to tell how this 5-year partnership will play out, and to be fair, Guild might consider it a win already — the buzz surrounding David Beckham’s equity investment allowed them to raise additional capital, go public, and keep building their company.

The real question becomes — what happens when the 4th largest shareholder of your company is more financially incentivized through an influencer partnership agreement than their tangible equity ownership?

That answer isn’t clear, and there unfortunately isn’t much history to rely on, but always remember — celebrity involvement in your brand can be a blessing, but incentives must be correctly aligned for the partnership to realize it’s true value.

You can read the full article from The Esports Observer here.

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Extra Credit

Speaking of sports, culture, and media making waves in public markets — Big Hit Entertainment, the agency behind BTS, K-pop’s most popular boy band, raised ~$840M through their heavily oversubscribed IPO last week.

Shares jumped almost 100% higher than their IPO price of 135,000 won per share, but have since settled down around 189,000 won per share — an impressive 37% increase.

Through the IPO, Big Hit Entertainment’s founder Bang Shi-hyuk became South Korea’s newest billionaire with an estimated net worth of $3.2 billion. The seven members of BTS, all in their twenties, also received a $20M+ windfall each.

If you want to read more, Bloomberg provides a good mini-thread and article below.

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