Mentioned in this article Teams: SK Gaming

ESforce Holding, legal successor of esports company Virtus.pro Group, is building a massive conglomerate backed by a reported investment of up to $100 million. According to our investigations, ESforce Holding also bought a majority share of one of Germany’s longest-lived esports clubs, SK Gaming.

In addition, ESforce owns the media rights of Ukrainian esports organisation Na’Vi, 90 percent of the former skin gambling website CSGO Lounge, a multitude of esports companies in the CIS region ranging from tournament organizer Epic Esports Events to broadcasting studio RuHub, the Virtus.pro organization, and now, SK Gaming.

How it came to be

The Esports Observer acquired a document of the German business register which lists a company called Kristall 195. GmbH (Limited Liability Company), run by Alexander Müller, Managing Director of SK Gaming. Kristall 195. GmbH was set up as a shelf company by VRB Vorratsgesellschaften, a Berlin-based law firm specialised in the specific area. It was founded on June 17, 2015 with the purpose of “managing private capital.”

On June 21, 2016, the purpose of the shelf company was changed to “the management and backing of one or multiple online and offline gaming teams,” alongside the change of its chief executive over to Alexander Müller. The only shareholder listed in its operating agreement is the aforementioned ESforce Holding, which holds the total share capital of €25,000 (the minimum needed to set up the legal structure of a LLC in Germany).

While the documents are definite evidence of business relations between Alexander Müller and ESforce Holding, alone, they are no proof of ESforce being invested in SK Gaming. However, when we reached out to Müller to ask for comment, he openly confirmed ESforce as SK’s new investor and majority shareholder.

[perfectpullquote align=”full” cite=”” link=”” color=”” class=”” size=””]“ESforce took over the shares of the former SK Gaming partners. It was the best business decision to make for SK Gaming. We talked to a number of potential investors, but ESforce shared our ambitions and also provided a lot of esports knowledge,” Müller explained.[/perfectpullquote]

In July, the former Luminosity CS:GO roster, a Brazilian powerhouse and reigning Major champions, joined the ranks of SK Gaming—most likely an expensive deal considering they bought the best team in the world. Securing a financially strong partner like ESforce not only made sense, but probably was necessary to make such a deal.

The former SK Gaming partners that Müller refers to are Ralf Reichert and Andreas Thorstensson. Reichert today is Managing Director at Turtle Entertainment/ESL, while Thorstensson is a Swedish entrepreneur and investor. Reichert, Thorstensson, and Müller were mainly responsible for building the business around SK Gaming, leading it from its foundation as a Quake clan in 1997 into the global esports brand of today.

The three of them have been officially SK Gaming’s personally liable partners since June 2008, according to the business register. However, the business operations were solely led by Müller at that point already, while Reichert and Thorstensson were dormant partners focusing on their own businesses. Their ties with SK Gaming date way back, though. Reichert was one of SK’s founders alongside his brothers Tim and Benjamin. Müller joined in 2000, while Thorstensson became co-owner due to the merger with his former team Geekboys in 2001.

Reichert had sold his shares in May 2016, after an eight months process of negotiations, according to his own statement. The subject of Reichert being Managing Director of ESL, executive board member of WESA, and shareholder in an esports team participating in those events, SK Gaming, was always public and has raised a few eyebrows. Selling his SK shares was an inevitable step to proactively remove any potential conflict of interest whatsoever.

The shelf company

Something that makes us wary, though, is the procedure taken to close the deal between ESforce Holding and SK Gaming. Why did ESforce chose to buy a shelf company for that purpose? Müller said that “it is part of the process of transforming SK Gaming oHG into a GmbH.” According to German legislation, the fusion of a general partnership (oHG) into a Limited Liability Company (GmbH) allows the organization to change shareholders, while a simple transformation of one into the other doesn’t allow that. Following that logic, it indeed makes sense to use a shelf company.

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]It’s not a dubious letterbox company based on an offshore island; this is not the “Panama Papers.”[/perfectpullquote]

That’s not the only advantage of a shelf company. To quote VRB Vorratsgesellschaften, the company that set up Kristall 195. GmbH, shelf companies are “the simplest way of obtaining immediate legal capacity without the risks of liability.” In other words: they saved paperwork and time. So to make things very clear: the shelf company was not set up on behalf of ESforce or SK, it was put on shelf to age just like 4,000 other shelf companies VRB sold before. It’s not a dubious letterbox company based on an offshore island; this is not the “Panama Papers.”

Instead, we assume, the function of this specific shelf company is to allow the fusion between SK Gaming oHG and Kristall 195. GmbH (soon to be SK Gaming GmbH). That leaves ESforce Holding with two-thirds of the shares, and Müller with the remaining one-third. Effectively, Müller keeps the shares he had, while ESforce received one-third each from Reichert and Thorstensson.

A conflict of interest?

It remains arguable whether choosing ESforce Holding as the buyer was the right decision. Sure, both Reichert and Thorstensson have cut all ties with SK, however, their shares (two-third of SK Gaming) are now in the hands of an increasingly large conglomerate that has controlling interests in many other esports entities too—all of which represent competing business firms, which calls into question the integrity of the whole construct. Simply put: one potential conflict of interest (with Reichert at ESL and SK) was turned into another (with ESforce now holding the reins to at least two major esports teams, among other esports companies).

[perfectpullquote align=”full” cite=”” link=”” color=”” class=”” size=””]“From the start of our negotiations, ESforce made it clear that they would not interfere with our daily business. Maintaining independence at SK Gaming was very important to us and a key factor in the agreement. ESforce will support us with counsel and resources, but the final decisions will still be made in Cologne. I’ve been the Managing Director of SK Gaming for ten years and will stay in control of operations in the future,” Müller said in response.[/perfectpullquote]

When confronted with the argument of a conflict of interest, Müller explained that he doesn’t feel conflicted at all. “My job is to develop teams that win esports tournaments. ESforce invested in SK Gaming because they believe in our brand and our legacy. There is nothing more to it.”

Promising words, one wants to believe. After all, from an outsider perspective with no possibility to find contractual proof for his arguments—a legal clause that gives Müller some kind of blocking minority for example—it’s not convincing enough to get rid of the residual doubt.

It isn’t too hard to imagine a sketchy situation compromising competitive integrity if, for example, Epic Esports Event hosts a tournament; Virtus.pro and SK compete in it; bets can be placed on its matches; RuHub is the broadcaster; it’s taking place in Arena Moscow; FragStore is its official retailer; and 180 websites which allegedly reach 80 percent of the esports audience in the CIS region create content about it—while ESforce has significant financial interests in all of the aforementioned entities. An exaggerated example, of course, but one that shows how these business ties could be called into questions.

Again, Müller disagrees.

[perfectpullquote align=”full” cite=”” link=”” color=”” class=”” size=””]“I understand that the public wants to take a closer look. In all seriousness though, does anybody really believe that born competitors like Gabriel “FalleN” Toledo or Filip “NEO” Kubski would ever even consider not playing to their best abilities because somebody tells them to?”[/perfectpullquote]

Yet, the iBUYPOWER match-fixing scandal that hit the highest level of American Counter-Strike in early 2015 should be a brutal reminder that match-fixing can’t be ruled out completely. Making these connections as transparent as possible and disclose the ties to the public is one step to make sure the iBUYPOWER scandal stays an exception to the rule.

Above all, Müller’s agreement to comment on the record after being informed of our findings says something for him. One could argue that SK should have disclosed it without being forced to by an investigation. And of note, the fusion which finalizes the deal is not yet completed as the documents show. An official announcement was planned immediately after its execution, Müller assured us. Whether or not you believe him, all that matters is that the information is now public.