MPL to lay off 350 employees after 28% GST on real-money gaming

This is the second round of layoffs at the Bengaluru -based startup in about a year. It had let go more than 100 people and exited the Indonesia market in May 2022.

Esports and skill gaming unicorn Mobile Premier League (MPL) is laying off 350 employees, which represents about 50 percent of its India workforce, people familiar with the matter told Moneycontrol.

This measure comes on the heels of the GST Council's recommendation to impose a whopping 28 percent tax on full deposit value, with no distinction made between game of skill and chance. Gaming platforms currently pay an 18 percent GST on platform fees.

"The new rules will increase our tax burden by as much as 350 percent-400 percent. As a business, one can prepare for a 50 percent or even a 100 percent increase, but adjusting to a sudden increase of magnitude means we need to make some very tough decisions," MPL co-founders Sai Srinivas and Shubh Malhotra said in an email to employees, a copy of which was viewed by Moneycontrol.

In the email, the co-founders said that their variable costs predominantly involve people, server and office infrastructure. The company said they have already initiated work on revisiting their server and office infrastructure costs. "Despite this, we will still have to reduce our people related costs" the email read.

"Personally, this is the toughest decision we have ever had to make. It's as if we aced our class and now find ourselves needing to repeat a school year" the co-founders said in the email.

"We have spent a lot of time evaluating and re-evaluating this decision; asking ourselves if we should wait or not. Eventually, we came to this conclusion because we believe that in uncertain times the sooner we are able to deliver certainty to everyone, the better" they added.

This is the second round of layoffs at the Bengaluru-based startup in over a year. It had let go more than 100 people and exited the Indonesian market in May 2022.

Started in 2018 by Sai Srinivas and Shubh Malhotra, MPL offers over 60 games across categories such as daily fantasy sports, quizzing, board games, puzzle, and casual games on its Android and iOS apps. It also claims to have over 90 million registered users across Asia, Europe, and North America.

MPL was last valued at $2.3 billion after raising a reported $150 million in September last year, which also marked its entry into the unicorn club.

It counts Peak XV (previously Sequoia India), SIG,RTP Global, Go-Ventures (now Argor Capital), Moore Strategic Ventures, Play Ventures, Base Partners, Telstra Ventures, and Founders Circle Capital among its investors.

28% tax on real-money gaming

Last month, a group of around 130 real-money gaming startup founders, CEOs and industry associations had signed an open letter to the government, requesting them to reconsider the GST Council's July proposal to levy 28 percent on the real-money gaming sector. MPL was one of the signatories of the letter.

MPL's investors Peak XV and RTP Global also separately wrote to Prime Minister Narendra Modi on July 21 to express their concern that the GST Council's proposal could lead to a "potential write-off" of the $2.5 billion capital invested in the sector.

The investors said that the current GST proposal will set up the "most onerous tax regime for the gaming sector" across the world.

On August 2, the GST Council however decided to stick to its initial proposal of levying 28 percent on the full face value. It however provided a partial relief by recommending GST on deposits, instead of every bet placed, to avoid repeat taxation.

Read: 'Will set the real-money gaming industry back several years': Stakeholders after GST set at 28%

Sachin Yadav, the co-founder of a real-money based gaming company Quizy recently took to LinkedIn to announce that they were shutting down the company, stating that the recent GST changes have thrown "significant challenges our way".

Another gaming company has offered its early investors to take principal money invested off the table. "We will fight and try everything (to bring change in tax valuation) but we aren’t sure what will happen and our investors have invested their pension and retirement funds that’s why we have made the offer," a co-founder of the company told Moneycontrol citing anonymity.

Saumya Singh Rathore, co-founder at WinZO games said "The vast majority of most impacted companies are models that grew only post 2021 and are startups, and MSMEs leaving them to risk, of heavy losses and extinction"

"...we are looking at a threat to the much-admired sunshine sector and a threat to innovation that created a category that is now 60% of the online gaming market in India - the casual gaming sub-sector" Rathore said.

Hit EBITDA positive in December

In the email, MPL co-founders said the company was on track to continue the strong business performance it had witnessed since December, when it turned EBITDA positive. "In fact, we recorded our best ever month in terms of business performance in June and we beat that in July" the email read.

"To everyone who is leaving us, while nothing can truly be enough, we are committed to providing you the best possible support during this transition. We recognize that these changes will also affect your personal life, and the company is here to offer any assistance you may need during this period. We will also do everything in our capacity to help you find new opportunities" the co-founders said.

A copy of the entire email below:

Dear Leaguers,

Last month has been extremely challenging and uncertain for all of us. We want to thank each and every one of you for the strength and courage you have shown. Last week, it was confirmed that a 28% GST will be levied on the full deposit value rather than on Gross Gaming Revenue. The new rules will increase our tax burden by as much as 350- 400%. As a business, one can prepare for a 50% or even a 100% increase, but adjusting to a sudden increase of this magnitude means we need to make some very tough decisions.

As a digital company, our variable costs predominantly involve people, server and office infrastructure. Therefore, we must take steps to bring these expenses down in order to survive and to ensure that the business remains viable. We have already initiated work on revisiting our server and office infrastructure costs.

However, despite this, we will still have to reduce our people related costs. Regrettably, we will have to let go of around 350 of you. This has been a heart wrenching process because it impacts a lot of our friends and colleagues. In a short span of four years, we have achieved a lot.

MPL India was on track to continue the amazing business performance we have seen since December when we turned EBITDA positive. In fact, we recorded our best ever month in terms of business performance in June and we beat that in July. If anything, this makes this decision all the more difficult to come to terms with.

What we have collectively done shows how phenomenal this team truly is, and we can't thank you enough for that. Your resilience, resolve and unwavering dedication is what has brought us where we are today. We know how demotivating this may be to all of you after all the hard work you have put in over the years. Personally, this is the toughest decision we have ever had to make. It's as if we aced our class and now find ourselves needing to repeat a school year. But I guess that's how life is, sometimes you get good fortune and sometimes you don't.

You have our promise that we will proceed with the utmost respect, compassion, and empathy. To everyone who is leaving us, while nothing can truly be enough, we are committed to providing you the best possible support during this transition. We recognize that these changes will also affect your personal life, and the company is here to offer any assistance you may need during this period. We will also do everything in our capacity to help you find new opportunities.

We have spent a lot of time evaluating and re-evaluating this decision; asking ourselves if we should wait or not. Eventually, we came to this conclusion because we believe that in uncertain times the sooner we are able to deliver certainty to everyone, the better. As we get through this, we want all of you to know that you can count on both of us to answer any questions you have and to support you through any difficult situations you may face now or in the future.

As for the future of MPL, we are very confident we are going to get through this, together as a team, and we will rebuild our business stronger than ever.