Georgia Tax Credits Fuel Booming Esports Industry

For four days in January, about 3,000 people descended on the Cobb Energy Performing Arts Centre just north of Atlanta. Most traveled from outside Georgia to watch professional video-game players compete for prestige, bragging rights and prize money in games designed by Hi-Rez Studios, a firm headquartered in the Atlanta suburbs that designs multiplayer video games.

A much larger audience — about 5 million people, according to Hi-Rez — watched online. Hi-Rez filmed the games and distributed them online on channels that include Twitch TV, a live streaming platform that focuses mostly on broadcasting video games. Hi-Rez cited streaming platform analytics in describing the audience size.

The four-day event in January is a testament to the explosive growth of esports, competitive and organized professional gaming where players and teams compete against each other as in established sports such as basketball or football.

It’s also a good example of a new way gaming companies that film esports events in Georgia can take advantage of a tax credit the state created to promote the film and TV industry.

Film, TV and Video Games

In 2008, legislators in Atlanta passed the Georgia Entertainment Industry Investment Act. Among other things, it provides a tax credit of up to 30 percent for qualified expenses incurred by production companies in Georgia. Since then, crews have shot hundreds of feature films, TV shows, commercials and music videos in Georgia, including The Hunger Games, Captain America: Civil War, The Walking Dead and Stranger Things.

From the state’s perspective, the tax credits stimulate the economy by attracting crews that spend money on hotels, restaurants, real estate and a range of other things. Their work also promotes Georgia’s reasonable climate and range of landscapes, including cities, suburbs, countryside, mountains and coastline.

The film and TV industry contributed $241 million to Georgia’s economy in 2007, the year before the legislature extended tax incentives, according to a 2017 state report. Ten years later, in 2017, the economic impact was nearly 40 times stronger, at $9.5 billion, the report says.

Georgia-based film and TV production is a relatively well-known story that has overshadowed similar growth — also aided by state tax credits — of the video game business and esports industry.

More than 3,100 people in Georgia work in the video-game industry, according to a 2015 study commissioned by the Georgia Game Developers Association. Georgia companies have designed or distributed several hundred games, the study said, generating more than $278 million in revenue.

Esports: Nearly a Billion-dollar Business

The increasing popularity of video and computer games worldwide parallels the rise in esports, a term that refers to professional gamers competing in organized events or tournaments, many of which are streamed online like contests in soccer, baseball or tennis.

Revenue from the esports industry will grow from $493 million in 2015 to $906 million this year, according to the 2018 Esports Global Market Report from Newszoo, a firm that provides market intelligence about global games, esports and mobile markets.

About 77 percent of that revenue comes from sponsorships and advertising, Newszoo says, with lesser amounts coming from media rights, game publisher fees and merchandise and ticket sales. The advertising and sponsorship revenue is possible because millions of people worldwide tune in online to watch professional gamers compete in organized esports events.

If that surprises you, consider this: Amazon paid $970 million in 2014 to acquire Twitch TV, a site known among gamers as a venue to watch others gamers compete in some of their favorite titles. (The most-viewed games on Twitch include League of Legends, Playerunknown’s Battleground and Hearthstone, Newszoo says.)

Or consider this: Dozens of college and universities, including Georgia State University and Georgia Southern University, have fielded varsity esports teams in the last few years, according to the National Association of Collegiate Esports. Many such schools offer scholarships for players and tournaments along the lines of March Madness, though they are smaller and less well-known and unfold with much less hoopla than the college basketball competition inspires.

How the Film Tax Credit Helps the Esports Industry

Companies that design and market video games in Georgia have benefited for several years from a portion of the Georgia Entertainment Industry Investment Act, the law cited as key in attracting film and TV production crews to Georgia. A provision of that law gives certain companies an annual tax credit of up to $1.5 million, with an annual statewide cap of $12.5 million, for developing interactive entertainment projects, such as console or computer games or mobile apps.

The tax credit helps companies such as Hi-Rez, the firm behind the four-day esports tournament near Atlanta in January, said Todd Harris, co-founder and chief operating officer of Hi-Rez Studios. More recently, Hi-Rez took advantage of an incentive the state created to lure film and TV crews.

The story of how that happened involves growth at Hi-Rez, which develops multiplayer online games, and, more broadly, growth of the esports industry worldwide.

Founded in 2005 with four employees, Hi-Rez now has a workforce of about 400, Harris said. It makes games such as Smite, in which players take on the personalities of gods, and Paladins, a first-person shooter game. Smite and Paladins were the two games in which players competed as several million people watched during that four-day tournament in January at the Cobb Energy Performing Arts Center.

A few years ago, Hi-Rez started to sponsor and host online gaming tournaments, inviting finalists to metro Atlanta to compete as an audience watched. At first, these events mainly served a marketing purpose of promoting the company’s games, Harris said. Yet it didn’t take long for the company to see potential in the fast-growing audience of people eager to watch online as skilled players battled it out.

Company leaders created a subsidiary, Hi-Rez Productions, to host and film tournaments and stream them online. That subsidiary is doing business as of this year as Skillshot Media, with Harris as president.

It is this act — filming the games in Georgia and streaming them online — that lets Harris and his colleagues take advantage of part of the state tax credit originally designed with Hollywood crews in mind. In addition to taking a tax credit for video-game production, Hi-Rez also receives a tax credit worth up to 30 percent of qualified production costs — 20 percent for filming in Georgia and 10 percent for showing a Georgia logo.

Unlike the tax credit for developing online games, the credit for filming has no annual dollar limit. Harris said it was worth more than $1.5 million to Hi-Rez last year and “will be even higher this year.”

Hi-Rez has players in Europe, South America and Asia, as well as around the United States, Harris noted. It could host its esports events closer to its fan bases in those regions, but the tax credit provides a powerful incentive to stay closer to home.

“The credit has definitely encouraged us to do more and more in Atlanta,” he said.

Summary

The state of Georgia created the tax credit (in its current form) about 10 years ago to encourage film and TV production in Georgia. That led to a boom in the number of feature films and television shows filmed in the state.

More recently, the law also has helped companies in esports, a field in which professional video-game players compete for prize money. Footage of many esports competitions is streamed online, often to an audience of millions.

Georgia companies that film and stream esports events online are now taking advantage of the state tax credit originally designed mainly for film and TV crews. The credit is worth up to 30 percent of qualified production costs. The goal is to encourage further growth in the esports industry, which generates nearly $1 billion a year around the world.