How Brexit May Affect The UK Gaming Industry

We’re not normally ones for dabbling in the political, and there are many potentially greater fallouts from Britain leaving the European Union, but one effect that the Brexit may have could have a devastating outcome for the British video game industry. 

Many games developers such as Rocksteady, Sports Interactive & Rare are based in the UK while many other major devs like Activision, EA, Rockstar & Square Enix have studios there too. The Brexit may change how these companies operate, or if they can operate within the UK at all. While the big dogs can easily relocate, it’s the smaller homegrown companies who will be at risk the most.

FM16

Head of Sports Interactive, developers of the Football Manager franchise, Miles Jacobson laid it out in an extensive post on his LinkedIn account detailing some of the challenges his team may face in the future. You can read the full post here, but here are the main points:

If we vote to leave, it will take 2-10 years to sort out leaving. We could well actually leave in 2 years, but it would take a lot longer than that to sort out the laws that would be needed – there are tens of thousands of these. This would create a lot of jobs for a lot of lawyers – at a lot of cost. It will also cause chaos for the economy during this time – SI (Sports Interactive) have over the last couple of years “lost” a seven figure sum due to exchange rate fluctuation and uncertainty, and these fluctuation will get worse if we vote to leave. You may remember that the SRP of the game actually went up on PC in Europe this year due to those changing exchange rates, but during our key sales period they went massively wobbly to an even larger degree – this makes it very hard for us to know the revenue coming in, or plan for the next versions of our games.

The exchange rates may steady out once everything is sorted out, but it’s unlikely that it will return to a point of good rates for us. This affects our revenues differently depending on the situation – but as it stands currently, sales outside the UK (which are over 50% of our sales) are making us a smaller return than a few years ago, even with the higher prices. And less revenue means less resources available for our games.

The exchange rate fluctuation would also hit our licensing costs. FIFPro is in Euros, as are most of our other deals. The MLS is in US dollars. So when the exchange rates change, so do the costs of the advances for the licenses.

Marketing budgets would also be hit by these exchange rate fluctuations for anything we do outside of the UK.

There seems to be agreement that if we were to leave the EU, the plan for immigration would be to have an Australian points system – but no work has been done at all on working out what that system will be. If it uses the current work permit system as a base, it would mean only being able to hire the most senior coders from outside the UK, rather than the flexibility we have now of being able to hire anyone inside the EU who is talented enough to join the team.

No one is able to yet state whether people from EU countries who currently don’t need work permits will be allowed to stay in the UK. That will depend on who is actually running the country. 20% of our current dev team are from EU countries that aren’t the UK. And, as we know, there is a huge skills gap in the UK for software developers which won’t be filled for at least 9 years when the crop of youngsters in the first year of coding being in schools come out of university – this skills gap makes it really hard to find people in the UK who can do the specialised roles we hire for.

Football wise, whilst not directly affecting us, the work permit system would come into place for EU nations. Which we worked out would mean 175 players at the top level in the UK wouldn’t have got work permits – including Payet and Kante. From a gameplay perspective that’s going to cause more than a few problems for people who play the game as British clubs.

Kante-Payet-and-Martial

Trade wise, digital goods will likely be unaffected (apart from the exchange rate fluctuations). FM box copies would also likely be unaffected as they are manufactured outside the UK – although we may have to find a way to manufacture the game in the UK for copies here to avoid import taxes for our own game which could lead to longer lead times in getting discs manufactured as there is very limited capacity for this in the UK, and ALL film, music & games companies will be trying to use that limited capacity. This could also lead to higher prices in the UK, as that demand with limited supply availability would likely push the cost price of making the DVD go up.

For people who travel from UK to Europe for business (or holidays), if we vote leave, and the EU do follow through with their threats to make the future relationship hard as an example to stop others from leaving, it’s likely you will need to get a visa to do so. And those living outside of the UK would likely need a visa to visit the UK. It could be more expensive for us a business for some of you who live outside of the UK as we’d need to find a way to pay you.

If we were to leave, there are a multitude of laws that would vanish that would affect us directly – piracy, data protection, intellectual property, human rights, climate change etc. Some of these could change for the better. Some of them for the worse. We just don’t know. What we do know is that some won’t be the highest priority of laws, so would likely take longer than the 2 year “exit plan” to sort out, leaving a longer period of flux and uncertainty.

It could be good for our negotiations for the office rent though as we can expect much smaller investment in the UK, and some companies will leave. These aren’t just idle threats being made – I’ve spoken to a number of companies whose head offices are here who would have little choice but to move their head office elsewhere in Europe and have a smaller team based here. And many of us saw the debate on TV the other night where the claim was made that a huge chunk of the pharmaceutical industry would have to move to be able to register drugs for EU compliance.

So as you can see, there are many potential stumbling blocks that will be in front of games developers depending on the fallout from Brexit. It is very possible that things do not get this bad, but it is very possible that some of our favourite games no longer get made due to the difficulty placed on UK-based studios. Football Manager being one such game due to being heavily based in the UK and with a culture so dedicated to the subject matter of the game itself.

If things end up as bad as Miles Jacobson hypothesizes, then the best case scenario is that these studios move their base to another country in order to reap the benefits that the EU brings. This would still leave a situation where thousands of jobs are lost in the gaming industry in the UK, perhaps even collapsing it completely, and these now unemployed UK workers needing Visas to travel to Ireland, Germany or France etc. where they would be competing against homegrown graduates in the same fields.

Of course, Britain may do deals with the EU that allow them to operate almost as normal and things to not end up as apocalyptic as many predict. However, if companies like SI are losing seven-figure sums due to currency fluctuation alone, you can see how nervous and tentative things are for these companies.

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