FOR ALL THE TALK OF E-SPORTS GROWTH AND LEGITIMACY, ANYONE WHO HAS BEEN IN THE INDUSTRY A WHILE KNOWS THAT THERE ARE TWO THINGS THAT OCCUR CYCLICALLY. FIRST, EVERY SO OFTEN A GROUP WITH MONEY WILL COME INTO THE SPACE AND TRY AND DOMINATE IT THROUGH A SERIES OF LAVISH SPENDING AND AGGRESSIVE TAKEOVERS. SECONDLY, WHEN THESE GROUPS PERFORM THESE ACTIONS THE BULK OF PEOPLE EARNING A LIVING FROM E-SPORTS WILL CHIRP IN POSITIVE TERMS ABOUT WHAT THEY ARE BRINGING TO THE SCENE, GLOSSING OVER ANYTHING NEGATIVE THAT MAY EXIST IN THEIR PAST.

They do this hoping either for a payday or at least a partnership that spares their business being enveloped by the new financial leviathan. You will notice the huddle of e-sports personalities, brands and organisations gathering round the financiers, like emperor penguins gathering together for warmth, only more disgusting. This is the past and future of professional e-sports.

It’s no surprise that this is the reality. Our unregulated and small industry means that anyone with a sharp suit, respectable haircut and bulging bank balance can sweep in and shortly establish themselves as a king among plebeians. If the wealth runs out or the schemes fail to take hold there are no consequences for failure beyond a small gathering of people you don’t really know speaking ill of your name on the Internet. No-one is really savvy enough or possesses the resources to take legal action while simultaneously trying to bail themselves out of a sinking ship. In the aftermath everyone vows they will not get fooled again. Not at least until the next person wearing a paper crown comes riding into town.

We are also such a small industry that it can be bought in such a fashion relatively cheaply. It takes little more than a five star hotel, a free bar and some canapes to get the press onside. The perennially undervalued sell out cheap. It costs slightly more to get the e-sports luminaries acting as mouthpieces for your product, a few meals and long nights that end in gentleman’s clubs laden with the promise of pay-cheques to come. The bulk of the spending is on the tools to dominate the landscape – studios, talent and of course the most valuable yet easily bought commodity of all, credibility. E-sports would look very different if the investors understood the business and the money wasn’t put into the hands of the serially inept and greedy. We’d be ten or fifteen years ahead in a rise people outside of this business tell us is “meteoric” as opposed to slow, painful and with countless setbacks.

The latest group set on e-sports dominance is Sapinda, a private investment company with ties to mining, oil and gas and technology companies. They have wasted no time in making aggressive moves to set up what they feel they need to see a significant return. Having pumped money into Clauf who are behind ESGN, the Global Esports Management group and now $34.5 million into the Azubu streaming platform they feel like they have given themselves as good a chance of success as any that have tried. The money is currently trickling its way down through the e-sports eco-system making anyone on the receiving end a small part of the same empire, despite protestations to the contrary. They have and continue to fund familiar names and yet it is only fairly recently that anyone has even started to talk about them, mostly as part of a propaganda effort.

For example, a recent interview by the dominant force in e-sports journalism onGamers, conducted by the Editor In Chief Kim Rom no less, with the CEO of Azubu, Ian Sharpe, failed to tackle the Sapinda issue. Dismissed as “rumours” by Rom in the question, the murmurings of financial impropriety were nicely avoided by Sharpe. To abbreviate his answer, he stated they were not Machiavellian and that it was usual that people wouldn’t know anything about such investment groups. The bland acceptance of the lack of transparency is common place, even on a corporate level it seems. Perhaps it is because no-one truly wants to question where the money is coming from and have ethical values tested. Such questions generally die in the throat round about the time the money is there, in black and white on the balance sheet, proof it is indeed real.

Since as no-one else seems interested in doing so, let this be the matter of record who Sapinda are. While everyone will doubtlessly speak about them in reverential tones the untrained eye might end up convincing the brain to which it was attached that it was looking at a confederacy of financial criminals.

Perhaps the most ridiculous thing is that what you are about to read isn’t an expose. It is Google journalism at its finest. Everything here is free and readily available by typing a few names into a search engine yet even this has eluded most of the e-sports commentators on both sides. I can speculate as to why this might be and it is a layered issue, worthy of an article in itself. To over-simplify it comes down to spending power – e-sports is so small that dissenting voices can be easily controlled or driven out if they do not toe a party-line. Some have tried to hint at what few know, yet the detractors with their snide remarks and insinuations ultimately serve the same ends as those who have an agenda in not mentioning the information. It obfuscates the facts, which are something to consider because if e-sports teaches us anything it’s that history likes to repeat itself.



Lars Windhorst (picture Associated Press)

LARS WINDHORST

Lars Windhorst is the co-founder of Sapinda, which he set up in 2004. Born in 1976 he is Germany’s pin-up for working class conservatives. The son of a stationer he was programming software at fifteen years of age and building his own PCs in the family garage. By sixteen he had founded his first company. In its first year it would employ eighty people and generate $50 million in revenue. Four years later, to go alongside the nickname “wunderkind”, he would be named “Global Leader for Tomorrow” by the World Economic Forum.

However formidable his business prowess he couldn’t avoid the internet crash at the turn of the century. By 2003 the Windhorst Group, the umbrella company that presided over all of his projects, had to file for bankruptcy and Windhorst himself filed for personal bankruptcy. As well as the mass redundancies across the affected companies, all told there was 63 million Euros outstanding to various creditors. The bankruptcies lost investors millions. However, in a process that underlines everything that is wrong with corporate capitalism, Windhorst negotiated a series of court settlements that whittled away at this debt until it didn’t exist at all. Free from anything to pay, he got back in the saddle the following year, collaborating with the Hersov family, and Sapinda was born.

At this juncture let me say how liberating it is to be able to label this man a criminal without fear of reprisals. That is because it is a matter of record that he is indeed a criminal, convicted tried and true. In December 2009 he stood trial on thirty five charges of fraud, embezzlement and breach of trust in Berlin. His high cost lawyers negotiated a plea bargain that saw the fraud charges dropped if he agreed to pay a fine of €1 million and €2.5 million to the victim he embezzled money from. He also had to admit his wrongdoing, which was to take €800,000 of company money and place it into his own personal accounts. He was given a one year suspended jail sentence.

Now living in London he was also subject to a civil lawsuit from the American hedge fund Alki partners, following allegations that he took part in a scheme to manipulate share prices, commonly known as a “pump and dump”, of the US company Remote DX. The suit was dismissed in February 2011 on the grounds not that no impropriety had taken place but on the grounds that the complainants were not market participants and as such could not claim to have been misled. The existence of the scheme was specifically noted in the court documents.

“These allegations are sufficient to satisfy the manipulative acts element, because they show plausibly that Windhorst, through Vatas, intended to mislead market participants as to how other market participants have valued a security.”

And in the reasons for dismissal:

“Defendants claim that the Plaintiffs have not alleged manipulative acts with enough specificity to satisfy Rule 9(b) and the PSLRA. Plaintiffs argue that the allegations in the Complaint are sufficient because “[t]he pleading requirements of the ... PSLRA ... regarding misleading statements and omissions do not apply to claims that allege no misrepresentation or omission but instead are based on alleged violations of Rule 10b–5(a) and (c).”

If you are so inclined you can also Google those rules.

The company mentioned in this suit, Vatas Holdings, was another investment group set up by Windhorst with his long-time colleague Robert Hersov, also of Sapinda. They are now also bankrupt as of 2009 following a €150 million lawsuit from the North German Landesbank ended any chances of financial reorganisation. The reason for the lawsuit? The bank had purchased a large number of stocks, specifically 15.5 percent of shares in the mobile phone supplier Belda, but hadn’t actually paid for them nor possessed the funds to do so. The trades were not completed and when the stock plummeted in value the bank was left looking at a substantial loss.

As mistakes go it wasn’t a solitary one. Vatas also had to pay the British hedge fund Audley Capital €29.4 million following a similar dispute surrounding shares in the nursing home operator Curanum. Amid rumours of a buy-out Vatas convinced Audley to buy 3 million shares in Curanum at 8.5 Euros per share in December 2007 under the proviso Vatas would then later buy them for 9.8 Euros per share. This was due to a supposed incoming buy-out that would see shares reputedly increase to 12 Euros. Of course, the buy-out didn’t materialise the share price tanking down to 4.8 Euros per item in the aftermath and Vatas reneged on their promise to buy the stock at a loss. Windhorst said the courts decision was “surprising and incomprehensible".

Despite the adoration he has received as he has risen to the top, his reputation has become increasingly tarnished. In 2006 the Senate of Berlin refused his offer to buy the foreign interests of the Berlin waterworks for no other reason other than it was him making the bid. The respected German business newspaper Handelsblatt said of him in 2010:

“If you wanted to give the crisis in Germany a face it would be Lars Windhorst’s. He stands for a lot of what the country has been accusing its bankers of for months: greed, boundlessness and immoral behaviour.”




ROBERT HERSOV

Another prominent figure in the Sapinda group is Robert Hersov. Born in South Africa he went on to become a graduate of Harvard Business School and was snapped up by the renowned investment banking group Goldman Sachs. He also spent two years working under Rupert Murdoch as a business development executive for News Corporation, the people behind FOX News and a company who had their own failed run in e-sports with the disastrous Championship Gaming Series. After other prominent board positions at international companies by 1999 he focused on individual entrepreneurial investments with mixed results. Currently sitting on the board of Forbes, he owns all of the shares of Sapinda International who are based in London.

It’s arguable he was always destined to be what he is. The Hersov family are supremely wealthy after the family business, the Anglovaal Group, was founded in 1933. Initially focusing on South Africa mining they branched out into financial services building their own financial empire. His father, Edward Basil Hersov, has sat on boards such as First National Bank and Barclays South Africa. He was also cited as being heavily involved in an investigation to arms deal related to bribes totalling more than �115 million. Still, even if the wealth may well pass from father to son, it’s only fair that the sins do not.

Aside from his involvement with Vatas, which has already been detailed, Hersov is relatively clean compared to his business partner. He certainly isn’t a convicted criminal. He is a mainstay of everything that and currently Sapinda try their hands to, the pair having made numerous investments together, with close to as many failures as successes. Some business insiders have speculated as to when Hersov will get bored of Windhorst suggesting investments that invariably lose him money one way or another, although it seems that when you’re a Billionaire from a multi-billionaire family losing a few dozen millions won’t put a dent in a friendship.




KIM SEOK-KI

Kim Seok-ki is no stranger to the world of financial crime. The former Central Banking President, just as he rose to this position the bank was liquidated due to bankruptcy in 1999. The turn of the century saw him indicted for a foreign law exchange violation and embezzlement, but despite potentially facing years in jail the prosecution closed their case after agreeing for him to pay a minor fine.

A few years later the Korean publication Newstapa reported that he had set up three shell companies in the known tax-haven the Virgin Islands for the purposes of tax evasion, namely Premier Corporation in January 1990, PHK Holdings in February 1993 and ZATO Investment in October 2001. He is also a shareholder in several other shell companies including STV Asia and Multi-Luck Investment. When a full investigation by the Financial Supervisory Service was announced Kim Seok-ki, with his global business ties, went on the lam spending his time in Hong Kong and Europe. He has yet to answer to the charges.

In between avoiding taxes he had been able to preoccupy his time with a few business ventures, one of which will be no stranger to e-sports enthusiasts – Azubu. Although he was never places anywhere as the owner of Azubu on paper, what we did know about him was that the he was the majority shareholder of SYSK LIMITED, another company registered in the Virgin Islands, who were the company that owned the Azubu brand. It also worth noting that Sapinda and SYSK are joint majority shareholders in a Dutch media company called RNTS media, who had named Hersov on their supervisory board as well as other Azubu Korea employees.

There is too much to list in terms of what happened the first time around with Azubu, worthy of more than a few thousand words by itself. Needless to say it was a disaster, a roller-coaster of weirdness… Tales of empty offices in Berlin, an entire workforce fired in one day with little notice, the sudden withdrawal of personal sponsorships and a temporary closure of their streaming service. There was a huge internal reshuffle for reasons that were never made public. Coincidentally this all happened after Newstapa released their information about Seok-ki’s shell companies. The story ran in May 2013, the Korean offices for Azubu were closed on June 28th. Less than a year later the Sapinda Group, no doubt under the guidance of Kim Seok-ki, would be dumping $34.5 million into the Azubu brand.



Offices of the FSA, responsible for the investigation of Tim Whyte (picture Simon Dawson of Bloomberg)


TIM WHYTE

Tim Whyte graduated from the London School of Economics and soon began trading commodities for Goldman Sachs in 1995. In 1999, focusing on energy trading, he was snapped up by Enron before moving on in 2003 to Sofaer Capital Global Research where he worked as a research analyst. Whyte is a recent addition to the Sapinda group having joined in January this year to work as a Marketing Director and Head of the Resource Investment Division.

The move into Sapinda ensures that 2014 started better than 2013 ended for him. A founder of the $100 million Lodestone Hedge Fund, that specialised in commodity stocks, he was arrested on February 27th for insider trading. The U.K.’s Financial Services Authority and the Metropolitan Police handled the arrest and detained him for several hours, executing search warrants of his home and office. The details of what precipitated the arrests were never made public.

Following the arrests the hedge fund was liquidated amid fear of bad headlines costing seven people their jobs. The investigation, conducted by the then re-branded FSA, now called the Financial Conduct Authority, lasted ten months before the investigators relented and decided not to pursue it any further. While this may point to innocence it is worth noting that the FSA/FCA has been hamstrung by a high staff turnover, a lack of resources and financial expertise within the organisation. Their investigations rarely lead to convictions and they have no high profile scalp to date. And it is widely regarded that they serve to do little more than deter the guilty from future wrongdoing Formed in 2001 it took until 2009 to bring their first criminal insider trading case until 2009 and since then have only had 23 convictions. By contrast the US equivalent, U.S. Securities and Exchange Commission, has filed over 50 cases per year for the last three years. Innocent or not the UK is certainly a good place to try your hand at it without fear of reprisals.

These facts didn’t stop a jubilant Whyte from declaring:

“I am pleased that after a thorough investigation by the FCA I have been completely cleared of any inappropriate behaviour. Despite an extremely traumatic few months, I would like to thank the FCA for resolving the case quickly and clearing my name. I now look forward to drawing a line under the matter.”

The line was drawn and he joined Sapinda.

ON THE HORIZON

There are many other bit-part players in the Sapinda story. They recently added a new CEO called Edwin Eichler who used to sit on the board of ThyssenKrupp, a German conglomerate that owns 670 companies worldwide and is one of the largest Steel Producers. He finds himself afforded this current employment opportunity after he, along with two others, were relieved of their duties following an internal audit into financial mismanagement and corruption. He shall find himself among friends who can all lend a sympathetic ear and share their own terrible experiences.

People of this calibre will most likely keep on coming. Across all their projects the Sapinda group have invested over €3.5 billion since 2009 and they show no signs of abating. We know they are comfortable with making a loss and we know they don’t mind colouring outside of the lines. Heavily involved in the financial markets, with ties to oil and technology companies, it is unlikely any of these characters go to sleep thinking about e-sports. This is true even though we know that Hersov and Windhorst had the joys of attending the Azubu sponsored The Champions 2012 Summer Final.



Azubu's Korean offices (picture Pieter Shark3D Cortebeek of SK Gaming)

There are two principle concerns as the Sapinda group continues to close its fist around e-sports. The first and most obvious is ethical. These are not people with stellar reputations and there is ultimately no way to know where the money is coming from, not that anyone is asking. Do we want e-sports to grow as a result of the whims of financial criminals and those that would fraternise with them. Do we want to see our respected figureheads turned into corporate shills? See them hollowed out like Jack-o'-lanterns, in place of light they emit bullshit from behind a badly fixed grin… If we’re going to object to the types of companies that are coming into e-sports, then we should also object to revenue streams flowing from the pockets of tax evaders, money embezzlers, bankruptcy specialists and market manipulators.

The second is practical. What are people with a history of pump and dump share schemes, shell companies with convoluted paper trails and filing bankruptcy to avoid settling vast debts really trying to build? What happens if the losses become too great? History tells us that Sapinda simply becomes another Vatas, or one of the many other groups that these people have been involved in. File the paperwork, dodge the debts and move on to the next opportunity. What happens if one of the main backers is indicted in another legal matter? Can we expect another sudden “restructuring” and the resultant turmoil as the brands are gently nudged away from scandal and another bunch of corporate clones line up to tell us it’ll be different next time.

There’s no way to know. What E-sports veterans will know is that the industry doesn’t handle such collapses well. Each time a major backer takes away a golden chequebook those who had grown reliant on the cash are left in ruins. Leagues, organisations, managers, players, entire communities are left not knowing what comes next and in the absence of answers comes apathy. We saw this in 2008 when the Championship Gaming Series, after blowing over $60 million in less than three years, ceased operations without so much as an explanation as to why. We saw this en masse in the global recession of 2009 when everyone took their marketing budgets away from us. We saw it in 2010 when several notable leagues and tournaments, still reeling from reduced finances, accrued huge backlogs of prize money. We saw it with Azubu's first incarnation. E-sports is a fragile eco-system and one that is so interconnected it cannot cope with the sudden extinction of another entity, let alone one that can drop $34.5 million into a project without so much as a second thought.

Of course, the deals are done now. The ink on the Faustian pact between the e-sports hopefuls and the corrupt financiers is very much dry and we shall have to wait and see exactly what has been bargained away. Rest assured, there will be something. Until we know what it is you all need to keep asking the right questions. It’s not as if anyone else is going to ask them for you. As a wise man once said "just shut up and count the money".