Pearl Abyss Plans To Sell Off CCP Games

In a not entirely unexpected move South Korean-based Pearl Abyss is looking to sell off its Icelandic subsidiary CCP Games. The South Korean financial & economic news Money Today Network broke the story based on an interview.

Pearl Abyss is putting its subsidiary CCP, which developed 'EVE Online', up for sale on the market. The reason is interpreted as CCP acquiring it for 250 billion won in anticipation of the fan base it secured through 'EVE Online' and expansion of its mobile platform, but it fell short of initial expectations.

According to an interview with Money Today Broadcasting MTN on the 19th, Pearl Abyss and CCP have selected an underwriter for the sale of CCP and are sounding out multiple game companies for their interest in acquiring it.

Pearl Abyss launched an IPO in September 2017 bringing in $165 million. The company used the proceeds primarily to fuel global expansion and invest in new game development. A significant portion went into scaling up operations, including establishing overseas subsidiaries and enhancing marketing efforts for Black Desert Online in international markets. They also channeled funds into developing new titles like Crimson Desert and DokeV, aiming to diversify their portfolio and reduce reliance on a single franchise.

The biggest acquisition occurred in September 2018 with the purchase of CCP Games. The initially announced purchase price of $425 million was reduced down to $225 million as the studio failed to meet certain financial conditions. For example, CCP and its new Chinese partner NetEase were unable to reestablish EVE Online service in China until the first half of 2020. 

The biggest disappointment for Pearl Abyss probably was the failure of CCP to immediately launch a FPS game set in the EVE universe. Despite presenting a playable demo of a game known as Project Nova at EVE Vegas in October 2018, the project was shut down in February 2020. CCP continued to work on an FPS game, with EVE Vanguard currently listed but unavailable on Steam.

As often happens with financial drama involving CCP, a loan is involved.

In October 2023, the Group financed USD 50,000,000 from Pearl Abyss Corp. to repay the existing borrowings from banks and other financial institutions in a single loan agreement arranged by The Korea Development Bank. The interest period is 12 months and the interest rate is fixed at 4.6%. Interests are paid every anniversary but the loan principal is due in October 2026.

Any party purchasing CCP Games will also need to pay back the $50 million loan to Pearl Abyss. Something tells me the South Korean company can't afford to refinance the loan to its subsidiary as I honestly don't think CCP will have the ability to repay the loan on time.

Game revenue since the IPO funded spending spree

But while CCP's financial performance may not have met expectations, those of Pearl Abyss' cash cow in comparison utterly collapsed. One example was the cancellation of Tencent's contract to run Black Desert Mobile in China early. Instead of running through April 2025, service ended on 27 January. Since 2019, Black Desert revenue declined over 55% when converted to U.S. dollars. In comparison, CCP's game revenue increased by almost 25%. 

The same holds true concerning game development. While producing two mobile games with two other games under development six years later is probably not what Pearl Abyss expected, CCP outperformed the South Korean studio. Crimson Desert was supposed to launch in the second half of 2021 and is now expected to launch in the fourth quarter of 2025. Pearl Abyss also had to cancel development of DokeV and Plan 8 until Crimson Desert is complete. In fact, Pearl Abyss' ability to support CCP's development efforts is limited, as was shown by the Icelandic studio's reaching out to outside venture capitalists for funding to develop EVE Frontier.

Now for my hot takes. Who do I think will purchase CCP Games? Cross off the list any Chinese company like Tencent or NetEase. The hottest reason for acquiring CCP is EVE Frontier. The Chinese Communist Party is not a big fan of cryptocurrencies, having banned them in September 2021.

The People’s Bank of China, the country’s central bank, said Friday that cryptocurrency transactions are illegal, saying such currencies “do not have legal tender status” and therefore “cannot be circulated as currency in the market.”

In a statement, the bank said that bitcoin and other virtual currency transactions have disrupted economic and financial order, contributing to a rise in “money laundering, illegal fund-raising, fraud, pyramid schemes, and other illegal and criminal activities.”

Crypto transactions are now considered criminal financial activity in China, the bank said, and the country will “resolutely curb the hype of virtual currency transactions, severely crack down on illegal financial activities and illegal criminal activities related to virtual currencies, protect the safety of the people’s property in accordance with the law, and make every effort to maintain economic and financial order and social stability.”

Any door the Chinese government leaves open for people to move wealth out of the country tends to lead to a stampede.

According to the Chainalysis Blockchain data platform, more than $50 billion worth of cryptocurrency left East Asian accounts to areas outside the region between 2019 and 2020. As China has an outsized presence in East Asian cryptocurrency exchanges, Chainalysis staff believe that much of this net outflow of cryptocurrency was actually capital flight from China. Although Chainalysis does not have a definitive figure for how much capital fled China between 2019 and 2020, they estimate that it could be as high as $50 billion.

If not one of the giants out of China, then who? My guess is a venture capital firm heavily interested in cryptocurrencies. Andreessen Horowitz led a $40 million round of funding just to be involved in the project. Would another group want to own the whole thing?

I do want to conclude with a final question I haven't seen asked. Is Pearl Abyss preparing itself for sale? In hindsight the sale of CCP's Newcastle office at the end of 2017 was a prelude to selling itself to Pearl Abyss. Selling its VR studio to Sumo Digital cleared away some business Pearl Abyss didn't want to deal with. Would selling off a studio developing a blockchain game clear the way for Tencent to purchase Pearl Abyss?