Did Vindex’s Sale to EFG Leave Esports Engine Employees Empty-Handed?

Did Vindex's Sale to EFG Leave Esports Engine Employees Empty-Handed?

The sale of Vindex to ESL FACEIT Group (EFG) in March 2023 brought a strange sense of Déjà vu to Esports Engine employees who also worked together at Major League Gaming and later Activision Blizzard’s Esports division, according to multiple sources with knowledge of the situation who spoke on the condition of anonymity to The Esports Advocate. This and other details of EFG’s acquisition of the company were shared with TEA over the last several months from multiple sources, who told mostly the same story independently of each other.

The TLDR; according to sources, is that:

• Employees who had equity in MLG did not receive any financial benefit when the company was sold to Activision Blizzard in late 2015 for $46M USD.
• Similarly, when Vindex/Esports Engine was sold to EFG in March 2023 some (but not all) Esports Engine employees who had equity in the company received a small payment, but received no financial benefit from the actual sale based on their equity or the value of the company.
• Like the sale of MLG, management at Vindex negotiated the deal quietly, and without knowledge or input from a majority of employees at Esports Engine.
• Co-founders of Esports Engine learned of the sale after it was finalized by Vindex management. Other employees found out a week or two later. At the time, Apicella was on leave to take care of his mother, who had brain surgery and a cancer scare.
• Some sources claim that co-founders Sundance DiGiovanni and Mike Sepso handled these negotiations quietly and on their own, while others claim that then-CEO Marshall Zelaznick probably knew as early as November or December of 2022 about these negotiations.
• The cost of operations, building out LAN centers in North America, and leases for future locations related to Belong Gaming was a significant drain on collective company resources.
• According to sources, Vindex management presented EFG with an overly optimistic projection of Esports Engine revenue in 2023, despite a downturn in the industry. Ultimately Esports Engine did not meet these projections and EFG used the numbers to claim underperformance and justify not providing employees in the newly acquired division various bonuses, and/or other benefits.

For a more in-depth telling of this story, read on.

A Strange Sense of Déjà vu

Esports Engine was the financial heart and soul of Vindex, in that it was the only division within the company generating any significant revenue. The team working at Esports Engine had been co-workers for a long time, many of whom came up in the industry together at Major League Gaming—and later in Activision’s Blizzard’s esports division—after the company was acquired in late 2015 for approximately $46M USD.

But if Esports Engine was the heart of Vindex financially, Adam Apicella was the de facto leader of the company, if not on paper, at least in the eyes of his colleagues. In a 2012 Business Insider profile, MLG co-founder Sundance DiGiovanni acknowledged that prior to hiring Apicella—the first and arguably most important hire for DiGiovanni and fellow MLG co-founder Mike Sepso in the history of the company—those early events were a bit messy. An excerpt from the article (emphasis ours):

MLG made one of its most important hires because of that one event. “I got an email from a kid at the time named Adam Apicella,” says DiGiovanni. “Basically, he said that he could save us from ourselves.” The kid had some experience in organizing events, so they brought him into New York, took him out to dinner and hired him on the spot. Apicella abandoned his plans to go to law school to take the leap of faith with DiGiovanni’s venture.

This is important to note because, while Apicella and the MLG team contributed to the success of the company in those early days (making it one of the most recognized competitive brands in the United States), when it was finally sold off to Activision Blizzard at the end of 2015, it was saddled with debt, leaving little room to pay out employees who had equity in the company—at least according to management and the board. Firms that had invested in the company—Treehouse Capital LLC, Ritchie Opportunistic Trading Ltd., Oak Investment Partners, and Sepso’s Legion Capital Investments LLC—came first.

On Dec. 21, 2015, MLG’s Board of Directors approved an Asset Purchase Agreement that granted Activision Blizzard a majority of MLG’s assets in exchange for $46M— described as a “corporate action taken without a stockholders’ meeting by less than unanimous written consent of our stockholders” (permitted under Section 228(e) of the Delaware General Corporation Law). On Dec. 22, 2015, a letter was sent to stockholders informing them of the sale.

Summing up the situation for MLG employees (and lesser shareholders) at the time, one anonymous shareholder told The Esports Observer in December 2015, “I got fucked on stock.” Employees who had equity in the company didn’t receive any benefit from the sale but did get an offer of employment from Activision Blizzard.

Apicella and other former MLG employees left Activision Blizzard in August 2019, following the closure of MLG Arena and the company informing them that they would have to move from Ohio to California to continue their employment. At the time, an Activision Blizzard spokesperson explained to The Esports Observer that a change to a “home-and-away format” to Call of Duty World League (which was moving towards becoming the franchised Call of Duty League at the time) was the reason for the closure:

“MLG Arena was essential to the production of weeks of CWL Pro League play each season in our history. The evolution to a home and away format for events during the 2020 Call of Duty esports season means the MLG Arena is no longer required; therefore, we’re respectfully closing the production facility.

“All employees were made aware of this decision and were given the opportunity to pursue open roles, with relocation assistance, throughout the company.”

Esports Engine 1.0

Apicella was ready to start over, and he, along with other co-founders and founding employees, started making plans to recreate the magic of MLG through a new company called Esports Engine. They and other people involved in Esports Engine in those early days were approached by a group that included Sepso and DiGiovanni about becoming part of a company called Vindex. Some of those founding employees were apprehensive about working with Sepso and DiGiovanni again, as they remembered not getting paid anything when MLG was sold to Activision Blizzard despite the company giving them equity as part of a compensation package. Ultimately, Apicella and others made the decision to join the Vindex family thanks to their confidence in two of the other co-founders: fintech entrepreneurs and private investors Bryan Binder and Jason Garmise.

Vindex officially launched on Oct. 31, 2019, backed by a $60M Series A investment, announced the launch of Esports Engine, and the acquisition of Next Generation Esports (which was rolled into Esports Engine almost immediately).

It is important to highlight once again that Esports Engine generated the lion’s share of revenue within Vindex, and was the group’s most valuable property: the company went from generating roughly $10M in 2020 to $70M in 2024—and some sources claim that the company generated around $80-90M in 2022. Sources say that, had the financial encumbrances of Belong and Vindex not been a factor, Esports Engine would have been profitable in 2023 or 2024. At the time of purchase, the company was mostly break-even, when not taking into consideration its entanglement in the Vindex books.

Belong Gaming Purchase

In July 2019, Vindex announced that it had acquired the Belong Gaming Arenas brand and all associated IP from UK retailer GAME, with the lofty goal of investing $300M over the next five years (into 2025), and opening 1,000 locations globally—which would include 500 in the United States.

The deal was ill-timed, as local restrictions on large gatherings related to the COVID-19 pandemic were in full swing and would continue into 2020. It wasn’t until June 2021 that the Belong plan was back on track, with an announcement that it would open its first gaming center in Houston, Texas. Sources tell TEA that the cost of opening that very first Belong location costs anywhere between the high end of 6-figures to the low end of 7-figures, though costs were later lowered by a couple of hundred thousand dollars for the second center, and reduced even more with the third location, and so on. By the time Vindex was sold to EFG, Belong had opened five gaming centers in the U.S. and had signed 32 leases. EFG was not interested in Vindex’s gaming center business, which was spun off into its entity as a result when the company was finally sold. Belong laid off staff and shut down shortly thereafter.

For Sale

Sources tell TEA that in the Summer of 2022, Vindex had run through its funding (due, they claim, to spending on executive hires in New York, its analytics project, and building out Belong Gaming-related initiatives) and was looking to raise additional capital through a Series B or Series C funding round. However, given the investment environment for the esports industry at the time, the company wasn’t having much luck convincing investors.

While it is unclear precisely when Vindex management began talking to EFG about an acquisition, sources say that they later learned it began sometime in the fourth quarter of 2022. There’s some debate on who handled these negotiations—some sources say it was both DiGiovanni and Sepso, others say Sepso acted alone, while still others believe that then-CEO of Esports Engine Marshall Zelaznick had to have been involved—but all agree on one fact: most of the employees at Esports Engine did not know about the acquisition until the deal was finalized.

In late February/early March, Apicella was told about the sale to EFG, later other co-founders were informed, and a week or so later, the rest of the company was told that Vindex and Esports Engine would soon have a new owner and Belong would be spun out into its own entity as part of the deal. At the time, Apicella was a bit out of the loop, according to sources, because he was taking care of his mother who was having brain surgery and going through a brain cancer scare.

Two weeks after the deal was announced publicly, TEA reported exclusively that Apicella had left the company. At the time he issued the following statement on Twitter:

Sources tell TEA that at around the same time, Esports Engine’s founding employees and management learned that they would not be receiving any financial benefit from the sale of the company, despite having equity agreements. The equity agreement was structured in a way that the sale price of the company had to hit a certain financial threshold in order for employees to receive compensation.

Sources claim that the deal was structured in a way that sliced up the money that EFG was paying for the company to lower the final price and avoid tripping a specific number that would cause employees to be paid for their equity. To do this, the deal was structured so that it paid off Vindex’s debt (it’s unclear if this included debt from Belong’s operations), and created an earn-out retention pool (“a contractual provision stating that the seller of a business is to obtain additional compensation in the future if the business achieves certain financial goals, which are usually stated as a percentage of gross sales or earnings,” according to Agility Growth). Ultimately, sources say, this put the final number below the threshold for employee equity payouts, though some employees did see a financial benefit from the sale from Vindex management, and others received a token bonus not tied to the value of their shares or the sale price of the company.

No one outside of the upper echelons of Vindex knows precisely what the company was sold for, but sources tell us that the deal was valued in the lower to mid-nine-figure range.

Sources also tell TEA that, prior to the sale, Vindex management presented EFG with an overly optimistic projection of the Esports Engine revenue pipelines in 2023, despite a downturn in the sector. Internally, Esports Engine projected revenues in the neighborhood of $70M – $80M in 2023, down from the $90M it generated in 2022, but Vindex management gave EFG projections that predicted revenues of approximately $100M – $120M.

Ultimately, Esports Engine did not hit those projections in 2023 (the company generated around half of the projected revenue), and sources claim, EFG used the numbers to claim that the team underperformed and justify not providing employees in the newly acquired division bonuses.

Finally, when asked why EFG bought Esports Engine, there were two answers: the first is that EFG bought Esports Engine to take out its biggest competition and secure its client lists and contracts. The other less nefarious-sounding reason, according to some sources, is that EFG bought the company to secure what most in the industry agree is the best esports engineers and production staff in the world and to secure its client list.

TEA reached out to ESL FACEIT Group, Adam Apicella, and former and current executives and employees at Esports Engine and Vindex prior to the publication of this story. A majority of those we reached out to either declined to comment or did not respond to our requests for comment.

Adam Apicella declined to comment on specifics of this story, but did issue the following statement to TEA this week:

“I loved my time at MLG, Activision, Blizzard, and Esports Engine working with my best in class team, our clients and communities. I am unable to comment at this time but I do look forward to re-entering the space and attempting to make a positive impact.”

It is clear from his social media posts since leaving Esports Engine that he is under a non-compete and a non-disclosure agreement.

TEA will update this story should we receive a response from other parties we reached out to.