Game Digital : Collaboration agreement & new borrowing facilities

12 February 2018

GAME Digital plc

Game and Sports Direct collaboration agreement and new £55 million borrowing facilities

GAME Digital plc ('GAME Digital', the 'Company' or the 'Group'), is pleased to announce that it has entered into a collaboration agreement with Sportsdirect.com Retail Limited ('Sports Direct') (the 'Collaboration Agreement'). GAME Spain Holdings Limited ('GSHL'), a subsidiary of the Company, has also entered into a loan agreement with Sports Direct for facilities of up to £55 million on an unsecured basis (the 'Facilities Agreement').

The Collaboration Agreement covers the rollout of BELONG and GAME Retail Limited ('GAME Retail') stores, including plans to enter into concession agreements with Sports Direct, pursuant to which BELONG arenas and/or GAME Retail stores will be sited in selected Sports Direct locations. BELONG is the Group's competitive gaming and esports experience centred around physical 'arenas', bringing both casual and competitive gaming to communities nationwide, in city and town centres and in major shopping centres.

As part of the Collaboration Agreement, Sports Direct has acquired a 50% interest in the rights of the BELONG intellectual property for cash consideration of £3.2 million, and a 50% profit share of future profits of BELONG and associated Venues (as defined below).

The Facilities Agreement comprises a £20 million working capital facility and a £35 million capital expenditure facility, which GAME may utilise to fund the Venues envisaged under the Collaboration Agreement, including the costs for new Venues and ongoing development of the BELONG website and its related tournament management system.

Martyn Gibbs, GAME Digital Chief Executive Officer, said:

'I am delighted that through the Collaboration Agreement we are able to accelerate the implementation of a key element of our transformational strategy to move from a seller of physical products to providing gaming experiences. As more consumer focus and spend moves to experiences, we are well advanced in delivering unique, world class gaming at both local and national level. Having launched the BELONG brand just over a year ago, we have now opened 19 arenas and are very encouraged by the popularity and performance of these locations. We look forward to collaborating with Sports Direct to increase the availability and scale of BELONG and to capitalise on the increasing overlap between sports and esports fans by bringing this unique experience to a wider consumer base.'

Jon Kempster, Sports Direct's Chief Financial Officer, said:

'We are very happy to partner with Game in building an increased presence in the esports market through the BELONG brand. This is a very good example of building a commercial relationship via our strategic investment approach.'

BELONG

BELONG is the Group's competitive gaming and esports experience centred around physical 'arenas', bringing both casual and competitive gaming to communities nationwide, in city and town centres and in major shopping centres. Each arena houses a 'tribe', creating an emotional identity for players to connect with and represent across a range of competitive and community activities, including Arena Clash, BELONG's own grassroots esports tournament.

The arenas provide dedicated space for both PC and console gamers to play with friends, compete in tournaments, enjoy gaming nights, celebrate new games and technology launches and share game themed events and experiences.

A redeveloped BELONG.gg website will launch later this month to provide a home for existing BELONG gamers to engage with the brand, whilst also bringing in new customers to their local arena. BELONG.gg will allow gamers to reserve their station online ahead of their visit, and provide details of all the exciting upcoming community events and tournaments in their local arena.

The Group has also developed a tournament management system for competitions and events which includes rich functionality, such as team management invitations and applications, single and double elimination features, a rewards mechanic and other important tournament features. The tournament management system has a development roadmap to offer greater appeal and enjoyment to new and existing customers, including additional tournament formats and leader boards, as well as integration into BELONG.gg.

Further details on the Collaboration Agreement

The Collaboration Agreement covers the opening of a number of different venue formats, being (i) standalone BELONG arenas, (ii) BELONG arenas located in or next to GAME Retail stores, (iii) BELONG arenas located in Sports Direct stores, (iv) GAME Retail stores located in Sports Direct stores and (v) BELONG arenas and GAME Retail stores located in Sports Direct stores (each a 'Venue'). The Group's 19 existing BELONG arenas will also be treated as Venues under the Collaboration Agreement, but the Collaboration Agreement does not apply to standalone GAME Retail stores.

Profits from such Venues will be shared between GAME Retail and Sports Direct, with GAME Retail receiving at least a 50% share. Where a BELONG arena, a GAME Retail store or a BELONG arena and a GAME Retail store is located in a Sports Direct store, GAME will not share in the profits of that particular Sports Direct store, other than in relation to the profits of the applicable Venue.

GAME Retail will fund the opening of new Venues and will have access to facilities pursuant to the Facilities Agreement to accelerate its planned opening schedule. GAME Retail and Sports Direct will equally fund the continued development of the online booking software and tournament management system linked to live-gaming events.

New Venues will be opened only if both GAME Retail and Sports Direct agree following a proposal and as part of an approval process. GAME Retail will continue to own the fixtures and fittings of the Venues.

The Collaboration Agreement also includes provisions regarding the transfer of the business and assets of the BELONG arena business to a new corporate entity in which both the GAME Group and the Sports Direct group would be equal shareholders, subject to obtaining any necessary approvals or regulatory clearances at such time. It is envisaged that this transfer would take place, save for within the first 12 months, within the initial five year term of the Collaboration Agreement (although the Collaboration Agreement may, in certain circumstances, continue for up to 10 years).

Further details on the Facilities Agreement

GSHL entered into a loan agreement for facilities of up to £55 million on an unsecured basis. GSHL is a direct subsidiary of GAME Digital plc and is the indirect parent company of GAME Stores Iberia SLU, the Group's Spanish trading company. The Facilities Agreement comprises a £20 million working capital facility (the 'Working Capital Facility') and additionally a £35 million capital expenditure facility (the 'Capex Facility').

Interest on borrowings under each of the Working Capital Facility and the Capex Facility shall accrue at 2.5 per cent per annum above the Barclays Bank PLC base rate (such base rate being subject to a floor of 0.5 per cent).

The Working Capital Facility is available until 31 January 2019, with the option to request for an extension. An arrangement fee is payable at the outset and on any extension of the Working Capital Facility.

The Capex Facility is available for drawing until 31 January 2023, with repayments commencing from around two years after the initial draw down of each loan under the Capex Facility (each a 'Loan'), and repayable in five equal annual instalments. There is no arrangement fee and no commitment fee in relation to the Capex Facility.

The Facilities Agreement does not include any financial covenants, but does include certain customary restrictions, amongst other things, in relation to mergers, acquisitions, the incurrence of indebtedness and guarantees and disposals, in each case subject to certain exceptions.

Related Party Transaction

As Sports Direct International plc holds a 25.75% shareholding in the Group, Sports Direct is a related party of the Company and this announcement is therefore made in accordance with Listing Rule 11.1.10R.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

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About GAME Digital plc

Listed on the London Stock Exchange in June 2014, GAME Digital plc is dedicated to delivering an authoritative range of specialist gaming products and services to the gaming communities of the UK, Spain and beyond, providing more ways for gamers to enjoy more games and unique gaming experiences, more often. GAME's UK and Spanish retail businesses are the market leaders in those geographical areas, operating a total of over 560 stores across the two areas, a fully integrated omni-channel offer, including the multi-award winning GAME App, and over 4.5 million active customers across its Reward programmes. GAME is developing its proposition with the continued expansion of BELONG, the Group's leisure experience, which brings video-gaming to high streets, shopping centres and communities nationwide. Through its esports and events activities, the Group is delivering unparalleled consumer gaming experiences directly, and on behalf of third parties, including its flagship event, Insomnia, the UK's largest gaming festival. The Group's visual recognition and augmented reality business, Ads Reality, is pioneering the use of new technologies to reach gamers and business partners outside its main markets.