“Peak XV-Backed Gaming Startup MPL Slashes Staff by 50% due to Tax Changes”

Introduction

Mobile Premier League (MPL), a prominent online gaming and fantasy sports startup based in Bengaluru, is making headlines with its decision to reduce its workforce by approximately 50%. This move comes in response to the recent introduction of a 28% tax on online real-money games by the Indian government. The company, valued at $2.2 billion, announced its layoff plans to its employees, sparking discussions about the impact of the tax and the future of the online gaming industry.

MPL’s Layoff Announcement

Last week, MPL revealed its intention to cut jobs, sending a formal communication to its employees earlier this week. The layoff is expected to affect around 350 positions, a significant reduction that raises questions about the reasons behind this decision.

Reasons Behind the Layoff

MPL’s founder and chief executive, Sai Srinivas, explained the rationale behind the layoff. As a digital company, MPL’s variable costs are primarily tied to people, server maintenance, and office infrastructure. To ensure the survival and viability of the business, Srinivas emphasized the necessity of reducing these expenses.

Impact of New Taxation Rule

The Indian government’s Goods and Services Tax Council unveiled a new taxation rule, imposing a 28% indirect tax on online gaming, casinos, and horse racing. This change significantly affects MPL’s financial outlook, prompting discussions about the potential consequences for the entire industry.

Tax Burden on MPL

Srinivas’s email to employees highlighted the severity of the tax burden on MPL. He stated that the new taxation rule could increase the company’s taxes by as much as 350-400%, adding substantial pressure to its financial health.

Industry’s Reaction and Investor Letter

The All India Gaming Federation, representing players including MPL, expressed strong opposition to the new taxation rule, labeling it as “unconstitutional, irrational, and egregious.” Additionally, leading investors, including Tiger Global, DST Global, and others, wrote a letter to Prime Minister Narendra Modi, urging reconsideration of the tax regime.

Investors’ Concerns

The investors’ group’s letter highlighted potential dire consequences of the tax decision. They warned that the move could result in a write-off of $2.5 billion and the loss of around 1 million direct and indirect jobs, signaling the scale of impact on the industry’s stakeholders.

Dream11’s Response

MPL’s major competitor, Dream11, responded to the new tax changes by cutting its operating profit projections by a staggering 80%. The drastic reduction in profit forecasts raises concerns about the industry’s financial stability and growth prospects.

• GST Council’s Partial Alleviation

To address industry concerns, the GST Council introduced a partial alleviation measure. Instead of taxing every individual bet, the council decided to impose taxation on the total deposits made for playing online games. This adjustment aims to provide some relief to the industry.

• Future Evaluation of Tax Decision

The council’s decision to re-evaluate the tax decision after six months demonstrates a willingness to monitor the impact of the new tax regime. The tax, scheduled to take effect on October 1, will be assessed for its implications on the industry’s dynamics.

• MPL’s Investment and Funding

MPL boasts a roster of prominent investors, including Peak XV, Times Internet, and others. According to market intelligence platform Tracxn, the company has raised an impressive $396 million to date, indicating strong investor confidence in its potential.

• MPL’s Decision for Certainty

In uncertain times, MPL’s leadership has prioritized providing certainty to its stakeholders. The decision to reduce the workforce, though challenging, is grounded in the belief that taking proactive steps will contribute to the company’s sustainability and resilience.

Conclusion

The online gaming and fantasy sports industry in India is undergoing significant transformations due to the introduction of a new taxation rule. MPL’s decision to reduce its workforce in response to this change reflects the complex challenges faced by businesses in the sector. The industry’s future will be shaped by ongoing discussions, evaluations, and adaptations to navigate the evolving landscape.

FAQs

1. What is MPL?
   • Mobile Premier League (MPL) is a popular online gaming and fantasy sports startup based in Bengaluru, India.
2. Why is MPL reducing its staff?
   • MPL is reducing its staff by approximately 50% due to the implementation of a 28% tax on online real-money games by the Indian government.
3. How does the new taxation rule affect MPL?
   • The new taxation rule increases MPL’s tax burden by as much as 350-400%, putting pressure on the company’s financial health.