Tencent, no question, is among one of the biggest players in China for gaming. Without it, none of League of Legends, Pokemon Unite, or PUBG Mobile exist now. However, now the US is treating the company as a military firm.
As revealed through the latest act of the Pentagon—blacklisting Tencent over suspects linked to the Chinese military, this step can lead towards a disastrous fate not only for Tencent but all its gaming ventures like Riot Games, Epic Games, and even Ubisoft.
Links Between Tencent and the Chinese Military
Tencent is one of the greatest influencers in the gaming world. The company owns Riot Games, which is behind LoL—a highly popular game. The firm also holds significant equity interests in other big gaming studios like Epic Games, whose Fortnite has dominated many markets, and From Software, whose hit title is Elden Ring. These valuable partnerships are now being threatened as a result of claims that Tencent is connected to China's military, according to GameSpot.
The US Defense Department has officially blacklisted Tencent, among other Chinese companies, on alleged military affiliations. This holds a much more serious financial and legal consequence, especially if it isn't overturned.
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Financial Fallout: Stock Market Reaction and the Risk of Delisting
In the wake of the news, Tencent's stock price plummeted by 7.3%, falling to $49.31 during after-hours trading, Bloomberg reports. This sharp decline highlights just how much investors are concerned about the potential fallout from the blacklisting.
If Tencent fails to appeal the decision successfully, it could face severe consequences, including being delisted from US stock exchanges.
A delisting would not only cut Tencent off from lucrative US financial markets but could also have a domino effect in other global markets, undermining the company's international reach. This would also hurt its subsidiaries, especially Riot Games, which is still one of the crown jewels in Tencent's gaming portfolio.
The Epic Games Controversy: Boardroom Battles and Legal Tensions
Recently, the controversy surrounding Tencent's US ties heated up when two Tencent-linked executives, Ben Feder and David Wallerstein, resigned from the board of directors at Epic Games.
The Justice Department cited the Clayton Act to do this; it does not allow people to sit on the board of any firm that is a competitor to that person's own business. This follows an earlier move in which Tencent had partial control of Epic Games, raising strong concerns about conflict of interest.
This legal mess has not helped Tencent's case, with the added issue of increased corporate governance scrutiny and potential US antitrust law breaches. If this tension continues, it may likely have broader implications than just for Tencent, but also concerning the companies in which it has stakes.
Tencent's Wider Scope of Influence: From Elden Ring to Ubisoft
While Tencent's stakes in Riot Games and Epic Games have been widely reported, the company has also invested heavily in other significant gaming franchises.
Tencent owns a 16% stake in Elden Ring developer From Software, and recent reports suggest that it is working on a mobile version of the game. This shows Tencent's ambitions to dominate not just the PC and console gaming markets but the mobile gaming space as well.
Besides Elden Ring, Tencent owns a minority stake in Ubisoft, which owns the Assassin's Creed franchise. In fact, rumors are even rife that Tencent is keen on increasing its investment in Ubisoft, although both companies have yet to finalize an agreement.
In the event of Tencent's poor financial standing following the blacklisting, its further investments could be drastically curbed.
Can Tencent Recover from Being Blacklisted?
The future looks uncertain for the company now after the US government blacklisted the company. Since Tencent can always appeal against such a designation, it remains to be seen if the ban sticks. This would completely flip the company on its head regarding business strategies—mainly the gaming investments.
And this is where it gets interesting - Tencent's deep ties to the Chinese military. The company is now at risk of having its gaming empire taken away, and the drama will be seen from the gaming world to global investors.
Even battery maker CATL did not escape the US's vicious eyes. According to the BBC, the same allegation was also made against it: its ties to China's military.
