Sports Direct and GAME: Is this the future of games retail?

When Sports Direct picked up over a quarter of GAME last summer, there was a lot of chin-stroking over why owner Mike Ashley might want to invest in a games retailer in an increasingly digital industry.

There were certainly some similarities between the two companies, at least in terms of target audience. And most major sports companies currently have one eye on the growing esports industry - an industry GAME has been investing heavily in.

But really, it looked more like an opportunistic move by Sports Direct. GAME's share price had fallen to around 20p a share, which meant Sports Direct took a major stake in the company for less than £10 million. Sports Direct has a vision to build large department stores around the UK, including gyms and other concessions (Mike Ashley wants Sports Direct to become 'the Selfridges of Sport'). GAME could well fit within that format.

That was six months ago now. GAME's situation has stabilised slightly, buoyed by improved stock of Nintendo Switch and strong sales of Call of Duty: WWII. Although it reported a £10m loss for its last financial year, it's since revealed that its Christmas sales were up by 5.2 per cent.

Meanwhile, its new Belong business - in-store areas where consumers pay to play competitive esports games - is showing promise, despite not being profitable quite yet. As a result, GAME's share price has doubled since the middle of last year (that shares have actually performed better than that, but it's recently taken a hit following the news that CFO Mark Gifford is leaving the company).

Sports Direct's new investment of £3.2m, giving it a stake in Belong, plus the cash injection in the form of a £55m loan, is a far more considered move. As is the news that GAME - and particularly Belong - would soon be appearing in Sports Direct shops. Mike Ashley's team has spent six months with GAME, understood its vision and its potential, and now worked out what part of the retailer it wants. And it's the in-store esports part.

That's not a surprise. Traditional sports broadcasters, team owners, leagues and even football clubs have invested in esports in recent years, to ensure it has some presence in the area. Even sports clothings companies have developed and started selling esports ware.

So it was inevitable that one of the UK's most prominent sports retailers would want to get involved. GAME's Belong arenas are the closest the UK has to a chain of esports shops, and Sports Direct wants them within their world.

"Sports Direct involvement with GAME is precisely what the retailer needs in an industry where digital game sales are increasing faster than initially expected"

Of course, there's a sense that GAME is giving away a chunk of its future for a short-term cash injection. Coupled with the recent sale of Multiplay's Digital business, GAME has brought in £22.2m by selling growing segments of its business. It feels a bit similar to when HMV sold Mama Group - its live music division - back in 2012 to prop up it struggling retail division. It kept the wolves from the door, but at the cost of its future vision.

Yet this feels different. GAME CEO Martyn Gibbs stated that this Sports Direct deal will allow it to "accelerate the implementation of a key element of our transformational strategy to move from a seller of physical products to providing gaming experiences." This isn't selling its future to secure the present, but finding a partner to help realise the plan.

Sports Direct involvement with GAME is precisely what the retailer needs in an industry where digital game sales are increasing faster than initially expected. The challenge with all business transitions is making sure your new ventures grow at the same rate (or, ideally, faster) than your old business declines. It's a delicate balancing act. Go too quickly and you risk accelerating the demise of the biggest area of your business, but move too slowly, and you can find yourself without a business at all. Belong - the headline part of GAME's bold esports strategy - is growing strongly, but right now it's costing money not making it.

Sports Direct hasn't just given GAME £3.2m for a stake in its future, it's also given the firm a sizeable loan to accelerate that Belong roll-out (and help prop up that physical retail part, too). That's good news for GAME as it tries to navigate the volatile and unpredictable video games market.

Sports Direct and GAME's future directions are now linked. The sports retailer is already rolling out more big department stores featuring gyms, and it won't be long before those gyms are joined by gaming areas, too. Keyboards stocked alongside tennis rackets, and graphics cards next to goalposts. The chance to play Rocket League with your mates, before going for a run or a swim. It's an odd vision, for sure, but the sort of experiential retailing that most major shops are looking to develop.

You never know, it might just be the future of games retail.