How will Brexit affect investment opportunities for the UK games industry?

Although the mantra "get Brexit done" has a certain ring to it, what Brexit will look like is still a mystery. Britain may have officially left the European Union on January 31, 2020, but that was just the next step in a long trudge through the Brexit mire.

For the games industry, this comes with its own set of implications, most specifically around funding. At Pocket Gamer Connects in London last month, freelance journalist Will Freeman hosted a panel discussion on what comes next.

Joining Freeman for the discussion was Anna Mansi, head of certification at the British Film Institute; Jon Hare, founder of Sensible Software; Jas Purewal, founder of Purewal and Partners; and Louise Conolly-Smith, head of creative at London and Partners.

Overwhelmingly, the narrative around Brexit, the video game industry, and funding avenues is "business as usual" -- for now at least. The next major milestone, and the one that is likely to result in significant regulatory changes, is when the transitional period ends on December 31, 2020.

Video Game Tax Relief (VGTR) -- which has attracted a spot of criticism over the last year -- is unlikely to be impacted, according to Mansi. Even after Britain fully separates from the EU, she said the government is committed to continuing VGTR.

"In terms of tax relief it's business as usual. We don't need to change any elements of the cultural test... we want to keep it all the same."

Anna Mansi, BFI

This is obviously good news for the large multinational corporations which base development in the UK but register profits abroad, as they will still be able to benefit from the scheme's vast grey area. But it's also good news for the smaller developers, who make up the majority of successful applicants, despite receiving around 20% of the total monetary relief.

The future of Creative Europe funding in the UK is a little more questionable though; the funding option will remain in place until the separation date in December, but "after that we don't know if there will be a replacement for it or not," said Mansi.

"We're no longer part of state aid, but we could be part of a competition market authority," she added. "There could be similar rules in terms of how we administer VGTR, so as far as we're concerned in terms of tax relief it's business as usual. We don't need to change any elements of the cultural test... we want to keep it all the same."

Despite the uncertainty created by Brexit -- perhaps even because of it -- there's been an influx of venture capital funding into the UK. With the value of the pound still not having recovered since the 2016 referendum, Chinese and US investors are pouring more cash into British opportunities.

As Conolly-Smith noted, a recent report released in collaboration with Deal Room, Tech Nation, and the Department for Digital, Media, Culture and Sport found that 2019 was a record year for VC funding, with over $13 billion invested in UK tech companies. While the UK is still smaller than US and China for such investment, it's "significantly more than anywhere else in Europe," said Conolly-Smith.

"One of the pro-Brexit arguments for the games industry before Brexit, was that this would be VGTR unleashed"

Jas Purewal, Purewal and Partners

Meanwhile, industry veteran Hare said that "people panic too much about change" and that Brexit isn't necessarily going to impact funding options, as the UK receives only a relatively small amount of funding from the European countries.

Purewal offered the most words of caution however, reiterating that a lack of substantial change so far does not guarantee smooth sailing ahead.

VGTR exists in its current state due to EU regulations around member states advancing their own local industries. As a result, when the UK separates at the end of this year, the government could do whatever it likes to prop up and support the games industry, without adhering to EU fair competition regulations

"So technically once we leave the EU, we can do anything we like, and one of the pro-Brexit arguments for the games industry before Brexit, was that this would be VGTR unleashed," said Purewal. "That the government could really help the creative industries much more. And the answer to that is maybe."

The path ahead is far from clear: the first phase of Britain leaving the EU was completed last month, but this is followed by a year-long transitional period (which could even be extended), before stepping into the great unknown of what lies beyond December 31, 2020.

"What happens after that is so complex, bearing in mind that in December [last year] this country was living hour-by-hour as to what was going to happen with Brexit, so there's a lot of uncertainty once you get beyond the end of this year."

As things currently stand, it's hard to know to what extent Brexit has or even will affect the games industry from a deal and investment perspective. Although trying to remain even-handed in discussion of this topic -- despite being a staunch opponent of Brexit -- Purewal took time to warn of the complicated legal and financial operation that lies ahead, highlighting the inconsistency of government messaging around regulatory alignment and membership of the customs union.

"The fundamentals are that there's a lot more money coming from China and the US," he added. "But equally I could tell you two to three IPOs of games [games-related] companies in the UK that did not happen in the last year because of uncertainty over Brexit. I could give you financing deals that didn't happen, or were complicated by Brexit.

"But that's just up until now. Is there going to be more certainty in the next year or so? Probably. Are we in a massive boom for our industry right now? Yes. So we are insulated to some extent, but like I'm saying, don't mistake what happened in the last two years for what's going to happen in the next year, or what on earth is going to happen from December onwards from the perspective of optimism for the industry and also VGTR. I think the government is clear to where it's going to be now, and has aspirations for the future, but is it going to be significantly better? We don't know that."