How Trump's Chinese Tech Crackdown Could Impact 'Fortnite,' 'League of Legends'

The ongoing saga between China and the United States over how data collected is now shifting from TikTok to gaming companies. 

What Happened: Chinese gaming companies are being scrutinized by the U.S. government, according to a Thursday Bloomberg report

Tencent TCEHY, the world’s largest gaming company, was reportedly sent letters by The Committee on Foreign Investment in the U.S. about its user data protocols. 

The Chinese TikTok social media app is embroiled in a complicated sale process involving a combination of Oracle Corporation ORCL and Wal-Mart WMT following the threat of a ban by President Donald Trump, who cited security concerns for the move. 

Why It’s Important: Tencent owns Riot Games, creators of “League of Legends,” and has 40% ownership of “Fortnite” owner Epic Games. 

“League of Legends” and “Fortnite” generated global revenue of $1.5 billion and $1.8 billion, respectively, in 2019.

Tencent’s ownership of Riot Games could force it to make a move similar to ByteDance to separate the U.S. division or take a partial ownership stake from a U.S. tech company to control the data.

Epic Games has partial ownership from Tencent, and CEO Tim Sweeney has said before that he doesn’t believe the company would be affected by a move like this.

“Epic is a U.S. company and I’m the controlling shareholder. Tencent is an approximately 40% shareholder, and there are many other shareholders including employees and investors,” Sweeney tweeted in October.

Epic Games was valued at $17.3 billion in a recent funding round, which included Sony Corporation SNE.

A possible stake sale or IPO could be in the works to put less pressure on the company and its ties to China.

Epic’s stake is valued at $6.9 billion from an investment of $330 million.

Activision Blizzard ATVI is partially owned by Tencent, but likely not enough to be impacted here.

What’s Next: Tencent has been focusing on growing its revenue outside of China.

In India, several Tencent games have been banned, including “PUBG Mobile,” one of its most-downloaded games.

Experts now think Tencent may look to expand in emerging markets and ignore the United States.

“Tencent will be more careful when it comes to expanding in the U.S gaming sector, especially in terms of purchasing U.S. game-related companies,” said Morningstar analyst Chelsey Tam.

TCEHY Price Action: Tencent shares were down 0.29% at $66.38 at the close Tuesday. 

"Fortnite" screenshot courtesy of Epic Games. 

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Posted In: NewsPoliticsTechMediaGeneralBloombergByteDanceChelsey TamChinaDonald TrumpEpic GameseSportsFortniteLeague of LegendsmorningstarRiot GamesTikTokTim SweeneyWilbur Ross
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