The Government of Ontario’s Ubisoft deal – by the numbers

Few details have been publicly released on the Government of Ontario’s $263 million perk to French video game maker Ubisoft, and the promise of 800 jobs over 10 years. Tech Media Reports provides an insider look at how the money will flow, and why one business lobby group views the subsidy as anti-competitive. On July 6, Ubisoft announced plans to open a development studio later this year in Toronto, its first outside of Quebec and British Columbia. It will also be investing about $543 million in the new operations. "Our world is one where you can borrow capital, you can copy technology and you can buy natural resources," Ontario premier Dalton McGuinty said at the Toronto news conference. "But to build a high wage and a high standard of living you need talent. By investing in Ubisoft we're building Ontario's economy now and for the future." “The global project is $806 million, and the main expense for us is people,” says Cédric Orvoine, director, communications, Ubisoft Montréal. “A portion of this will go to salaries, but every year there are some costs whether they are salaries, buildings, or operations. But this is all tax credits on a yearly basis, and based on the creation of 800 jobs over 10 years.” To be more specific, the government support will be in the form of a conditional grant, says Dino Rocco, director of communications and public affairs for the Ministry of Economic Development and Trade. In an email to Tech Media Reports, he said the investment is “comparable to applicable digital tax credits, but handled in this manner to allow the deal to close faster.” What level of visibility and accountability does the government have? “Ubisoft's target is to have 800 full-time, permanent staff at its Toronto studio by the end of 10 years,” said Rocco. “Funds will be released as a percentage of eligible expenses incurred and paid monthly. Ubisoft will submit regular reports listing paid eligible expenses which will be verified by an annual independent audit.” This enables the company to use government funding as it spends, with job creation being a tertiary effect. And how much flexibility does Ubisoft have? Can the company claim the $263 million all in one year, or in a few years, or does it have to be spread out over 10 years? “The grant will be paid against a percentage of total paid eligible expenses ($806 million) for the project's 10-year duration to a maximum of $263 million,” says Rocco. “Hence, if Ubisoft pays eligible expenses faster than its forecast, the funding would flow faster, on a proportional percentage basis.” The provincial support isn't intended to directly support any particular position per se, but rather to leverage a greater total investment in the project from the company's own resources. CFIB criticizes government subsidy While some are cheering the deal, it has also faced some severe criticism, including from the Canadian Federation of Independent Business (CFIB). “This is back to the future,” says Ted Mallett, VP research and chief economist at the CFIB. “We saw these policies in the 1970s and 80s. Small businesses have seen over and over again that their competitors get money, and they don’t get any share of it.” Ubisoft made US$111.5 million in global profits last year. Publicly traded, the company’s stock actually declined in the days after the announcement. “If this is a new and growing industry, then why does it need government investment?” asks Mallet. “It would be far more appropriate to invest in education than to give this money to a private company.” The government makes the argument that having a big studio in Toronto will create spin-off activity, and that this is an “anchor investment”. Ubisoft already has other studios in Montréal, Quebec City and Vancouver, employing more than 2,300 people. “We anticipate the presence of a major game publishing studio in Toronto will ultimately strengthen the local talent pool and encourage other digital media companies to invest,” wrote Rocco. “This has certainly been Québec's experience after attracting Ubisoft's initial Canadian investment in 1997.”

The Government of Ontario’s Ubisoft deal – by the numbers

News | 07/19/2009 3:41 pm EDT

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