Sega Sells Its Arcade Division As COVID-19-Induced Financial Struggles Mount

COVID-19 has taken a toll on many businesses around the world. The companies that rely on in-person sales and interaction have been hit even harder as people have gone out significantly less to limit the spread of the virus. We are now starting to see more financial ramifications, as SEGA is selling off most of its arcade business to arcade machine company Genda.

In August, it was found that COVID-19 would severely affect SEGA Sammy Holdings Inc. and its businesses. Following that forecast, a “Structural Reform Committee” was created so the business could “adapt to the external environment” while reducing costs, reorganizing for better market adaptability, and reviewing the balance sheet. This committee seemed to have taken aim at the “Amusement Center Operations,” or SEGA's arcade arm, as it struggled the most. In the report, the following was noted:

As Amusement Center Operations area in Entertainment Contents Business is strongly affected by COVID-19, utilization of facilities has declined remarkably, and a significant loss was recorded at 1Q of the fiscal year ending March 2021. In addition, despite the recent recovery trend, the situation remains uncertain.

It seems the committee did not want to sell the SEGA Entertainment shares, and it was only a last resort. It is reported that the company was “considering various options in order to adapt to these changes in business aiming for improvement of the profitability and early recovery of sales of Amusement Center Operations area.” This process ultimately led them to the decision to transfer 85.1% of SEGA Entertainment shares to Genda. As reported by SEGA Sammy Holdings, Genda is “a company that has a strong desire to expand Amusement Center Operations business and has decided to conclude the share transfer agreement.”

This transfer will ultimately lead SEGA Sammy Holdings to report 20 billion yen (approx. $200 million) as “extraordinary losses” at the end of the fiscal year. Depending on how long COVID-19 lasts, this could be a good move for SEGA. Furthermore, if COVID-19 continues, Genda could be facing similar troubles unless they pivot SEGA Entertainment to a different market. For now, the SEGA name and branding will still remain and customers can come and go as normal (as able) according to an interview with SEGA Sammy Holdings public relations in Japanese news outlet Famitsu. Ultimately, however, this is likely not the last time we will hear about companies being sold off due to COVID-19.