I assume you haven't been living under a rock the last week because if you have, you definitely aren't reading this blog but yeah, EA's been bought for $55 billion by a consortium led by the Saudia Arabia sovereign wealth fund and a new investment firm led by Donald Trump's son-in-law and Weyland-Yutani synth meets amoral finance bro Jared Kushner. If you care about gaming and the industry around it, that last sentence alone should send a chill down your spine, but when you dig a bit deeper, it's much worse than you think and signals a disturbing trend for the increasingly distressed AAA game industry.
This isn't the biggest buyout in game industry history, that record is still held with a solid margin by Microsoft's $68.7 billion Kirby-style inhalation of Activision-Blizzard. It is however, the largest private equity buyout in game industry history and moreover, the largest leveraged buyout in the history of private equity as a whole. Your spine should now be ice cold.
Industry watchers may recall that a couple of years ago, Saudi Arabia was going to be making a large investment into Embracer Group, which they pulled at the last minute and that led to Embracer undergoing a multi-year reckoning that is still happening now. Many studios were closed, many games were cancelled and thousands of people lost their jobs because of this. It's appearing like the Saudis pulled that money because they saw a much bigger fish they could grab instead.
Leveraged buyouts are what corporate raiders do and it baffles me how it's not only common, but even legal to begin with. Simply, this deal includes $20 billion in debt financing from JPMorgan Chase and that debt is not put on the people who are buying EA, but on EA itself. In other words, a company that had very little debt now has massive debt, while the people who took it out have no risk and only profit. Seriously, that's how these work. The interest alone on this debt could be as high as a billion dollars a year. EA's net income for 2024 for $1.273 billion, meaning that over 80% of that would be eaten up just paying interest, not even paying down principal. All this on top of ever increasing costs for game development and shrinking margins in the AAA segment.
This type of buyout almost always results in the buyers getting rich while the acquired company gets stripped for parts, prices rise, quality drops and jobs are lost. It's not about taking EA as it is now and supercharging it for long-term growth and prosperity, it's about taking a company in a weakening part of the industry, sucking out all its marrow and leaving the rest to rot. The buyers claim they hope to fuel more growth despite this by more heavilg using AI in game development. This is nothing more than a smokescreen because anyone with real knowledge of AI knows that this is not happening and not going to happen soon, if ever, especially once the AI bubble pops.
EA is effectively a sports game company with some other divisions on top for flavour. The vast majority of their money comes from Madden, FC (formerly FIFA) and the associated gambling mechanics built into each. The Sims, Battlefield, Dragon Age, Mass Effect, even their mobile games barely register financially compared to those juggernauts, though it does look like Battlefield 6 is going to be a huge banger. For all EA has done over the decades to earn its horrible reputation, I've always given them credit for taking their gambling windfalls and investing them into other things that aren't guaranteed money presses. AAA games are obscenely expensive and risky to make now and a new Dragon Age or Mass Effect isn't going to make FC money, but they continued to get funded anyway. Does anyone really think this kind of low-margin, risky project has a future within EA now?
Many believe that over the next few years, we are going to see EA sliced up the same way Warner Bros. Discovery is doing now, where the cash cow divisions get spun off into and the rest get divided and sold off or written off for tax benefits. I could see the sports segment and possibly Battlefield Studios and Apex Legends (not all of Respawn) becoming the "real EA", while the rest of the studios and IP are either shuttered or sold off in pieces or as a package deal to some other investment group. In one way, I could see a bright spot with a lot of EA's legendary IPs ending up in the hands of other companies who might actually do something with them, but generally speaking, there's really nothing good for gamers or the industry that comes from this. Make no mistake, JPMorgan Chase didn't lend that $20 billion because they expect to lose it. There's a plan for them to get it back and then some and now that EA's private, we won't be privy to it.
Moreover, I believe this is a soft power play by the Saudi Royal Family to both influence western culture and to soften the rightfully harsh opinion the west holds of them and the country. It's a different prong of the same strategy that's led to many big Hollywood movies being financed by them and China, or the massively controversial Riyadh Comedy Festival. The Saudis know that the gravy train of oil revenue is going to run out eventually and when they aren't pissing it away on insane vanity megaprojects that will never happen, they're investing their huge accumulated wealth in other places to try to keep it growing, while also trying to shape public sentiment in a favourable direction.
Saudi Arabia is not a good country and the people who run it are evil, full stop. There's no freedom of speech, press or association. People have been sent to gulags over tweets the royals didn't like. A journalist was murdered on the direct orders of the Crown Prince. Gender and class equality are non-existent. Being LGBTQ+ is a capital crime. Use of slave labour is routine. Public executions for mild offences are the norm. And oh yeah, there's the whole funding 9/11 thing. These are the people who just took over one of the largest video game companies, who publish a franchise in which middle eastern terrorists are often the enemies.
This strategy has a lot in common with the one that has seen Tencent and other puppets of the autocratic and genocidal CCP buying up many western studios. The difference with those to this point is that they've seemingly just let them do their thing, while the CCP quietly a chunk of the profits. There's been little evidence of them influencing the creative output of their acquisitions, nor have there been any leveraged buyouts.
Anyone who thinks that the Saudis won't be exerting creative influence over surviving future EA projects is kidding themselves. This deal is about two things: Saudi Arabia getting its tentacles onto the levers of western culture and them and their partners stripping what financial skin they can off EA while leaving the rest to die. The latter is what Jared Kushner has built his entire career on and there's no evidence he's going to do differently this time.
As a gamer or industry watcher, this should worry you. Assuming you don't just boycott future EA games because of this (for the record, I won't be until I see a reason to, benefit of the doubt and all that), I recommend keeping one eye firmly trained on them to see what changes get made. They're not likely to be swift or obvious, but done slowly over time so as to make them harder to notice.
My bigger worry is what this is showing about just how dire the AAA side of game development is. Activision-Blizzard sold to Microsoft, who have been quickly screwing that up because of the AI bubble (more on that in my next post), Ubisoft has made a weird bedfellows deal with Tencent to survive, and Grand Theft Auto is the only thing keeping Take-Two Interactive from having a similar thing happen to them--for now. Many including myself have said for a long time that AAA development is not sustainable and these buyouts are showing that those in charge of these companies know that too. They don't know how to fix things, but that's not going to stop them from taking huge golden parachutes for their leadership failures. Saudi Arabia, Tencent and Microsoft don't have some magic formula to make AAA gaming viable indefinitely, they see an opportunity to profit off its decline and that's not good for anyone but the already wealthy sociopaths leading these deals.
The AAA business model needs a big change, there's no question about that. Selling out to autocratic regimes is not what that change should be. For those like me that are moving further and further away from this segment, it's not a good thing to see, but doesn't leave us at all devoid of options for quality games. It is still a bigger entertainment industry than all others combined, even after the last couple years of disaster. For the large number who still think games are only what you see advertised on TV, the landscape's becoming barren indeed.
