Schreier: EA goes $20 billion in debt as part of its buyout, could mean mass layoffs/more aggressive monetization

Miles708 said:
Thanks, now i get it.
Essentially this guys bought something with money they do not currently have, and the workers will likely pay for the debts these sharks made because they purchased EA with money they didn't have to begin with.

Am i understading this correctly?
High level finance surely looks like lots of fun.
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The Saudi prince / Saudi public investment fund basically has infinite money.

But in terms of finantials there's a tool for very rich people that is better for them than to pay themselves the full amount of the acquisition called leveraged buyout, which is to get a bank on board to pay an important part of the acquisition with a new debt that will be paid with future profits of the acquired company.

Obviously banks aren't stupid and do it only in cases where they know the acquirer and the company won't have any issue to pay that debt.
 
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I just don't understand how any of this shit works… how are you in debt if you're the one getting bought???

if someone want to buy my house for 20B and they only have 15B, somehow I need to fund the remaining 5B? to buy my own house??? I don't know my brain is doing a short circuit 😂😂😂
 
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Depends how fast it can be paid back when doing a leveraged buyout. PIF could afford to pay it all up front but decide to borrow a lot of it. If EA carries on being profitable then it shouldn't be a big harm but it can quickly turn bad if EA is mismanaged, then the debt and interest become a millstone and they look to fleece customers more to pay off the debt and this cripples investment and those riskier ips. If EA sports/soccer keeps growing then it could easily be paid off.
 
yurinka said:
EA already had $2B of debt, which are included in these $20B. They added $18B. EA had $6B in gross profit last year, and they kept increasing every year since many time ago. Meaning, they added 3 years of gross profit as additional debt.

Meaning, they can return it in 5 or 7 years or so making no changes and not even noticing it, even assuming their profit would stop growing now.

This isn't a leveraged buyout of a company that needs to be fixed/optimized, it already is very healthy. They may have a simgle 'small' layoff to throw the DEI department and maybe some professor out of the window and cut a bit of additional fat (I'd say less than 5% of their workforce), but other than this I don't expect big changes.


In this case, out of the $55B paid in cash for the acquisition, the investors pay $36B and the bank (JP Morgan) pays $20B, which will be a debt to be paid with part of EA's profit across some years, often 5-10 years. In this case pretty likely with 5 would be enough.



A guy who already owned 10% of EA (3rd largest shareholder) made an offer to the rest of shareholders to buy their 90% of the company, paying for each company stock 25% more than they were worth in the market.

They accepted, so bought the company. And also decided to make it private, keeping it away of the stock market because that guy basically has infinite money and doesn't need external investment.

In addition to get rid of the pressure and risks of being in the stock market, now EA will have access to a ton of money when needed plus synergies with other companies of the investors, which include but aren't limited to Scopely, SNK, ESL, EVO, Dell, Unity or Stripe.
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Right so this is an oil rich dude buying a game company. There may be some cuts, but likely he just wanted the game company that makes the top sports games that sell a shit ton every year.

Its a lot different than buyouts that are done to turn a quick buck. This is probably a vanity purchase.
 
Pretty much. The debt would've been known about long before the deal was agreed to, meaning EA's new owners have a plan to recoup it before long. Private Equity are unlike anything this industry has seen yet - they give absolutely no fucks about anything and will burn a company to the fucking ground if it makes them money. They are fucking animals. Given their new owners are Saudi and Chinese, I suspect anyone with blue hair is out of a job once this deal closes - full stop. Next, they'll shit-can anyone in the west who's not a top 10% and outsource all of the underlying work to China and UAE for cheap. That'll get their HR costs right down, increasing their profit margins immensely. I suspect they'll kick up mining their legacy IP - likely through over-priced low-effort re-releases - to start making the money EA is leaving on the table, and then cancel any AAA project that doesn't have a 10:1 ROI projection - meaning they'll double down on their GAAS money makers and cancel everything from Battlefield to Skate. Then, they'll go harder into mobile with insane monetisation practices. Lastly, they'll license out everything they have to the lowest bidder. Battlefield 7 as a chinese mobile game where you fight the enemies of the CCP? Absolutely. Dragon Age as an AI-powered sex chat bot? Bet on it.
 
For people who don't understand this deal.The Saudis have been wanting to get in the game industry for a few years now. They dipped their feet in e sports and now they want to buy companies with established ips so that they can enter the market. Don't be surprised if they've make another big acquisition at the end of the year.
 
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They have twice Sony Group's total debt

They spend more on R&D than SIE

Cash flow to debt ratio 0.1

We can expect a steady diet of GaaS, AI, mass layoffs, studio closures, sell off/ spin off ...


digimaster7 said:
I just don't understand how any of this shit works… how are you in debt if you're the one getting bought???

if someone want to buy my house for 20B and they only have 15B, somehow I need to fund the remaining 5B? to buy my own house??? I don't know my brain is doing a short circuit 😂😂😂
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The acquirer uses the target company's assets as collateral to secure debt, effectively placing the debt burden on the entity being bought.
 
digimaster7 said:
I just don't understand how any of this shit works… how are you in debt if you're the one getting bought???

if someone want to buy my house for 20B and they only have 15B, somehow I need to fund the remaining 5B? to buy my own house??? I don't know my brain is doing a short circuit 😂😂😂
Click to expand...

A house isn't a good example but you could say a hotel or I turn your house into a hotel. Instead of paying you 20bn for your house I could take my business plan to the bank and say I want to borrow 10bn and then pay 10bn upfront to purchase this property, you get my 10bn and the banks 10bn. My plan is to make 2bn a year in profit as a hotel and pay the bank off yearly, my hotel is now 10bn in debt plus interest so 12bn for example needs to be paid back. I then can use the 10bn spare to invest in something else or you might only have 10bn to start with, a leverage buyout can help you buy something out of reach, if the business is sound then the bank will lend the money.

The drawback is much of the yearly profit is paying off the loan and interest so this can limit investing on repairs or expanding the business.
 
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I can only laugh at prospect of going even more agressive on toxic business practices, something that I believe EA was at max already?
I hope we reach a SW Battlefront 2 when they forced way too much beyond the limit that it caught the attention of regulation.
 
That's how these things work. They take out a loan under the company being bought to get most of their money back. It's shady thing private equities always do. Yes it is all legal as well.
 
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Zuzu said:
I hope this doesn't negatively impact Battlefield 6. The franchise is just getting its mojo back :(
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Absolutely. That open beta sold me a game I otherwise had no intention of picking up. Super stoked for the release in a couple of weeks.

ATM I still don't know know to what extent the buyout is going to shake things up. I dont think we will really see any big shifts from business as usual for a good while, if at all, but I guess time will tell on it.
 
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taylor34 said:
This will be the end of EA. Too much debt for how much money they actually make. They only made 1.2 billion last year, the debt payments alone will eat all of their profit. Funny that they bought all these companies and ran them into the ground and then someone is doing it to them. I think you'll see anything that wasn't a major money maker being cut.

The only chance this has is if the new ownership fixes the problems they've had for 20+ years and figures out a way to monetize all of their dead IP that has some big potential upside (C&C, Jade Empire, Knights of the Old Republic, etc). Like if they were to make KOTOR 3 turn based similar to BG3 with the same story based decisions as KOTOR 1, you might be able to make a crapload of money without a huge investment.
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yiublas8JBv66T2X.gif
 
For anyone wondering, the same happend with Red Lobster, the owners are essentially putting their own company on the chopping block
 
LectureMaster said:


www.gamesradar.com

EA goes $20 billion in debt as part of its $55 billion buyout, and the BioWare fans who've already waited 8 years for Mass Effect 5 are terrified of how the company might cut costs

"It's over, Commander"
www.gamesradar.com www.gamesradar.com
EA is officially going private as part of a $55 billion dollar deal led by Saudi Arabia's Public Investment Fund, private equity firm Silver Lake, and Jared Kushner's investment firm Affinity Partners. The deal will be partially financed by EA taking on $20 billion in debt – and as the industry wonders how the publisher will deal with that financial burden, BioWare fans in particular are terrified of what might await the beloved RPG studio in the future.

"The transaction will be funded," a press release explains, "by a combination of cash from each of PIF, Silver Lake, and Affinity Partners as well as roll-over of PIF's existing stake in EA, constituting an equity investment of approximately $36 billion, and $20 billion of debt financing fully and solely committed by JPMorgan Chase Bank, N.A., $18 billion of which is expected to be funded at close."

You may have heard about leveraged buyouts funded by private equity in the past, and this is essentially how they work. An investor, or group of investors, puts up some amount of cash to buy a company, while the rest of the purchase price is funded through debt taken on by that company. In grossly simplified terms, once the deal closes, EA will have a $20 billion mortgage on itself.

No one yet knows precisely how EA will pay off that debt, but other leveraged buyouts have often been swiftly followed by money-saving efforts that, well… calling them "aggressive" would be a substantial understatement. As Bloomberg reporter Jason Schreier notes on Bluesky, the EA deal "could mean mass layoffs, more aggressive monetization, and other big cost-cutting measures."


Mass Effect 5

(Image credit: BioWare)
EA's success is propped up by massive franchises like its annual sports games, but the company also owns no shortage of beloved IP. Would the risk of another Titanfall happen when there's $20 billion in debt to pay off? Would a new Skate, whatever issues it might have, ever have been greenlit?

But nobody's more frightened of the possibilities than BioWare fans. The beloved studio has produced some of the most beloved RPGs of all time – the likes of Baldur's Gate, Star Wars: Knights of the Old Republic, Mass Effect, and Dragon Age – but it hasn't had a bonafide hit in years. Finally getting to launch a single-player RPG last year seemed like a victory, but Dragon Age: The Veilguard underperformed financial expectations.

"It's over, Commander," as one thread on the Mass Effect subreddit laments, and you'll find a lot of similar sentiments in other comment threads across the internet. The general feeling among fans seems not to be fear about what might happen to BioWare with those financial concerns in mind – they're acting as if the studio is already dead, that Mass Effect 5 is already canceled, and they're mourning accordingly.
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He must be jewzzing in his pants 👖 thinking about all the shit he's gonna rummage through that will last him several books. 🤓👍🏻
 
KungFucius said:
Right so this is an oil rich dude buying a game company. There may be some cuts, but likely he just wanted the game company that makes the top sports games that sell a shit ton every year.

Its a lot different than buyouts that are done to turn a quick buck. This is probably a vanity purchase.
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More or less.

The guy (prince of Saudi Arabia) and his family basically got infinite money from oil. But saw that oil was basically the only main business of his country/family, so made this Saudi Arabia Public Investment Fund (PIF) to invest in many different top businesses. One of them is gaming, so he acquired or invested in many gaming companies.

The thing is, if you look at the type of companies where he invested on, they aren't the most profitable ones or where an investor would invest: those that make the most money and have more growth (like let's say Roblox, Sony, Tencent, Epic...).

He bought top money makers like EA in consoles, Scopely & Niantic in mobile, or in eSports ESL and EVO. But also bought SNK, or in invested in Nintendo, Capcom, Take 2 or Embracer Group and others.

Sure, most are safe and good investments, great businesses, but clearly not the most optimal ones to get the best return on investment: seems more the case of a gamer with money investing on (or acquiring) his favorite game companies.

In the same way that he likes football, so he created his own league, team and hired a guy that for many was/is the best football player in the world, and probably the most expensive one to play there. Similar to stuff to SNK: seems that bought it because wanted a Fatal Fury Mark of the Wolves sequel. Clearly a game that a classic fighting games fan would want, but not a profitable business at all. Then even did put the game as one of the main sponsors of UFC or Wrestlemania, and did put that football player as guest character in the game.

Just because of potatoes, because he wanted to do so and had the money to do it, because it was obvious the game wasn't going to have great sales. Most of the other investments are very logical and profitable, but this and other investments are weird. Like, Embracer Group. Maybe he is fan of some IP or team they had, because as investment would have made way more sense to put the money in many other places when following a logical and methodical investor way of thinking.
 
LectureMaster said:


www.gamesradar.com

EA goes $20 billion in debt as part of its $55 billion buyout, and the BioWare fans who've already waited 8 years for Mass Effect 5 are terrified of how the company might cut costs

"It's over, Commander"
www.gamesradar.com www.gamesradar.com
Click to expand...

Jason Shredder is just playing the drama queen again. EA had $2B of debt, with the one of the acquisition it grew to $20B. But EA made $6B of gross profit last year and has been growing their yearly gross profit every year since several years ago. Without any change, EA would be able pay the debt in a few years just with their profit.

This isn't a leverage buyout of an almost bankrupt company, EA is a very healty and profitable company, one of the top grossing companies in their business area. No need to be fixed. And isn't either other typical case of leveraged buyout where the investors want to buy a company to optimize it and sell it more expensive a few years later. In this case make sure the Saudi PIF will want to keep it. And not because of its profitability (already have infinite money), but because os to give prestige to their portfolio.

May make some minor tweak like to cut a bit of fat removing wokism/DEI and a few weak links more, that's all. Don't expect major changes or cuts, because that didn't happen in the other gaming acquisitions or investments of the Saudi PIF.
 
I know I am alone in this but it makes me a little sad to see a company that has been part of the gaming culture since the 1980s go down the drain like this.

But there is no empathy in business.
 
BioWare has been a "studio in name only" for a decade now. Three high profile flops in a row with Andromeda, Anthem, and Veilguard. I'd honestly prefer they get shut down before they shit on the legacy of the Mass Effect trilogy the same way they did to Dragon Age.
 
yurinka said:
More or less.

The guy (prince of Saudi Arabia) and his family basically got infinite money from oil. But saw that oil was basically the only main business of his country/family, so made this Saudi Arabia Public Investment Fund (PIF) to invest in many different top businesses. One of them is gaming, so he acquired or invested in many gaming companies.

The thing is, if you look at the type of companies where he invested on, they aren't the most profitable ones or where an investor would invest: those that make the most money and have more growth (like let's say Roblox, Sony, Tencent, Epic...).

He bought top money makers like EA in consoles, Scopely & Niantic in mobile, or in eSports ESL and EVO. But also bought SNK, or in invested in Nintendo, Capcom, Take 2 or Embracer Group and others.

Sure, most are safe and good investments, great businesses, but clearly not the most optimal ones to get the best return on investment: seems more the case of a gamer with money investing on (or acquiring) his favorite game companies.

In the same way that he likes football, so he created his own league, team and hired a guy that for many was/is the best football player in the world, and probably the most expensive one to play there. Similar to stuff to SNK: seems that bought it because wanted a Fatal Fury Mark of the Wolves sequel. Clearly a game that a classic fighting games fan would want, but not a profitable business at all. Then even did put the game as one of the main sponsors of UFC or Wrestlemania, and did put that football player as guest character in the game.

Just because of potatoes, because he wanted to do so and had the money to do it, because it was obvious the game wasn't going to have great sales. Most of the other investments are very logical and profitable, but this and other investments are weird. Like, Embracer Group. Maybe he is fan of some IP or team they had, because as investment would have made way more sense to put the money in many other places when following a logical and methodical investor way of thinking.
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What's his GAF username?
 
Zuzu said:
I hope this doesn't negatively impact Battlefield 6. The franchise is just getting its mojo back :(
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Lmao people in here talking like the saudis buying it for the goodness of their heart. What happens when they get some feeling and forbid nudity in games? Or you can no longer have arabic antagonists or whatever it might be. This aint no philanthropist buyout.
 
Before ea does go down the pan further getting rid of staff or studios and there also betting on ai. I think sony should swoop in and put in an offer for either Dice or Respawn , bioware and Westwood and there ips to boost there shooters , RPG and RTS
 
People keep banging on about the Saudi's whilst ignoring the elephant in the room.

The two big PE firms are the ones steering the ship on this. The Saudi's are along for the ride (likely convinced it was a good way to grow their stake in the industry (by Kushner who already had very close political ties with them) whilst getting a good deal on a PE scam that will result in a ponzi op so they can pick up hundreds of millions in fees and leave the Arabs holding the bag when all is said and done.

They already came out and announced they're going to go hard on AI adoption to increase operating margins to try to pat down this debt. They'll never succeed of course because they all know fuck all about games dev and so will mismanage this to all hell and back.

Expect them to go hard with aggressive layoffs that will ultimately damage their franchises, eroding IP quality and ultimately reduce revenues, when they're going to be desperate to want to increase it.

The irony is the only way for them to aggressively bring down $20B in debt for a fucking games publisher (this isn't Meta FFS), is by investing a shit ton more in making more games. More AAA franchises, more GaaS, more mobile cash cow titles.

There's literally no other option or else they're going to be fucked to all hell getting smashed on the interest payments on that debt, until they bankrupt the company.

The EA leadership and previous shareholders made out like fucking bandits on this deal.
 
Baemono said:
a7mn4b.jpg
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How many times has it worked out for the best for the company being acquired?

Some people are defending with the usual "PIF has infinite money, they just did a leveraged buyout because they are smart investors, EA profits will pay it off quickly and easily".

Now… where have I heard it before…

Ah yes, MS buying Activision Blizzard…

www.blog.udonis.co

Activision Blizzard Layoffs Tracker – 3,600 Jobs Lost!

We track and breakdown all major Activision Blizzard layoffs. Find out how many game industry professionals lost their jobs!
www.blog.udonis.co www.blog.udonis.co
 
IDKFA said:
To finance this, part of the amount was equity (investors putting up cash or equivalents) and the rest (in this case 20bn) is debt financing. Borrowd funds, which need to be paid back with interest.
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Does it mean that EA is independent from from those 3 companies and only own them money? Or they are own all or a large part of the EA?
 
Panajev2001a said:
How many times has it worked out for the best for the company being acquired?

Some people are defending with the usual "PIF has infinite money, they just did a leveraged buyout because they are smart investors, EA profits will pay it off quickly and easily".

Now… where have I heard it before…

Ah yes, MS buying Activision Blizzard…

www.blog.udonis.co

Activision Blizzard Layoffs Tracker – 3,600 Jobs Lost!

We track and breakdown all major Activision Blizzard layoffs. Find out how many game industry professionals lost their jobs!
www.blog.udonis.co www.blog.udonis.co
Click to expand...
While I don't diagree with you, MS-Activision is a very bad example, as it was funded entirely by MS money/shares, not through debt
 
Thebonehead said:
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Bullets cost in real life so now we're making changes to reflect that. Just a low low price of $0.99 a mag ( mag will contain 1 less bullet than it's maximum capacity unless you purchase the mag season pass)

Standard Reload ($0.99): Your character performs a standard reload at a reasonable, but certainly not tactical, speed.

Express Reload ($1.99): 25% faster reload animation. Comes with a flashier animation where your character discards the mag with unnecessary flair.

Tactical Reload+ ($2.99): The "classic" fast reload you remember from previous games. It's now a premium feature.

Free Reload (F2P option): Your character engages in a 10-second "Tactical Fumble" animation, dropping the mag, sighing audibly, and slowly picking it up before inserting it. Chance to trigger an "accidental discharge" cosmetic effect (sold separately).
Click to expand...
You're severely underestimating the cost of bullets

Let's say your character in BF6 wants the absolute cheapest ammo he can get because he doesn't care about his K/D ratio. Well, on average a round of 5.56 NATO for his rifle costs around $0.45 a round. A magazine that holds 30 rounds will cost about $13.50 in terms of bullets, and that's the cheap stuff

If he wants to shoot something that will have effect on body armor, which might be a good idea in a war zone when engaging in combat with enemy soldiers, he's paying more like $1 a round or $2 a round depending on what he's firing. So let's just ballpark $30 to $60 for a full magazine

And this is just your basic rifle ammo. If he's out there with a sniper rifle he's paying minimum $2-3 a round, etc. Let's not even start estimating the cost of each rocket fired out of the rocket launcher, or the cost of ammo and fuel for the tanks and helicopters, etc.

What I'm saying is that EA has unlimited potential for monetizing BF6. Also firearms IRL is a really, really fucking expensive hobby if you like going to the range regularly and yeeting some lead out of your rifle. The cost of ammo adds up to ridiculous amounts very quickly
 
StereoVsn said:
Leveraged Buyouts should be god damned illegal. 🤬😡🤬
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And mortgages too along with any other debt financing. Not gonna happen.

digimaster7 said:
I just don't understand how any of this shit works… how are you in debt if you're the one getting bought???

if someone want to buy my house for 20B and they only have 15B, somehow I need to fund the remaining 5B? to buy my own house??? I don't know my brain is doing a short circuit 😂😂😂
Click to expand...
You are not funding anything, you are former shareholder that is payed full.
House itself will burden 5B that is attached to it - basically buyer use your house as collateral for mortgage to finance a deal. It will not be your problem anymore as it'll be not a problem of current shareholders, but a problem of house/EA as they got debt attached to them.
 
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Toots said:
As much as i despise EA it is hard to be content with the news since we know the ones who will pay the price of all this shit aren't the ones that should.
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You know this happens everyday right? This one is major and in the spotlight, that's why you're even hearing about it. That's how this economic system works.
 
With all the monetization EA has pulled over the years, why are they 20 billion in debt, it's not like they make a lot of different new expensive games on mass, this is all on EA for me and bad greedy management, it's their own fault
 
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