The $55 Billion Deal to Take EA Private

EA, Electronic Arts.

EA Sports.

It's in the game.

They'll run with McCazrey to Space.

EA is the gaming company behind blockbuster hits like Madden.

They force the fumble.

The Sims.

The Battlefield franchise.

We have charge of Objective Charlie.

EA has built iconic digital worlds.

It's set records.

It's made billions.

And in the process, let's just say it's had a complicated relationship with gamers.

EA have the most greediest gaming company going.

Most money-hungry gaming company.

It's like I won't play EA games anymore, but that's not enough.

Yeah, there's definitely been some negative, more negative sentiment around the company in recent years.

That's our colleague, Lauren Thomas.

She covers mergers and acquisitions.

And she says that even though some fans harbor complicated feelings about EA, investors love it.

And one group of investors in particular.

Jared Kushner, President Trump's son-in-law, Silver Lake, big tech private equity firm, and Saudi Arabia's sovereign wealth fund.

Very interesting kind of group.

And those investors just decided to shell out a ton of money to buy EA.

Well, it was the biggest leveraged buyout of all time.

Believe it or not, it was a $55 billion take-private of Electronic Arts.

The biggest leveraged buyout of all time.

And the kingdom of Saudi Arabia is putting up the biggest check.

This record-setting buyout is happening at a time when the video game sector is under pressure.

Studios, including EA, are coming off industry-wide layoffs.

All of which has left Lauren with a question.

You could boil it down to: well,

why is this deal happening in the first place?

And why them?

Welcome to The Journal, our show about money, business, and power.

I'm Ryan Knutson.

It's Friday, October 3rd.

Coming up on the show: how EA hit a high score in Wall Street history.

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Today, EA is one of the biggest publishers of video games.

But when it got started in the 1980s, it was just a scrappy team of developers, led by Trip Hawkins, an early Apple executive.

And he saw an opportunity to create video games, but really through this more artistic lens, even the developers and the people that were creating the video games, thinking of them as artists.

And that's actually how the name Electronic Arts came to be.

And the company really started out making computer games.

And then you got to a period of time and it was all about the consoles.

Throughout the 90s and early 2000s, EA pumped out hit after hit.

It was mainly known for its sports franchises like Madden and FIFA, which is now called FC, but it also made classics like one of my favorite games in middle school, Command and Conquer Red Alert.

Acknowledged.

Affirmative.

Affirmative.

But over time, EA's reputation started to sour,

partly because of its record buying up beloved studios and later shutting them down.

And partly because of how, like a lot of gaming companies, it started to charge players within the games themselves.

EA declined to comment on the record.

In the past, the company has emphasized that in-game purchases are optional.

Many customers are still frustrated.

It's almost like the game is an entry fee to a theme park and then every ride is ticketed.

Greed and microtransactions.

Predatory.

Minimal innovation while maximizing monetization.

EA are kind of seen as the spearhead of this and it's kind of central to their business model now.

One common advancement in in-game monetization was EA's use of loot boxes, digital treasure chests you can buy with real dollars to unlock a mystery prize.

YouTubers would unbox their loot halls for fans.

Welcome to a $100 loot crate opening in Star Wars Battlefront 2.

Annie up 30 bucks, and you might score a random part for your race car or a weapon upgrade or a new character.

Oh, an assault marksman.

I do like the assault class.

That's pretty good for me.

Frustration over this practice boiled over in 2017 when EA released Star Wars Battlefront 2.

The game cost about 60 bucks, but to play as one of the most popular characters, Darth Vader,

players faced a choice, either spend roughly 40 hours completing missions or pay EA extra money to unlock him right away.

The backlash was loud.

On Reddit, one player wrote, quote, disgusting.

This age of microtransactions has gone way too far.

Leave it to EA, though, to stretch the boundaries.

Electronic Arts, the company, went on and responded from like a corporate Reddit account and said, you know, basically is this is a way to make gamers, you know, really feel good about their accomplishments and have a sense of pride.

And people just, you know, lost it when they, when they saw that.

EA's reply drew enormous backlash on Reddit, more than 650,000 votes in total.

The Guinness Book of World Records later called it the most downvoted Reddit comment of all time.

For players like William Worrell, who lives in the UK, it started to feel less like play and more like a cash grab.

A lot of other gamers felt the same way.

So twice in a row, it is, I believe, a publicly voted poll in 2012 and 2013.

They did win worst company in America.

I believe that the trophy that you get for that is in the shape of a small sort of emoji dog turf, so.

The poll was run by Consumerist, a watchdog site that called out corporate misbehavior.

Readers cited buggy launches, microtransactions, and how EA had closed some of the smaller studios it acquired.

Since then, under new leadership, EA has tried to turn itself around.

I think it's important to go back to COVID times.

And during the pandemic, that was an era in which the gaming industry really exploded.

But then, obviously, coming out of that, there's been a bit of a downfall.

Demand has dropped off.

EA has made layoffs and um there's also just been this glut of video games

in january after the company reported its soccer and dragon age games had weaker than expected sales the company's stock fell 17

the biggest drop in nearly two decades even so ea is still a juggernaut it's one of the biggest video game companies in the world and it has some of the richest intellectual property it has longtime licenses for the nhl nba star wars Marvel, and its own internal IP.

And gamers, despite their grievances, continue to buy and play its games.

The company's value has multiplied roughly seven times since that worst company ever award in 2013.

Throughout all these ups and downs, there's been one investor who's long had his eye on the company, a man named Egon Durbin.

So you've got this private equity firm, Silverlake.

It's run by Egon Durbin.

And come to find out, he has has had his sights set on electronic arts for quite some time and long thought of it as his white whale, kind of a dream deal.

The problem was that for years, EA was too expensive for Durbin Silver Lake to acquire on its own.

Until Durbin met up with Jared Kushner, who finally helped put the white whale within reach.

That's next.

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Egon Durbin, the co-CEO of Silverlake, had long wanted to make a deal for EA.

He'd become friends with EA's CEO.

The two men have gone on surfing and golf trips together.

But Durbin and Silverlake didn't have the cash to buy EA a loan.

Not until he met Jared Kushner and proposed an idea.

So in comes Jared Kushner, Trump's son-in-law.

He has this firm Affinity Partners, which is an investment firm that he basically created after he left the White House in Trump's first term.

So he went off and created this investment firm.

He's done a few small deals, but he's got some money that he's looking to put to work as well.

Kushner himself was a gamer as a kid.

And now, crucially, he has relationships with the Saudis, specifically Saudi Arabia's PIF, or public investment fund.

The PIF is one of the largest sovereign wealth funds in the world, backed by the kingdom's oil money.

Kushner had become close with Saudis crown prince Mohammed bin Salman, who was also a self-described gamer.

And Kushner had been looking for a way to strike a deal with him.

And a key part of it was really PIF, this sovereign wealth fund, they had already, you could go back and see, they have a track record of being very interested in gaming and actually already had almost a 10% stake in electronic arts prior to this deal being announced.

So why is Saudi Arabia's investment fund so interested in a video game company?

You know, this is a part of the world.

It's oil and gas wealth really drive it, right?

But you've seen the kingdom has been very vocal about the fact that they want to diversify away from that.

So take this, all of this oil money, this wealth, and how can we then pour that into other industries to diversify our wealth so that we can have our hands in all these different industries.

And the crown prince over there, Mohammed bin Salman, has actually said, you know, he wants to create this gaming empire globally.

He has this goal, these aspirations to do so.

So I think for them, this deal was certainly a way to achieve that goal.

The Saudis are already investing heavily in the esports industry.

The kingdom has spent billions buying a mobile game maker, as well as taking stakes in Nintendo and the video game publisher Take-Two Interactive.

It's also invested in sports leagues like Live Golf.

For Saudi Arabia, owning a piece of global entertainment culture also helps the kingdom project some soft power and improve its image.

The kingdom has received criticism for its human rights record.

And so they have a lot of money.

Silverlake has a lot of money.

Affinity has a lot of money.

And yet this deal is a leveraged buyout, which is still going to saddle Electronic Arts with a lot of debt afterward.

Can you explain what a leveraged buyout is and why it was used in this acquisition?

Yeah, exactly.

So I'll break it down.

So like you said, there's some equity on the table that this consortium is putting in, but then you've also got a debt piece.

There was a big loan that was taken out to the tune of $20 billion.

$20 billion in debt.

A leveraged buyout means you're buying the company, in this case EA, with a lot of borrowed money.

But the debt doesn't just sit with the buyers.

It's loaded onto the company, meaning EA itself now shoulders the burden of paying back the loans that were used to acquire it.

And that's why leveraged buyouts can carry baggage.

So sometimes there can be this like negative sentiment attached with it, but they're difficult to pull off, especially the bigger you get.

You know, you need more debt.

You have to go out and find this sources for financing.

Lauren says there are advantages to being a private company, though.

When you're a public company, you have this scrutiny from investors.

You have quarterly reports that you have to do.

So the argument is kind of as a private company, you could just do more, make bolder bets, and potentially act more quickly without having to address that investor base.

This is why some gamers are worried about this acquisition.

Lots of players already say they feel like EA nickels and dimes them too much, and they worry all this debt might put even more pressure on the company to squeeze them for money.

And you can see this sentiment in the reactions people have posted on social media.

This is one of the main criticisms I'm seeing from gamers is that you're putting so much debt on this company and you're creating new pressure points for EA to make more money.

But the chief concern that gamers have is that you're upcharging us for everything.

Games are too expensive.

Once we buy a game, we have to pay more to unlock certain characters and stuff like that.

So I get that.

It's a totally logical fear that would come up.

We're in this new era where, yes, we're looking for ways to cut costs, but that doesn't necessarily mean that all of those costs in turn are going to be passed on to the end user.

Because in turn, that's just going to push more people away from the platform, right?

And then that's the last thing that EA would want.

I mean, it's interesting because, like we said, at its core, Electronic Arts, you know, it started as this company that was trying to make software artistic and think about it in this artistic way.

Now, the company's got to think of ways to kind of address, maybe arguably, its most important community, the gamers, right?

Who, to your point, are all trying to understand what does this deal mean for us?

Before we go, a quick heads up that the fourth and final episode of our series, Camp Swamp Road, will be dropping in our feed on Sunday.

If you haven't started listening yet, go back to episode one.

There's a link to the series playlist in our show notes.

I promise you, you will not regret it.

It is so good.

That's all for today.

Friday, October 3rd.

The journal is a co-production of Spotify and the Wall Street Journal.

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See you Monday.