Digital entertainment giant Electronic Arts (EA), responsible for global franchises such as Battlefield and Mass Effect, informed its shareholders and investors that it will implement a drastic reduction in expenses of around US$700 million per year. Of this significant amount, around US$170 million is directly linked to what the board classified in reports as a search for organizational efficiencies. This financial movement takes place at the exact moment that the acquisition of the developer for US$55 billion is completed by a financial consortium led by Middle Eastern capital. Analyzing the corporate jargon used in the statement, renowned investigative reporter Jason Schreier pointed out that the optimization justification is, in fact, a clear sign that a wave of mass layoffs will hit the production company’s studios in the near future.
The end of an era in the stock market and the new power structure
With the final signing of the contracts, control over the creator of interactive software passes into the hands of a group of investors led by the Public Investment Fund (PIF) of the Saudi Arabian government, working together with Affinity Partners, an asset management company headed by Jared Kushner, son-in-law of the former president of the United States, Donald Trump. This historic milestone ends a long cycle of 36 years in which the developer operated publicly on the stock exchange, responding to thousands of small and large shareholders around the globe. In addition to the structural impact on governance, the transaction is already classified by economists and Wall Street analysts as the largest leveraged buyout of all time, consolidating the Saudi strategy of diversifying its economy beyond oil exploration.
The clauses of the billion-dollar agreement guarantee that all holders of shares in the production company, which includes a significant portion of its own programmers and artists, will pocket US$210 for each share owned. To make such a colossal amount viable and take the company private, the Arab sovereign wealth fund had to resort to a US$20 billion loan from the JPMorgan bank, an amount in addition to the US$36 billion that had already been reserved in cash for the operation. The big financial detail, typical of leveraged buyouts, is that the games company itself will absorb this liability, resulting in a debt load projected at a frightening US$18 billion. In practice, the corporation will have to pay approximately US$1.8 billion annually just to pay off the interest on this new bank debt.
Learn more: Purchase of Electronic Arts by Saudi group generates warning of mass layoffs
Financial challenges and the pressure for immediate profitability
Currently, the annual profit of the creator of the popular EA Sports FC, calculated before discounting interest, taxes, depreciation and amortization (an indicator known in the financial market as EBITDA), hovers around the US$1.5 billion mark. While the raw numbers suggest that current revenue is almost enough to cover the newly acquired bank charges, the math gets dangerously tight for a technology corporation that requires constant high investment in research and development. It is precisely because of this narrow margin that the executives designed the immediate cost containment plan, seeking to create a breathing space in cash and guarantee a financial safety net that prevents the daily operations of studios around the world from being stopped.
Experts who follow the behind-the-scenes of interactive entertainment do not hide their apprehension about the consequences that this volume of banking obligations will bring to the end consumer. Journalist Jason Schreier warned that the urgent need to make money could force the implementation of even more aggressive monetization systems within games, in addition to severe cuts to entire quality control departments. Reinforcing this thesis, Christopher Dring, who serves as editor-in-chief of the Game Business portal, highlighted that the financial architecture of this acquisition suggests a very direct and controlling approach on the part of the new owners. He recalls that private equity funds have a historical reputation for being ruthless managers, squeezing the profit margins of the companies they acquire as much as possible, often sacrificing artistic vision in favor of quick returns for private shareholders.
Changes in the game catalog and the future of franchises
Another point of strong debate on forums and social networks concerns the creative future of projects that are already in the development phase. Industry professionals fear that financial risk aversion will end up stifling original ideas and bold narratives. Shams Jorjani, who holds the position of executive director at Arrowhead Game Studios, went public to express his desire that the new leadership not transform the software giant into a mere repetitive assembly line. The executive’s fear is that the company will start investing exclusively in more already consolidated sequels and megafranchises, completely abandoning the financing of innovative titles and new intellectual properties that could oxygenate the industry and attract new audiences.
On the same topic: Purchase of Electronic Arts by Arabs generates huge debt and risk of layoffs
Faced with this scenario of corporate uncertainty, market analysts and members of the gaming community mapped out the main impacts that the new management could bring to the software development ecosystem:
- High risk of closure of smaller studios that do not produce annual billion-dollar hits, prioritizing only large teams.
- Substantial increase in the insertion of microtransactions, battle passes and paid content in titles that were traditionally marketed as complete experiences.
- Premature cancellation of experimental projects in favor of accelerated production of sports franchises and first-person shooters.
Human rights and the cultural shock with the gamer community
In addition to financial spreadsheets and software design, the transfer of share control raised a red alert regarding social and human rights issues, given the history of the host country of the new owners. Saudi Arabia operates under strict interpretations of Islamic Sharia law, which criminalizes consensual same-sex relations, providing for severe punishments ranging from public flogging to the death penalty. This ideological abyss has generated deep concern among the millions of fans of The Sims franchise. The real-life simulator is globally recognized for pioneering inclusion, enabling same-sex relationships since its first launch in 2000, and the community now fears that future updates will be sanitized or blocked to please the majority Middle Eastern investors.
Trying to stop or at least impose regulatory conditions on the deal, the digital activism collective Players Alliance HQ started a campaign calling on users to pressure legislators and politicians against final approval of the purchase. The non-governmental organization published manifestos warning that subordination to the sovereign wealth fund could result in the drastic reduction or total censorship of narratives that address gender diversity and freedom of expression in virtual scripts. The Public Investment Fund is directly chaired by Crown Prince Mohammed bin Salman. The government official has accumulated formal accusations from several human rights organizations and international intelligence agencies, which point to him as the main person responsible for the brutal murder of dissident journalist Jamal Khashoggi, which took place inside an embassy.
More on this story: After a billion-dollar sale to a Saudi fund, EA plans to cut US$700 million in costs
Official position of the executive board
Seeking to calm the mood of both the financial market and the consumer public during the announcement of the sale, the top management of the North American producer adopted a speech strictly focused on the technological future. Andrew Wilson, the company’s current executive director and who had his position assured by the new owners, avoided commenting on social controversies, threats of censorship or specific details about personnel cuts. In his official statement sent to the press, the executive limited himself to declaring that the corporation will maintain its unwavering focus on the mission of creating transformative experiences, with the main objective of continuing to inspire future generations of players around the planet, regardless of the new ownership structure.