Why Did EA Really Sell for $55B? The Truth Wall Street Missed (ft. Zynga's Former M&A Chief)

A lot has been discussed about it from the buyer's perspective and I think less has been discussed around it from the sellers perspective which is you know putting yourself or ourselves and Andrew in the board shoes you know why would they choose this route why would they choose to take themselves off the public markets where they have a great asset and a great currency against which they can do things like raise debt perhaps there were some some palatable headwinds that they were noticing in their business uh perhaps there were some uh pending uh hostile takeovers that may have that that may have been in process. We we won't know for a little bit until the proxies released. Maybe they were going to head off an eventual uh approach from from other strategics that have always been rumored for the last several years. And maybe just at the end of the day, they didn't want to deal with uh the the scrutiny of being able to take riskier bets uh go into innovative places and think longer term. uh given the constraints that the public markets put on that kind of approach.

Hello everyone and welcome to Pixels and Profits. Today we're going to deep dive and discuss the recent $55 billion acquisition of Electronic Arts by the Saudi public investment fund and its consortium including Silverlake and Infinity Partners. We know this has been discussed a lot so we're going to try and focus on some of the other areas that have not been discussed so much and hopefully we can provide some spicy or non-conventional takes. So we'll try and do that but we will cover the rationale for the acquisition deal mechanics and the debt which hopefully we can get some spicy takes on that and what does a post Saudi Pif acquisition of EA look like from an operating perspective. We'll also talk potential opportunities and risk, industry implications, and the future outlook for EA. With us today to discuss this, I am so happy. We've got Matthew Contraman, master accountant, and you'll see why later in our discussion. And we've got Chris Petravic, who is a current board chairman and chief business officer at

Fun Plus. and the guy who I would argue formerly created virtually all of the value at Zinga through his amazing run of acquisitions for the company. So Chris, I would assume you kind of know a thing or two about deals. Is that fair to say?
I would say a thing or two at the most. Yeah. Yeah.
So,
by the way, as I always say, that was a huge team effort across the entire leadership team and I was just lucky to be there.
All right. So, yeah, just diving right in. I think we might it'd be good to start with the rationale for the acquisition and and I think like when when we look at it or actually why don't I hand it over to you Matthew what do you think was it rationale for the acquisition and I can kind of come in as I've already thought about it a bit as well.
Yeah I mean if we start with the buyer side which I think has been relatively flushed out so we don't spend too much time but I've been saying this for the last week and change since the deal was announced. The Saudis don't pay Cristiano Ronaldo 250 million a year because he's that good on the soccer

field. They have broader ambitions for their economy, their society. They've identified gaming as a key industry where they want to invest and become a global powerhouse. And there's obviously synergies with their vision for pan entertainment and live sports. It's not just soccer. They're invested in TKO, which is WWE and UFC, right? And so EA is another leg in that investment thesis where they want to make the Saudi, you know, Saudi Arabia a hotbed and a controlling stake in global live entertainment. And when you think about EA's dominance in sports games, it's like the perfect asset that marries with that strategy from a from an interactive perspective,
right? And maybe just to also kind of chime in here. So I think like the strategic imperative is something that's been discussed. It's obvious that they've laid it out specifically in their kind of Saudi vision 2030 where they specifically call out entertainment and sports. But I think the other thing too is when we think about like the attention economy for example and

what are the three pillars of the attention economy in terms of entertainment it's essentially games, social media and video right and video on demand. And so when you when we look at like what's possible for Saudi to acquire in those three areas, it's really like I think gaming is the area where EA is a strategic asset in terms of not only being part of the attention economy, but having a focus on on sports, also having access to over two billion players in their targeted demographic that likes sports and is a younger demographic. And so there does seem to be a lot of synergies on that side. And then I would say that when you look at EA specifically there's like a cost and a revenue growth story right so there's potential and we can talk about this but there's potential for cost cutting there's also potential for growth specifically in three areas I would say or actually four areas but three three kind of like real areas and fourth more the wild card area but you

know that would be mobile Asia trans media and then the wild card is AI which a lot of people talk about, but how real is that part? I don't know. But maybe I could kick it over to you, Chris, in terms of these things, the strategic imperative, operational efficiencies, and these growth drivers. How do you how would you look at that? And what is your take in terms of the kind of reason for this deal to to happen? Yeah, it's a those are all a great list of things that have been discussed and I think as we chatted about earlier, you know, a lot has been discussed about it from the buyer's perspective and I think less has been discussed around it from the sellers perspective which is putting yourself or ourselves and Andrew in the board's shoes. Why would they choose this route? Why would they choose to take themselves off the public markets where they have a great asset and a great currency against which they can do things like raise debt and continue to have a tool for compensating employees and have a market marker for their business. You can assume that perhaps there were some palatable headwinds that

they were noticing in their business. Perhaps there were some pending hostile takeovers that may have that may have been in process. We won't know for a little bit until the proxies released. Maybe they were going to head off an eventual approach from other strategics that have always been rumored for the last several years. And maybe just at the end of the day, they didn't want to deal with the scrutiny of being able to take riskier bets, go into innovative places, and think longer term given the constraints that the public markets put on that kind of approach. I think that those are all things that we can think about when it comes time to to assess EA's rationale. And I think all of those are feasible.
Right. And the one thing that you mentioned in terms of the hostile takeovers, can we dive a little bit deeper into that? Like who could that be besides maybe China, although I think they've been backing off or Take Two? Who else would you see as potentially part of that mix if at all?
Yeah, I think Take Two is a great a great example or a great call out. I think if you want to put your media hat

on, obviously you can talk about Disney's been discussed in the past and others of that size.
Um, in terms of other international players, there really aren't any. And I think that you can probably count on less than one hand the number of folks that it would make strategic sense for and could afford this outside of sovereign wealth. But yeah, I mean I think those those are all feasible ones as well.
Yeah. And I would just say to Chris's point for those that aren't familiar with like financial markets and regulatory filings, they will have to file a proxy statement within 45 days of the deal being announced. So we're like a week and a half after by the time this probably goes out two weeks after. So maybe like another month and change. And in those proxies, they have to detail any conversations that occurred before the deal, right? And also if they had conversations with other parties. They won't be named, but it'll be like
party maximus or it'll have some code name, but you can pretty much figure out who it is based off the type of conversations they have usually, especially in a deal like this where, you know, it's a pretty limited set of potential other suitors. And so I think the question of why would EA do this

now? I think Chris, you made a good point. Number one, that when you know, Battlefield, I think we're all excited for. Heck, I'm ready to go play it myself. It's pre-installed on my Xbox, but like what's after Battlefield here? There's not really a ton of catalyst for EA after we get through the easy comps with FC this year and Battlefield. And maybe they lose confidence in their pipeline. I think that's a good call out. And then I think maybe someone else did come and this was the lesser of two evils, so to speak. maybe this was the deal where they can keep more independence and keep more control and have the white knight fend off a ra a raider bid. So we'll find out more in the next month or so,
right? And to the to that point, I think when you look at the EA portfolio, there's strong franchise concentration, right? So over 50% of the revenue is driven by four franchises. I think sports is strong and I assume that under Saudi leadership that could potentially grow. But then when you look at what the Chinese are doing in shooters for example, is Apex Legends is it is it going to hold on as strongly as it has been in the past or not? And um to the

point about why would EA sell? I I think maybe we could talk about two specific issues here and Chris, it'd be great to get your perspective, but le let's say if we if if the business was going to be challenged and then you'd have to look at potential takeover scenarios like why would you prefer a a Saudi deal versus like a China 10-centent net ease acquis or you know acquisition of some kind or take two or Disney.
Yeah, I think to talk about the China topic first, I think you obviously have the geopolitical issues that would prevent that CPHAS and otherwise from ever going through. I think that merging two largecale public companies together into an even larger public company. I don't know really what that gets you in terms of benefits. I mean, I think we're still trying to see what that looks like with Microsoft and Activision, for example. I think this the jury is still out on what that could be. So I think

this take private whether it was PIF or another vehicle just gives them the runway to be able to invest in reinventing themselves in thinking longer term in having a partner that has likemindedness around the intersections of gaming entertainment live events and sports and I'm sure that Andrew for a long time has had aspirations about building EDA into more than just a gaming company and this is just probably the perfect vehicle for that in terms of similar thinking.
Okay. And maybe now if we were to talk about one of the key thesis in terms of the acquisition as far as like operational efficiencies and in my view that's probably going to be a focus because of Silverlakes involvement. But something I think that I potentially got wrong is the amount of operational bloat at EA. So in my newsletter and in an audio podcast I had mentioned the free cash flow per employee. So, if you look at EA at 128K in free cash flow per employee relative to Activision at 270 or Nintendo at 390,

and if you look at bookings or revenue per employee, then it would seem on the surface that maybe EA is not operationally efficient. But Matthew, you're telling me I'm wrong. So, could you go into that and tell me why why I was wrong about that?
Okay. So, prepare to be bored with accounting dorkiness for the next minute and change,
please. There's different rules and honestly companies have options on how to account for investment in software products.
Yeah,
EA has been notoriously the most conservative of all the public companies. They just expense everything. So all the expenditures that go into making a game is just expense in the current period. Others like Take 2, Activision, they've chosen to capitalize some of that stuff. So it doesn't hit the P&L. It goes below free cash flow actually. So when you just look at free cash flow in Yahoo or you ask AI to pull it, it might not be adjusting for where that falls on the cash flow statement because it's technically below free cash flow in some circumstances. And then

internationally IFRS standards are different than GAP standards. So they capitalize most too. And if you even look at off Ubisoft for years like in their investor reports has like the IFRS cash flow statement and then they have the adjusted cash flow statement from comparability with like the US peers because they know that their numbers look different because of the way they account for R&D and software development expenses. And so Japan has its own JF JFRS but it's similar to IFRS and rest of Asia pretty much follows that. So when you're comparing across geographies and even within the US with Activision, Take Two and EA, they all account for it differently. So,
but is that a timing issue or or is is the number going to be different?
It's both a timing issue and it's where it's located on the cash flow statement. So, if you're I don't know how you were calculating free cash flow necessarily, but if you're only using like capex and it doesn't include investment in intangibles, which sometimes falls below like investment in PP&E, then you wouldn't be capturing it in free cash flow either, even on a timing basis. And so it's a little nuanced accounting dorkiness, but it does affect the

comparability. But on a bookings basis, it's much more comparable. And EA does compare pretty strongly. I know you called out Nintendo when we were chatting about this too, but remember Nintendo makes hardware products, too. So you got to fight on that.
Yeah, you got to And same thing with Sony, right? And so I think the better comp would be looking at some of the even the Konami and some of the other independent game developers in Japan as a proxy. When you have these b these these developers that have other lines of business, it does get conflated. at Tencent as a cloud service provider too, right? It's like it just gets all it gets all wonky.
And Chris, from your perspective, having done a bunch of these deals, like I I'm still a little bit optimistic that they'll be able to squeeze out additional free cash flow based upon just from the perspective of just having somebody go in and look at stuff, right? Because I think even if they didn't do anything, but even just like anytime I audit my own company, we find, oh shoot, there's all these problems. But what do you think in terms of their potential to be able to drive additional efficiency at EA? What is your take?

Yeah, I have a little bit of a different take on this in the sense that I don't know that operational efficiency is going to be a front and center agenda item in anywhere in the near to medium term. And I say that because obviously we do have a third party debt provider here in JP Morgan that has a vested interest in getting paid. Having said that, I think I wonder and I know a lot of people wonder why did they need JP Morgan to float a loan when PIF could have set up a loan instrument as well, right? They have plenty of money to be able to fund the whole thing. And my sense is that if anything go gets squirly around repayment that PIF will step in and just bridge the gap
to protect their investment. So this isn't a typical it's LBO and name only because it's a take private, but I think everything from the from after the mechanics of it are not the LBO playbook, right? We're not talking about the Silverlake having a majority position here that they need to protect. This is a they came in for optics. I think when you talk about people coming in and doing a cavity search like the public markets do a cavity search on this all the time and analysts call out

both publicly and privately when companies are not capital efficient as they should be. So I don't know that we have a lot of bloat here to worry about in the near term. And again, because PIF is a long holder and purveyor of value, they're not going to be tapping the wristwatches saying like, when are we going to see the next 10% cuts, right? They want to a plan for growth. They're going to be willing to invest in it. You don't need to worry about publicly stating your financials anymore. Obviously, PIF does their annual reports where they talk about their performance at a portfolio level or sorry, at an aggregate level. So there's that window dressing, but I I don't think we're in for a typical process here because there isn't there's no like they're not going to flip this back to a public market entity anytime soon, right? So they're in it for the long run. They have a different perspective. They're going to be handsoff. They're just going to talk strategically with the EA leadership about aligning with the goals for Saudi and for PIF. And I'm sure because there's rabid game fans starting at the top, they're going to have their own ideas about fun things to do. But I don't think it's going to be like a proctologology exam like typical LBO

private equityled processes.
Okay. Do you worry about the debt at all? Just because if you look at the free cash flow coverage, it's like it's looking kind of tight unless they they they they need to get something somewhere. They need growth or they need operational effic
or they need a benevolent benefactor that's willing to cover it, right? So, I mean, I
don't I don't
I don't even think it's tight. I mean there are two billionish of annualized free cash flow when you kind of adjust for Battlefield going if you assume the run rate on Battlefield which isn't in the historical numbers here right and
yeah I mean I would quibble at 1.8 over the last five years average but sure like
okay
but yeah
yeah a little bit of cost cutting a little bit of battlefield gets you to two billion little bit of synergies with scopely and I'll talk about that in a second but at 8% 20 billion is 1.6 six billion a year and rates are going down. 8% might even be conservative and so there's room to cover for sure there. Plus, we're all assuming that the debt is only on EA. If the Saudis were

concerned about debt coverage, they own Scoply, which is spitting off how much free cash flow. There's a world where they could put part or all of Scopley's cash flow in the box for the creditors. And then you're not issuing debt just from EA, but you're issuing it from their entire gaming business which has much more cash flow. So they have levers or they just put more equity in. But they have a lot of levers to pull in terms of if there's concerns in the credit markets and you think equity investors are conservative take management teams to task talk to credit investors ending every day.
Yeah. So I I guess completely agreed right like Saudi's not hurting for cash in terms of like debt backs stop. Saudis there. long-term investors. They've got a long-term perspective. But I would I was just thinking more from the specifics of the deal itself. And to your point though, Chris, may maybe Silverlake doesn't care so much about a return on this or or not. I don't know.
We'll see what their percentage holdings are. I think we're all assuming that they're kind of in the high single digits maybe at most each, right, for

Affinity and Silverlake. And even though Silverlake was the quote unquote lead, that was more for logistical purposes because PIF was an existing shareholder of EA, right? And so who the lead was important in terms of how that this deal was going to be treated? I don't see Silverlake taking the approach here like they would if they were a majority owner in a more traditional LBO.
Got it. So you think it's only high single digits? I I've heard more numbers like over like between 20 to 30%, but you know, who who knows? Well, that would make sense if it's a percentage of the equity versus percentage of the total EV, right? 20 to 30% of equity, that's only 10%ish of the total value,
right?
Okay. Well, may maybe we could talk about some of the growth drivers and revenue, but may maybe we can save that. Should we go through the deal mechanics is and maybe some of the non-obvious stuff that hasn't been discussed, if you can hit us with some critical insights, Matthew?
Yeah, we kind of covered a lot of it, so I'll skip over some of my notes. The one

thing I wanted to call out just on valuation. I don't think people have talked about was this a fair price or not.
And that's look I'm not here to say it was cheap or expensive but I did go back and look at where Activision did sell to Microsoft. I know it was a different market at a different time. It was four years ago. Gaming was in a different place but that was roughly like 20 times forward EBIDA and EA is like somewhere 17 18 times forward EBIDA. So again, going back to the question of what was going on at EA, and we'll find out more in the proxy, but if I got an unsolicited offer from a sovereign entity that has effectively unlimited money, would I push for more? I think so. I would. So, I don't know what was going on at EA and their calculus, and we'll find out more in the next month or so there. Something I wanted to call out because I think it's interesting and I don't think people have talked about that side of it like 55 billion is a big number but maybe it should have been 60 or 65 based on Activision.
And Matthew, do you consider this a different calculus because a material

part of this deal was financed with debt. So does that actually go into the quote unquote valuation because the debt is not actually getting anything current in return for that, right? Like so is it really a $ 38 billion deal or is it a $55 billion deal? Because Activision was all equity, right? Where this has debt. Don't you deduct the debt from the valuation discussion here.
It's a little bit of semantics, but Microsoft did issue debt to pay the cash for the Activision stock, right? So,
Oh, that's right. Yeah. Yeah. It's it's kind of like Yeah, but yes, Activision shareholders got all cash. EA shareholders will get all cash. Just in the ca this case, the debt sits on the books of EA, we think, unless they collateralize some of Scopely. Whereas when Microsoft bought Activision, the debt sat at the parent company Microsoft. So a little different.
It's a little it's a little semantics, but it is a little different. But you know, no, I think I I think it's just more so it's a different market. Valuations in the sector have obviously come down a lot since 2021, but I just thought it was worth calling out because

if I'm
It's not crazy is what you're saying.
No, I mean, if I'm Andrew Wilson, like why would I take a discount to Activision who was my closest comp? And I know Activision had different things going on at that time, good and bad. the whole Bobby thing versus just the actual fundamental performance of the business. But just something I wanted to call out and then just timing. I mentioned kind of the proxy and that process. So just kind of how where we go from here because I think that hasn't been discussed either. So we have to get through regulatory approval. I think most people don't consider that a concern. And if you look at
the stock trading like 10 bucks below the deal price, I don't think it's telling you that there's much of a concern on this deal getting approval and done. if it's come I think it was like 206 when the day was announced and it's backed up to like 200 which I is a little interesting. I think there's a little bit of obviously when a deal is first announced the ARBs are trying to think who is there another buyer to come over the top is there a higher price and so they're pricing that and I think that's come out but I don't think that necessarily we're pricing in increased risk of the deal closing so that's just

regulatory approval shareholder vote and then they'll issue the financing right before closing which is expected in EA's fiscal Q1 2027 which is extremely confusing that's like the April to June time period next year so you know within the next six months or so.
Okay.
I think I was also impressed just as a side note with this being the largest LBO in market history. Either the speed or the secrecy with which this was done,
it's unprecedented, right? I mean, I don't know, we can only in its speed because we don't know how long they've been talking, but this was not it probably was more than days or weeks, I assume. But regardless, the fact that not one word was leaked out in advance, that's unprecedented in my opinion. Whether you're talking about leakage in the gaming industry or entertainment or just broad public market activity, I've never seen this be such a a surprise announcement for anything approaching this size of a transaction.
I guess we need to track Strauss's private jet now, right? Strauss's corporate jet to see.
Yeah. Or Pips's private jets from Redwood City to to Riad. Yeah. Yeah.

Yeah.
Yeah.
Yeah.
Okay. And Chris, as the master dealmaker here on on the podcast, when you look at this deal, so what is your highle take? And then what would you do or how do you view this deal postacquisition? If you could kind of give us some of your insights and some of your thoughts on like what we can expect in a post Saudi Pif consortium sort of scenario.
Yeah, I think as I alluded to earlier, I think that there's going to be status quo for for not only through the period of this close in spring of 26, but beyond. Um because again you're not talking about a public to public where there needs to be a demonstration of synergies and the importance of integration like what what I used to deal with on the Zinga side for us to create that 1 plus 1 equals 3 calculus in the near term. This is a long-term play. This is something that's going to materialize over the course of the next 5 to 10 plus years. So I'm not going to expect anything dramatic to be happening in that business before then. I think

that EA is going to continue to have to work on normalizing the workplace environment. I know there's always the discussions around the individual employee morality issues around who your new employer or benefactor is, compensation issues around what's going to replace equity. But I think also we're in a time in our market from an employment perspective that your I think your morality is tested by your optionality, right? In terms of what where else you can go for your jobs, right? And and I'm not saying that in a negative way. That's just the reality of how people have to make up their decisions around their livelihood. So, I think you're not going to see people voting with their feet as much as you would expect based on maybe the rhetoric that you hear of people talking about this in the abstract. When it becomes concrete and it affects your personal livelihood, I think it's a very difficult decision to have to make. And I don't begrudge folks on how they come out of this on either side because again, it's a very personal thing.
On the positive side, no income taxes in Saudi Arabia
if they all move there, I guess. Yeah. And and renounce, right? They have to

also renounce.
Yep.
Yeah. Strong point on feeding your family. And to your point, Chris, I don't begrudge anyone who makes a choice to feed their family. I mean, obviously that's it's kind of important. All right. But I think also I think also to get to your other operational question and maybe Matthew I'll tee this up and then because I know you have some thoughts on it, we can riff on it which is
the mobile piece is obviously one that's super interesting because there's already an asset or a portfolio of assets that that's held by a sister entity of PIFF. I think it's important to distinguish that these are owned and operated in separate I don't want to call them silos because they're all very connected but in separate vertical businesses that are not necessarily intertwined naturally on day one except for the fact that there's a common owner and beneficial and benefactor at the top but I think it will be interesting to see what happens for EA's business which is everything from nothing and they are finally now andrew is finally now able to take that burden off of him where he not being a fan of mobile maybe he can now completely not

have to focus on it because he doesn't have to answer to the market all the way toward we're going to give it another shot and then the other option is obviously like how do we synergize the existing scoply or piffsavvy mobile business to be able to create more value on that side whether it's co-development whether it's licensing the interesting thing is that I kind of got wrong for myself when I looked at Zinga post take 2 acquisition is that I thought we were going to see more progress or signals that Zinga was going to start toying with some of the IP library of take 2 to start making projects and maybe they haven't announced it but this deal has been almost four year over four years old and not one hint of any take 2 mobile IP coming to bear through Zinga so you can also maybe expect the same here especially because there's actually no public market expectation of that synergy having to happen within a certain period of time and obviously Scopi has its hands full with its own business which I think apart from the most recent acquisition plus monopoly everything else in the portfolio is kind

of also declined as well. So they have to still work on optimizing their own business before they worry about EA. So again, I think this is all going to take a lot longer to manifest these scenarios that we're all imagining than we would otherwise think.
Yeah. And Chris, I definitely think that there's room for best No, I definitely think there's room for best practices to be shared. I mean, I think a lot of people in the industry respect Scopely and how they work and what they do. And so I know a lot of people that work at EA Mobile. I don't think I'm saying anything that's earthshattering that they haven't performed up to where they want to be. Pretty much excluding FC FC Mobile, FIFA Mobile, which I think some people tell me does well in spite of those issues as opposed to because of the excellence that they may or may not have. And so I do think that there's room for best practices to help them grow some of those core mobile assets. I think Glue is pretty much disintegrated into nothing at this point. I don't even think any of those games are still alive at this point. And I mean, they wrote down the entire investment and I don't even know what's left at this point, but

yeah, it's things like FC Mobile when they take the next crack at Apex Mobile, things like that. Are there best practices that can be gleaned from the success that Scopley's had across numerous games to drive efficiencies and growth in that business? I think probably, but it does also depend on Chris, to your point, the scale of the integration that goes on. These are sister entities. they're not the same entity. It's not a merger of equals by any means. What does the corporate structure, if they do kind of put these together at all, is there a JV, whatever, what does this look like and how do they work together is a good question,
right? So maybe we could kind of frame this next part of the discussion in terms of the potential revenue growth drivers. So, mobile Asia, trans media, and if you guys have any thoughts on AI. I don't because I'm too confused by AI right now. But on on the mo mobile side, and I I think you raised a good point, Chris, like when we look at Take Two and Word on the street is that at Take 2, a lot of the operating divisions do operate extremely independently

and to some degree some of those operating divisions don't even like each other. So, like, can we get synergy? is on the mobile side is EA plus Scopley is that peanut butter and chocolate or is that a milkshake and eggs? You know what I'm saying? Like do do you have any thoughts on that? And to to the point you made, Matthew, it is and I don't know how real this is, but like what I'm being told by some people I know is that the UA function at EA for mobile was not good, was very basic, was not aggressive. And the word on the street is that scopely on the other hand is extremely aggressive on mobile UA. So do you guys have thoughts on the mobile picture? Do you guys think it will be more or less kind of separate?
Before Before we get in, are you questioning the profitability of the UA spending on Monopoly Go?
Sorry.
I I have my thoughts. I have my thoughts.
I had to throw it back.

Look, I think that unlike unlike Zinga and EA, this is going to have to be in my opinion armslength dealings, right? This isn't because they're not part of the same entity. They're and I know that that PIF is big as they should be on governance, right? And proper behavior there. Obviously, because everything's private, it's not going to be in the public eye. So, we're really not going to know the details, but if you assume best practices, these are two related entities that still operate somewhat independently of each other because they're not under common ownership in the on on paper sense. So, anything that Scopely does will have to they'll have to make their own business decision as to whether it's additive to their goals, right? They're either taking on taking over publishing or getting licenses for IP and making new products and becoming even more kind of IP machine than they already are. And I think they're going to have to make their own independent business judgments as will EA. They may also just continue with what they've done in the past, which is take these IPs out to market. EA or Scoply, sorry, may be one of the preferred biders and may have a pole position in getting the best deal terms, but ultimately if you

want to create value for your IP, whether it's in mobile, whether it's in trans media, you're going to go with the best partners that you think can bring you the highest level of success if you're not going to do it internally. So, I think this is all going to be a lot more arms length than we can imagine relative to, for example, the Zinga Take 2 scenario, which because they're under one entity, it's a lot more close dealings,
right? And just to characterize that opportunity though, I believe that the mobile revenue for EA is a percentage of their revenues I think floats between like 15 to 18%. So clearly there there is room to run there if they can get it right. I don't know.
And the bulk of that is
FC, FIFA, and Sims Mobile I think. Right. I think at this point,
right? And then I
I guess the other question JK is like what is getting that from 15 to 18% to 25 does that matter to them versus using that same dry powder to go invest in other things that are closer into their core that are more innovative or that are more tied in with the Saudi vision?
Yep. Maybe just mobile is what it is for

them because again that's been kind of Andrew's vibe. I think it's just like we're gonna keep taking swings and it is what it is. And as they report it, they always highlight the good news and then they fold in the bad news historically. So you never really got a good sense about how mobile was going except by talking to Matthew's friends and that's where you got the real tea. But like maybe mobile is just not going to be the tip of the spear of priority like because historically it hasn't been. And I don't know relative to the other things that you listed that could be growth drivers excluding AI obviously maybe mobile is just not going to be in the pole position
right maybe one 2.1
yeah maybe if you can I think if you can squeeze more out of FC mobile and Sims Mobile that's highly accreative right
if JK if you're correct that UA spending has been let's just call it inefficient to be polite right if they can drive efficiencies and best practices and UA to scale those there's huge synergies and that that falls falls down pretty quickly. But taking a $5 million, look at their investor decks. They have like all these kind of random games in there.

You take a $5 million mobile game and make it $10 million, you're probably losing money adding 5 million in revenue, right? You're probably losing to get that five million incremental revenue. So, it's not worth it,
right? And
I would and then I would just shift to the trans media side. Okay.
We know the Saudis are investing heavily in football, soccer for us Americans.
Yep.
Outside and so there's clear synergies there. We know that this whole European Super League thing has been in the background of like UEFA and club football in Europe and I think the Saudis are rumored to be somewhat involved in the financing and things like that around that. They talk about redoing the Champions League and opening up the media rights to streaming. I think it'd be very interesting if you start thinking about a world where you're interacting with live events inside of FC, inside of the core video game, playing along with it and rethinking what it means to watch a soccer game, right? Yeah.
I think there's a vision there that makes a lot of sense that can really make EAC maybe becomes FIFA again,

right? Maybe they relic it, but becomes not just the marquee video game for football soccer, but the marquee entertainment hub for football soccer. And I think that's a big opportunity and it ties into more of the higher level strategy of what the Saudis are trying to do with sports.
Yeah, I think we're aligned on that, Matthew, where I to me that's the kind of safest part of their business with the with potential for growth is on the sports side. But maybe we could also talk about Asia, right? So globally I think 50% of game revenue is mobile. At EA it's 15%. I don't know affinity partners but from what I have heard is that they are Asia China specialists that they could potentially help with China licenses and China license are expanding right now and we've seen dramatic monetization of the Chinese audience especially for shooter games right and so when you look at whether it's Arena Breakout or Delta Force we're seeing or

even PUBG we're seeing the bulk of revenue coming out of China and Chris you kind of know the China market as a little bit. Do you do you have any thoughts on the potential revenue growth as far as being able to expand or to exploit the Asian market APAC more than they have to date?
Yeah, I think what that would require is obviously boots on the ground in China either from a partnership perspective or from an acquisition perspective. I know that Savvy and PIF have long-standing interests in China across the board, including in gaming. I know they haven't pulled the trigger on anything large scale yet, but I wouldn't be surprised if we see something like that happen in the next two to five years under one of or both of those banners where they bring in that capability to be able to boost the global quality and success rate of EA's development. Because I think now what we're seeing is not only the ongoing continued dominance of mobile freeto play, but now the

Chinese-based development ecosystem is giving themselves permission to dream about coming to global markets across all platforms, right? And not just freeto play, but also on a paid premium basis, as we've seen with a number of titles that have come to bear and the appetite of the Chinese market both inside and outside of China for playing those kinds of games, as well as the execution of, for example, with Timmy against Call of Duty for example. I mean, it's just been unmatched. And I think enough of the writing is on the wall for Western developers to acknowledge that they just don't have the muscle to develop as commercially effective, scalable games in certain kinds of categories as in China. So, I wouldn't be surprised if some combination of Scopely, EA, and their benefactors penetrate the China market with some kind of M&A to be able to bring those capabilities under the
banner. That's a very interesting point, Chris. And so if you were to think about some of the potential targets there, like maybe I think you know where I'm going with this, Chris, but maybe a Century Games, maybe a Lilith, maybe

Mihoyo or a Fun Plus. What do you think, Chris?
Well, no comment on the last one obviously, but I think all of those are great quality companies. I think that part of it comes into some of the semantics around structure and culture. Our company is structured quite globally as you know that may be a little bit different from from some of our other compatriots in China that I would consider kind of more domestically Chinese focused in terms of their structure.
Um our company for the entire 15 years as you know JK from working there for some of it is the thesis has always been
using China based resources to make games for rest of world especially western markets and obviously that's been a lot of the increased focus from some of our peers and competitors to focus more on that and we're seeing the results. So I think that it's less about penetrating the China market because that can easily be done more easily than than unlocking success with your existing development resources for global hits from from Western companies versus Chinese-based studios. So that's where I see the value is in in leveling

up the quality of the development resources on a global scale and using the China market as that conduit.
I do think the Saudis made a small acquisition of like an esports promotion company in China. I think that's in their portfolio right now. So, it's they've already kind of dipped the toes, so to speak. I think that's part of the Savvy group at this point, but I think Century is interesting in my brain, and I'm going back to my Roblox Stan hat for a second, but they have a successful part of their business that is on Roblox at this point. They've done very well. They have one of the most successful Roblox games. I think the Sims, if you think about the Sims for the next generation, that just makes so much sense as an IP on Roblox to me, that could be really interesting. Just putting my Roblox hat on for a moment,
right? And so, actually, I think when you when we think about the overall macro and where the industry is headed and we have seen EA has struggled with AAA game development, right? And it's both on the mobile side what they try to do with Battlefield Mobile, but also in

the AAA game development side and we're one we're seeing budgets go higher and higher, right? And so when you think about typical budgets between 250 to 600 million and then we saw Activision with Call of Duty Black Ops 6 at 700 million, we were seeing GTA 6 at maybe a billion or more. So like these budgets are only getting bigger. And then we saw kind of like a lot of unsuccessful attempts at AAA game development internally within EA on the western side, right? And we saw what happened with Dragon Age. We're seeing a lot of things happening there. So I I actually think that's quite an astute observation from you Chris that maybe that opport so one on on on the sell side clearly I think there is in my opinion a very strong reason to like kind of exit now unless you're able to figure that out and then and then maybe there's an opportunity for Saudi with its ability

to like be more of a global player to then also have the ability to leverage what's working right now because China's just whooping ass right now in terms of like the AAA game development production and development. So that could both be like a cost story as well as a revenue growth story. Would you guys agree with that?
Yes, for sure.
Okay, cool. All right. So maybe we can also now talk about risks. What could go wrong? And so Chris, if we were to look at this deal maybe five years out from now and maybe could we see a scenario where 1 plus 1 doesn't equal 2.1 but it equals 1.8 or 1.5.
Yeah, look of course. I mean I think statistically speaking that's just as likely to be a scenario, right? Just because of the reality that that the business of making games is just continuing to get more difficult, right? As we become a more mature industry. I think that obviously it's all in the executions and the execution is pretty

binary, right? Either either the bets that they make work in terms of new franchises or existing franchises, new projects, the platforms, everything from mobile to Roblox and everything in between, or it all just falls down. I think they really the execution risk is quite high here. But it's to me it's tempered a little bit by the long-term mindset of PIFF of their benefactor in terms of being able to weather those financial storms because there's literally endless access to capital that can just keep re reinventing itself. But obviously they're also astute investors and they're not just going to keep funding something in perpetuity that's going to that's going to bleed money. So there is a point at which time I'm sure that they'll run out of patience. I think that patients timeline is a lot longer than it it would be going back to what we said earlier if it was a typical it was a typical private equity time frame. So to me it's as simple as execution risk right can they get the existing franchise plans right? Can they get mobile right? Can they get China right? Both from a talent and market perspective or Asia in general right I mean I think for that matter I think they may be underindexed in in most of

the Asia footprint relative to what's possible. So I think but I think that the access to limitless capital can really mask some of these things in the short to medium term as they keep investing and not having to necessarily report the results of those publicly. I think that's going to be the best cover for them is to be able to have that privacy to do what they need to do to to find a way to to success.
I would just add that it also depends on how you measure success here, right? There's the financial angle where like does 8 billionish of revenue become seven or 10, right? And obviously if it shrinks financially they're losing, but that doesn't necessarily mean that they've lost. The Saudis are trying to get the World Cup in 2034. I don't know if that's confirmed or rumored. They're trying to make the Saudi Pro League a top 10 global professional league. if marrying that with owning this asset helps them achieve those goals. Heck, they have Wrestlemania next year or in 2027 for WWE. So, if marrying assets

like this with their other investments helps them achieve those more geopolitical and entertainment goals they have, like I think these risks matter, but I don't think it matters to say that they've been unsuccessful in the investment. Even if Battlefield flops because of competition from China, even if they can't launch mobile games, but the core of the sports business and the Sims kind of keeps going, I think they win in other ways even if the business declines a little bit,
right? So your point being aside from the specific financial implications of the deal itself, clearly there's like the strategic implications also just having that massive reach of players, audience to the right demographic, sportsoriented things like that. So all of that makes a lot of sense. Attention economy as we talked about all of that. I mean I don't think you can argue that this is
it just makes a lot of sense. So
yeah, I think Matthew to your point to to your point if you look at what is the highest level gold that that Saudi has

for itself, right? And I think that each of these pieces that we talk about, whether it's UFC, EA, Savvy Games, Done, these are all individually probably rounding errors in terms of execution risk and financial risk relative to the overall goal that they have, which could be measured not even in hard dollars. It could just be in reputation. It could be in just benefit in terms of how it's perceived on the global stage as a destination for hospitality, for live events, for travel, for entertainment. And what EA does or doesn't do may not even matter financially, right, in the whole scheme of how they measure what that success is. So to Matthew's point, we're talking things at levels that we've never seen before in terms of big picture, right? And I think us focusing on EA's billion swing here or there is going to become so inconsequential to the larger picture that it really won't matter
from that perspective. It popped into my head while we were talking earlier about 20 minutes ago. There's been a lot of conversations what happens with Xbox studios.

Is there any reason I mean I they don't want to make hardware. I get that. Is there any reason they couldn't buy that like financially? No. Right. And if they want to be the owner of the attention economy, there's a lot that ports over. So, I don't know. It popped in. That's kind of one of the assets that we don't know what's going to happen with it. And there's not many logical buyers if they tried to get rid of it.
Or they just take or they just do an LBO of Roblox.
Yeah.
Tik Tok. And then they take over the Tik Tok US stuff, right? And then it's game over.
Yeah. I mean, fortunately Dave I still can think controls twothirds of the voting power of Roblox. So
Yeah. Yeah. Yeah. All roads go through Dave.
There's always a number.
All right, maybe we could now kind of shift to industry implications. Do you guys have any thoughts on what this means for the industry? Anything specific?
It's always bad when big industry stalwarts that are public go private for a couple reasons. Number one, from the

investor perspective, it increases visibility in the industry. I remember back when I first started covering gaming in the mid2010s like EA, Activision, Take Two were coming out of that period where they did not do well, right? And that was like right when they started really shifting their focus to live services, growing the MTX part of their business, not being so hit driven. And yes, you saw valuations go up. You saw their market caps go up, but you saw the amount of institutional capital that was willing and able to invest in these companies increase significantly. And that led to a huge influx of capital in the private markets funding startups and whatnot. And when you have public stalwarts, I mean, we only have one independent publisher left in the US now, right, of scale, take two, after this goes away. And so I don't I mean, when you think about just what that means for investor interest at a high level in the sector, it's not a positive. I don't think it hurts necessarily because gaming's on another level than it was 10, 15 years ago, but it doesn't help. I think more directly obviously having public comps helps set comp benchmarks for private companies.

Now we have fewer of those that makes it harder for private companies to get valued appropriately and having fewer large public players reduces the exit opportunities for strategic acquirers of those private companies on the other side of the coin. So it's just from that perspective it's it's not great for the industry. I we've talked a lot about the Saudis ambitions and what they want to do. And I'm not here to say one way or the other, but it does also raise the question of geopolitically, who do you want owning this attention economy, the time and the money spent in gaming? The Chinese have a large piece of it. American companies have a large piece of it. European companies kind of don't anymore, which is a a thing of itself. But now the Saudis are going to be owning a much, you know, maybe 10% of the global gaming market when this is all said and done between, you know, Scopi, uh, Pokémon Go, and now EA, right? And so, you have to pause and question, you know, from a geopolitical basis, is that what we want for the industry? And that's just an important

kind of question that I'm not here to say yes or no and have an answer to, but something that I think everyone needs to think about.
Yeah, I think it's a good point. I think that um the let me take the the the counterpoint to that which is you know the more uh large-scale companies that go private in theory the more that there is opportunities for them to lean into innovation and long-term thinking and I think that because we are at a natural cycle in our industry that perhaps is leading to contractions evaluations and these take privates and and and consolidation we could very well be on our way to the next upcycle in gaming once we've come out of this new innovation phase driven driven by this privatization, driven by enabling technologies like AI and driven by just the ongoing size of the gaming sector within the entertainment category, right? I mean, that's still undeniable. And I think that's a very valuable thing to um you know, to have in our in our system and in the public markets. And so I do think that there will be a next cycle where the next wave of gaming companies will either come out of being private or will will you know or will

come up to to you know to be public because the there there is opportunity to kind of refresh and and repopulate the public markets with these next generation uh companies and maybe they won't be called gaming. Maybe it'll be interactive entertainment companies driven by gaming. Right? You know JK that's a lot of our vision going forward. And so I'm bullish on on on you know the the the fact that many of us are thinking about ourselves as larger than just gaming companies much like EA is and we're investing in a lot of those things to be able to do everything from own the customer to be more IPcententric in our thinking to think about trans media and and and crossplatform. So you know we're already emerging and and and maturing as an industry given these headwinds and we're looking for ways to innovate and continue success. Obviously you also have the you know the the the China angle that we talked about and being able to open up global markets. So I think to me as a ultimate optimist for our industry that this is a cyclical point in time and that we're going to see the next wave of uh next generation of gaming companies that and some of whom will will be brought to the public markets to kind of replenish uh the

entertainment sector with with these market leading entities.
Got it.
I mean Discord is is coming soon. I think from from everything that everyone's saying, Discord is expected IPO and it's by no means a gaming developer, but I think it's the broader gaming ecosystem, right? Interactive entertainment, it's part of that. Roblox is obviously on a tear. I think every year at the end of the year, people predict that Epic will IPO the next year. So, I'll stop making that prediction until it actually happens. But I I fully agree that there will be others to come. It's just, you know, it's it's Yeah. I mean, if if I was still covering gaming stocks, you know, as a sellside analyst, I'd be I'd be worried about my job at this point.
I mean, I mean, look at the history of of of media and entertainment companies on the traditional side, right? TV and movies, like how how they've gone through their cycles over the last 100 plus years. It's been up, it's been down, it's been public, it's been private, it's been bankrupt, it's been bought out, it's been like so we are following in that wake and we are just a much younger industry. I think, you know, the angst right now is that we are

in a in a mature phase, not having the meteoric growth that we've experienced to now. And so, we're going through these growing pains and filling out this this teenage body of ours and like that's gangly and kind of not knowing how to how to how to behave and how to act. But, I have no no doubts that we'll come out of this stronger. And I think this kind of this kind of uh uh investment into a big company like EA where it can drive more long-term innovation will continue to push the industry to to you know keep up with that because uh because obviously public markets you know have their own constraints in some cases.
Yeah. I I I would only have one small point here which is that I I do believe in in terms of industry implications which is that I do believe that Saudi in my view is intent on becoming the a number one player in gaming. So I I do think that they're going to push on the high end on the AAA side. So my feeling and belief is that there's going to be more capital deployed against AAA against marketing distribution. So I I think that becomes more difficult for

other players in that space especially when there's so much competition because of the attention economy because of uh you know the the rise of China and so many live operated games now where there's just like this huge glut of products at at at that level. But we'll we'll see what happens and and maybe to end this conversation and I I I think like you know first of all thank you guys for joining I I there's been a lot of great insights I think from this discussion when you guys now think about the future outlook say we're five plus years out what do you think happens what is the the outlook for EA post this deal for me I would say like I I think you guys have convinced me that From a strategic perspective, it's all going to be positive. And and I I think sports is is obviously an area of strength in particular, but I kind of feel like the financial outlook for the deal specifically may

not be great. Like so maybe it is a a oneplus 1 equals 1.8 kind of situation for me or or maybe even slightly worse, but strategically I think that all makes up for it. What do you guys think?
I would agree. I mean, I think I think, you know, at the end of the day, like I alluded to earlier, it almost doesn't matter how it turns out, right? Like it doesn't matter if they hit that oneplus 1 equals whatever because there this rolls up to a much larger vision and strategy because we're so used to thinking about this as the top level strategy,
but EA is just a cog in the larger wheel and and and how how well that cog uh contributes to the spinning of that wheel is just going to be one of many cogs. And so, I think that it's it's almost irrelevant what happens. I mean, I don't want to downplay the importance of EA continuing to succeed because we want to see great products from them. We want to see them, you know, be a global leader. We want to see them succeed with their IP across all forms of all platforms and all forms of entertainment. But even if it doesn't, it really won't
it won't be called a failure as Ma Matthew alluded to earlier because it's

feeding so many other things and other, you know, upstream aspirations and and driving those as well. So, I think that's really how we have to think about it is just a cog in the wheel and and you know, it's going to perform how it's going to perform and it's not going to make or break the the the larger wheel. It's just going to, you know, it's just going to contribute as much as it's going to contribute.
The the one thing I will call out and I I don't want to downplay it like job cuts and rationalization of assets in this industry has been a thing. Like, do I think the day this deal closes they're going to shut down Studio X and Studio Y? No. But I do think they're going to give up these studios a chance. And from everything we understand about EA, it's extremely siloed and it's I wouldn't quite call it a FIFA Dome, but like sports and even within sports like Vancouver where they make FIFA, FC, you know, Florida where they make Madden, they're kind of their own entities, right? Maxis has its own entity making the Sims, Boware, etc. Like I do think there is going to be a period of prove it or what do we do with this? And so I

think for some of those studios there is some level of concern and I guess that's the risk here is that they do start rationalizing those but um the core of what makes sense and where the strategy is focused is I'm not worried about that. And so yes 1Plus 1 can equal 1.8 because Boware which has been struggling I don't think that's a secret right if if they can't release games that fit what the PIF wants to do what the broader vision is that may be something that gets rationalized and I I don't want to call that out as you know the thing is anyone that works there that's just a fact of this is what happens when things get acquired right and so but I do I think it'll happen on day one or day 60 day 90 no I think it's going to be a much longer process
yeah it's unfortunate too that we use this this acquisition mechanism as as pointing uh toward like a fault of the process, right? I mean, in my in my opinion, these things should have happened a long time ago as part of the normal operations.
And I think as you alluded to earlier,

JK, like to be able to have somebody come in and audit the the progress or lack thereof from an objective third party, you know, maybe, but I think everybody's known. Um the question is always like why is the trigger not pulled earlier, right? whether it's for PR purposes, whether it's for whatever other purposes, but I mean, I don't think they're going to do anything irrational that shouldn't already have been considered or isn't already under consideration.
Right. And I I think one of the one of the insights you had, Chris, was was that given Saudi has so much capital that maybe a period of introspection and in having some patience behind what they do moving forward could actually lead to a lot better outcomes relative to what it seems like just talking to people in the industry seems like a lot of pressure, nervousness, just trying to kind of, you know, just panicking with especially as the budgets get bigger and bigger is what it kind of sounds like I'm hearing from a lot of folks in the games industry.

All right. And so with that, I think that's it, guys. Did you guys have any final kind of thoughts that you want to end with here? But otherwise, I I'm so glad that uh I I got you guys on. I always learn something when when we do the these these pixels episodes. So, I'm I'm really glad to do another one. But uh if you if you guys have any last words, um what do you guys got? Well, I think you mentioned AI as well that we kind of gleaned over and I think that, you know, without going into too much of a philosophical rant, look, I mean, I think AI, in my opinion, is an enabling technology that all companies will use equally well to their benefit. And I don't think it's necessarily a specific concrete lever to pull. I think it's just going to be a tool that will be utilized as a standard practice. Um, and I don't think that they're going to be judged on what percentage of their business is run by AI. I think they're going to use it where it makes sense. I think they're not going to use it or what doesn't make sense, but I don't think it's something that they need to worry about highlighting because again going private, you don't need to now do that handwaving around the PR of AI and

look at what we're doing and what we're not doing. So, um, you know, I think it'll become something that like many of us are already investigating it. I'm sure the the good folks at EA are are have have looked at it. You know, they had they had their one evangelist that that Crest likes to talk about that was, you know, touting about the future of AI. you know, who knows whether he and his team are going to continue to do that. But I don't see it as just a I don't see it as as just this big, you know, kind of positive panacea effect on the company. It's just going to be incremental and it'll be a commoditized tool that they'll all use across their their business as all as will we all. And we hopefully won't talk about it as something that is is unique and novel because it'll be part of our standard operating procedure. So again, the public statements about AI being a quote unquote growth lever, I don't that's not a tangible thing that you can actually tie some some financial outcome to like you can on the next installment of their next franchise, right? So because it is just an enabling technology just like other enabling technologies that we've come to use over the last, you know, few

decades,
right? Yeah, I I agree with you, Chris. I think it's a wild card. Matthew, you got anything or should we wrap this up? I think I said more than enough to get people pissed off at the things that I said.
All right, guys. Well, thank you so much for your time and insights. Uh, we should definitely do more of these, Matthew. We got to get a little bit more regular. But for the audience, if you stayed this far, thanks for paying attention and we'll catch you next time. Thanks, guys.
Thank you.
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