🎮 The gaming industry’s “black holes” are growing ⚫

Electronic Arts, the video game giant behind mainstays like “Madden NFL” and “The Sims,” agreed to a blockbuster leveraged buyout (LBO) last week — the largest in history, at $55 billion. The group buying EA includes Saudi Arabia’s sovereign wealth fund, PIF, along with private equity firms Silver Lake and Jared Kushner’s Affinity Partners. To cover the interest payments, EA will likely have to find more revenue and cut costs, moves straight out of private equity’s LBO playbook.

To put it another way: we’re likely to see more ads, more layoffs, and higher prices from EA.

• Some parties involved in the deal expect that to pay off its newfound debts, the company will boost its profits in the coming years by replacing the work of some voice actors, developers, and testers with AI, the Financial Times reported. 

• Bigger anchor games, which some in the industry refer to as “black hole games” for their ability to dwarf competition and consume millions of players’ entire gaming appetites, have become a holy grail for major publishers in recent years.

• As juggernauts battle it out for attention, smaller new games struggle to compete on the ground level. The number of new Steam games that grossed at least $100,000 was smaller in 2024 than in 2016, while the number of game releases surged 300% and user numbers grew 250%.

• EA’s immediate future will likely be one focused even more on big revenue-generating titles like “EA Sports FC,” “Madden NFL,” and “Apex Legends” — a move that’s been seen in PIF’s other major gaming acquisition, Scopely, which in March bought the studio behind “Pokémon Go” for $3.5 billion.

After the EA deal closes, which is expected during its fiscal first quarter next year, it won’t have to worry about the prying eyes of public investors. But it will have to worry about a mountain of debt.

The Takeaway

A 2019 study by researchers at California State Polytechnic University found that 20% of publicly traded companies taken private through LBOs went bankrupt within a decade, compared to the control group’s 2% bankruptcy rate.

Of course, the deal could just as easily become a slam dunk from a business sense, given the financial strength of EA’s buyers, particularly the Saudi PIF, which controlled nearly $1 trillion in assets last year. That fortune could boost EA’s marketing budget, elevating sales — so there’s a chance that EA’s debt may not be as much of a concern.

Go deeper

Hasbro, known for beloved toys from Mr. Potato Head to G.I. Joe to My Little Pony, just celebrated its 100th birthday. But now the company is in the midst of a dramatic transition that may change the historic brand from a “toy and game company” to a game and toy company.

There’s a good reason for the pivot: 

• In July, the company reported a year-to-date decline in adjusted revenues for its Consumer Products division (read: toys) of about 16%.

• Meanwhile, Hasbro’s gaming division — Wizards & Digital — is absolutely crushing it, with a total revenue increase of 28% year to date, driven by hit trading card game “Magic: The Gathering.”

• And Wizards & Digital has even more cards up its sleeve, specifically a massive strategic investment in four high-end video game studios, which represents something along the lines of a $1 billion play.

“Magic: The Gathering” has continued to grow with its Universes Beyond sets, which expand the game so players can pit traditional in-universe characters against those from “The Lord of the Rings,” “Doctor Who,” or even “Spider-Man.” While the onslaught of new characters may have caused fatigue for some players, it’s been a big win for Hasbro: a set from this year, based on the popular “Final Fantasy” video games, sold more than $200 million of product in a single day.

The company’s gamble on internally produced digital games is much less mature. Its licensed games have so far been a huge success, but all eyes are on its four internal studios, especially with the big AAA offering “Exodus” in the works.

The Takeaway

If even one of these new video games is a hit with its intended audience, it could be the start of big things for Hasbro’s gaming ambitions. “Exodus” looks quite different than Mr. Potato Head, but with the potential for tens of millions of unit sales as an ongoing franchise, it certainly holds a lot of potential.

Read more

A few of us at Sherwood News are runners, and we try not to be the annoying friend who never stops talking about PRs, but we wear Garmins on our wrists and may mention that we crushed a Strava segment if asked about our weekends. The two companies’ platforms share a lot of integrations, but Strava is done playing nice and has filed a suit against Garmin accusing it of infringing on its patents. Time will tell who’ll be KOR/QOR in court, but Garmin at least has other hardware in its portfolio. 

Garmin’s planes, dog training, and automobiles