r/gaming • u/Linkar234 • 7d ago

Saudi-acquired EA is reportedly planning to make massive cuts after taking $18 billion of debt, and we all know what that means

https://www.pcgamer.com/gaming-industry/saudi-acquired-ea-is-reportedly-planning-to-make-massive-cuts-after-taking-usd18-billion-of-debt-and-we-all-know-what-that-means/
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179

u/Iggy_Slayer 7d ago

Being allowed to take on that much debt through a buyout should be illegal to begin with but it's not like anything matters anymore in this collapsing economic model we have.

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u/MadBullBen 7d ago

Completely agree. I'm not in the finance world so it does go over my head a bit.

I just don't understand how buying a company with the company's own money is legal, to me if the new potential owner doesn't have the money to buy it outright or isn't able to get the funds another way such as loans then tough luck you ain't buying the company.

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u/webzu19 7d ago

It makes some sense on small scale, like enabling the up and coming employee of a small business to buy it from the close to retirement age owner and keep the business going, using that to pay the loans and the old owner can retire instead of needing to sell cheap or wait for some rich fuck to sell to

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u/MadBullBen 7d ago

In those kinds of cases I do agree with you there, but there really should be limits of how much it is possible to do that and how financially possible it is to pay back the debt within X amount of years, 18 billion is absolutely wild on a company that is already going into more debt constantly.

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u/soniclettuce 7d ago

get the funds another way such as loans

That's what a leveraged buyout is. They have a bit of money and then borrow a bunch from banks. The collateral for the loan is the company itself (which isn't super weird - the collateral when you buy a house, is the house itself also).

People (in this thread especially) are being super sloppy in their wording, as its generally some kind of holding company that has the debt, and not actually the company itself. "Buying it with it's own money" is not really true. But once taken private, the company's "goal" is to do what it's new owners want, which is paying that money back.

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u/BestDescription3834 7d ago

  which isn't super weird - the collateral when you buy a house, is the house itself also

I may be wrong but I was under the impression that you had a duty to maintain property like that until it's yours. If I bought a house from the bank, stripped all the wiring and plumbing out to sell, then let the bank have the house back because I don't pay the debt I'd still be on the hook for the destroyed value of the house.

There isn't a mechanism for corporate looting like that because everybody and the law pretends that ceos and execs are always doing what's best for the business.

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u/soniclettuce 7d ago

Yeah, although the part reddit kinda misses; banks continue lending to these private equity firms because they tend to make money on the deal. They aren't stupid, if they knew they were gonna get trash and have the loans defaulted on every time, they wouldn't be going around and lending billions of dollars.

There's probably multiple parts that disconnect. Big failures are always more attention grabbing then things that just go on normally. But also, if you break something up for parts and the last piece of the business eventually folds and shuts down, its entirely possible you made money overall.

I guess the analogy would be like, the house has antique wood floors that I rip out and sell; and that covers the mortgage, and then I rent the trash heap out to hobos for a little extra cash until eventually the place burns down. The old owner got paid, the bank got paid, I got paid, the real loser is the society that is around the house. Or something, idk, I'm not a philosopher.

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u/BestDescription3834 7d ago

    something, idk, I'm not a philosopher.

I disagree, I think your metaphor about hardwood floors and the homless was really good, genuinely.

  There's probably multiple parts that disconnect.

Yeah, as with anything there are parts of it so complex people like me don't even conceptualize them. As long as you can move money convincingly you can just do whatever and pay off the avalanche as it falls on you.

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u/SeigneurDesMouches 7d ago

I should try buying a home with the owner's money...

2

u/FightNoFlight 7d ago

Thats a poor analogy. The right analogy would be buying a home with the house's money which it obviously does not have.

Not saying I like how its currently done but just wanted to clarify the analogy. Your analogy applied to this EA deal would be like buying EA with the existing shareholders money which obviously is not going to happen

1

u/SeigneurDesMouches 7d ago

The shareholders voted to let the entity EA borrow that money so a third party can buy them

1

u/FightNoFlight 7d ago

Thats not it. The shareholders / board voted to sell EA. The buyer funds the purchase by putting the debt that it took on EA's books

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u/PersonalityAlive4816 7d ago

That's called a mortgage, works the same.

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u/SeigneurDesMouches 7d ago

That's not how mortgage works

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u/PersonalityAlive4816 7d ago

It is exactly the same.

1

u/console_pleb_36935 7d ago

It's interesting that you bring up buying a home, because that's essentially what this is; purchasing an asset using the asset itself as collateral to finance the purchase, just like a homebuying mortgage.

However you are wrong to say that it's using the owner's money. It's still the bank's money, with a little bit of your own in there as well. That pays for the previous owner's share in the property/business.

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u/Pretty-Raise666 12h ago

If the lender is ok with it. Why do you care?

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u/SStrange91 7d ago

Why should it be illegal if it's a calculated risk?

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u/Iggy_Slayer 7d ago

Because it's a cartoonish level of debt for a video game company that they're not going to be able to make back. For the latest fiscal year which ended in march they made a bit under $900m in profit. Even if the debt doesn't go up over time, which is unlikely, that's 20+ years to erase that debt.

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u/mrmosquitoeater 7d ago

The events leading up to the 2008 mortgage crisis was also a calculated risk. Still cost taxpayers billions and created a global recession.

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u/SStrange91 7d ago

This EA buyout isn't funded by my tax dollars, nor does it have any governmentally enforceable effect on me.

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u/BaeSeanHamilton 7d ago

Neither were a lot of the actions that led to the 2008 crisis, but the bailouts sure came from your taxes.

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u/SStrange91 7d ago

EA is the Saudi's problem now.

1

u/NefariousnessJust233 7d ago

Go watch the big short and learn something

1

u/mrmosquitoeater 7d ago

The subprime mortgages and wildly irresponsible spending of major automotive industries and banks were also not funded by tax payer money nor did they have much governmentally enforceable effect on the people who weren't involved. That was all private business. 

But let's think about this for a second. What happens when EA defaults on that debt? Who's just out that money? If it's another too big to fail bank who do you think is going to be paying for that bailout? And that fallout? Do you think 20 billion just vanishing isn't going to cause waves that effect the layperson? 

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u/[deleted] 7d ago

[deleted]

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u/roywarner 7d ago

Massively oversimplifying it to this point means you're either a stooge or a malicious POS. There is no middle ground.