FIFA and EA split: Who wins?
In order to understand the financial impact of this split, lets have a quick look at the background of the parties involved:
FIFA – International Federation of Association Football
Founded in 1904 to provide unity among national soccer associations, the Federation Internationale de Football Association (FIFA) boasts 211 members, rivalling that of the United Nations, and is arguably the most prestigious sports organization in the world. FIFA is headquartered in Zürich, Switzerland. These national associations must each also be members of one of the six regional confederations into which the world is divided: Africa, Asia, Europe, North & Central America and the Caribbean, Oceania and South America. – source – FIFA website
Financial Information summarised:
Source – FIFA Annual Financials
Partners
- Adidas, Coca-Cola, Wanda, Hyundai, Kia, Qatar, Qatar Energy, Visa
Quick Facts – FIFA has only made Profit once in the last 5 years (in 2018 possibly due to the FIFA World Cup). In this same 5-year period, Assets and Liabilities have steadily grown. FIFA has only had positive cashflows in 2020 (possibly owing to reduced expenditure due to Covid)
EA – Electronic Arts Inc.
Headquartered in Redwood City in Northern California, EA develops and delivers games, content, and online services for Internet-connected consoles, mobile devices, and personal computers. Through their cutting-edge games, innovative services, and powerful technologies, they bring worlds with infinite possibilities to more than 580 million active players and fans around the globe, and are recognized for a portfolio of critically acclaimed, high-quality brands such as EA SPORTS™ FIFA, Battlefield™, Apex Legends™, The Sims™, Madden™ NFL, Need for Speed™, Titanfall™ and F1™. – Source – EA Inc website.
Financial Information summarised:
Source: EA Inc Financials
Partners
- FIFA, Madden NFL, and APEX Legends, leveraging customized sponsorships with the brands.
Quick Facts
In the last 5 years, EA Inc has had net cash outflows in 2020, possibly due to Covid-19 financial impacts. There has been a steady asset growth being followed by their liabilities as well. Expenses had been gradually decreasing with their lowest being in 2020. From 2021 they have gone up again.
How was FIFA and EA Inc partnership structured?
EA has had a partnership with FIFA through one of their operating segments in EA Sports. There still is a licencing agreement (till end of 2022) that allowed EA Sports to develop FIFA games (FIFA 07, FIFA 15, FIFA 22).
Revenue Model
EA would pay FIFA approximately $150million per year for use of the licence, and EA gets to sell the game and recover their licencing expense through game sales. Over a space of 1 year… EA earned a sum total of $1.6billion in sales of the product.
That’s just over 10 times the amount they pay for the licencing. Using EA’s 2021 AFS cashflow figures, they could afford to pay the licencing fee 9 times. This indicates that EA does have a strong financial capacity.
What triggered the end of the partnership?
It appears that FIFA was reportedly aiming to at least double the $150 million licencing fees it receives annually from EA Sports, per Panja. This amount may have been viewed as too much the cost by EA and after months of negotiations, the ‘amicable’ split has become the best option.
We did see possible shifts in licencing in FIFA 2022 when there was a licencing issue for the Serie A team Juventus, which was branded as Piemonte Calcio. Though on a league level, it did give us an indication of what might happen in the future.
Let’s talk about the losses
FIFA
- FIFA stands to lose $150million off the bounce, which by doing a quick ratio analysis using the 2021 financials represents approximately 20% of their total revenue amount. This appears to be significant.
- They will not be gaining any of the software and development IP that they had built with EA over the years. They will need to create a game from scratch or at least partner with a possible rival for EA in 2K Sports
EA Inc
- It is reported that EA will lose approximately $1.6billion annually in revenue due to the loss of the use of the IP for their game. This represents 29% of the revenue with a lot more significant in losses (by % terms) than what FIFA is losing.
- They might also lose a client segment of football fans should FIFA partner with a competent studio such as 2K Sports, which already has franchises under Wrestling (WWE) and Basketball (NBA).
Looking into the future
FIFA
- While FIFA does have the IP of their name and global recognition, exiting such a partnership with hopes of quickly getting back onto the pinnacle of a gaming franchise may prove challenging.
- FIFA have already gone solo in producing the FIFA FUTSAL WC 2021 Challenge – it did not get a lot of good reviews.
- They will need to work closely with a competent video game developer.
EA Inc
- While they have the gaming engine, and data and all the information to develop next versions of games, it will not feel the same to play the game when your team has a different badge or player names are altered.
- EA could also take this time to further expand their other gaming franchises.
Overall Comment
This is difficult decision for both parties involved, but what is important is to continuously monitor the trajectory of these outcomes. Maybe their separate ways may yield fruit for both. Maybe we might see a drastic turnaround and another contract being tabled down. Who knows?
Just like in football….anything can happen! – Ask any Real Madrid Fan for 2022 season
Tapiwa Z. Chiri is a football fan (supports Paris St Germain FC) and has written this article in his personal capacity.
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