“$1.2 billion is a big number. But we think it’s a great opportunity to bring two great companies together” – The inside track on EA’s acquisition of Codemasters

It’s one of the biggest players in the industry, but EA has never been highly acquisitive, and by modern standards it’s positively reticent when compared to many. The home of FIFA has focused instead on its existing stable of huge franchises – with the only major acquisition of the last ten years being its 2017 move for Respawn Entertainment for £315m.

It came as something of a surprise then, when late last year EA outgunned strong competition from Take Two to secure Codemasters for an eyebrow-raising $1.2bn (£860m), some 14 per cent above Take Two’s bid.

Even in a period of big acquisitions, this one made a splash. And so we were delighted to be able to talk to both Codemasters CEO Frank Sagnier and EA CEO Andrew Wilson about the deal, the future, and the relationship between not just the two new partners, but also between real-world sports and their virtual counterparts.

But we started with a simple question, why did EA, a company not known for making big purchases, go the extra mile to acquire Codemasters?

“$1.2 billion is a big number. But in a world where you’re looking for strategic strength, cultural fit, and really strong leadership, we think it’s a great opportunity to bring two great companies together.” replies EA’s Wilson.

“But you’re right. In my tenure, nearly eight years, we have not been highly acquisitive,” Wilson adds. “We’ve looked at lots and lots of things. Due to our position in the industry, we see most things that end up on the market, or where people are exploring strategic opportunities. And to this point, Respawn had been the only one that really made sense for us.”

Respawn was a different kind of deal, of course. The studio had worked with EA already on Titanfall and Titanfall 2, but that IP had not seen the success it arguably deserved – so it wasn’t an IP-driven deal.

Since then Respawn’s efforts both on the Star Wars license, with Jedi: Fallen Order, and with its homegrown battle-royale hit Apex Legends have more than proved its worth. And Codemasters will also have to step up, as $1.2bn is a lot of money for a company that made £18.2m EBITDA in FY 2020.

Wilson continues: “We’ve been big fans of Codemasters and the games they make for a really, really long time. They are the leading developer of racing entertainment properties in our industry,” he says emphatically, and we certainly can’t fault that statement.

“And when we think about acquisitions, price point is certainly a meaningful part of the consideration. But the other thing that’s really important is does it make strategic sense for us? Are we adding something to the foundational strength of our company?”

And Wilson clearly feels the answer to those questions is yes, both in terms of specific brands and more generally with its expertise in the racing space.

“The opportunity to add F1, which is one of the true global sports properties,” was too good to pass up, says Wilson, especially alongside its owned IPs: DiRT and GRID. “Codemasters have established a racing portfolio that was clearly the leading portfolio in the industry.”

And of course, those titles now join EA’s own racing IPs, and that has made the new partnership quicker off the line, says Codemasters’ Frank Sagnier:

“They’ve got expertise in racing… they already have Need for Speed, Real Racing, Burnout, it’s an amazing pool of IP. So it’s not like we’ve been acquired by somebody who doesn’t understand racing, and that makes a big difference.”

The combination puts EA in pole position when it comes to strength in breadth in the genre. Especially given that two key competitors, Forza and Gran Turismo, both remain hardware exclusives in a landscape where cross-platform and crossplay are increasingly key.

On that vein Sagnier continues: “Joining forces is going to make us the ultimate destination for the delight of millions of racing fans. You know, after only a few months together, I feel confident we will deliver all of that and more. There’s so much more growth ahead of us than behind us.”

And there will need to be more growth ahead, as even given Codemaster’s impressive pandemic year figures, the two companies will need to both grow and dominate the racing sector in order for that valuation to pay dividends in the long term.

Sagnier is confident though that it’s a good deal for EA: “It may look expensive, but I think in hindsight in a few years. You’ll be looking back thinking my god, that was the deal of the century.”

To which Wilson agrees: “I actually don’t think it’s expensive at all. I think it’s very fairly valued. We felt very good about it across the board. When I said it’s a ‘big number,’ it’s simply a big number, but I don’t think the acquisition was an expensive one. I think it was just right.”

ALL HANDS ON THE WHEEL

Speaking with Sagnier and Wilson, you get the feeling they’re already comfortable working together.

And that makes sense, as they have worked alongside before, back when Sagnier held a series of VP roles across marketing and publishing at EA between 1999 and 2007, and Wilson was the company’s rising star at the time.

It’s also worth remembering that in those days EA used to hold the F1 license for itself. So it’s not wholly surprising to find that meshing the companies’ work together has been smooth sailing to date.

“The good news is, it’s been way faster than I anticipated,” Sagnier tells us. “We are in the process of integrating. And I could tell you that within just two months, it’s amazing how much we’ve integrated so quickly. And in all departments. It’s like the glove fits perfectly, like we found our Cinderella shoe, it is a perfect fit!”

Culture of course goes beyond the teams themselves, it’s a part of the community as well. There are big questions to answer about how the now-conjoined companies speak to Codemaster’s existing fanbase, but for today Wilson wants to talk at a higher level.

“I think about this more at a values level, so at Electronic Arts we have core values of creativity, passion, pioneering, learning, determination and teamwork. We think these are the core values that add up to building amazing entertainment for a global fanbase.

“And when we think about bringing organisations together, what we’re really looking at is do we share a value system?

“We may use different words, but when we sat down, what we recognised, between EA and the Codemasters’ teams, we really did share a very similar value system, those things that motivated us to come to work every day and build great games, we’re kind of rooted in the same centre.”

And Wilson refers back to Respawn as an example of how EA goes about such things:

“Similar to Respawn, our orientation isn’t to come in and take over Codemasters; our orientation isn’t to come in and turn Codemasters into another Electronic Arts studio; our orientation is around the provision of opportunity.

“This industry is all about amazing, creative talent. And we see little upside in the indoctrination of that amazing creative talent. But we do want to provide them access to the things that we get by virtue of our position in the industry.”

THE CUPBOARD OF DREAMS

And that ‘provision of opportunity’ is certainly something that any studio head would be appreciative of. With EA’s full support now swinging behind Codemasters to turbocharge its products as they come to market. Wilson describes it as a cupboard of wonders.

“At Electronic Arts we have this amazing cupboard of IP …and of technology, an amazing cupboard of marketing breadth, depth and reach on a global basis, and an amazing network of players. And so the way we’re thinking about this, and it’s how we worked with Respawn, it’s more about handing Codemasters a set of keys to the cupboard, and they can come and take what they need from that cupboard, but they get to continue to be who they are, because that’s what made them special in the first place.”

Sagnier is even more specific about the opportunities: “EA brings scale with its sales and marketing muscles, live services expertise, state of the art analytics platform, EA access, EA Play, Origin – just so much wealth that EA brings in terms of their services.”

“We’ve had access to every single opportunity,” confirms Sagnier. “I’m not saying that we’re going to take everything. And that’s why it’s fantastic, EA is offering all the services, but not forcing us if it doesn’t fit. So it really is the perfect world at this point. And this is why I’m so confident about how much EA can bring to Codemasters and hopefully vice versa, because they listen and we listen too.”

ON THE GRID

The first test of those opportunities will be the upcoming F1 2021 title, a ‘truly global sporting property’ as Wilson described it earlier. And a game that will be launched under one of the best known brands in gaming.

“We are launching our first game together with F1, which will be an EA Sports game,” says Sagnier. “We can immediately see the impact of that and it’s a very positive one… And by the way, I don’t think EA would have agreed to put the game under the EA Sports banner, if they didn’t think it deserved it, the fit is there.”

Wilson certainly sees the parallels between F1 and existing titles: “You think about what we can do with respect to our marketing reach and what we’ve done to grow our football business in FIFA, and how we might be able to apply that to F1. To grow that on a global basis, particularly as we’ve just had a new race in Miami, announced in the US, we think we have a unique opportunity there to grow the business.”

In fact, EA’s marketing muscle makes us wonder if the Codemasters deal is a bigger coup for EA or for F1’s organisers, the FIA. Which must be licking its lips at the kind of additional reach that EA can provide their brand. But Wilson is thinking about growing EA’s cohort of race fans well beyond just one sport.

“Think about all the creativity, and creative leadership that the Codemasters teams have shown, and how that might affect our growing Need for Speed, and Real Racing businesses on console, PC and mobile, we just think it’s a match made in heaven. It establishes us as the leading racing entertainment organisation on the planet. That’s a pretty big opportunity for us, racing continues to grow in fandom, both F1 and other forms of racing, and it continues to be a very accessible form of gaming.”

And accessible gaming is a big draw right now, with the pandemic (more on that later) having brought many new gamers into EA’s open arms, says Wilson.

“In a world where we’ve added nearly 50 million people to EA’s network of nearly half a billion people just in the last 12 months alone – and as we think about growing that to a billion people – racing is just one of those natural entry points for so many people to come into games, and build their love of games, and build engagement. And so for us the opportunity was one we just couldn’t pass up.”

And Codemasters was already on an upward trajectory Sagnier reminds us: “We’ve grown massively over the past few years at Codemasters. From 2014, when I joined, to our latest numbers in March, we’ve multiplied our revenue by five, and we’ve added £40m in EBITDA. We’ve achieved this by focusing on premium quality games. We’ve seen how adding talents, like we’ve done with Evolution Studio and Slightly Mad could bring us to a new level, but EA will unlock our maximum potential and in a way that we’ve not seen before.

“So while we were well known for authentic racing and simulation, EA can help us on culture, lifestyle, and [reaching] a huge audience, in a way we couldn’t on our own.”

And Sagnier points out another benefit behind bringing the two racing stables together, one that Codemasters has already seen from its own past acquisitions, a reduction in competition.

“It’s fantastic when competitors get together because we don’t have to fight each other – we’ve seen it when we acquired the Evolution team or Slightly Mad. We can strategize on how to best address our consumers, segment the various IP or areas we want to target and focus on making the best games for our consumers. Of course, there’s always going to be competition, but working together with such knowledgeable parties about racing is going to make our overall strategy way more efficient.”

REAL RALLYING

The relationship between sports and the games that represent them is an endlessly intriguing one. We often wondered whether the actual FIFA’s well publicised 2015 corruption case affected its game namesake. Or more recently, it was intriguing to see potential European Super League teams making reference to games in defence of their need for a new organization.

On a happier note, as we sit down to talk, news has just broken that Codemaster’s own DiRT Rally Team had won the inaugural Junior World Rally event in Croatia – with the car driven by its in-house rally expert and games designer Jon Armstrong.

“We’re very happy to support our game designer, who is a big rally fan. And it’s great for us to be a part of the sport,” comments Sagnier. “I think in this area, we’ve got so much to learn from EA in what they’ve done on Madden or FIFA. And it’s one of the aspects which I believe will help us get to a much wider audience than we’ve been able to achieve on our own.”

And Wilson is happy to speak more broadly to the changing dynamics of a globalised audience of fans that love both the sport and the game.

“I think what we are seeing globally, across all sports is a blurring of the lines between what happens in the real world and what happens in the interactive world. For the longest time, all that happened was things would come from the real world into the interactive world. And what we’re now seeing across many sports, is that things that happen in the interactive world are moving into the real world, and whether that’s footballers doing things on the pitch that they were doing in a game the night before, or whether that’s a deeper integration into the World Junior Rally series.

“But what we think about is, more and more, games are becoming deeply, culturally important on a global basis. More and more games are the central strands of the fabric of the sports that they represent. And our commitment to sports fans, racing fans and gaming fans across the globe is to do all that we can to build a seamless integration and seamless connection and give them that direct emotional connection to the sports they love, the athletes they love, the drivers they love.

“And I love what Codemasters are doing and if you look at what we do across sports, you should imagine that we’re going to continue to try and build those really strong connections and further establish ourselves at the very centre of these sports on a global basis with respect to fandom.”

And those varying sports are increasingly tied together notes Sagnier: “It’s amazing when you see that the F1 driver Daniel Ricciardo was actually in FIFA 21 this year,” with the McLaren driver appearing, along with Mercedes’ Lewis Hamilton, in the games Volta street football mode.

“That’s the power EA can bring. So why not bring Messi into F1? I’m not saying it’s gonna happen, but EA is so well known for all their brands and franchises, and it’s so strong in each of them, that there’s so many ways to collaborate. It goes far beyond just gaming, it goes into culture, the people we’re working with, the synergies are just amazing.”

WE RACE AS ONE

Of course sport has had a torrid year, while games have boomed, because of the global pandemic. How then does EA see this recovery year and the year after, and how do you judge future success when recent times have been anything but normal?

Wilson pulls back a bit first in answer: “I would tell you going into the pandemic, we were seeing two fundamental secular trends. One was that social interaction was moving from physical to digital. And the other was the consumption of sport and entertainment was moving from linear to interactive. The pandemic only accelerated those two trends.

“For much of the last 12 month, games were sport and entertainment in a world where many sports had to shut down. In a world where there wasn’t new television and movie content, we were entertainment,” he notes.

“We were a means of connecting with friends and family around the world, while we all had to spend so much time apart. And while it’s too early to tell what this year is going to be versus last year… What we’re seeing is that tens, maybe hundreds of millions of people have discovered or rediscovered just how wonderful games are in their ability to fulfil needs and motivations and connect you with friends and family around the world in the context of sport and entertainment.

“And I don’t see that going away. Will there be some shifts and changes over time? Of course, but I don’t think about this on a year-versus-year basis. I hope that we move through this pandemic quickly. I think we’re certainly seeing a light at the end of the tunnel at this juncture. But in many countries, and many geographies, there still some challenges, that I hope, as a global community, we get to move through soon.

“But on balance, as you look at this over the next three to five years, what we have seen is maybe hundreds of millions of people have discovered the power and the wonderful nature that games bring. And I don’t think that goes backwards. I think we only go forward from here. And I think that’s a tremendous opportunity and a tremendous responsibility for us to continue to deliver great sports and entertainment that fulfil this need for social interaction, and gives people a much stronger
part to play in the context of the sport they love.”

EA has shown repeatedly that sports and games are an incredibly powerful, and profitable, combination. If it can achieve in racing what it has achieved in football then that $1.2bn will indeed be money well spent and the benefits will stretch well beyond EA’s own profits, into the sport in its many forms and its broad global community of fans.