No Taxation Without Misrepresentation

No Taxation Without Misrepresentation

THIS WEEK IN BUSINESS | Electronic Arts sees a phenomenal surge in sales due to the pandemic, but the impact on the bottom line is minimal compared to a good tax dodge.

I know "This Week in Business" readers sometimes may get tired of me getting up on a soapbox here and ranting about the world's many ills and injustices, especially given that I'm probably not going to be solving any of them in a weekly round-up column of quotes and stats.

So this week, I'm putting all of that aside and we're going to talk some business stuff. Like, proper business. Roll up your sleeves and sharpen your pencils friends, because we're going to talk about taxes.

QUOTE | "We were having a strong Ultimate Team quarter. But I mean this is—this is off the charts different, right?" – EA CFO Blake Jorgensen said FIFA Ultimate Team revenue skyrocketed 70% year-over-year for the quarter covering April through June.

STAT | $356 million – EA's net income for the quarter, which was actually down 75% year-over-year despite the 'off the charts different' Ultimate Team performance and year-over-year sales up 21%.

QUOTE | "Wait, what the heck? How are they making so much less money when their business is clearly booming?" – Any reasonable person reading this.

QUOTE | "Well it turns out last year's quarterly number was inflated because the company found a way to pay less taxes after transferring some of its IP rights to a subsidiary company it owns in noted tax haven Switzerland." – Me, explaining how EA making a functionally inconsequential change to its business structure is allowing it to not pay a functionally very consequential amount of taxes.

STAT | $1.7 billion – The amount of taxes EA will no longer be paying as a result of that move (as well as a U.S. court decision regarding stock-based compensation). That's enough money to fix Flint, Michigan's water supply seven times over and still have a couple hundred million bucks to spare.

STAT | $1.1 billion – The amount of unpaid taxes from Activision Blizzard that French and Swedish authorities have spent years pursuing for similar tax evasion shenanigans. That's in addition to $345 million Activision Blizzard already agreed to pay the IRS because it not only sold IP rights to one of its subsidiaries in a tax haven in order to license them back, but it wildly undervalued the IP in that sale in order to avoid even more taxes.

QUOTE | "The gamer inside me hates to say it but the conventional E3 we all knew and loved isn't doing anything for these games coverage-wise that a cheaper stream or surprising shadow drop can't do." – After looking at the buzz generated by a summer full of big gaming events, Fancensus head of analytics Ryan Janes concludes we don't need E3 anymore.

QUOTE | "So do we really need E3? Do we need physical events at all? Yes. Yes we do. Numbers be damned." – GamesIndustry.biz's usually data-driven Christopher Dring takes the opposite view.

QUOTE | "Human Resources always exists, for lack of a better term, in fear of production. You're serving production's needs, and that's how you're treated working in a Human Resources department in the games industry... You serve production and whatever the hell they want, that's how it gets done. So right from the beginning, it's a broken model and that's not the way it should get done." – Expansion Pack Search and Selection co-founder and CEO Andrew Hilson talks about why HR keeps failing employees reporting abuse and misconduct, drawing on his experiences in HR at Ubisoft Toronto.

QUOTE | "This is quite a unique situation because we have a new generation being released at the same time we're entering a recession. For this period, 2020, I think it's going to be extremely healthy because of those day one buyers. But as we go to 2021, I think we have to be realistic that we are in the entertainment sector, and if you are running out of money or you need to prioritize your money, we will be put on the back burner." – Sam Naji of analytics firm B2Boost warns that the games industry has done relatively well in the first months of the pandemic, but we're still headed for a severe economic downturn the likes of which this industry has never seen.

QUOTE | "Neom is a new community that will be the home and workplace for more than a million citizens from around the world who want to be part of building a new model for sustainable living, working, and prospering in Saudi Arabia." – Riot Games on Tuesday, announcing that the Saudi Arabian state-backed city-building project Neom would be its main sponsor for the summer League of Legends European Championship.

QUOTE | "After further reflection, while we remain steadfastly committed to all of our players and fans worldwide including those living in Saudi Arabia and the Middle East, the LEC has ended its partnership with Neom, effective immediately." – Riot Games' EMEA director of esports Alberto Guerrero announces that the company is withdrawing from its partnership with Neom after an outpouring of criticism (including from a number of Riot employees). This is in light of reports of the Saudi government evicting and even killing members of the Huwaitat tribe for the land to be used for Neom, as well as the country's poor record on LGBTQ rights (it's one of a handful of countries where homosexuality can get you a death sentence), and the 2018 assassination of Washington Post journalist Jamal Khashoggi at the Saudi consulate in Turkey.

QUOTE | "These have been my learnings: listen so you don't miss the forest for the trees, focus on internal challenges despite external pressure, bring in experts, but stick to principles, even in the midst of a storm." – In a guest editorial published the day before Riot announced the Neom sponsorship, CEO Nicolo Laurent talks about not changing your mind on things just because people are yelling at you.

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Brendan Sinclair

North American Editor

Brendan joined GamesIndustry International in 2012. Based in Toronto, Ontario, he was previously senior news editor at CBS-owned GameSpot in the US.