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A taxing look at EA's annual report | This Week in Business

In the past 15 years, EA has posted more than $6 billion in pre-tax profits. After taxes, that number… goes up?

This Week in Business is our weekly recap column, a collection of stats and quotes from recent stories presented with a dash of opinion and intended to shed light on console sales, new trends, and more. Check back every Friday for a new entry.

EA filed its annual report with the Securities and Exchange Commission this week, giving us our yearly peek at the obscene amount of money the company makes from loot boxes.

STAT | $1.63 billion - EA's fiscal 2021 revenue from selling loot boxes for its sports games' Ultimate Team modes, or 29% of all the money it brought in for the year.

We are closing in on one out of every three dollars EA brings in coming from gambling. Or at least, gambling as it's defined in the Netherlands. Or in academic research. Or in the minds of most gamers.

Or in the sense that people are putting up a bunch of money for an unknown return hoping to be lucky enough to get something worth thousands of dollars, and the house always wins (only moreso with Ultimate Team, because someone hitting the jackpot doesn't cost EA a thing).

As I've written before, the only gamble EA is making here is in banking so much of its business and future on the continued unfettered legality of Ultimate Team modes. If I were a bean counter at EA, I would be somewhat concerned at how thoroughly the company has tethered itself to this monetization scheme.

But then again, if I were one of EA's bean counters, perhaps I wouldn't be so worried about it. After all, judging by the company's annual reports, they seem like a pretty clever bunch.

STAT | $6.02 billion - EA's cumulative pre-tax profits since fiscal 2007, covering the period of time since Ultimate Team modes were first introduced.

STAT | -$675 million - EA's cumulative estimated income tax expense for the same period of time, making for an effective tax rate of -11%.

The income tax expense figure is wildly skewed by last year's results, when EA recognized a $1.84 billion tax benefit simply by transferring some IP rights to its Swiss subsidiary, but even omitting that year's numbers -- when EA reported $1.5 billion in pre-tax profits and a -$1.53 billion tax bill -- EA still ends up with an effective tax rate south of 19% for a stretch of time when the US corporate tax rate was 35% (although that dropped to 21% in 2017).

If some of these numbers are raising eyebrows for you, EA's annual reports suggest you're not alone.

STAT | 8 - The number of countries who in the past five years have had their taxing agencies examining EA's returns: the US (examined EA's fiscal 2017), Italy (2016), Spain (2014-2015, 2016-2017), UK (2010-2015), Germany (2013-2016), Sweden (2016-2017), India (2009-2013), and France (2014-2016).

To be fair, no publisher has a patent on the Matrix-esque bullet-dodge to avoid paying its fair share. As TaxWatch UK pointed out in 2019, Rockstar North went a full decade without paying corporate taxes even though that stretch saw it create the most profitable entertainment product of all time in Grand Theft Auto 5.

And then there's Activision Blizzard, which TaxWatch lambasted for using the international IP juggle so it can send billions to subsidiaries in tax havens like Bermuda and Barbados.

Hopefully the rest of the week's news won't be so focused on companies going so far out of their way to avoid parting with a standard percentage of their money for systems that make their success possible...

QUOTE | "I don't think Apple can walk away feeling confident that it prevailed. That's not something that many antitrust practitioners might have expected going into this." - David Kesselman of law firm Kesselman Brantly Stockinger gives his assessment in our round-up of legal experts' expectations for how the judge will rule in the Epic v. Apple case.

QUOTE "...scary for Apple's iOS customers, for Apple's developer community, for Apple, and for this court." - During closing arguments of the Epic v. Apple trial, Apple counsel hypes up a bone-chilling tale of what would happen if Epic could use alternative payment processing options in Fortnite to avoid Apple's 30% revenue share. (You can read the actual argument that followed in our story... if you dare!)

QUOTE | "I don't think consolidation in the games industry, specifically mobile, is cooling off. It's a continuing trend. We've been saying, 'It's either eat or be eaten.'" - Zynga president Bernard Kim says the recent rash of mergers and acquisitions in the industry is only going to get itchier.

STAT | 2% - The year-over-year decline of games industry revenues in April, according to the NPD. It was the first down month since February of last year, and was down largely because of a tough comparison against the first full month of the pandemic.

STAT | 12% - India's percentage of app downloads around the world last year, according to Sensor Tower, easily the largest share of any country. The second biggest market for downloads was the US, which only accounted for 7% of global app downloads.

QUOTE | "Neptune" - Ars Technica reports this is Valve's codename for a new Switch-like handheld PC it's working on, truly a fantastic name for any piece of hardware destined to be a roaring success.

QUOTE | "Neptune" - Sega's codename for a planned but never produced console based on the deeply questionable idea of combining the 16-bit Genesis and its poorly supported 32X add-on into one package and releasing it months after the Sega Saturn had hit shelves and everyone was excited about the next-generation of systems

QUOTE (paraphrased) | [Shrug emoji] - CD Projekt, on when Cyberpunk 2077 will be sold on the PlayStation Store again.

QUOTE | "Management -- myself included -- have a responsibility to act as role models and be exemplary for our teams." - Ubisoft's Yves Guillemot, in a statement released a year after the company faced a flood of harassment allegations reaching the executive ranks, talks a big game about how responsible leadership needs to be, even though when all this was going down last summer, he dodged blame for the situation by telling investors that other people "betrayed the trust I placed in them."

QUOTE | "Due to the severity of the recent attacks, we have no other option than to temporarily disable the game servers." - Sony explains that it's taken the LittleBigPlanet franchise's servers offline after months of DDOS attacks believed to have been carried out by one person unhappy with how Sony's handled the series.

STAT | More than 30 years - Larry Probst's tenure with Electronic Arts, as it was announced this week that the company's chairman of the board will be retiring this August. Probst served as CEO of the company from 1991 to 2007 and chairman since 1994. His impact on the industry would be difficult to get across, but his decision to cancel the nearly complete PlayStation fighting game Thrill Kill for its objectionable content in a roundabout way gave us Wu-Tang: Shaolin Style, so there's that.

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