Games Brief » Midway

Midway closes Newcastle Studio with 80 layoffs

Nicholas Lovell — Sun, 19 Jul 2009 21:04:28 +0000

Warner Bros bid for Midway has gone through, but the global media conglomerate didn’t want Midway Newcastle, the studio formerly known as Pitbull and responsible for the The Wheelman franchise.

GamaSutra estimates that 80 developers were affected by the redundancies.

Added to the Job Loss Tracker.

Midway makes 60 redundancies at head office

Nicholas Lovell — Sun, 19 Jul 2009 20:54:59 +0000

The Warner takeover of Midway has gone through, and Midway’s head office staff are paying the price.

60 staff at the company’s Chicago head office have been made redundant, including CEO Matt Booty.

It seems that 100 development staff have been offered jobs with Warner Bros.

Added to the Job Loss Tracker.

(via GamesIndustry.biz)

Midway saga coming to an end?

Nicholas Lovell — Mon, 29 Jun 2009 14:15:49 +0000

GI.biz reports that Warner is the only bidder for the assets of bankrupt Midway Games.

The offer on the table is $33 million. This might bring the sorry tale of Midway Games to an end, although with Tigon Studios claiming $200,000 in unpaid fees for Wheelman and producer Larry Kasanoff claiming that the company can’t be sold as he owns the movie rights to Mortal Kombat, I fear we may not have heard the last of Midway.

Midway creditors settle lawsuit with investor Mark Thomas

Nicholas Lovell — Tue, 09 Jun 2009 14:53:53 +0000

Bloomberg reports that the creditor committee that was suing Mark Thomas over his investment in Midway have settled.

Sumner Redstone, the majority shareholder in Midway, sold his 87% stake to Mark Thomas for $100,000 in November 2008. Under the terms of the deal, Mark Thomas also took over a $30 million secured loan and a $40 million unsecured loan.

Warner Brothers have tabled a bid for $33 million for substantially all of Midway’s assets. Given that Thomas had a $30 million secured loan, he would have taken the lion’s share of this money, leaving the creditors of the bankrupt company with close to nothing.

Under the new settlement, Thomas will reduce his secured claim to $5 million and drop all other claims on Midway.

That’s a big drop from a claim of $70 million but still a pretty good return on a $100,000 investment (although I suspect that his legal fees will dwarf the money that he paid Redstone.)

(via GamesIndustry.biz)

Warner to pick up Midway from bankruptcy

Nicholas Lovell — Thu, 21 May 2009 20:24:59 +0000

GamaSutra is reporting that Warner has bid $33 million for Midway, $3 million above the bonus target revealed in court documents last month.

The deal includes Mortal Kombat and the Chicago and Seattle studios but leaves out the San Diego and Newcastle (formerly Pitbull) studios.

The deal is subject to the courts, and now that Warner has made a bid, other companies may come forward, since the option of picking up the Mortal Kombat franchise at an absolute bargain price is much less likely.

Is Midway worth $30 million?

Nicholas Lovell — Fri, 17 Apr 2009 09:47:29 +0000

Court documents suggest $30 million is a fair price for Midway. More likely, it’s a ceiling for the value of Mortal Kombat, and is unlikely to be achieved.

Last month, creditors kicked up a stink about the Midway bonus scheme, which appeared to pay staff bonuses that were 4x higher than the bonuses paid when Midway was not bankrupt and for deals that had already happened.

Now Variety reports on the new terms of the Midway bonus deal. The new bonus scheme offers $600,000 when an asset purchase deal is executed and a further $1 million when it closes. Additionally, key employees (excluding CEO Matt Boonty) get $75,000 added to their bonus pool for every $1 million above $30 million that they sell Midway for. (So if they sell it for $4o million, their bonus pool is $600,000 + $1,000,000 + (10 x $75,000) = $2,350,000.)

So is Midway worth that?

Variety suggests that the court and creditors came to that number because a) it’s the highest offer Midway has received so far and b) coincedentally, it’s the value of owner Mark Thomas’s secured loan, meaning that the other creditors won’t get a cent unless that $30 million figure is exceeded.

Owner Mark Thomas puts the boot in

Coming up with an independent valuation is tough, with so many issues:

The company is under bankruptcy protection, which immediately decreases the value
I don’t have access to meaningful forecasts
The company had $23 million in cash at the end of December 2008, but Gamepolitics has found court documents from owner Mark Thomas which said that the company only has enough resources to continue trading until late June 2009 – although it’s worth pointing out that he was trying to get the court to ring fence his secured loan, so he would try to paint the worst possible picture in this document. (Kudos to Gamepolitics for the find.)
By February 9, 2009, the company had only $16 million in cash left.
Midway has no new releases scheduled in the first half of 2009. This means no major cash infusion. (Although, given the working capital requirements of putting out a major game – a minimum of $15 million in marketing, royalties and manufacturing costs – it’s unlikely that Midway could afford to put out a major game.)
In 2008, Citigroup failed to find a buyer for the Midway stake owned by NAI (National Amusements, Inc, Sumner Redstone’s holding company)
Lazard is apparently working to solicit “indications of interest from a number of strategic and financial buyers”.
Some potential investors have been very negative. My favourite example, from a company that looked at Midway before Mark Thomas invested: “Mr. Thomas contacted Centerbridge, a $7.5 billion firm with experience in buying distressed companies, to see if it would be interested in doing the deal with him. After looking into Midway, Centerbridge informed Mr. Thomas that it was not interested in doing the deal, it was not worth its time and effort, and that in fact, NAI or Sumner Redstone would have to pay them to do the deal.”

So in essence, we have very limited information, and what information we do have suggests that Midway has been hawked around twice with no takers.

So what is Midway worth?

With so little information, it’s hard to say.

I would value the publishing operations at zero or negative. It seems likely that Midway’s staff are demoralised, and without product to push, have nothing to focus on. Plus, in my experience, few big publishers want to acquire additional publishing staff: they are only interested in intellectual properties or development teams.
The development teams have either been shut down or are threatening to leave.
There will be some cash flowing from ongoing sales of Mortal Kombat vs DC Universe and other older titles, although potentially not enough to cover the cash outflows of staff salary and overheads.
It’s not clear to me how much value there is in the non-Mortal Kombat titles (Area 51, Rampage, NBA, The Suffering)

So the main answer to the question “How much is Midway worth?” appears to be “How much is Mortal Kombat worth?”

There haven’t been many intellectual properties that changed hands with clear valuations attached. Two examples leap to mind.

The acquisition of Sega by Creative Assembly

Sega paid $30 million for Creative Assembly, publishers of the Total War series of games with sales of 2 million units in the two years prior to the acquisition.

Take Two acquires Civilization brand name

Take Two acquired the Civilization brand from Atari in November 2004 for $22.3 million. At the time, Civilization was a PC-only brand that had sold over 5 million units since inception and Atari sold the brand on its own (Take Two already had a relationship with Civilization developer Firaxis.)

Mortal Kombat has a long history, having been established in 1992 and has sold over 26 million units in its lifetime. Mortal Kombat vs DC Universe had shipped 1.8 million units by January of this year. Additionally, fighting games seem to enjoying a resurgence. .

So here is my conclusion:

No sane publisher will touch Midway with its checkered and troubled past
The public figure of $30 million seems like a ceiling for a valuation of Mortal Kombat, not a floor

So either a buyer emerges for Mortal Kombat before Midway goes properly bust. or, in my opinion, a more likely outcome is an unseemly squabble breaking out over Midway’s bankrupt carcass.

Midway bonus scheme gets kicked back

Nicholas Lovell — Tue, 31 Mar 2009 16:09:09 +0000

Unsecured creditors are kicking up a stink about Midway’s bonus scheme announced earlier this month.

Among other things, they claim:

The bonus scheme is paying additional money to staff simply to do their jobs
The bonuses are 400% greater than the bonuses offered to staff in 2008, when the company was not bankrupt
Some of the bonuses are being paid for the sale of publishing rights to Wheelman, which happened before the bonus scheme was even proposed
It is, apparently, more generous by far than any comparable scheme proposed.

They are pushing back hard, which seems perfectly fair in this environment.

Variety has the full details.

Midway to sell Mortal Kombat?

Nicholas Lovell — Mon, 02 Mar 2009 18:09:28 +0000

Struggling publisher Midway, currently in Chapter 11, is to put Mortal Kombat up for sale.

In court filings, Midway is seeking permission for an employee incentive plan covering 29 employees worth $3.8 million (they have to ask the court for permission for this kind of expenditure now that they are in Chapter 11 bankruptcy.) The incentive plan covers:

Signing a publishing/distribution agreement for Midway’s Wheelman game (already achieved following a publishing deal with Ubisoft), performance by Midway entitling it to $6 million and receipt of those proceeds. This is worth $500,000.
EITHER agreeing an asset purchase agreement for the Mortal Kombat franchise OR submitting a reorganisation plan to the courts: $1.3 million
EITHER completion of the sale of the Mortal Kombat franchise or acceptance by the courts of reorganisation or liquidation plan: $1.5 million.

The most recent iteration of the Mortal Kombat franchise, Mortal Kombat vs DC Universe, is reported to have shipped almost 2 million units, according to CEO Matt Booty.

It’s worth pointing out that Midway was acquired from financially-stricken media mogul Sumner Redstone for $100,000 and the assumption of $70 million in debt in December 2008. If investor Mark Thomas is one of the 29 employees included in the court documents, then he may stand to have his investment repaid, even as Midway staggers its way towards bankruptcy. (As an aside, the Chicago Tribune says bondholders are very keen to discover the identity of the secretive Mark Thomas and allege in a filing that “there must be a connection between Redstone and Thomas given that Redstone essentially gifted his rights in [Midway] to Thomas.”)

It will be fascinating to see if Midway can sell the franchise without a developer, and if so, for how much. The last pure intellectual property (meaning just the rights to a brand, not a developer with IP, talented staff, tools and the rights to historic royalties) that I can remember being sold was when Atari sold the rights to Civilization for $22.3 million to Take Two in January 2005. At that point, Civilization was said to have sold over 5 million units in its 15 years of existence, and Mortal Kombat must have beaten that (I can’t find any figures at the moment, please comment if you know how well the series has done.)

It seems likely that Midway will be forced to sell its IP. The key question is whether buyers will stump up for this premium asset or, given Midway’s distressed status, will be able to force the price down.

Midway files for Chapter 11 protection

Nicholas Lovell — Thu, 12 Feb 2009 18:36:04 +0000

Midway has announced that it will seek Chapter 11 protection from its creditors, although this does not affect operations outside the US.

Chapter 11 does not mean that the company has gone bust: it allows the company protection from its creditors while it re-organizes and tries to trade its way out of difficulties.

Midway has outstanding bonds worth $150 million which became due when Sumner Redstone sold his controlling stake in December 2008 due to a change of control clause. The company was able to negotiate an extension to the repayment until February 19, but it seems that the company concluded that it would be unable to refinance the bonds in time.

Midway laid off 180 staff in December 2008 and 90 staff in August 2008 as part of its restructuring efforts.

Midway cuts a further 180 jobs

Nicholas Lovell — Fri, 12 Dec 2008 18:43:49 +0000

Midway has cut 180 jobs, representing 25% of global headcount. The company will close its Austin development studio and make redundancies in Chicago, San Diego and Austin.

The layoffs follow a headcount reduction of 90 in August 2008 when Midway scaled back its Austin studio.

Added to the GameOverZone.