On Monday GamePolitics reported that financially-troubled Midway had been sold to a no-name investor for the shockingly low price of $100,000.

Along with assets like the Mortal Kombat and Blitz: The League game franchises, mystery man Mark Thomas also bought himself $70 million worth of Midway debts.

Late yesterday, Midway filed a document with the Securities and Exchange Commission which outlines what the deal means for the company and its shareholders. Essentially, the change in ownership permits Midway's creditors to demand payment in 50 days and they are expected to do so (GP: wouldn't you?).

In the interim, Midway is hoping that investment firm Lazard will help them find a way to avoid being forced into liquidation when the loans are called. So, what does it all mean? Will Midway cease to exist in 50 days? We put those questions to Wedbush-Morgan game industry analyst Michael Pachter:

It means that because of the change of ownership from Redstone to Thomas, some of Midway's creditors holding $150 million of debt are able to demand repayment in January.  Midway expects this to happen, and hired Lazard to help them figure out how to refinance.

It's really interesting, because the creditors cannot expect Midway to repay unless the company remains in business.  If the creditors compel bankruptcy liquidation, they'll get something, but arguably less than the full $150 million.  Midway's assets are worth something, but in this market, it is hard to figure out how much.  As a comparison, THQ has an enterprise value of only $80 million, so Midway's assets in liquidation would have to be worth twice as much as THQ's (as a going concern) for the creditors to be repaid.

My guess is that Midway works out a deal with the creditors and remains in business, but they are going to have to start generating sustainable profits soon, or their creditors will become impatient.

The other real interesting thing is the change of control provision.  While not uncommon, this one makes it clear that the creditors felt comfortable as long as [former owner Sumner] Redstone had skin in the game.

It's a good thing that Strauss Zelnick is so good at running media companies.

Because he'd never make it as a financial analyst.

Reuters reports on the Take-Two head's somewhat obtuse view of the current global financial meltdown. Zelnick made his remarks at the Reuters Media Summit:

I don’t think we’re in a financial crisis.

 

The use of the word crisis — I’m loathe to be critical of the media since I’m every bit a part of the media — but I don’t think the word has been especially helpful. We’re obviously in a recession and these are very very trying times.

Zelnick then pushed the metaphorical envelope with this bit of imagery:

We’re still seeing the car crash, and the ambulances are still showing up at the scene. Maybe we’re in the emergency room, but we’re not even in the intensive care unit yet for a lot of these companies. But they will get there.

A separate Reuters report offers the Z-man's take on how the game biz is weathering the current financial crisis ...oops, "very, very trying times":

I think everyone was encouraged by Black Friday. It was better than expectations, but it's pretty hard these days -- being slightly down is the new up.

Turnabout, as they say, is fair play.

While Electronic Arts spent the better part of 2008 in a futile bid to acquire Grand Theft Auto publisher Take-Two Interactive, the Wall Street Journal suggests that EA itself has the makings of a tasty takeover morsel.

Word comes via Barron's that the Wall Street Journal (sub. req.) proposed on Saturday that Disney acquire EA:

In a bold call in Saturday’s Heard On The Street column, the Wall Street Journal proposed that Disney (DIS) ought to buy Electronic Arts (ERTS). The piece note that the timing is right, after a significant earnings miss last week knocked down the video game publisher’s stock 18% on Friday. The piece concludes that “Disney would be gutsy to step up during the current economic uncertainty. But it might be better than waiting for better times and paying top dollar.”

...EA does have a lucrative sports franchise that includes the Madden football games; Disney owns ESPN. It’s an interesting theory. But I would note that it appears simply to be a theory, not something that the Journal believes is happening right now.

Last month GamePolitics tracked Xbox Live's inaugural use of political polling among its members. In that survey, XBL users overwhelmingly gave the nod to Barack Obama as their choice for president - and that was before anyone knew about those now famous in-game Obama ads.

In partnership with nonprofit Rock the Vote, XBL has just completed a new round of polling. This time users were asked to name which issues were most on their mind.

So what's the answer? In the words of Deomocratic campaign strategist James Carville, it's the economy, stupid. Here are the numbers:

• 35%        Jobs and the Economy
• 19%        Environment
• 18%        Foreign Policy
• 14%        Health Care
• 14%        Education
   

At this point it's fair to say that XBL has jumped into the election season with both feet. In addition to user polling and a voter registration drive, the online service is offering election 2008 gamerpics and themes, as well as a music video from The Presidents of the United States of America's new album.

On Monday, GamePolitics spoke to project manager Ben Vaught about the injection of politics into the XBL user experience. Vaught hadn't seen the results of the new poll at that point:

The reason we do these polls is that Xbox Live is more and more becoming a bellwether of where youth voting trends are going… This [new] poll is really a chance for Xbox Live members to tell the presidential candidates... this is why were voting, this is why this election matters to us…

 

I thought [the Obama ads were] amazing. This is a community of over 14 million members. They’re active and engaged, they’re vocal. And it's not just about games and entertainment. They're also active and engaged and feel very stongly about the direction of their country… If Xbox Live was a state, it would be the seventh largest with 20 electoral votes.

[Rock the Vote] is very happy with how everthing is turning out. For Rock the Vote, they’re going to where younger voters are this election and this year they’re on Xbox Live. With Microdoft and Xbox, we know that the presidential election is important and we’re really trying to do our part to encourage turnout and for people to vote.

Frenetic money man Jim Cramer named Take-Two chairman Strauss Zelnick to the "Wall of Shame" on his popular Mad Money program yesterday.

Cramer blasted Zelnick and a pair of CEOs from other companies for failing to accept takeover bids and then seeing their stock values collapse.

As has been widely reported on GamePolitics and other sites, Zelnick rejected a $25.74 acquisistion offer from Electronic Arts earlier this year. EA eventually walked away from the deal. The Grand Theft Auto publisher's stock (TTWO) will open at 13.15 this morning. Among Cramer's trashing of the T2 boss:

[EA's offer was] an offer no sane man can refuse. But Strauss Zelnick, Take-two's chairman did just that...

Welcome to the Wall of Shame, Strauss Zelnick. You managed to take a sure thing, a $25 stock and turn it into a $13 one. That takes talent.

Electronics retailer Circuit City appears to be terminally ill, according to StreetInsider. Pointing to an analysis by KeyBanc, the site says that the end could come soon:

We believe a Circuit City bankruptcy has become a question of "when" rather than "if." We now expect bankruptcy in 2009, perhaps as early as the 1Q. The wild card in the equation remains vendors. If one major vendor were to cut off Circuit City, we would expect others to quickly follow suit...

Aside from its electronics business, GamePolitics has learned that Circuit City currently handles 5-10% of all retail sales of video games.

Thursday was another bloody day on Wall Street and stocks of video game publishers did not escape the carnage.

As reported by GameSpot,  the likes of Activision, THQ, EA and Take-Two have seen their share price drop between 28-40% in recent weeks:

Worst off is Take-Two Interactive, which has lost 40 percent of its share price in a month, going from $21.77 to $13.01. Besides overall market woes, the decline was also in large part due to Electronic Arts' abandonment of its Take-Two takeover bid, which was $26 per share at its highest point...

 

Despite the apparent game-industry-wide drubbing, analysts are confident the game industry will fare better in a recession than other sectors. "If people aren't traveling and stay home, what are they going to do? They'll want relatively cheap home entertainment," David Gibson, senior analyst at Macquarie Research Equities, told the Wall Street Journal. "[And] core gamers will buy the titles when they come out, regardless of economics."

GP: If you're a T2 shareholder, we've gotta wonder how you're feeling about passing on EA's 25.74 takeover offer.

And then there were 22...

When 2008 began, the Entertainment Software Association, the lobbying group which represents U.S. video game publishers, had 28 member companies. Several well-publicized departures, however, reduced its ranks to 23 companies by the time that E3 rolled around in July.

A glance at current ESA membership reveals that prominent British game publisher Codemasters is no longer listed as part of the organization.

While there has been no announcement from the ESA, Codemasters' departure must be a fairly recent development. The publisher of the Operation Flashpoint and Colin McRae Rally series was officially reported to be an ESA member as recently as E3. An ESA booklet, Essential Facts About the Computer and Video Game Industry, distributed at the show, lists the firm as a member on page 12.

Codemasters thus apparently becomes the sixth publisher to leave the ESA since May, following Activision, Vivendi, LucasArts, id, and Crave out the door.

We have a request in to the ESA for comment.

GP: There has been speculation for some time that additional member companies might leave the ESA after E3. Current global economic conditions certainly can't be helpful to the ESA in its efforts to retain members.

UPDATE: The ESA has confirmed that Codemasters has left its membership ranks. A statement from Senior Vice President of Communications and Research Rich Taylor this morning says:

We can confirm that Codemasters has decided not to renew its ESA membership.  We respect Codemasters’ decision and look forward to continuing to work with them on issues of mutual interest.

Bush's Billions, the latest news-oriented, online game from T-Enterprise parodies the current bailout crisis in the U.S. financial markets.

From the game's description:

US President George W Bush has an imaginary shoot out with the speaker of Congress to get his hands on the $700 billion bail-out cash, in this weeks FAB game.

 

You control "Dubya" hiding behind a patrol car after robbing a bank, and must fire guns at Speaker of the House Nancy Pelosi. Bush comments on game progress during play, using real life audio clips of the President.

While video games are said to be recession-proof, video game publisher stocks are not immune to Wall Street turbulence, as witnessed by yesterday's market free fall.

As GameSpot reports, virtually all of the major game publishers took a hit in yesterday's sell-off after Congress failed to pass a bailout bill.

Wedbush-Morgan analyst Michael Pachter managed to find some humor in the situation, however, as reported by Cnet:

Wedbush Morgan analyst Michael Pachter, who tracks the video game market, said his industry will suffer like any other, though he did offer a suggestion for how to make lemonade from the financial lemons being lobbed from Washington.

 

"I think we need a game where instead of shooting (Nazis), we shoot Congress," he said. "This is embarrassing."
 

Following the collapse of a proposed merger between Electronic Arts and Take-Two Interactive, GamePolitics wondered aloud yesterday whether Take-Two might be the second coming of Yahoo. That is, a company which should have accepted a reasonable acquisition offer and saw stockholder equity plummet following its rejection.

Analyst Doug Creutz (left) of Cowen and Co. thinks not. Here's what he told GP when asked if T2 was following in Yahoo's ill-considered footsteps:

I’d say no. YHOO [Yahoo] is clearly a company in decline, with an entrenched management. TTWO [Take-Two] is a company with arguably improving business fundamentals and a management team that I believe was willing to deal at the right price. I also think that MSFT [Microsoft] shareholders were not excited by the prospect of a YHOO acquisition whereas most ERTS [Electronic Arts] shareholders wanted the TTWO deal to happen at a reasonable price.

Nor did Creutz believe that T2 Chairman Strauss Zelnick was in jeopardy in the wake of EA's withdrawal from negotiations:

I don’t think so. Any shareholders who wanted to get out of the stock at $26 (EA’s best offer) had ample opportunity. Anyone who was holding out for a higher price feels the same way as Zelnick – no deal at $26. As long as the business turnaround continues then I think Zelnick is safe.

Citing a report by the Financial Times, Edge Online notes that, on average, each employee of Nintendo will earn $1.6 million in profit for Mario & Co. in 2008.

On a per-worker basis, that figure beats leading Wall Street investment house Goldman Sachs' record-breaking $1.24 million figure from 2007.

From EO:

Nintendo employs less than 3,000 permanent staff, each of whom takes home an average annual salary of $90,900 a year. Assuming the platform holder achieves its net profit target of 410 billion yen ($3.9bn) in 2008, each employee will generate the company $1.6 million in profit, according to the paper’s calculations...

 

The report says that Nintendo is able to make so much money with so few staff because it relies on outsourcing for all hardware manufacturing and even a number of its high-profile games.

For its part, Nintendo said the Financial Times may have underestimated the Wii manufacturer's profitability.

In failing to accept EA's buyout offer, has Take-Two become the new Yahoo?

Is Strauss Zelnick's position as chairman in jeopardy?

Readers may recall that Yahoo spurned a series of acquisition offers by Microsoft over a five month period earlier this year. If that sounds familiar, Take-Two spurned several EA tender offers over roughly the same time frame.

Microsoft's' interest in Yahoo drove the search firm's stock higher, to the 30 range; Yahoo ultimately stunned Wall Street by refusing MS' 33 per share bid. EA's interest in T2 did the same, pushing TTWO at times into the 26+ range. EA's 25.74 offer remained on the table for months, ridiculed by T2 as undervaluing the GTA publisher.

When MS became frustrated and pulled out, Yahoo stock tanked. Today it wil open at 18.27. On Sunday's news that EA was bailing, T2 plunged 5 points yesterday. Admittedly, some of that might have been helped along by the most brutal day on Wall Street since the 9/11 aftermath.

So why would Zelnick's job be on the line?

It probably isn't - yet. But T2 investors who saw the value of  their shares jump nearly ten points on EA's offer have now given all of those paper profits back with EA's withdrawal. The stock is back where it started. Moreover, a sweetheart deal that would have enriched Zelnick and his management team in the event of an acquisition never sat well with EA. It actually caused EA to lower its tender offer by about 1/4 point and caused bad blood between EA and T2 execs from the get-go.

Now that EA is gone, Zelnick faces some challenges. GTA IV profits are slowing. The Houser brothers will become free agents in February. If they walk, T2 becomes less of a company than it is now. If they stay, T2 will have to pay them a bigger slice of the profits.

We asked Wedbush-Morgan analyst Michael Pachter whether Zelnick might be in jeopardy. His thoughts:

Jeopardy is a strong word. I think that shareholders may be upset that he didn't accept the $26 offer when he had it in hand.  He has some time to demonstrate that there are other interested parties; if he can produce them, I don't think he is in trouble at all.  If he can't, I think that the number of unhappy shareholders will increase.

Financial website The Motley Fool does not see T2 as the new Yahoo, however:

This isn't Microhoo revisited. Take-Two's fundamentals have actually improved since EA went public with its unsolicited offer for Take-Two at $25.74 a share. Grand Theft Auto IV broke records. The BioShock franchise has a sequel on the way, as well as Pirates of the Caribbean director Gore Verbinski on board to give the property the Hollywood theatrical treatment.

 

This is why I believe that Take-Two will bounce back from this a lot quicker than Yahoo! did after its prolonged courtship with Microsoft came up empty... Take-Two shareholders can't blame executives, because those investors perpetually turned down EA's tender offers. The company can also point to its improving fundamentals.

Did anyone notice that Take-Two (NASDAQ: TTWO) closed today at $25.14, or sixty cents under EA's current (and apparently endlessly renewable) $25.74 tender offer?

By our count it's at least the second time that TTWO has closed below the tender price in the past week, admittedly a rocky one for Wall Street. It seems kind of strange, since EA will buy all the TTWO you care to sell them at 25.74. Why would anyone sell below that price?

For interpretation, GamePolitics turns to Wedbush-Morgan super-analyst Michael Pachter:

GP: Mike, what do you make of TTWO closing well below the EA tender price of 25.74? That would seem to be a natural floor…

Pachter: The daily [share] price is the probability-weighted price of a [T2-EA] deal happening. [The expectation of] no deal is [priced] around $17-20, a deal at $28 has a relatively high probability. Before, the arbs placed a higher chance of a deal, and a higher [share] price.

GP: So are you saying that today's close $.60 under the [EA] tender price reflects a sense that the deal is now less likely?

Pachter: A combination of less likely or a lower expected deal price.  Probably more of the latter, as a tribute to EA's discipline.  Still very likely that a deal happens at $27-28.

The street of dreams is paying attention to video game tech these days, and not just in terms of potential investments.

Wall Street & Technology reports that the same graphics processors (GPUs) employed in modern game consoles are powering specialized financial displays.

Frank Tan, a Deutsche Bank options trader, told WS&T:

With the advancement of computer gaming and graphics technology like PlayStation and Xbox, these graphics cards are a lot more capable [than ever]. The idea is to use the GPUs for financial calculations rather than playing games and generating graphics...

 

First, there is the sheer number of messages and data coming in... Every time the underlying price changes, or if there is a shift in the options quotes, the options prices... have to be recomputed. The GPU has the capability to solve the second computational issue. Before GPU technology came out, in order to solve this problem in real time, you would have to buy supercomputers.