Editor’s note: Triangle attorney Jim Verdonik, who focuses on high tech startups, mergers and acquisitions, has written for TechWire about Epic Games and its antitrust lawsuits against Apple as well as Google over bans of its globally popular Fortnite. TechWire asked Verdonik for his assessment of privately held Epic’s big layoff announcements made Thursday. “For a while now, we’ve been spending way more money than we earn, investing in the next evolution of Epic and growing Fortnite as a metaverse-inspired ecosystem for creators,” CEO Tm Sweeney said n the announcement. Verdonik is cofounder of Innovate Capital Law in Raleigh.
RALEIGH – Crunchbase says Epic has raised a total of $6.4 Billion in 12 rounds. So, we can assume its legal expenses were being paid out of capital raised. However, investors get nervous when money goes for expenses other than product development, marketing and sales. If we ignore the capital Epic has raised, we can estimate how badly legal issues have hurt Epic’s operations.
Antitrust and intellectual property litigation are notoriously expensive. My guestimate is that the lawyers cost $100 million or more, but Epic had bigger legal expenses in te form of a $520 million settlement with the Federal Trade Commission that was about $620 billion of Epic’s [estimated] 2022 revenue of $1.175 Billion.
If you assume $100 million in legal fees for both antirust and the FTC settlement, then the $620 million total was about 52% of total 2022 revenue. That is wildly above normal.
But not all revenue is margin. There are expenses. I assume EPIC’s margins are at the high end of the industry, which would be 90%. Based on that assumption, EPIC’s 2022 margins would have been about $1.057 Billion and the antitrust and FTC cost of $620 million would have been about 58% of margin.
I caution that because Epic is a private company and does not file financial information with SEC, but I found the revenue and capital raises on line.
Based on what I found, I can see why investors may be putting pressure on Epic to cut expenses.
Of course, other factors may be in play. Artificial Intelligence is changing all industries. We see that in the movie industry where writers and actors are scared about job losses. The computer games industry seems like an industry where AI can create great cost savings and eliminate many jobs. Unlike the film studios, they don’t have to bargain with unions and can reap the full benefits of artificial intelligence. This might explain personnel cuts at Epic.