TheChek News Flow

The two groups had been in negotiations over value of brand of football governing body

Electronic Arts is ending a 30-year partnership with Fifa, calling time on one of the most popular games partnerships in history after months of negotiations between the video game company and the football governing body.

California-based EA will rename its game EA Sports FC after the women’s World Cup next summer. The content will remain largely unchanged, with the same leagues, tournaments, clubs and athletes.

“This new independent platform will bring fresh opportunity — to innovate, create and evolve,” Cam Weber, executive vice-president of EA Sports, said in a statement. “We exist to create the future of football fandom — whether virtual or real, digital or physical, it’s all football.”

The breakdown of the relationship is a sign of how one of the world’s leading sports governing bodies is seeking to make more digital revenue to complement income from the men’s World Cup, while capitalising on the popularity of the video game.

Despite the long and profitable collaboration, EA and Zurich-headquartered Fifa had been locked in a dispute over the value of the Fifa brand. EA had trademarked the name EA Sports FC last year, seemingly in preparation for discussions to break down.

More details on the future of EA Sports FC are expected next summer. Fifa did not immediately reply to a request for comment.

Fifa makes roughly $150mn a year from the partnership, its largest commercial deal outside of running the quadrennial men’s World Cup.

The video game is EA’s “largest and most popular”, according to the company’s annual report, with around 150mn players. Gamers pay up to $70 for the new version on consoles and PC each year, and free-to-play versions are also available on mobile.

The Fifa Ultimate Team mode, which allows gamers to compete online and spend money upgrading their football squads, generated a “substantial portion” of $1.6bn in net revenues in the year ending March 31, 2021, according to EA’s annual report, accounting for around 29 per cent of total net revenue. Fifa Ultimate Team players grew 16 per cent in 2021.

Some of the world’s biggest football tournament organisers backed EA, in a boost to the games developer, which relies on licensing agreements to feature the branding of top leagues, teams, and star players.

Richard Masters, chief executive of the English Premier League, the world’s richest domestic football division, called EA a “long-term and valued partner”, while La Liga president Javier Tebas said the Spanish league was “committed to partnering with EA Sports FC . . . for years to come”.

Europe’s Uefa, which organises the elite Champions League tournament, and Conmebol, organiser of South America’s Copa Libertadores, also voiced their support.

EA’s sports portfolio also includes partnerships with Madden NFL for American football; ice hockey’s National Hockey League; Formula 1 car racing; and UFC for mixed martial arts competitions.

Lifestyle simulation game The Sims 4 and Apex Legends, a free-to-play battle royale mobile game, are among EA’s other popular titles. In April last year, it acquired games publisher Glu Mobile for $2.4bn, best known for its Kim Kardashian animated role-play game.

Move backed by Bernard Arnault and Tikehau will create new player in European entertainment

French entrepreneur Stéphane Courbit will take his television production company Banijay and online sports gambling group Betclic public via a Spac backed by prominent investors, including Bernard Arnault and Vincent Bolloré.

The deal gives the new company, FL Entertainment, an enterprise value of €7.2bn, or €4.1bn in equity value. The shares will begin trading on Euronext in Amsterdam on July 1.

The move will allow Courbit, a savvy 57-year-old investor whose early success was in reality TV shows, to list the businesses he has spent more than two decades building via debt-backed acquisitions.

Banijay is one of the biggest independent TV content producers outside the US with €2.8bn in sales and €433mn of ebitda last year, having benefited from a hot market driven by the growth of streaming services.

It owns a sprawling network of production companies that turn out reality shows such as MasterChef and Temptation Island, as well as scripted dramas such as Versailles. But the €2bn acquisition of Endemol Shine announced in 2019 left it needing to raise €2.4bn of debt just as the pandemic hit Europe, shutting down TV production.

The other part of the business is the fast-growing Betclic, which is licensed to operate sports betting in France, Italy, Poland and Portugal and is looking to expand internationally. It brought in €700mn in sales last year, making it much smaller than UK rivals Flutter Entertainment and Bet365.

“It is time to move to the next stage for Banijay and Betclic,” Courbit said in an interview. “Both the content production and sports betting are globalising businesses where scale is important and the listing will allow us to grow further and consider more acquisitions.”

FL Entertainment will merge with a Spac called Pegasus Entrepreneurs, one of three such vehicles founded by Tikehau Capital, a European asset management company, and Financière Agache, LVMH founder Arnault’s investment company.

Existing shareholders in Banijay and Betclic, such as Bolloré’s Vivendi, the Monaco-owned fund Société des Bains de Mer and billionaire Marc Ladreit de Lacharrière’s Fimalac, have agreed to reinvest in the new company and will own 20 per cent, 10 per cent and 7 per cent of the share capital respectively.

The Spac deal will raise €250mn from “Pipe” financing — discounted shares sold to institutional investors — as well as €250mn from Courbit’s company Financière Lov, taking the total including a non-redemption agreement to more than €600mn in cash commitments.

Spacs, or special purpose acquisition companies, are shell companies that raise money from investors and list on the stock market. Their sponsors then search for a private company to take public through a merger. They experienced a surge of popularity in the US starting in 2020, but have since attracted regulatory scrutiny and criticism from sceptics who have said they lead to hyped valuations and sponsors enriching themselves.

Courbit said his planned listing via the Pegasus Spac was different because the sponsors were putting more money in, rather than cashing out. He argued that the transaction was a faster and more efficient way to reorganise and list the businesses than a traditional initial public offering.

The newly listed entity will have a stronger balance sheet, he added, cutting its net debt-to-ebitda ratio to between 3 and 3.5 times, from more than 4 times today.

He said the company could eventually look to add a new business line in addition to TV content production and sports betting. “We will be opportunistic on acquisitions,” he added.

A soft landing in the US is possible but unlikely

It is optimistic to think that a significant recession will not be needed to curb inflation, as is the belief that one can be avoided

“Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.” Thus did Jay Powell, chair of the Federal Reserve, open the press conference that followed the meeting of the Federal Open Market Committee last week. This was a grovelling apology. But it also sounded rather like Mario Draghi’s celebrated “whatever it takes” remark of July 2012.

What does the Fed’s renewed commitment to low inflation signify for the future? Powell argued optimistically that “we have a good chance to have a soft or softish landing”. By this he meant that demand would be brought closer to supply, which could in turn “get wages down, and get inflation down without having to slow the economy and have a recession and have unemployment rise materially”. He also argued that “the economy is strong, and is well positioned to handle tighter monetary policy . . . but I’ll say I do expect that this will be very challenging”.

The most puzzling thing about this line of argument is not the admission that the suggested path will be hard to achieve, but the belief that it will reach its destination. Is it even possible to lower inflation to target just by trimming overheating of the labour market?

Some suggest it might be. Alan Blinder of Princeton University and former Fed vice-chair has recently noted that on at least seven of the last 11 occasions, Fed tightening did lead to “pretty soft” landings. The difficulty with these comparisons is that inflation is now at its highest level for 40 years. Even “core” annual consumer price inflation (without energy and food) was 6.5 per cent in the year to March 2022.

If one believes this will just fade away after a modest tightening, one must still think inflation is mostly “transitory”. That is highly optimistic. Crucially, the US has enjoyed an exceptionally vigorous recovery. Output growth last year was far stronger than in other leading high-income countries. The recovery of the labour market has been robust, with high vacancy and quit rates and a swift return to low unemployment. Only employment ratios remain a little below previous peaks. Moreover, wage growth has also been strong, as Jason Furman, former chair of the Council of Economic Advisers, notes, though it has been slowing a little.

The difficulty is that, contrary to Powell’s protestations, inflation does not usually just fade away in such a strong economy. Undoubtedly, a part of measured inflation is due to domestic and global supply constraints, discussed in detail in the Economic Report of the President last month. But this is also a way of saying that excess demand is now pressing on supply at home and abroad. If Powell is to prove correct, supply constraints must at least get no worse, while companies and workers adversely affected by them must take the reduced profits and real incomes on the chin. Yet why should they do so? As Furman notes: “The 8.5 per cent increase in the consumer price index in the 12 months through March is much faster than the pace of nominal wage growth, leading to the fastest declines in real wages over a year in at least 40 years.” Conditions for a cost-price spiral now exist. The hope must instead be that supply and labour market constraints reverse, generating falling prices and so eliminating almost all of the need to regain lost incomes.

This view that a significant recession will not be needed to curb inflation is optimistic. But this is not the only form of optimism on display today. The other is the belief that such a recession can be avoided. The difficulty here is that fine-tuning a slowdown will be even harder than it normally is. One uncertainty is that reduced real incomes from high inflation are likely to curb demand, but how far they will do so depends on how willingly consumers spend savings built up during the Covid-induced recession.

Another and probably more important uncertainty is over how tighter monetary policy affects financial conditions in the US and abroad. One must not forget that there are exceptionally high levels of dollar-denominated debt across the world. Moreover, asset prices have also reached extreme levels: US house prices (measured on the S&P/Case-Shiller National Home Price Index, deflated by the consumer price index) in February 2022 were 15 per cent higher than before the financial crisis; and the cyclically-adjusted price/earnings ratio on stocks was higher than in any period since 1881, except for the late 1990s and early 2000. Collapses in asset prices in response to monetary tightening would turbocharge Fed policy, but unpredictably. Even modest Fed action has had large impacts: expected interest rates have jumped and markets have hit turbulence. Is what we have seen the end of that upheaval or, as seems more likely, only its beginning?

Except for historians, it may be idle to ask how we got into this pickle. Obviously, it is partly due to unpredictable shocks. But policymakers have been too optimistic about inflation. They should have started to normalise a monetary policy introduced in an extraordinary crisis once the worst had passed. The Fed is removing the punch bowl too late.

It is, alas, quite likely that a recession will now be needed to keep inflationary expectations under control. Moreover, even if it turns out to be unnecessary, because inflation just fades away, a recession may still occur, simply because even a modestly tighter policy wreaks havoc in today’s fragile asset markets. But the Fed has to sustain its battered credibility on inflation. That is the heart of the central bank’s mandate. It must screw up its courage and do what it takes.

Plus, fuel prices go haywire

One thing to start:

Ending dependence on Russian gas could cost Germany 12 per cent of its GDP.

The news from equity and bond markets has been grim, pointing to mounting fears of recession. On Monday, the bearish news hit oil and gas prices too. International benchmark Brent settled at $105.94 a barrel, down 6 per cent, and US natural gas prices — which had been ripping higher in recent weeks — also had a bad day, dropping 12 per cent to settle at $7.04 per million British thermal units. (That’s what happens when you write about a market rally the week before.)

In Energy Source today, Amanda Chu picks up an intriguing Environmental Defense Fund study showing that oil companies diversifying their assets to look greener are often just selling them to operators under less scrutiny. Meanwhile, as gasoline and diesel prices soar across the US, Justin Jacobs shows who is winning: refiners. They’re coining it right now.

I’ll be in Alberta next week, reporting on Canada’s energy sector. Email me if you have time to meet up: derek.brower@ft.com.

Thanks for reading.

Derek

This article is an on-site version of our Energy Source newsletter. Sign up here to get the newsletter sent straight to your inbox every Tuesday and Thursday

As oil and gas majors make new climate commitments, they’re dumping billions in dirty assets to private, less climate-friendly operators.

A new report by the Environmental Defense Fund looked at oil and gas deals over the past five years and found assets are increasingly moving away from public companies to private operators without climate commitments. 

It’s a trend that raises a pressing question: when a company sells its dirty asset, is it doing anything for the climate — or is it just another greenwashing move to clean its own portfolio?

The EDF data are stark. From 2017 to 2021, more than twice as many transactions moved assets away from companies with net zero targets, flaring commitments and methane goals than the reverse.

“We’re losing disclosure, we’re losing targets, and wells are ending up in the hands of operators that have no intent to safely decommission them at the end of their life,” said Andrew Baxter, director of energy transition at EDF and one of the authors of the report. 

Today’s EDF report confirms and quantifies a long-suspected problem in oil and gas asset sales. While selling assets to private companies will clean up public companies’ portfolios, it comes at the expense of weakening climate governance and risking an increase in emissions. 

In the case of Shell, Total and Eni’s Umuechen oilfield sale to Trans-Niger Oil and Gas, a private operator, the report found that flaring activity increased over 700 per cent after the deal was completed, increasing carbon dioxide and methane emissions. Unlike the previous owners, Trans-Niger Oil and Gas has made no commitments to cut that pollution. 

“That has real-world implications for the energy transition and all the people that live near the oil and gas wells,” said Gabriel Malek, project manager at EDF,

Eni said it did not consider asset sales to be a tool to reduce emissions. The company pointed out it was not the operator of the field, but that it was collaborating with EDF and its peers “to promote adoption of clauses related to methane emissions reduction and reporting criteria”. Eni has made commitments to reach zero flaring by 2025 as part of its strategy to achieve carbon neutrality by 2050.

Oil and gas operators sell assets for many reasons, including to boost cash flows to pay for dividends and share buybacks, to pay off debts, or to raise money to spend on clean energy projects. Cleaning the portfolio is a more recent motivation.

Traditional oil and gas dealmaking may not be compatible with a net zero world, argue the EDF authors. Ensuring safeguards are in place when private operators take on assets will be important to close this transferred emissions blind spot.

To ensure climate stewardship endures beyond the deal’s completion, the authors of the report recommend rules requiring climate disclosure commitments from private buyers, applying the same emissions-reduction standards even after the asset is sold, and ensuring buyers can afford to decommission wells at the end of their life.

“Once these assets move off the books, it’s going to be very difficult to get them on the books again within public disclosure and public scrutiny,” Baxter said. (Amanda Chu)

Data Drill

Oil markets have been jumpy this year. But if you thought things were volatile in crude, take a look at what’s been happening in fuel markets of late. Prices have gone haywire.

As I reported over the weekend, plunging inventories of diesel and other fuels — combined with strong demand, high exports and virtually no spare refining capacity — have sent fuel prices leaping higher.

Refiners are struggling to turn out enough fuel to keep up with the post-coronavirus pandemic demand surge and loss of Russian supplies.

One key indicator (warning, some industry jargon ahead): the US Gulf Coast 3:2:1 crack spread — essentially the amount a refiner gets for the fuel it sells above the price of crude it buys to make it and a sign of refiners’ profit margins — hit all-time highs of more $60 a barrel over the past week. Gasoline crack spreads are following higher to encourage refiners to start turning out more of that fuel ahead of the busy summer driving season in an inflationary fuel price spiral.

It is making for a profitable time for refiners but a costly one for consumers. The surge in refiners’ share prices tells the story. So will the price at the pump next time you go to fill up. I know I’ve noticed here in Houston that petrol prices have risen sharply over the past couple weeks even without a big jump in crude prices. (Justin Jacobs)

Ukrainian economy is expected to contract 30% this year, development bank says

Russian missiles struck the Ukrainian port city of Odessa overnight, local authorities said, killing one person and wounding others, and confirming expectations that Russia would intensify its offensive in Ukraine as it celebrates victory in World War II.

The strikes began after Russia paraded military hardware through Red Square on Monday and as fireworks lit up the sky over Moscow during celebrations to mark Victory Day, an annual holiday marking the defeat of the Nazis that President Vladimir Putin has seized on to promote the aims of his war in Ukraine.

United Nations monitors said Tuesday they had corroborated 7,061 civilian casualties across Ukraine since Russia invaded it on Feb. 24, with 3,381 people killed and 3,680 injured. The death and injury toll is certainly greater, according to officials with the U.N. Human Rights Monitoring Mission in Ukraine, which said it has also received reports of unlawful killings and other abuses.

“Many of these allegations concern violations that may amount to war crimes,” mission head Matilda Bogner told reporters in Geneva.

Mr. Putin’s Victory Day speech on Monday included no major political announcement after widespread speculation he could declare war on Ukraine or mobilize Russia’s male population for a campaign that continues to stall despite having largely been narrowed to Ukraine’s east.

Russia’s forces instead appeared to step up their bombardment of cities including Odessa and continued their advance on Mariupol’s Azovstal steel plant, the final holdout of Ukrainian fighters defending a city now almost completely under Russian control.

“Shelling, air [strikes], all night,” Svyatoslav Palamar, deputy commander of the Azov battalion defending the plant, told the Ukrainska Pravda newspaper. “We have lots of wounded, and they need evacuating.”

The governor of Ukraine’s Donetsk region said more than 100 civilians remained in the plant. Most of the others have been evacuated under a U.N.-brokered deal in recent days.

The main ground offensive continued in Ukraine’s east, where government forces have been staging counteroffensives near Kharkiv. Russian troops said they had solidified control around Popasna, a town they captured this week.

Russia has billed its war in Ukraine in large part as a campaign to demilitarize the country, justifying long-range strikes against military infrastructure as a way of destroying weapons stockpiles and supplies provided by Western allies. Ukraine has provided ample evidence that many of the objects hit have been civilian buildings not connected with efforts to shore up its defenses.

Russia has denied targeting civilians in Ukraine.

Among the objects struck in Odessa overnight was a shopping mall and a consumer-goods warehouse, according to Ukraine’s southern military command.

“The enemy continues its psychological pressure and such hysterical attacks on civilian residents and civilian infrastructure,” the Ukraine command said in a statement.

A video posted online by Ukrainian forces showed the warehouse burning and teams of firefighters working to extinguish the flames and clean up the area.

Gennady Trukhanov, the mayor of Odessa, toured the ruins of the warehouse that was struck by Russian forces. Because of a curfew in place to discourage people from leaving their homes ahead of an expected escalation in fighting around May 9, there were few people in the area, authorities said.

“This enterprise had nothing to do with military infrastructure,” Mr. Trukhanov said in a video posted to his Facebook page, as workers cleaned up the debris behind him. “This is how the Russian world congratulated hero city Odessa on May 9.”

Also Tuesday, Europe’s leading development bank projected the Ukrainian economy to contract 30% this year, much more sharply than previously forecast, because of continuing damage from the Russian invasion.

The European Bank for Reconstruction and Development in late March had predicted a 20% contraction in the war-torn nation.

Ukraine’s economy had been growing at 3.4% in 2021 before Russia invaded, the bank said in its report.

The economic disruption is extending to Ukraine’s energy sector. The country has nearly exhausted its gasoline supplies for civilian use following attacks by Russian forces on its energy infrastructure, Economy Minister Yulia Svyrydenko said.

Most gas stations are limiting motorists to 10 liters of fuel at a time, or just over 2.6 gallons. Some have lines stretching a quarter-mile long.

Ukraine has roughly 20 days of gasoline supplies and five to six days of diesel supplies available for the general public, said Ms. Svyrydenko, who is also the country’s deputy prime minister.

In Washington, the House of Representatives was expected this week to take up a nearly $40 billion U.S. aid package for Ukraine to help the beleaguered nation fight against the Russian invasion and sustain its economy, according to Democratic aides.

“I call on Congress to pass the Ukrainian Supplemental funding bill immediately, and get it to my desk in the next few days,” President Biden said Monday.

Much of the money would go to providing additional military supplies to Ukraine, as well as to neighboring countries as part of broader North Atlantic Treaty Organization efforts, according to the original White House request.

The White House is also asking for $1.2 billion for the Department of Health and Human Services to aid Ukrainians entering the U.S., including for English language education, job training and mental-health services.

The package can pass the House with a simple majority, but in the Senate it needs Republican support and at least 60 votes. The Senate hasn’t agreed to the package the House plans to vote on.