[Podcast] News #56 - Asmodee has ditched X-Wing - What is going on over there?

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In my last show about Steamforged Games, I playfully suggested that Steamforged’s private equity investors might see Asmodee as their possible exit strategy. Practically as the words left my mouth, though, news broke that Asmodee’s parent company, Embracer Group, was splitting up operations and making thousands of employees redundant in the face of a $2bn dollar investment failure.

And if that wasn’t all bad enough, miniatures wargamers were stunned by the news that the X-Wing Miniatures game would cease development, along with the Star Wars Armada fleet battle game.

As Philip J Fry might say, I was shocked…well… not that shocked.

Asmodee really first hit my radar of consciousness back when they bought Fantasy Flight Games, snapping up not only X-Wing and Armada, but also Star Wars Legion and a host of other intellectual properties, licences and games. I should, strictly, say that Asmodee and FFG “merged” rather than that Asmodee bought FFG, but however you choose to frame it, Asmodee was very clearly the dominant partner in the group, spinning off FFG’s miniatures games into the brand new Atomic Mass Games operation, which became Asmodee’s new home for licensed miniatures games, including Marvel Crisis Protocol.

Until this merger, I had only barely heard of Asmodee, as just another Eurogame company. The FFG move was, in the greater consciousness of the markets, just one more acquisition by a business with the explicit objective of growth through acquisition. But to the more discerning observer, it was a sign of a larger strategic plan.

You see, not long before they bought FFG, in 2010, Asmodee had bought Esdevium. And whilst that’s hardly a name to conjure with, if you ran an independent gaming store in the UK in the 2000s and didn’t only stock Games Workshop, you will have pretty much relied on Esdevium to supply any miniatures game, collectible card game or hobby board game manufactured outside the UK. Esdevium was pretty much the only game in town - pun absolutely intended - when it came to serious game distribution in the UK.

And I say “serious” games to distinguish their work from the Parkers and MBs and Mattels of the boardgame world. I don’t want to suggest that Scrabble or Connect 4 or Hungry Hungry Hippos aren’t serious games. As my family can attest, I’ve never not taken a game seriously in my life. But Esdevium sat at the borderlands between mass market games and more specialist fare that appealed… well, let’s be honest, that appealed to people like you and me.

Asmodee had already set its sights set on the serious game market, with the French distribution rights for the Pokemon card game. But Esdevium was a declaration of intent. The only drawback was that they needed the capital to drive their ambitions for expansion. And, as we saw with Steamforged, last time, when ambitious companies want to do impressive things but don’t have the money… they turn to private equity.

PE firm, Eurazeo, acquired a controlling interest in Asmodee for €143m. Keep that number in mind. But it is worth remembering that, despite the numbers, that acquisition wasn’t considered sufficiently memorable to feature on Eurazeo’s Wikipedia page. By 2017, Eurazeo had total assets under management worth €16bn, so you will appreciate that Asmodee was relatively small fry.

Nevertheless, with their coffers filled with Eurazeo’s money and bolstered by their new parent’s access to even more money, Asmodee undertook a series of foreign investments that soon reached the other side of the Atlantic starting immediately with the FFG merger. The 2016 acquisition of Catan didn’t really make a splash in the miniatures game world, but in the wider picture, it marked Asmodee as a business with a serious interest in dominating the tabletop market right up to the edge of the mass-market games.

This paid off in 2018 when Eurazeo decided to cash out.

Remember that I said in the Steamforged Games episode that this is always the objective of any PE company: to inflate the value of their acquisitions by whatever means necessary to maximise their sale price. And in 2018, after just four years, Eurazeo sold Asmodee on to PAI Partners for €1.2bn. Pay attention. That’s an increase in value of over €1bn and a return on investment of almost 740%. If you ever wondered why PE firms do the soulless, bastardy, capitalist BS that they do, that’s your answer, right there. If I told you I could take your money and, four years later, give you back not the 2% compound interest you’ll get from the average retail bank, right now, but 700% interest - seven times the money you gave me - you would tell me that I was a huckster and a crook and was probably running a ponzi scheme, and you would most likely be correct. But that’s what Eurazeo did.

Three years later, PAI also cashed out to the tune of €2.75bn or a 177% ROI. Not as flashy as what Eurazeo did, but don’t let that distract you from the numbers: a 177% ROI is massive!

And we need to pause now from my scathing critique of late-stage capitalism as seen through the lens of toy soldiers, because we need to ask an important question that will very much inform where this story is going:

What was the difference between Asmodee as bought by Eurazeo for €143m and Asmodee bought by Embracer Group in 2021 for €2.75bn?

The company was bigger. It had acquired more intellectual property as well as some more, very valuable licences. From our perspective as wargamers, they released and grew Marvel Crisis Protocol and Star Wars Shatterpoint. They added bodies to their staff. They opened a few new offices.

But €2.75bn is more than nineteen times bigger and €143m. Was Asmodee nineteen times more profitable? Was it nineteen times more influential or powerful?

I don’t wish to denigrate the leadership of the business. I like a lot of what they did in that time. For a corporation with dreams of global domination they were actually pretty cool in how they handled their various sub-companies and branches and their partners like CMON whom I’ve talked about in a previous video and with whom they entered a sort of soft takeover, becoming the global distributor for most of their more valuable properties. But they had some hard cash dumps, too. Fantasy Flight Interactive and their other attempts to monetise digital versions of their properties were, for the most part, an expensive failure. A lot of production-intensive games that were, in themselves, excellent, failed to meet sales expectations and got canned.

I think it’s fair to say that they were not nineteen times more of a business than they were in 2014. So why were they seen by Embracer Group as being worth paying €2.75bn for? And in an aggressive takeover, too, because PAI was looking for only €2.1bn. Embracer powered into the dialogue and basically made PAI an offer they couldn’t refuse, well above the expected price.

Embracer made the purchase in 2021 but, by 2023 they were still carrying $1.5bn in debt, mostly thanks to the Asmodee acquisition. And in the latest news that Embracer Group is splitting up to essentially make Asmodee its own thing again, one of the scariest details is that all of that $1.5bn is going to be passed onto Asmodee so that the other components of the restructure can proceed debt-free.

Yikes.

Lars Wingefors, the Founder and CEO of Embracer Group, has made this move because, through their PE acquisitions, Asmodee has become what he called “highly leveraged”. Now, I’m not going to pretend I am a master of matters financial, but a highly leveraged business is one that is carrying more debt than is normal for its industry. So what Lars is basically saying here is that Asmodee’s business structure is already geared towards servicing the substantial debts it is carrying from its inflated PE acquisitions, so it can afford to take on more. And, well, that’s kind of true.

Debt for businesses in this situation, you see, aren’t debts like you and I might have debts. There’s no impatient lender, tapping their foot and waiting to get their money back. Debt in this scenario is an investment. Asmodee is carrying the PE investments of its many owners, who expect to have their annual dividends paid up. These aren’t debts that are ever going to be “paid off”. Individual investors recover their money not from the investment vehicle, but by selling their stake to other investors. So Lars is correct that Asmodee can technically afford to carry the $1.5bn in additional debt.

But what he glosses over is that, in order to deliver the profit numbers they need to in order to service those debts, Asmodee will have to make some brutal economies in the form of redundancies, shutting down teams and mothballing product ranges - not because these aren’t profitable, but because they aren’t profitable enough to meet their targets and so freeing up liquidity in headcount and real estate is the only way Asmodee can return enough to keep going.

So what does this mean for Asmodee?

Well, first of all, Asmodee’s life as the football of international moneybrokers is largely done. The company is going to be listed on the Swedish NASDAQ stock exchange. It is going into an Initial Public Offering and will be a public limited company, far less vulnerable to the predation of the Private Equity world. And whilst an IPO often generates a lot of ready cash for a business, Asmodee already has debts to its eyeballs, so that cash is pretty much falling out of their pockets the moment it goes in and certainly won’t help to shore up worthy projects targeted for downsizing.

Lars thinks Asmodee will be fine because revenue in the board games market is consistent and reliable and he’s not wrong. But the debt millstone on Asmodee’s neck will strangle innovation, investment and anything less than the least risky manoeuvres. Their consistent sellers, like Catan, are safe. But what about miniatures wargames?

If I have anything resembling a catchphrase on this show it’s that you don’t get into miniatures wargames to make money. And Asmodee has already given X-Wing and Armada the chop.

Armada is no big surprise. It was always a clunky game. Its chunky flight bases and tabletop crowded with counters has always made it a game for a certain breed of thoughtful, patient wargamer who is more interested in the process and the maths than in the spectacle. Whilst the branding gave it a certain instant appeal, its long-term prospects were always going to be limited.

It seems remarkable to see X-Wing go the same way, when the game was, for so long, a staple of wargaming clubs around the world. When it first hit the market, it was everyone’s favourite gateway game. I remember playing it on Christmas morning with my son and, although he never took to minis and instead threw himself deep into D&D 5, I still played occasionally with a small Rebel squadron. In fact, just recently I put the finishing touches to a TIE fighter conversion with the Mining Guild livery which you can see on my Instagram feed, or, in the video version of this episode, on your screen now.

But we’ve told this story at least three times before! Infinity, third edition. Warmachine, third edition. Guild Ball, Season 3. And now X-Wing. Games that become highly popular with competitive players will fail if their owners don’t take prompt, decisive action. Competitive play is the death of miniatures wargames. Even Warhammer 40,000 faced its darkest days in the period when it was most relentlessly subject to the tournament circuit which started, funnily enough, in its third edition… 40k recovered only once it returned to its more casual roots. X-Wing, which started as a fast, fun dogfighting simulator, really lost touch with this under the remorseless questioning of its competitive market. The original game - much like in our other examples - was still very much there but it became harder to play the game as an immersive experience as the rules were tightened and focused in pursuit of “balance” and fair competition.

Of course, X-Wing was probably still profitable. When this issue hit Corvus Belli, they designed their way out of the problem, because they had kept the vast majority of their production in-house and were carrying pretty much zero debt, so they had the freedom of manoeuvre they needed. When it hit Privateer Press, they were overextended in too many areas to recover from a series of mis-steps - but the game is still valuable, which means they can pass the IP and the baton to Steamforged Games to, I suspect, give the whole thing new life. When it hit Guild Ball, Steamforged dropped it like it was hot and focused on things that they could make money on. But as it was their IP, I wouldn’t be at all surprised if we saw it make a return to the tabletop, beyond its current, modest existence, in due course.

X-Wing, meanwhile, has the enormous benefit and drawback that it is a licensed intellectual property. Whilst the game itself was great, that wasn’t really what made it take off - pun, again, absolutely intended - compared to just having one of the world’s most influential sci-fi IPs tacked onto it. People would’ve bought X-Wing if it stank, because it was Star Wars.

The fact that it was also good meant that people kept buying it.

But once the people who would buy it just for the cool toys have already got their cool toys, the game has to keep being good. It isn’t something you can mothball for later or pass on to someone else to deal with, because you have some serious obligations to the licensor and if you screw those up, the penalty clauses are no joke!

And whilst the evolution of the game’s second edition wasn’t a bad game; the continuous expansion of the miniatures available combined with the ruthless tournament play circuit combined to make it increasingly difficult for the game to be any fun. And that’s a big problem.

Now, GW can somewhat get away with some of their games either now being or having historically been less than a barrel of laughs, because their business model is at least 50% just buying stuff and painting it and, if we’re honest, that’s probably closer to 75% of their business model. But X-Wing had the almost unique quality of selling pre-painted minis; and the definitely unique feature of those pre-painted minis actually being pretty good!

I, of course, love to re-paint my X-Wing minis because painting toy soldiers was always my first obsession. But for many people, the pre-assembled, pre-painted element was a key part of X-Wing’s role as a hobby gateway. Nevertheless, with no need to put time into painting, it meant that 90% of the hobby was the game. And if the game starts to be less fun, there’s nothing else for the dedicated hobbyist to do with their toys while they wait for it to be fun again.

So if we look at other miniatures games with similar issues, and if we look at how Fantasy Flight originally handled the game, you can see that the obvious solution would be a third edition re-release that gets the game back to its roots, moves away from the tournament scene, stops worrying about balance and hurls it back into the narrative place of a galaxy far, far away. But the timing on this is poor for both Asmodee and Disney. Disney’s custodianship of the Star Wars property has not been without its issues. Even if you put entirely to one side the salty wailing of white men who think it’s all gone “woke”, there’s no denying that it’s been hard to land a hit, and those hits that have landed - Rogue One, The Mandalorian, The Bad Batch and Andor being the entirely subjective list I would offer - have barely featured deep space dog-fighting at all, being far more geared towards the kind of interpersonal conflict that is better accommodated in Shatterpoint.

And Asmodee is, as we’ve already discussed, staring down a barrel of debt that is actively disincentivizing any kind of investment in a brand new product, with all of the costs that go along with such a thing.

It is this perfect storm of adjoining interests that add up to X-Wing being canned. From a commercial perspective there’s just no reasonable justification to do anything else.

So far, Star Wars Legion is still safe, as is Marvel Crisis Protocol and Star Wars Shatterpoint. These, of course, have the hobby side to sustain them. I have my own small collections of Legion and Shatterpoint minis despite not playing the games, just because the minis are great! I gather the games are pretty good, too. But I still haven’t finished painting my Star Wars Imperial Assault minis, so… It’s a long backlog. In terms of solid, consistent sales, I think we shouldn’t be too worried about losing any of those games imminently. Of all of them, Star Wars Legion is probably the most threatened, because it is in direct competition with Games Workshop, whose domination of the miniatures wargaming market continues to increase.

Asmodee’s situation is a reminder that capitalism doesn’t care about your hobbies. One of the reasons that Games Workshop games continue to prosper is that their presence in the market and their continued development are almost guaranteed by the fact that GW has near-100% control over its manufacturing, its design and its intellectual property. The iron grip of the Lenton Monolith provides a surety that your investment in their toys will continue to pay off ten, twenty or even thirty years into the future. Sure, your minis might look a bit dated by then, but an orc is an orc even when it’s an Orruk.

I don’t wish to incite a rush on the market or to encourage panic buying. But if you’re pondering whether to buy that box of Star Wars minis now or maybe next month, I would encourage you to get them now. If you love Star Wars games or just like the miniatures Atomic Mass Games is producing, just remember that the people who control the decisions don’t care at all about you and will turn those products off in a heartbeat if it means hitting KPIs for their bonus this year.