Is $300M for Tomb Raider and Deus Ex really that big of a steal?

When I heard that Square Enix had sold Tomb Raider, Deus Ex, and three respected game studios to Embracer Group for $300 million, I instantly became that guy who knows exactly how much everything is worth but can only back up his valuations with rhetorical questions. $300 million? For Tomb Raider? And Deus Ex? Are they serious?

It seems like a steal for Embracer, but in retrospect, just because my dad knows who Lara Croft is doesn't necessarily mean that the series is going to be profitable in the future. Sexy British artifact thieves are unfashionable—people want to play as miserable wretches named The Tarnished these days—and the kind of games Eidos Montreal and Crystal Dynamics are best at making are very expensive to produce.

Eidos Montreal studio head David Anfossi said in 2018 that Shadow of the Tomb Raider cost as much as $100 million to make, and another $35 million to promote. It was half-off during Steam's Autumn Sale the same year it released. It's hard to believe that's the future of videogame money-making when EA has made billions by combining random number generation and soccer players.

It probably did not help the Crystal Dynamics sale price that its attempt at one of those money-minting live service games, Marvel's Avengers, flopped pretty hard. Meanwhile, Square Enix had this to say about the celebrated singleplayer Guardians of the Galaxy game made by Eidos: “Despite strong reviews, the game's sales on launch undershot our initial expectations.”

They just can't win, can they?

Regarding the biggest properties Embracer Group will actually own after the sale, Tomb Raider and Deus Ex, we now have some of the numbers Square was disappointed about. Embracer Group says that the combined sales of Deus Ex: Human Revolution and Deus Ex: Mankind Divided come to over 12 million units, while the three Tomb Raider games from Crystal Dynamics and Eidos Montreal account for 38 million sales. 

I've seen a couple aghast comparisons between the $300 million spent on Lara Croft and Adam Jensen and the $1.3 billion spent on Gearbox, but Borderlands 2 alone has sold over 26 million copies. Borderlands 3 is at over 15 million, and then there are the spinoffs, and Gearbox's publishing business, and the movie its making, and its own back catalogue. Randy Pitchford's probably got a bunch of gold bars buried under the office, too. Just seems like something he would have. (It's also worth noting: $1.01 billion of that purchase is dependent on financial targets being met, “completion of certain projects,” and other conditions.)

Some of Embracer's other recent acquisitions

Koch Media ($96 million)
Year acquired: 2018
What they got: Eight external studios, publisher and developer Deep Silver (Saints Row, Dead Island, publisher of the Metro series) and its three internal studios, a physical game publishing business, and a film distribution business; 1,181 employees.

Coffee Stain Group ($34.9 million)
Year acquired: 2018
What they got: Goat Simulator, Satisfactory, a publishing wing (that went on to publish Valheim), 30% of Deep Rock Galactic developer Ghost Ship Games. Embracer also paid an undisclosed amount to buy the other 70% of Ghost Ship Games.

Saber Interactive ($525 million*)
Year acquired: 2020
What they got: 780 employees across five internal studios and three external studios, with 12 upcoming games. Original and licensed games such as Spintires: Mudrunner and World War Z and a ton of porting and co-development credits, including for Halo: The Master Chief Collection. *$375 million is contingent on “completion of certain projects” and other conditions

Embracer Group's big bet seems to be that the rest of the industry is so focused on trying to trap everyone in eternal virtual Disneylands and invent money that only works online that developers like Crystal Dynamics and series like Tomb Raider are being undervalued. Square Enix said it outright: It's going to use cash from this sale to invest in “fields including blockchain, AI, and the cloud.”

The North American triple-A tradition (games which involve squeezing through narrow cave passages and ventilation ducts) is far from dead, though. At last check, the 2018 God of War sold nearly 20 million copies on PlayStation alone, and now it's on Steam, too.

That kind of success isn't easily accomplished. $300 million might turn out to be a steal for Tomb Raider and Deus Ex, but if it does, it'll be because Embracer Group made smarter decisions than Square Enix did. Granted, Square Enix recently blew nearly $17 million on a streaming service it called Shinra, so maybe that won't be so hard.

Embracer hopes Eidos-Montréal, Crystal Dynamics, and Square Enix Montréal (the third studio in the deal, which makes the “Go” series of mobile games) will start out by at least breaking even on the strength of their back catalogs. If it made the right bet, it expects $50 million a year in operating profit after they start releasing new games. We know that Crystal Dynamics is working on a new Tomb Raider, but we're not sure what else the studios are up to, outside of maintaining existing games like Marvel's Avengers. I think we have to expect a new Deus Ex. Why buy Deus Ex if you're not going to make a new Deus Ex?

Now that I've thought about it, the most surprising thing about the acquisition to me is not the price, but that neither Microsoft nor Sony made this deal before Embracer. The back catalog alone would've been a boon for Game Pass, and what's $300 million to a company that's trying to buy Activision Blizzard for $68.7 billion? There were rumors that Microsoft was looking at a Square Enix acquisition last year, but Square Enix claimed at the time that no part of it was for sale and no one had approached it. They forgot to add a winky emoji, I guess.