The CFIUS Review That Will Never Be

Earlier this week, the video game studio Electronic Arts (EA) announced it had reached a deal to be acquired by a consortium of investors—Silver Lake, Affinity Partners, and Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund—for $55 billion. While the prospective transaction is making headlines for the eye-watering numbers involved—it would be the largest leveraged buyout in history—there’s been remarkably little discussion of the fact that PIF’s role in the deal presents potential dangers to U.S. national security. Unfortunately, the involvement of Affinity Partners—an investment fund founded and managed by Jared Kushner—means these dangers are unlikely to be meaningfully considered or confronted by the federal government.

The Target: Video Games and Beyond

To many, it would seem unlikely that acquisition of a company like EA could endanger national security. What could a video game developer—albeit a tremendously popular one—offer a country seeking to move up the global chain of influence? But as the TikTok saga illustrates, seemingly innocuous companies can present a real threat to U.S. interests if in the wrong hands.

EA is a California-based company best known for its video game franchises, which include EA FC (formerly FIFA), Madden NFL, and The Sims. Many of its games are multiplayer, allowing real-time gameplay and interaction with others across the world. Among its library of products, EA also has a number of live service games that are continuously updated in an effort to drive long-term player engagement. These products are monetized through in-game purchases, expansion packs, and subscriptions. While EA has a strong presence in the United States, its products are consumed internationally. In 2023, it was reported that the company’s player network had reached 700 million players. Thus, as was the case with TikTok, EA is likely to have access to a treasure trove of user data.

Recently, the company has noted its plan to “evolve from games to platforms, from products to communities.” By progressing with this mindset, EA predicts it could increase its global audience to “well over one billion persons” by 2030. The company is actively in the process of building social platforms. At its 2024 Investor Day, it announced progress toward creation of a new The Sims universe that will contain a robust social networking element. On the same day, it launched the EA Sports App, a free-to-download application that essentially functions as a sports-focused social media platform. If successful in these efforts, EA will dramatically expand its already-robust trove of user data. The company’s efforts are buttressed by its significant work with artificial intelligence (AI). It has engaged in significant study of the ways AI can be used to improve realism in game graphics; to engage in intricate predictive analysis; and to produce interactive 3D images from simple voice, text, or picture prompts. Indeed, as of September 2024, the company had over 110 “active novel AI projects.”

The Purchasers: Private Equity, Foreign Influence, and Geopolitics

Three specific investors are set to acquire EA. First is Silver Lake, a U.S.-based private equity firm. Focused on investment in technology, Silver Lake has over $110 billion worth of assets under management (AUM), making it the 15th largest private equity firm in the world. These assets are spread across over 72 portfolio companies, including Peloton, GoodRx, Klarna, and Qualtrics. Silver Lake is no stranger to transactions that draw national security-related scrutiny. In 2018, upon advisement from the Committee on Foreign Investment in the United States (CFIUS), President Trump halted an attempted takeover of Qualcomm (a U.S. chipmaker) that would have been financed in part by Silver Lake. More recently, Silver Lake is part of the consortium of investors set to purchase a significant stake in TikTok’s U.S. operations.

The second investor is Affinity Partners. This U.S.-based investment firm was formed in 2021 by Jared Kushner, President Trump’s son-in-law, shortly after he exited his position in the first Trump administration. Of its $4.8 billion AUM, at least $2 billion is investment capital contributed by PIF. Like Silver Lake, Affinity Partners has also drawn national security-related scrutiny, albeit regarding its investor base. In particular, for many, the firm’s significant investment from PIF—despite Kushner’s complete lack of experience in private equity—appeared to be quid pro quo for Kushner’s support of Crown Prince Mohammed bin Salman during his time as senior adviser to President Trump. As a result, the House Oversight Committee opened an investigation in 2022 to determine whether Kushner’s “personal financial interests improperly influenced U.S. foreign policy” during the first Trump administration. The scrutiny did not end there. In 2024, the Senate Finance Committee launched an investigation into Affinity Partners over concerns that the firm’s collection of exorbitant management fees despite lack of returns and investment activity indicated it was being used to funnel payments from foreign governments to the Trump family in return for political favor. 

The third investor is PIF, the sovereign wealth fund of the Kingdom of Saudi Arabia. With almost $1 trillion under management, the sovereign wealth fund publicly states its investment activity is calculated to assist in the diversification and development of Saudi Arabia’s economy as well as realize Vision 2030, Prince Mohammed Bin Salman’s audacious plan to modernize the Saudi culture, society, and economy. Along with a number of prominent investments (including in the NEOM megaproject, Riyadh Air, and Lucid Group), the sovereign wealth fund has pointedly pursued opportunities in gaming and e-sports. In some host states, PIF’s international investments have been met with hostility. For instance, its recent foray into the world of sports and entertainment has led to a deluge of criticism, beginning with accusations of attempts at reputational rehabilitation through “sports-washing” and ending with claims such activity is intended to cultivate global soft power and, therefore, geopolitical influence.

While the precise post-acquisition equity split between the consortium investors is unclear, the Financial Times has reported Silver Lake and PIF will walk away with the biggest bites of the apple. The transaction will be partially financed through $20 billion of debt, likely secured against EA’s assets. The remainder of the acquisition price—roughly $36 billion—will come out of the pockets of the investors. Affinity Partners is expected to end up with roughly 5 percent of EA’s equity. This outcome is unsurprising, given the weight of Silver Lake (AUM $110 billion) and PIF (AUM $930) when compared to Affinity Partners (AUM $4.8). Of the remaining equity, it is reported Silver Lake will make out with a large minority stake. Thus, PIF, which already holds a 10 percent stake in EA, is expected to emerge as a large majority shareholder once the transaction closes.

The Threat: Foreign Influence, Surveillance, and the Acquisition of Critical Tech

PIF’s increased investment in EA is unlikely to be motivated by financial returns. As an investment, EA equity is not only risky but has consistently been massively outperformed by the S&P 500 (compare EA’s 37 percent growth over the 5 years preceding Sept. 25 with the S&P 500’s 100 percent growth during the same period). What’s more, the total value of the company’s publicly traded equity prior to reporting of the proposed transaction was $42.8 billion. Thus, the investors will purchase EA for more than $10 billion above its trading value. While it’s possible PIF has faith that EA will one day provide blockbuster returns, its historical performance is well below the broader equity market. Thus, it is reasonable to assume that nonfinancial factors are driving the sovereign wealth fund’s involvement in this deal.

While PIF itself admits that its investment activity is motivated by factors beyond financial return, this honesty should not ameliorate concerns regarding foreign influence. Vision 2030 seeks to reinvent Saudi Arabia’s reputation and role in the broader international community. By inserting itself into worlds of sport and gaming, it is at once attempting to erase its abysmal human rights reputation while lodging itself within a culture that deeply resonates with a wide international audience. The games produced by EA are a significant part of that culture. Thus, at minimum, this transaction should raise alarm regarding the capture of U.S. cultural institutions by a foreign state. Once captured, these institutions become conduits for soft power, enabling foreign state captors to cultivate and exert influence over U.S. audiences. Such concerns are not unprecedented. Similar worries arose in 2023 regarding the proposed merger between the PGA Tour and PIF-funded LIV Golf, ultimately leading to a formal Senate investigation into the deal.

Looking beyond PIF’s stated goals, this acquisition should raise red flags regarding national security. Post-acquisition, it is likely PIF will have unchecked access to EA work product and strong influence over its activities and broader direction. One of the most significant features of the prospective transaction is that it would transform EA from a public company into a private company. In the United States, publicly traded companies must comply with arduous reporting requirements imposed by the Securities and Exchange Commission. These requirements oblige companies to engage in regular reporting regarding their activities, financial situation, and investor base. This reporting gives the public—and the government—insight into the activities of the firm and the relationship of the firm to its various investors. Private companies do not have the same reporting requirements. Thus, the acquisition is likely to transform EA into a black box. When this factor is coupled with what will likely be a material increase in PIF’s equity in the company, PIF will have much more direct and unchecked access to the company’s information assets and work product. Moreover, it will have greater influence over the way the company uses its capabilities and the direction in which those capabilities will be developed. This shift in PIF’s relationship with EA has the potential to harm U.S. interests and its broader national security posture in a number of ways.

Most obviously, EA can be used by Saudi Arabia to surveil and influence its users. There is little doubt that EA has harvested terrific amounts of data from its hundreds of millions of users, many of which are U.S. citizens. In its 2024 investor day, EA reported that its users had spent over 13 billion hours playing its games in the preceding 12 months. This interaction with EA’s products (including elements of connecting with other players and ongoing purchases) has certainly enabled the company to gain real insight into its consumers, their relationships, and their daily lives. This level of access also allows EA to influence its consumer’s perceptions and desires. With its plan to transition games into interactive platforms, EA is positioned to materially expand this access and influence. In the hands of investors motivated by profit, this capacity would not necessarily be alarming. However, in the context of this transaction, it should be taken seriously. Going private under significant equity ownership of PIF would leave the company completely vulnerable to Saudi Arabia’s efforts to access and exploit EA’s connection with its players. The country’s reputation for repression and surveillance indicates that, post-acquisition, EA may graduate to facilitating Saudi data collection, surveillance, and propaganda through its products.

But the red flags don’t end there. Artificial intelligence is an integral component of EA’s operations. Any acquisition of EA would entail acquisition of the AI it relies on in the creation and improvement of its products. Moreover, it would entail acquisition of the company’s research findings related to generative AI and machine learning. Assuming at least some of its employees stay on following the transaction, it would also entail acquisition of tremendous institutional knowledge and capability in the realm of artificial intelligence. The United States considers AI to be a critical technology. Thus, U.S. capability in this space should not only be honed but protected. The acquisition of EA by PIF threatens a transfer of this technology and institutional knowledge to Saudi Arabia. While Export Administration Regulations do limit the transfer of certain AI models, it is unclear whether these regulations extend to the AI used and developed by EA, let alone whether these regulations can practically be enforced. What’s more, in the absence of oversight and safeguards, such regulations are likely to fail at preventing the intracompany transfer of knowledge needed to build or tweak powerful new AI models.

The danger posed by this aspect of the acquisition is exacerbated by the fact that Saudi Arabia has made a concerted effort to become a global leader in AI. This year, Saudi Arabia launched a new company with PIF funding: Humain. The company is expected not only to produce its own AI models but also to invest across the AI value chain, including in next-generation data centers in the region. Since its launch, Humain has announced partnerships with a variety of heavy hitters in the realm of artificial intelligence (including AMD and Groq), all intended to bring its capability and infrastructure to the next level. Perhaps most striking of these deals is a strategic partnership with Nvidia that will see the sale of 18,000 chips to Humain, a partnership the Trump administration facilitated by loosening restrictions on the exportation of advanced chips to Saudi Arabia. In late August, Humain’s CEO stated that Saudi Arabia sought to become “the third-largest AI provider in the world, behind the United States and China.” These actions establish that Saudi Arabia is making a concerted effort to master a critical technology that can shift the international balance of power. In the zero-sum game of geopolitics, any advance it achieves on this front is dangerous to the United States. This is especially so if that advance comes from taking ownership of endogenous U.S. technology. Against this backdrop, PIF’s acquisition of EA should certainly raise concerns for the United States.

The Law

Theoretically, federal law contains a mechanism that would force the federal government to consider these risks and—if determined to be real—mitigate them. Specifically, the Committee on Foreign Investment in the United States was established to consider whether foreign investment in U.S. companies could potentially endanger U.S. national security. CFIUS was created in 1975 by executive order. In 2007, Congress formally codified the existence of the committee. An interagency committee led by the Department of the Treasury, CFIUS fulfills its mandate by reviewing the details of transactions of concern. This mandate extends not only to deals that have yet to close but also to deals that have already closed. While not all transactions involving foreign investment in U.S. companies are reviewed by CFIUS, characteristics of the EA acquisition indicate it should be.

Federal law mandates that, where transactions involving foreign investment have certain characteristics indicating they present a heightened threat to U.S. national security, the parties involved must file a declaration with CFIUS providing the committee with information regarding the transaction. Specifically, mandatory declaration requirements apply to deals through which a foreign government ends up with a voting interest of 25 percent or more in a U.S. business that has collected or maintained sensitive personal data on greater than 1 million individuals in the preceding 12 months. Sensitive personal data includes certain financial information, nonpublic electronic communications between customers, and data related to mental or psychological health. The mandatory declaration requirements also apply to deals through which a foreign government ends up with a voting interest of 25 percent or more in a U.S. business involved in the production, design, testing, or development of critical technologies. Critical technologies include artificial intelligence.

Given that EA collects and maintains sensitive personal data on a massive scale and is involved in the testing and development of artificial intelligence, and PIF will acquire a stake in EA that likely exceeds an aggregate 25 percent voting interest, there is more than one legal basis to reasonably assert the acquisition of EA must be disclosed to CFIUS.

Generally, once a declaration has been made, CFIUS will review the relevant transaction. Through this process the federal government will consider the ramifications of a deal for U.S. national security. If CFIUS concludes the deal presents real risks, it must determine whether these risks can be mitigated through measures that are “reasonably calculated to be effective, verifiable, and monitorable for as long as necessary” to ameliorate the risk. Mitigation can come in many forms, including establishing internal firewalls to separate the foreign investor from sensitive information; appointing a “proxyholder or voting trustee to represent the foreign investor in the business’s governance”; or appointing a board observer to monitor and report on board-level compliance with such measures. 

Whether mitigation measures are imposed by order, agreement, or condition, CFIUS will monitor compliance with such measures for as long as risk persists. Where the parties fail to meet their mitigation obligations, CFIUS has the authority to enforce compliance by fines—which can fall in the range of millions to billions—or other remedies. In contrast, if CFIUS determines the transaction poses a genuine national security risk but mitigation is not feasible, it may refer the transaction to the president for consideration. The president will then make the final decision regarding whether to block the transaction, institute alternative mitigation measures, or allow the transaction to proceed undisturbed. 

A Safe Harbor?

While CFIUS review generally presents a real anxiety for parties to transactions of concern, the specter of CFIUS review is wholly theoretical to those involved in the acquisition of EA. It is likely that CFIUS will be powerless to confront the national security risks this specific transaction presents—political reality undermines any possibility of mitigation or blocking. Thus, for all intents and purposes, the transaction is unlikely to undergo a real CFIUS review.

Jared Kushner’s involvement essentially forestalls any adverse federal treatment of the deal. In a political environment characterized by cronyism and blind loyalty, it is unlikely that CFIUS would or could pursue any action to mitigate risks or block the acquisition by President Trump’s son-in-law.

It seems unlikely that any of CFIUS’s agency members would wish to stick their necks out to pursue mitigation measures, let alone to monitor and enforce their proper implementation. For each committee member, their agency mandate is far broader than participating in CFIUS. Given President Trump’s close relationship with Kushner and his penchant for politically motivated reprisals, pursuing mitigation risks political capital that may be better spent achieving goals more central and important to members’ agency mandates. Thus, it is likely that CFIUS will avoid engaging in the mitigation process with respect to acquisition of EA. 

Recommending the transaction to the president triggers the same concerns regarding reprisal and loss of political capital but with less upside—the ball of confronting the threat to national security rests entirely in the president’s court. As indicated above, the executive is not obliged to comply with recommendations from CFIUS. If the executive wishes to, they can allow a risky transaction to proceed without any interference. Regardless of the national security implications posed by the acquisition of EA, it is highly likely that President Trump would brush off any recommendation to block the transaction. Preemptively anticipating this outcome, it is unlikely that CFIUS would recommend blocking the transaction in the first place. 

Interestingly, the role of Affinity Partners as a safe harbor from CFIUS action may very well have been a major factor driving the firm’s inclusion in this transaction. When considering ordinary metrics, Affinity Partners has relatively little to offer the deal. Its assets under management are paltry when compared to its compatriots. Moreover, Kushner is not known for his business acumen or for the returns he has provided to his investors thus far. What’s more, given PIF’s substantial investment in the firm, Affinity Partners is essentially an extension of PIF. Why would PIF welcome Affinity Partners into the acquisition if it was already set to directly invest? The answer may very well be the safe harbor offered by Kushner’s involvement.