Yesterday we covered Activision-Blizzard’s third quarter financial results, which were… not good. While WoW Classic drove a subscription spike and saw Blizzard’s MAUs finally rise by 1M, the company on the whole saw its third consecutive quarter of plunging revenues and spent most of its investor call airtime reassuring analysts that its upcoming pipeline is sound.
Consider that, then, when you read The Washington Post’s latest piece on Activision-Blizzard. On November 6th, WAPO released an investigative article on the company’s stock buyback plan from just two years ago, putting it in the context of other such corporate deals across the US. The paper writes that in early 2017, Bobby Kotick and other executives promoted a $1B stock buyback program that resulted in insiders selling their shares back to the company as hungry investors gobbled them up; Kotick himself sold 4M shares, over $180M, just a slice of the $430M generated by the top five Activision execs in their sell-off. The end result is that the company hadn’t actually purchased anything by the time it ended the buyback, but the stock’s value had been driven up even as execs were cashing out at that inflated value.
WAPO makes clear that these kinds of schemes are “surprisingly common” and not technically against the law. “The trading plans, allowed by SEC rules, are intended to give insiders flexibility to arrange trades in advance on a regular schedule during the course of a year, or even longer,” the article says. “They give executives protection from insider trading charges as long as the plan is adopted when they are not in possession of insider information.”
However, the paper also quotes a Harvard law professor, who points out that companies are intentionally misleading investors by essentially “giving the market false information, then profiting from it by selling” when they begin a buyback plan knowing they won’t be repurchasing anything. One analyst called it a “triple dip.” And SEC Commissioner Robert Jackson went further, deeming the practice, which took off in 2003 following a change in the SEC’s rules, “market manipulation.”
Jackson, along with US senators on both sides of the aisle, have demanded a rethink of the rules governing these trades, and yes, there’s open government legislation on banning these types of buybacks altogether. According to WAPO, the SEC Chairman, Jay Clayton, refused to comment for the piece and has previously “challenged the view that the safe harbor may be promoting excessive buybacks.”