The Oculus Acquisition May Cost Facebook $3 Billion, Not $2.3 Billion

by Joe Durbin • January 18th, 2017

Last week a lawsuit filed against Oculus and its management started its trial in Dallas, Texas. The suit is being filed by ZeniMax, an umbrella company that owns several high profile gaming studios such as Bethesda Softworks and id Software. The plaintiff alleges Oculus CTO John Carmack abused his former position at ZeniMax to give intellectual property to Oculus when it was just a fledgling startup.

This case is bringing all of the major Facebook/Oculus players to the stand including Carmack, Oculus co-founder Palmer Luckey, and Facebook CEO Mark Zuckerberg. Zuckerberg’s testimony yesterday led to some particularly interesting revelations, including the fact that Facebook reportedly offered $700 million more than we thought for Oculus during its acquisition.

When being questioned about his company’s well publicized $2.3 billion buyout of Oculus VR  in early 2014, Zuckerberg said the actual cost was closer $3 billion when you figured in the retention of key employees. We don’t have a direct transcript of the case, at least not yet, but our reporter Garrett Glass in the courtroom heard the answer as well as a New York Times reporter, Mike Isaac. In a tweet posted yesterday before the court shut down live-tweeting, Isaac wrote that, according to Zuckerberg, “We bought the company for about 2b, had additional 700mm in retention for key folks, 300 mm earnout for milestones.”

It appears that the headline-making $2.3 billion Facebook disclosed in 2014 was comprised of a $2 billion purchase price and a $300 million “earnout,” which would grant workers extra money based on the achievement of secret milestones. That leaves the additional $700 million Zuckerberg mentioned as new information. This hefty amount would likely be delivered in restricted stock units, which is a common way of compensating people during acquisitions as it is meant to keep valuable employees on board during the transition. The stock typically vests over four or five years.

While that amount is unlikely to have been divided up evenly (the lion’s share likely going to a few key individuals instead), an article from the day of the acquisition lists around 100 employees and contractors employed by the company. Any way you cut it, that is a lot of money to motivate the Oculus team to stay with Facebook.

The Oculus/Zenimax case is continuing and we will provide updates. Stay tuned.

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What's your reaction?
  • chaos_in_ashland

    Sorry, both Mark and Luckey have lost quite a bit of credibility over the last few years. From lying to us about fake news to lying to us about the VR being free from DRM, nothing but lies and greed from that company. It’s no wonder that people are buying the Vive with a 2:1 ratio against Oculus.

    I wouldn’t be surprised if this case is settled out of court for a large, unsubstantiated amount of money.

    • Mourz

      I am expecting ZeniMax to win 100 Million to 1 Billion.

      The total aquisition cost of occulus for facebook is therefore up to 4 billion. Considering how little Occulus had, it was not worth it. Mark should have just started his own VR company, it would have been far cheaper and more effective. But instead he rushed into this aquisition with a weekend’s worth of due diligence (see start on firday and end on monday quote, #ridiculous)

      • user

        people, patents, narrative. thats absolutely worth whatever it costs. they will be remembered as the company which invented it, which was first to market. and facebook sent a message to investors that they make sure to be a central player on the next computing platform which they also build.

    • Get Schwifty!

      People are buying 2:1 (maybe, no one has released any numbers) because mainly Oculus was so late with their Touch controllers and lack of commitment to room scale, whatever “lies” they may have said have little to do with people’s overall buying decisions, certainly not a difference of 50%. That and HTC is very good at dropping constant news bits to keep their product front and center, something Oculus just can’t seem to grasp. I honestly don’t think they care about competing with Vive, whereas (fortunately for consumers) HTC does seem to be pushing to prevent Oculus from getting a good foothold.

      I too expect the case to be settled out of of court, but that doesn’t in any way mean it was a legitimate case, often the defender will say to hell with it and pay them off just to get it out of the way, despite the fact in a drawn out case they would win but it would cost them more. Common situation that lawyers love.

      The whole article here is just more click-bait; its old news a day later, and not surprising at all that incentives, etc. were part of the deal, that is pretty common practice and not unusual in the least.