When I first heard that Intrepid Studios, the game developer behind an MMO “Ashes of Creation” had gone bankrupt, I dismissed it as “MMOs take large teams, a lot of time to develop, and are a highly competitive market.” A red ocean, best avoided by the careful and serious businessperson. My dismissal was an immediate explanation for what must surely have happened, without spending any time checking actual facts. My judgment was informed by my personal, simple model for game development based on the time to market, the cost of talent, ability to deliver, and the viability of the genre. Call this the execution risk.
Without going into details, Intrepid appears to have just been a bottom to top fraud. While some of their funds came from a Kickstarter, much of it appears to have been borrowed from online loan brokers and then spent on personal discretionary expenses logged directly on the company books and no small number of transfers out to personal accounts. The online loans appear to have been secured on the back of extremely unlikely revenue projections. After all, you have to ship to make revenue and the game was never on track to ship. (The company also appears to have spent very little on actual talent, paying some employees $30k or less, annually. While spending several hundreds of thousands on brand buffing services and cinematic trailers for the non-existant game.)
My model of game industry execution risk is a back of the napkin way to explain the most important factors that lead to success. It’s meant to be simple, but it still had a glaring flaw that prevented it from predicting outcomes correctly. It needed to be multiplied by Integrity.
Fraud is, maybe, rare enough that a risk model that ignores it will be right most of the time, but it seems like a dangerous blind spot to ignore it.
When I first heard that Intrepid Studios, the game developer behind an MMO “Ashes of Creation” had gone bankrupt, I dismissed it as “MMOs take large teams, a lot of time to develop, and are a highly competitive market.” A red ocean, best avoided by the careful and serious businessperson. My dismissal was an immediate explanation for what must surely have happened, without spending any time checking actual facts. My judgment was informed by my personal, simple model for game development based on the time to market, the cost of talent, ability to deliver, and the viability of the genre. Call this the execution risk.
Without going into details, Intrepid appears to have just been a bottom to top fraud. While some of their funds came from a Kickstarter, much of it appears to have been borrowed from online loan brokers and then spent on personal discretionary expenses logged directly on the company books and no small number of transfers out to personal accounts. The online loans appear to have been secured on the back of extremely unlikely revenue projections. After all, you have to ship to make revenue and the game was never on track to ship. (The company also appears to have spent very little on actual talent, paying some employees $30k or less, annually. While spending several hundreds of thousands on brand buffing services and cinematic trailers for the non-existant game.)
My model of game industry execution risk is a back of the napkin way to explain the most important factors that lead to success. It’s meant to be simple, but it still had a glaring flaw that prevented it from predicting outcomes correctly. It needed to be multiplied by Integrity.
Fraud is, maybe, rare enough that a risk model that ignores it will be right most of the time, but it seems like a dangerous blind spot to ignore it.