Game Royalty Futures

June 01, 2015 | Filed under: business

Welcome to the futures market. This is (sort of) a thing now. Let me explain.

You are a farmer. This is a risky business. You plant loads of seeds, then do whatever farmers do while seeds grow, you harvest the crop and sell it. Hopefully, it makes enough to support a reasonable lifestyle. Classical economics suggests that your profit will be only high enough to prevent other people getting in on this ‘farmer’ thing, and pushing prices down. Theoretically,. you will earn the average wage, +/- some adjustment for skill requirements etc.

But hey. Hold on. Sometimes you have a good crop, sometimes a bad crop. Good crops are happy years, great years! but sometimes there is a bad crop. Sometimes a very bad crop. Some years, you are truly fucked. In theory, you save in the good years, and spend the savings in the bad years. Most people suck at that. Besides, what if your first 10 years are bad years? There is a solution, and some people think its fine ( I do) and some people think that its evil, and smells like predatory capitalism.

future

The solution is called Futures (although it sort of is, and isn’t, yes, this is very simplified).  Lets pretend I’m an evil mustache twirling capitalist. I go up to the farmer and say ‘Guess what! I’ll pay you for next years crop NOW. I will pay you 80% of what you probably get for it. Deal?’.

On the one hand, thats a rip-off, I’m creaming off 20%. On the other hand, suddenly the farmer has a completely risk-free job. he doesn’t care what happens to the weather and his crop, he can sleep easy at night. Basically the rich capitalist dude has leveraged his greater stock of capital to take a risk the farmer cannot afford to, or does not wish to (maybe the farmer is old, and risk-averse, and the capitalist is some young adrenaline junkie).

I LOVE things like this. I love the existence of such phenomena. I don’t know why. Something about the maths, and the calculation, and the balancing of risk vs reward just sets off serotonin generators or some-such. I find it fascinating. The same with options (which are risky as fuck) and other such financial messing around.

Anyway… is there a market for this in game development? I think there is. Its been with us (in some respect) as publishers for ages, and I hear people are doing this with finished games now too.

So look at it like this…. you have made your game, it took you two man years, you worked hard, its finished, its good. You think it will do well. You are hoping that it will pay for the development of your next game. Think through the scenarios.

Leonardo Dicaprio in The Wolf Of Wall Street

If I paid you $200,000 to take all the future royalties of your game right now, would you take the deal? (You keep the IP, sequel rights etc…). I get to control pricing and bundles.

If I paid you $180,000 to take 90% of the royalties would you take the deal?

Its day 1 on steam and the game has earned $2,000 in the first 24 hours. Both offers still stand. Interested? (I get that 2k as well).

It’s day 30 on steam, no discounts yet, and the game has earned $20,000. Yesterday it earned $150. Both offers stand. Interested?

Don’t forget that you get the ‘time value of money’ if you take the deal. In other words, you get $200k right now, which you can use right now, as opposed to drip-feeding in royalties over time.

I’m not saying thats a good deal or a bad deal, obviously it MASSIVELY depends on the game. I just find the poker-playing / calculation of such deals to be fascinating.

How much would you pay *me* right now to own the future royalties of Gratuitous Space Battles 2? (they aren’t for sale :D) or Big Pharma? :D

 

 

8 Responses to “Game Royalty Futures”

  1. Quote:
    “(You keep the IP, sequel rights etc…)”

    Actually that sounds rather generous compared to big game biz dealings. ;)

  2. Isn’t that essentially what David Bowie did in the late 90s? Admittedly he was starting with quite a large back catalogue of ongoing royalty streams, but pretty sure it was a similar sort of thing.

  3. Worthstream says:

    >How much would you pay *me* right now to own the future royalties of Gratuitous Space Battles 2? (they aren’t for sale :D) or Big Pharma? :D

    So, futures for Big Pharma are for sale? :P

    Turning how much would you have accepted for GSB1 futures, and would it have been a good deal in retrospect?

    • cliffski says:

      if I took a deal on GSB1 I would probably have lost money, but then on Gratuitous Tank Battles I’d likely have made money, so there is that.

  4. Gaming royalty has no future!

    Oh, wait…

  5. Ryan Sumo says:

    Probably a lot of this depends on where you are right now in your career. If you’ve a stable of games already it makes less sense to sell royalties since each game adds value to the other.

    If this were my first game though I would definitely take up this offer. I’m terrible at math but it seems to be the $180k for 90% of royalties seems like the best answer. It’s close enough to $200k for it ultimately not matter (but what do I know, right now $20k would seem like a godsend) so you’re basically taking a risk as to whether future royalties will eclipse that $20k gap or not.

  6. ac says:

    I place higher value on something that’s a well produced/polished “first” (some kind of unique selling proposition), such as GSB1 or say MOO1, CIV1 etc, and further if it’s a first from someone new, because often people have some list of ideas they want to do and for the first idea they go with, it’s probably the best and collection of all kinds of ideas they’ve had prior to getting as far as being able to make something (assuming there’s high but not too high barrier to entry ensuring low quality won’t prosper). It might make sense to get more external opinion/valuation on whether your “first” such product is higher probability success if you have doubts.

    On the flipside, there could well be situations (like that futures story) where it is better to have probably much less cash now and forfeit the high probability (but not guaranteed) future profits – such as ability to take that money now and use it to try to repeat the high probability situation (next game).

  7. ac says:

    (addn: I just recognized ambiquity above so I’ll clarify:

    the problem is of course defining “first” – eg. to me GSB1 looks a bit like “first” since I hadn’t heard of prior Postitech games. This could well be case with many other such “firsts”. The public thinks it’s the producers first game but infact they probably had done a lot of things before and this is just the first where they got the message and polish to such level that it stood a chance against what’s out there).