No, I'm not fucking stupid, and I'm not trolling. Even after many dismal reviews (and a few favorable ones) KoA sold 1.2 million+ copies. There was strength in the IP. It was incredibly foolish to not allow this game to be finished.
I'm pretty sure CCP posted 66mil in revenue last year and that's only with 500k subscribers I think. I'd have to check the numbers to be certain.
I get that you don't understand the goal of the loan, and the concept of ROI, what opportunity cost is, and how MMORPG finances work, so I am going to lay it out for you.
Firstly, KoA:R is basically irrelevant in monetary terms to the MMORPG. It was a successful game, but they way overspent on it and from what everyone said even with good sales it didn't make its money back. So we will leave that out as the state's money was funding the MMO. What it did was move the MMO IP along and for that reason I'll use more optimistic numbers than I would otherwise.
Secondly, here was the goal of the loan. The goal was to bring 450 high tech well paying jobs to the state for $75 Million. This works out to roughly $166,667 per job. Assuming these are nice paying jobs (that is the stated goal after all) at an average of $60k each, the theoretical ROI for the state in economic activity is break even at 2.7 seven years.
This is the baseline expected ROI, break even at 2.7 years. That isn't terrible, but not longer than most private companies would like (2 years is more ideal) but you know it is state money and the government
shouldfund things that have more long term growth potential than private industry would, it is part of what the government does better. I am going to use this as the baseline from now on to establish why the state of RI did the right thing.
I am going to use wildly optimistic numbers that heavily favor 38 so that you can't come back and say "nuh-uh, ur #s r bad".
38 only ever actually hired 200 people, so the actual cost per job turned out to be a much higher $375k per job which bumped the break even date out to a staggering 6.25 years. This is doing 38 the unheard of favor of assuming it will retain all of its gigantic 200 person team post launch of an MMORPG (never happens). So even before things went bad the state already got dicked over.
200 people using an industry standard number of $10.5k per person per month their burn rate is $25.2 million a year. This matches what we know so it is same to assume they had a dead average industry cost per person.
KoA:R sold well, so we will also assume that the MMORPG will also do well and sell a million copies. After paying publishers and distributors 38 we'll assume 38 will end up with a high number like 60% of the cost of each box. So, box sales could recoup about $30 million. We are going to be ridiculously generous and assume 1st year average churn is a ridiculously low 50%. That is, KoA will average out to having half the people who bough a box pay for a full year of fees at full price. We will assume a similar extremely optimistic year 2 and year 3 churn. That means the subscriber numbers look like this:
Net Revenue
Year 1: 500,000 (Subscribers) * 11 (Months) * 15(Revenue) 8 * 0.6 (% Profit) = $49.5 Million
Year 2: 250,000 * 12 * 15 * 0.6 = $27 Million
Year 3: 125,000 * 12 * 15 * 0.6 = $13.5 Million
Looks great, right? Wrong. As you see, by year 2 with 200 people 38 is only slightly in the black and by year 3 it costs twice as much to run the studio as it makes is net revenue (that is the price f the good - its cost). So, by year 3 38 will have to lay off staff.
Assuming they just barely keep enough people around to stay in the black (also silly), they are down to 100 people by the beginning of year 3. Now what is the state's break even date for economic activity generated by jobs? If 38 maintained a very good 125k subscribers and maintained staffing levels for the entire time that bumps the break even date out to 10.5 years. In this incredibly and unrealistically optimistic scenario the State of RI is SIGNIFICANTLY better off taking that 25 million and either paying off half the defaulted loan with it or investing it elsewhere.
That is all, of course, assuming 38 is telling the truth and in only a single year it would be in a state finished and polished enough to sell well and retain a very good number of subscribers. What do you think the chances of that are? If I really wanted to I could ALSO make a Bayesian inference and figure out the probability that the game would be delayed another year, then 2 and so on. If I spent all day I could actually crunch the numbers and present to you a hard analysis about the expected RoIs based on % chances of success and also present the alternatives,
do you think the people working for Chafee didn't do this?. Without doing that and looking at this extremely simple approximation I can already tell it won't turn out well for 38.
They did the right thing.
