Star Citizen is likely in financial trouble

http://www.neogaf.com/forum/showthread.php?t=1396987

by r721 • 9 years ago

80 84 9 years ago

neogaf.com

spraak• 9 years ago

Well, I feel a little better about my small personal debt in comparison.

madamelic• 9 years ago

Who could've guessed?

The game designer suddenly gets $150m and rather than iterating, he goes for the dream.

I looked him up and he apparently has produced AAA games before so what's the deal here? Shooting for the moon on the first go in any software development processes is a recipe for disaster.

TulliusCicero2• 9 years ago

I looked him up and he apparently has produced AAA games before so what's the deal here?

The deal is that he's one of those guys who makes you go, "Oh, that's why publishers exist."

ethbro4• 9 years ago

I looked him up

I'm guessing you haven't played a little series called Wing Commander?

EpicEng• 9 years ago

That's true for most of the world's population.

antisthenes• 9 years ago

Yeah, better to shoot for the dream than to make iterative garbage like COD or ME:Andromeda IMO.

TulliusCicero2• 9 years ago

Not very surprised, the game has been a trainwreck in the making from the beginning. Total scope was just way too overambitious, and people weren't going to plow hundreds and thousands of dollars into spaceship jpegs forever.

norswap3• 9 years ago

Precisely, and this has been painfully obvious for a long time. Not even to me (I don't really follow the game) but to a few people whose opinion I respect, including multiple video game journalists.

shadowmint• 9 years ago

Care to qualify that?

I'm not following this at all, but I can't see anything particularly obvious that's a 'train wreck'.

They have a game. It's playable, if not particularly good. Some people are playing it (or something? Someone is posting gameplay videos anyway).

I have zero investment in it so I don't really get it; I see a lot of unhappy people making :( faces.

Games take time and money to make. They're making it. It's not done yet. They're keeping in touch with people and releasing regular updates.

I mean, what do you want them to do? Not make it? Make it faster? Communicate more? Communicate differently?

That's really good compared to some crowd funding people... isn't it?

...? Where's the drama?

strathmeyer• 9 years ago

The problem comes with advertising and selling products that they haven't made yet.

quakenul• 9 years ago

The drama basically arises from where common people are a good source of funds but actually terrible investors, giving personal money by impulse, usually without being equipped with the industry insight to evaluate the risks, or fully accepting there are risks because they are too emotionally invested in the product.

LMYahooTFY3• 9 years ago

Why is it the hip and cool thing to call the entire project a train wreck without any actual supporting evidence?

Half the subreddit seems to be die hard acolytes while the other half seem to be extremely bitter vets of a game that hasn't been launched.

The biggest game development project ever, with extraordinary transparency, and shoddy bloggers are still making money throwing out talking points about how it's a train wreck barely half way through development.

Again: without any actual proof. However, if there is any, I will gladly change my opinion.

gdulli• 9 years ago

They successfully got the evidence scrubbed from the internet. That must have been expensive.

http://www.oneangrygamer.net/2017/03/controversial-star-citi...

resf• 9 years ago

You're right about one thing, it's a "game development project", it's not a game.

problems• 9 years ago

Seems like incredibly poor budgeting given that they had $150M and couldn't deliver even a limited version of the game.

Maybe I'm underestimating the costs somehow, but you could easily pay pretty high salaries for 100+ people's time over a few years of development with that kind of money. I wonder what they did with it?

ohyes3• 9 years ago

I'm guessing this will involve unaffordable office space.

ohyes3• 9 years ago

Yeah so I did some research, there's 250+ employees at the subsidiary foundry 42, which would indicate far more than 100 employees to pay for cloud imperium. If it's 400 people or something working at that company, burning through 150 million starts to sound more possible.

Also 4 nice offices in non-cheap locals.

avaer• 9 years ago

I imagine it's not hard to lose 150 million if you give it to someone who has never managed 150 million, and make them unaccountable to anyone.

zamalek• 9 years ago

couldn't deliver even a limited version of the game.

They have but the limitation is that the game is barely playable on populated servers. 3.0 (the next release) seems to be a push to make the game playable.

umdobchob• 9 years ago

It's not nearly as bad as they make it seem. Loans/debt are a completely healthy source of financing.

norswap3• 9 years ago

Excepted it wasn't planned like that.

troynt2• 9 years ago

Source? Not all loans are bad, it wouldn't make sense to plan on never taking a loan.

Tepix• 9 years ago

I agree. Let's see what their statement is. They are however quite late with the 3.0 upgrade that was first expected at the end of 2016 (as was the release of Squadron 42, the single player campaign). We're still waiting for both of them.

brador• 9 years ago

Significant tax advantages too. Loans can also be a sign of a healthy growing company with big plans and confidence in their execution.

This is nothing more than a Redditor losing control and spreading a false rumor that has been fanned by news sites.

Also dangerously close to Libel.

adrenalinelol2• 9 years ago

I know SC initial funding is unprecedented, but is taking out what amounts to a line of credit really that uncommon? It doesn't necessarily mean the initial 150M has dried up -> thus the sky just may not be falling?

mrmcd• 9 years ago

The terms of the loan we're really, really unfavorable. They essentially pledged every piece of IP they have to get the loan. It's not the kind of loan you take if your company is healthy and has easy access to financing.

Klathmon• 9 years ago

IP which is basically worthless if the game doesn't ever release.

A bank that gives out loans to a failing company with collateral that is worthless if the company fails doesn't seem that smart.

redm• 9 years ago

This story reminds me of ION Storm [1], John Romero's cash rich baby that failed miserably with Daikatana. [2]

[1] https://en.wikipedia.org/wiki/Ion_Storm

[2] https://en.wikipedia.org/wiki/Daikatana

ethbro4• 9 years ago

To be fair, they also released Deus Ex the same year as Daikatana.

Although the moral there is Warren Spector is a far better game creator than John Romero.

dmix• 9 years ago

Porter became CEO of ION Storm and the Dallas Observer said "He turned down a deal with Compaq computers that would have paid ION 75 cents to $1 for every Compaq computer sold with Dominion already installed, and would have guaranteed ION a minimum of $1.5 million."

It's funny to think that selling your game for $1/each is a standard thing these days for mobile games. They only ended up selling very few of the games in retail and obviously should have took this deal.

Thanks for the link, interesting story.

I would love an office with a 'crash room' to have power naps in. That's the main thing I miss from working at home.

sbierwagen• 9 years ago

I've seen a fair few law offices with nap rooms.

whatever_dude• 9 years ago

Not surprised. The whole enterprise seemed fishy from the start. I contributed to the Kickstarter but basically gave up on it once they moved to their new campaign website and their business model became so complicated I didn't know what they were offering or I was buying anymore. Endless offers and perks with no have in sight didn't help.

Weird that Roberts didn't know better.

git-pull• 9 years ago

You have to admit, they made really good commercials for in-game content. They stayed in character, too. A few hand-picked favorites:

- Imagine: Star Citizen: https://www.youtube.com/watch?v=lJJ9TcGxhNY

- Star Citizen - MISC Freelancer Commercial: https://www.youtube.com/watch?v=vO7RxsZpcKc

- Star Citizen: Consolidated Outland Mustang Commercial : https://www.youtube.com/watch?v=BR07oZC0QHU

- Introducing the 2944 Aurora: https://www.youtube.com/watch?v=UvDs7RDKCag

Full playlist: https://www.youtube.com/playlist?list=PLVct2QDhDrB0QRjv9oN02...

ferongr• 9 years ago

My suspension of disbelief is destroyed every time I see missiles without proximity detonators.

Mithaldu2• 9 years ago

The entire game design and physics of SC is built around "World War 2, BUT IN SPACE". I mean damn, they even have actual cockpit windows with no appreciable polarization (note the freighter pilot blinded by a simple laser scanner in the second video).

That said, missiles with proximity detonation only make sense if they're actually built to be fragmentation weapons, not pure explosive-based, due to explosion shockwaves being useless in space thanks to a lack of medium to travel in. And even for fragmentation they'd need to get really close due to inverse square law.

mistersquid2• 9 years ago

In the first video the barrel roll [0] followed by a person in an EVA suit in the interior of a (different) vessel [1] made me wonder about zero-gravity spatial relationships.

(Before continuing, please excuse my ignorance in the subjects of gravitational physics and aeronautical nomenclature. Also, I do not intend to troll. I'm honestly wondering. I'm also a little embarrassed at the brainteaser-like character of my question.)

Presume a human being is inside a vertically asymmetrical vessel with no interior atmosphere. The vessel is at rest with regard to a nearby (< 1 million kilometers) planetary system (similar to ours) and the vessel is in (essentially) zero-gravity. If the vessel accelerates around the axis that runs stem to stern (executes a barrel roll) will the occupant spin with the vessel or will the vessel spin around the occupant?

[0] https://youtu.be/lJJ9TcGxhNY?t=106

[1] https://youtu.be/lJJ9TcGxhNY?t=116

EDIT: Change "subject" to "subjects".

Mithaldu2• 9 years ago

You can test it on earth! Take a glass, fill it with water. Put something in it that floats, keep it away from the sides. Rotate the glass.

hackerfakenews• 9 years ago

The fact that any bank considered lending to a tiny company like this with no revenue stream is actually a positive sign. As for pledging all their "assets", that is completely standard. They have no assets to speak of - their "IP" is 100% worthless without future sales, which will never happen if the game doesn't get released. And further, because the money was raised from crowdfunding, the only equity holders that might suffer are the creators.

It's really important to understand finance if you want to understand the world and it's not that hard.

/thread

macspoofing• 9 years ago

Debt financing is tricky. If they stumble, they'll end up with nothing - and all they've done is stumble.

shmerl2• 9 years ago

Who will suffer are backers who supported this project.

valarauca1• 9 years ago

There is no scenario where Crowd Funding backers profit. I don't know why people who Crowd Fund act like they are owed anything.

Funding a business via Crowd Funding is in most scenarios the dumbest economic decision you can make. Comparable to throwing money out the window in terms of ROI.

nunez• 9 years ago

how can i get better at understanding finance beyond basic money management?

Merad• 9 years ago

Ahhh Star Citizen. The first crowdfunding campaign I ever backed, and I backed it to the tune of $120-150 (I don't even remember). I figured it was a gamble, but their demos were and continue to be extremely impressive, and what's life without a little risk? I doubt all the other backers will be so forgiving, however. Things are likely to get pretty ugly if the company folds.

Belphemur2• 9 years ago

To quote a reddit comment :

I should point out that this is not necessarily a bad thing, nor is it clear what the loan is for. What this tells us is that money has been loaned and secured against assets owned by CIG - this is fairly common practice in the case of commercial loans.

To bank with Coutts you must have at least £1,000,000 in tangible assets and in any event they are selective about their clientele; which implies CIG is doing well.

To be honest as much as the terms are huge, they didn't go to a loan shark neither a shitty bank. It's the bank that manage the assets of the Queen. I don't think they give loan that easily hence the huge collaterals.

Normal_gaussian• 9 years ago

Yeah probably just some cashflow issue due to mistiming how the remainder of the $141m is invested

headmelted• 9 years ago

"they didn't go to a loan shark neither a shitty bank. It's the bank that manage the assets of the Queen. I don't think they give loan that easily hence the huge collaterals."

Irrelevant. Why would they care which bank the money comes from?

It would be careless to take any deal on less favourable terms than you could get elsewhere, which implies this Coutts deal was the best they could get.

It could easily be a deal on a REALLY good rate to extend their runway well into the release cycle of a finished game, but the lack of disclosure implies otherwise.

Anyone here old enough to remember the original boo.com?

That was also an emperor-has-no-clothes fiasco of epic proportions. Which is ironic, because their problem was that they couldn't sell any of the mountains of clothes they had in storage.

Belphemur2• 9 years ago

I guess to make conclusion we would need a disclosure from the studio.

The reputation of the bank and the way they approve client is relevant. It doesn't reduce the fact they took money, but again without a break down of the term we can only speculate the reason.

Saying "they'll fail" because of this loan is making a hasty conclusion.

viscanti• 9 years ago

Irrelevant. Why would they care which bank the money comes from?

I'm sure they're looking for good terms, but being able to secure financing from a more reputable entity is still a signal. If they were some sort or real estate developer and could only get loans from someone like the Russian Mafia then we'd have a little more insight into what kind of business they must be running. In this case, going to a reputable bank is probably the best strategy for minimizing the cost associated with the loan.

The more reputable the bank, the more selective they are about their loans, and the closer to the LIBOR rate they'll charge. You can get a much better loan from a large bank than you can from a loan shark.

carterschonwald• 9 years ago

One way to think about this is: bank software dev is incredibly delivery / customer oriented. Maybe that will transfer over to this game dev ? ;)

ngold• 9 years ago

Wouldn't we all love a breakdown on how someone spends that kind of money. So far the game is solid. But I wonder if someone had their eyes on another WOW killer.

adrenalinelol2• 9 years ago

Is being a "WOW killer" worth it anymore? Activision doesn't even release the subscription numbers anymore (most likely because they've fallen so much since WotLK).

SXX2• 9 years ago

$150M isn't that much of money if you consider their studious locations, game scale and quality of their marketing materials. I guess they spent a lot more money on marketing and communications with community since it's the only reason they managed to get so much money through crowdfunding.

For instance one of best and largest games recently produced is Witcher 3. It's cost about $81M [1] (half budget is marketing and probably localization, not sure what is source on this) and more than 250 [2] in-home developers (and 1500+ [3] people in total include localization) worked on it. And this is developers from Poland with significantly lower salaries and overall burn rate.

Now for instance about year ago Chris Roberts announced [4] they have following studios working on game: Frankfurt (50), Manchester (180), Los Angeles (60) and Austin (50). So it's about 350 developers and even if you take something like $80,000 burn rate per employee it's going to be a lot of money and actual number likely higher than that.

[1] https://www.gamespot.com/articles/this-is-how-much-the-witch...

[2] https://www.develop-online.net/interview/the-wild-road-to-th...

[3] https://www.vg247.com/2016/01/13/over-1500-people-worked-on-...

[4] https://www.youtube.com/watch?v=w9T48l7Oq0Q&feature=youtu.be...

wlesieutre4• 9 years ago

Minor correction, the communication with the community is funded by "community subscribers" separate from the game development crowdfunding.

mter• 9 years ago

Most interesting thing about SC is Amazon has a game publishing arm and star citizen is using lumberyard. I hope that AGS has an interest in keeping it's most high profile client alive. Some of my most nostalgic childhood memories are playing privateer with my brother.

Having someone who could say no to chris would probably be an overall win for everyone.

jimnotgym• 9 years ago

EVERYBODY PAUSE!

This is not abnormal at all (in itself). If you were going to lend money to a software company, what else would you take as security other than IP?

A floating charge is just there to establish the bank as a preferential creditor in case they default. Otherwise if the company became insolvent, the bank would only be entitled to its share of what is left of the assets in proportion to what they had lent. If the bank expected them to default then they would not have lent them any money! A floating charge does not mean necessarily that the bank would be entitled to those assets, if they were of a higher value than what the bank had lent them, for instance.

I just took a look at the December 2015 accounts and they show that they burnt £1m in the year, and had £1.1m left. Again, the bank will know their provisional 2016 numbers and their forecast by now, and would not have lent them money that they didn't have the cashflows to repay.

The game may be rubbish, the project may be a failure, but a registration of a charge is not a cause for concern in itself. Maybe for instance, the company saw an opportunity that needed more cash?

wlesieutre4• 9 years ago

I'd expect the loan is effectively borrowing against anticipated Squadron 42 sales (the single player game) to keep development moving faster. God forbid they delay that again.

Once that's out they can pay the money back and continue work on Star Citizen's persistent universe.

As to the ongoing debate over whether the project is "a train wreck", it would be prudent to wait another month or two for alpha 3.0 to land. This contains the first procedural moons, landing locations, significant overhauls to networking, more fleshed out NPCs/missions, initial version of cargo hauling, and more.

If they can't deliver on that then by all means get all doom-and-gloom. But it's not that far off to wait. Official schedule still has it targeted for July, but a slip back to August won't surprise anyone.

dang• 9 years ago

Please don't use uppercase for emphasis. This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html.

wlesieutre4• 9 years ago

Official clarification from CIG if anyone still finds their way into these comments: https://robertsspaceindustries.com/spectrum/community/SC/for...

tl;dr It's an advance on a tax rebate (for SQ42 development) and avoiding currency conversions. The collateral specifically excludes Star Citizen. The primary collateral is the tax rebate which the UK government probably isn't going to default on.

bananicorn• 9 years ago

Should kickstarter have a clause for failed software projects to be open sourced/the source code/assets be given to the backers? (Not sure what the non-technical users could do with it, but at least they could get what work has been done so far) Of course I'm not implying Star Citizen has failed, this is just a general thought

DavidTWco• 9 years ago

CIG have just released a statement regarding this (https://robertsspaceindustries.com/spectrum/community/SC/for...). Pasted below for those who can't or won't visit the previous link:

    Ortwin: We have noticed the speculations created by a posting on the website of UK’s Company House with respect to Coutt’s security for our UK Tax Rebate advance, and we would like to provide you with the following insight to help prevent some of the misinformation we have seen.
    Our UK companies are entitled to a Government Game tax credit rebate which we earn every month on the Squadron 42 development. These rebates are payable by the UK Government in the fall of the next following year when we file our tax returns. Foundry 42 and its parent company Cloud Imperium Games UK Ltd. have elected to partner with Coutts, a highly regarded, very selective, and specialized UK banking institution, to obtain a regular advance against this rebate, which will allow us to avoid converting unnecessarily other currencies into GBP. We obviously incur a significant part of our expenditures in GBP while our collections are mostly in USD and EUR. Given today's low interest rates versus the ongoing and uncertain currency fluctuations, this is simply a smart money management move, which we implemented upon recommendation of our financial advisors.
    The collateral granted in connection with this discounting loan is absolutely standard and pertains to our UK operation only, which develops Squadron 42. As a careful review of the security will show and contrary to some irresponsible and misleading reports, the collateral specifically excludes “Star Citizen.” The UK Government rebate entitlement, which is audited and certified by our outside auditors on a quarterly basis, is the prime collateral. Per standard procedure in banking, our UK companies of course stand behind the loan and guarantee repayment which, however, given the reliability of the discounted asset (a UK Government payment) is a formality and nothing else. This security does not affect our UK companies’ ownership and control of their assets. Obviously, the UK Government will not default on its rebate obligations which will be used for repayment, and even then the UK companies have ample assets to repay the loan, even in such an eventuality which is of course unthinkable.
    This should clarify the matter. Thank you.

ino• 9 years ago

You can format the text in a more readable way.

DanBC• 9 years ago

Please don't use two spaces to quote text. That quoted text is barely readable on desktop, and unreadable on mobile, because of the horizontal scrolling.

screecwe• 9 years ago

Just more FUD. Here's the explanation.

https://i.redd.it/3yddemsdku5z.jpg

"We have noticed the speculations created by a posting on the website of UK’s Company House with respect to Coutt’s security for our UK Tax Rebate advance, and we would like to provide you with the following insight to help prevent some of the misinformation we have seen.

Our UK companies are entitled to a Government Game tax credit rebate which we earn every month on the Squadron 42 development. These rebates are payable by the UK Government in the fall of the next following year when we file our tax returns. Foundry 42 and its parent company Cloud Imperium Games UK Ltd. have elected to partner with Coutts, a highly regarded, very selective, and specialized UK banking institution, to obtain a regular advance against this rebate, which will allow us to avoid converting unnecessarily other currencies into GBP. We obviously incur a significant part of our expenditures in GBP while our collections are mostly in USD and EUR. Given today's low interest rates versus the ongoing and uncertain currency fluctuations, this is simply a smart money management move, which we implemented upon recommendation of our financial advisors.

The collateral granted in connection with this discounting loan is absolutely standard and pertains to our UK operation only, which develops Squadron 42. As a careful review of the security will show and contrary to some irresponsible and misleading reports, the collateral specifically excludes “Star Citizen.” The UK Government rebate entitlement, which is audited and certified by our outside auditors on a quarterly basis, is the prime collateral. Per standard procedure in banking, our UK companies of course stand behind the loan and guarantee repayment which, however, given the reliability of the discounted asset (a UK Government payment) is a formality and nothing else. This security does not affect our UK companies’ ownership and control of their assets. Obviously, the UK Government will not default on its rebate obligations which will be used for repayment, and even then the UK companies have ample assets to repay the loan, even in such an eventuality which is of course unthinkable.

This should clarify the matter. Thank you. "

Cynosaur• 9 years ago

Funny how everyone loves to jump on the hate wagon against this game and company, even on HN - you get a clickbaity sketchy article from neogaf and suddenly everyone is a banking expert?

They already released a response, but it's kinda sad that they have to justify stuff like this to "journalists" all the time.

https://robertsspaceindustries.com/spectrum/community/SC/for...

Star Citizen is likely in financial trouble

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