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How about sharing the risk with the publisher

6 replies [Last post]
larienna's picture
Joined: 07/28/2008

It's just a quick idea that I had. In the current business model, the publishers finance the game made by a designer. The designer gets royalties in return and the publisher assume 100% of the fundings to make the game. There are other models like Kick Starter and P500 that I will not really talk about here.

But what if the designer could assume a small portion of the risk. For example, the game production cost could be split in shares and the designer could buy shares of their game. Let say a game cost 10000$ to produce, split in 10 shares, and the designer could want to invest let say 2000$ in the game production then he will get 20% of the shares. The rest of the production cost would be assumed by the publishers.

In the end, the designer will get his royalties and 20% of the profit. While the publisher would collect the rest which is 80% of the profit. There are various advantages and disadvantages to this model:

- A: The fact that the designer is willing to share the risk proves that he is confident with his game.
- A: The designer gets more income since it's profit share + royalties. So the amount of copies that must be sold to reach break even is much lower. Reducing the risk to lose money.
- A: According to the amount paid by the designer, or other people, it could help the publisher accept the game since they find the project less risky because they do not have to fund everything.
- D: The designer needs to pay money which is not always available, or sometimes even a 10% share could be very expensive.

Did anybody have seen something similar?

Do you think it could work?

Could it be a good idea, when you submit a game to a publisher, that you say you would be willing to invest up to 2000$ in your game if they accept?

Dralius's picture
Joined: 07/26/2008
Publishers do many things to

Publishers do many things to run their business; Promotion, bookkeeping, warehousing, etc.. To justify your additional 20% they might need you do more than pony up some cash. After all that 20% would have paid someones wages, and the other bills to keep the business running.

bluepantherllc's picture
Joined: 07/29/2008
Selling shares in a game

How many board games make money? How fast do they make it?

Using the 10k investment in 1k chunks, are you willing to put all of it at risk? Before a single copy is actually sold? And even after the copies are made, shipped to distribution, then to retailers, there is a period of time before they get paid for. You're looking at 6+ months from first expense to first income. That requires patient capital. Are your investors that patient? Are you that patient? Publishers, in general, take all the risk, so they want the lion's share of the rewards.

Not saying that this idea would not work, just saying that designers, investors and publishers need to understand the risks and the timeline involved.

As an alternate, you could do POD printing or small batches before committing the full 10k. See how it sells - if enough copies go fast enough, then perhaps a more traditional 1500-2000+ unit printing would make sense. It might be easier to sell shares to an investor / publisher when you say "we sold 100 of these last month". Many investors are looking for cash flow quickly and can do the math in their head so be ready with your numbers. Units sold is always more impressive than "we expect to sell X".


Joined: 05/22/2009
I think I understand what

I think I understand what you're proposing, but The question of whether/how well it would work somewhat depends on why you're proposing it. Put simply, what problem is your proposal meant to solve?

The way I see it, you seem to be either working towards the goal of making publishers more willing to say "Yes, we'll publish your game," or towards the goal of ensuring designers are more directly involved in the investment - and by extension, receive more of a reward.

If you're just going for making it easier for a publisher to approve the game for publication, the concept isn't very attractive to companies who are trying to build a consistent brand, as it smacks of vanity publishing. Worse, manufacturing costs aren't the only costs involved in the publishing process - in the event of a complete dud game, they're not necessarily the most costly.

Let's say I'm a publisher (wishful thinking) and you've submitted a 54-card game under the above terms. I accept, we manufacture about 3000 copies (actually a pretty low number), packaged in a small tuckbox, with a per-unit cost of $1. We go through the whole process, and it's finally in my warehouse, ready to ship. At this point, in addition to the $3000 manufacturing cost, I'm also out:

  • Labor costs for my in-house staff during the concept-to-product development process. Assuming I've got minimum wage slaves and we were able to complete everything in 20 man-hours of their labor, that's at least $145. For a nice even number, let's call this $150.
  • Legal fees in drafting and finalizing our contract. Let's assume my lawyer has a boilerplate ready, and it's just a cursory consultation: I'd be surprised if you could get this done for under $200.
  • Contract fees for any outsourced labor, such as art, logo, or packaging design. Let's say you've got a spectacularly simple game with only two art elements, which are reused on the box: Maybe you could get this done for $150.
  • Product testing fees for game product sale within our target age group - the younger, the more expensive (This is why so many simple games gave a suggested minimum age of 12 or 14, despite being easily understood by a six year old): This is pretty tricky to precisely pinpoint, but even basic lead and flammability tests are going to consistently run us a minimum of $500 total.
  • Marketing costs to promote your game pre-release - Strictly speaking, this generally includes the wholesale cost of any physical units sent gratis to press/distributors/retail stores, but we won't count it right now. Assuming only online promotion through banner ads on relevant sites, and assuming the creation of the banner ad itself was already covered in one of the labor items above, this is easily going to cost another $300.
  • Cargo/freight fees from the factory to our warehouse. For 3000 decks of cards, this will probably run a minimum of $200.
  • Warehousing logistics: 3000 decks may only take up less than 15 cubic feet of physical space, but they're generally going to be stored on their own pallet in the warehouse. Quotes vary wildly, but count on a minimum of $100 to cover the first year of storage for a single pallet - Warehouses generally won't lease month-by-month, and that number probably won't include order fulfillment services.

That brings us up to a very optimistic ballpark of $1600 in costs in addition to the manufacturing costs, and that's assuming a lot of things go really well for you. With a larger, more complex game, this figure can easily run $5000 or more - much more if your game requires any custom molded plastics.

So now the game is available for sale, and the unthinkable happens: It's a dud. No one likes it, no one wants it, no one buys it. It gets utterly panned by reviewers and ridiculed by gamers. What are our total costs?

It would be tempting to say, "based on the above numbers, we're cruising at about $4600 total" which is mathematically true. However it doesn't take into account the damage to my company's reputation. Releasing a bad game makes distributors and retailers hesistant to carry my products. Potential customers lose faith in my company's reputation. Established game designers are less inclined to send me their designs for fear of damage to their reputation. Amateur kooks are more inclined to send me their designs, because (from their own perception) they're at least as good as a game I've already published. How much will it cost me in advertising, promotion, and development to get back to my earlier level of good will?

The problem here is, there is no good way to approximate the monetary damage to a company's reputation. It just can't be modelled economically. It could destroy a company forever, or it can be overcome with the next product release.

This is the uncertainty that makes small publishers so cagey about accepting a submitted design from a first-time, unknown designer. Sure, you might be able to offset 5-10% of the initial costs, but every product released is (from their perspective) a potential disaster, and the long-term effects are literally incalculable.

Now, on the other hand, you might have been proposing something about getting designers more directly involved in the finances of their game, in which case: Sure, why not? I suspect most publishers will be more receptive to a designer helping fund production if they've already made the decision to publish the game (to avoid being seen as a vanity publishing house). It would be a little unusual from a contract standpoint, and (depending on how and where the publisher incorporated themselves as a business) some publishers may be legally incapable of handling that kind of thing, but it probably wouldn't hurt to propose it to them.

larienna's picture
Joined: 07/28/2008
Quote:manufacturing costs

manufacturing costs aren't the only costs involved in the publishing process.

The total price would include all the fees to make the game go from the printer to the retail shelves. Still, it could be true that for some fees, like administrative works, it could not be easy to identify how much hours of work were spent on a specific title. So I agree that there could be a gray zone that prevent the publisher to know exactly how much a game would cost in total. So having extra income could help fill in this gray zone.

Else I was thinking that after the initial investment from the designer is refund, the share of profit goes to the publisher. So the idea of initial investment would not be to make more money, but rather reduce the risk of the publisher and prove that the designer is confident in his game.

Markus Hagenauer
Joined: 12/04/2009
Yes, it works

Power Struggle is an example for this kind of risk sharing.
Maximilian Thiel (a.k.a. Bauldric & Friends) invested in his game Power Struggle and shared the risk with Eggert.

I think this way of publishing a game is only interresting for small publishers. Because they may not have the funding to publish a game they think it is realy worth to publish.
Larger publisher will not have this problem.
And if a publisher does not believe the game will be succesfull, they will not publish it, even if the designers takes 100% of the financial risk. Because publishing a flop is not good for their reputation.

I think i wouldn´t offer this when submitting the game. But if a publisher tells me, they think the game is great, but they can´t invest in such a large game or not in another game for the next few years, suggesting such a deal might be a good idea.

Joined: 07/29/2008
another issue

Another issue in doing this is how much control the designer is expecting. If he/she is putting up their own money, he/she is probably expecting more control over editorial decisions. This is why many designers elect to go the self-publishing route. They like the control over their work.

Investing in a small part of the costs may not be enough for the publisher to relinquish editorial control, yet the designer might expect this, straining the working relationship. There would have to be a clear, written understanding of the roles of each in the contract (as there always should be, of course).

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