Reply To: Star Citizen – Scoops
STAR CITIZEN FINANCIALS – THE SMOKING ROCKET LAUNCHER
Back in 2012 when Star Citizen went to crowd-funding on Kickstarter, one of the most important carrot sticks that was dangled in front of potential backers, and which remains in place today (even though the wording has been changed with the June 2016 update), was financial accountability for the project if they failed to deliver within 12 months (later changed to 18) months of the promised Nov 2014 deadline. There are two sections of the ToS which tie into i) refunds ii) use of funds iii) accountability for funds
In v1.2 of the ToS, which was current up until June 10, 2016 the following appears in Section VII
“RSI agrees to use its good faith business efforts to deliver to you the pledge items and the Game on or before the estimated delivery date communicated to you on the Website. However, you acknowledge and agree that delivery as of such date is not a firm promise and may be extended by RSI since unforeseen events may extend the development and/or production time. Accordingly, you agree that any unearned portion of your Pledge shall not be refundable until and unless RSI has failed to deliver the relevant pledge items and/or the Game to you within eighteen (18) months after the estimated delivery date.
For the avoidance of doubt, in consideration of RSI’s good faith efforts to develop, produce, and deliver the Game with the funds raised, you agree that any Pledge amounts applied against the Pledge Item Cost and the Game Cost shall be non-refundable regardless of whether or not RSI is able to complete and deliver the Game and/or the pledge items. In the unlikely event that RSI is not able to deliver the Game and/or the pledge items, RSI agrees to post an audited cost accounting on the Website to fully explain the use of the amounts paid for Pledge Item Cost and the Game Cost. In consideration of the promises by RSI hereunder, you agree that you shall irrevocably waive any claim for refund of any Pledge that has been used for the Game Cost and Pledge Item Cost in accordance with the above.”
In the June 10, 2016 ToS, the above section was changed to the following. This widespread outcry sparked numerous backers to immediately ask for a refund. I covered some of those issues in my Refund Debacle blog back in July.
“RSI agrees to use its good faith business efforts to deliver to you the pledge items and the Game on or before the estimated delivery date communicated to you on the Website. However, you acknowledge and agree that delivery as of such date is not a firm promise and may be extended by RSI since unforeseen events may extend the development and/or production time. Accordingly, you agree that any unearned portion of your Pledge shall not be refundable until and unless RSI has ceased development and failed to deliver the relevant pledge items and/or the Game to you. (Pledges made under previous Terms of Services continue to be governed by the corresponding clause of the Terms of Services, or of the Commercial Terms, as applicable, which were in effect at the time of making the Pledge).
For the avoidance of doubt, in consideration of RSI’s good faith efforts to develop, produce, and deliver the Game with the funds raised, you agree that any Pledge amounts applied against the Pledge Item Cost and the Game Cost shall be non-refundable regardless of whether or not RSI is able to complete and deliver the Game and/or the pledge items. In the unlikely event that RSI is not able to deliver the Game and/or the pledge items, RSI agrees to refund any unearned portion of your Pledge, and to post an audited cost accounting on the Website to fully explain the use of the amounts paid for Pledge Item Cost and the Game Cost. In consideration of the promises by RSI hereunder, you agree that you shall irrevocably waive any claim for refund of any Pledge that has been used for the Game Cost and Pledge Item Cost in accordance with the above.“
You can see all the material changes to both the old and new ToS versions.
Here’s the thing. As per the above, backers who don’t agree to the new ToS, are 100% entitled to a no-questions-asked refund. Until this ToS change fiasco, coupled with the numerous complaints to State and Fed officials, it was very difficult – and near impossible – to get a refund. But people (recently a whale pulled out $11K) are getting them now, though the process is reported to still be fraught with complexities, numerous back and forth shenanigans, delays etc. But the new ToS makes it near impossible to get a refund.
Those who agree to the new ToS, either as existing or new backers, are faced with the possibility that they will never get a refund. Most people (especially gamers who think they’re rubbish anyway) don’t read the fine print. So let me interpret that fine print.
If RSI is unable to complete the game, that means they have run out of time and money. So where exactly would the refunds be coming from? If the funding chart is accurate (it’s not – but wait for my upcoming blog), it stands to reason that after raising $124 million (see breakdown) from backers over a four year period, if they failed to deliver, even without refunding media subscriptions – which they don’t – they would still have to refund the cost of undelivered physical goods, as well as the pre-purchase (no, it’s not a pledge – so stop it) of the game. Last we checked, subscriptions hadn’t even broken the $1 million barrier. So when RSI fails to deliver – as they already have, two years later – it will be a total loss; and there would be no money left to give refunds. Think about it; if they had money to give refunds, they won’t be closing up shop, would they?
Now here’s the fun part. Outside of legal, State or Fed action, they have no incentive to provide the financial accounting promised to backers. If they had nothing to hide, and they intended to provide it, there would be no need to keep revising (it’s on its 4th revision btw) the ToS, even as they reduce their liability, and hang backers out to dry with those changes. So, most of us believe that they won’t provide it because aside from wasteful spending, unjust enrichment by the execs, and claims of malfeasance, revealing those financials would give backers cause for concern, and of course give people like me even more reason to be shouting from the rafters. It would also no doubt show that not only are they running on empty – as claimed by several sources – but that’s why they have to keep using objectionable (creating canned demos to show progress, selling pictures of ships etc) tactics to continue raising money. It’s not unlike a Ponzi scheme; seriously. And that’s precisely how most of us expect it to eventually collapse. It won’t be a slow burn (see Godus and its ilk); but a sudden, catastrophic collapse. With four official studios worldwide, and almost a dozen more operating as contractors, and with over 300 employees/contractors, they have to be burning around $3 million or more per month – easy. Which means that, for all intent and purposes, unless they are making that kind of money each month, they’re probably running at an operating loss (spending more than they are making each month).
The question of what happens to money given to companies, is one that most backers aren’t focused on; even though it’s the smoking rocket launcher in the case of Star Citizen. Which is why, even though private US companies aren’t required to share their financials with the public, over in the UK, they are required to do so. Heck, Frontier Developments Plc, makers of Elite Dangerious, have theirs regularly filed (1, 2). And so, with three (1, 2, 3) entities still late on filing their 2016 accounts, we are still waiting to see what those numbers are; as they will in fact shed light on the financials of the US companies associated with them. As of this writing, they are late – again – on those filings. But according to discussions with Companies House, companies have two (it used to be three) months after the deadline in which to file, before facing higher fines and ultimately criminal prosecution of the directors. Which means that they have until Dec 1st to file.
Problem is, unless and until State or Fed agencies, banks, or investors takes action, the only way for backers to get these financials, is to file a lawsuit and obtain them either through discovery, or as a resolution to the suit. Right now any backer on the old ToS – with or without an attorney – can sue them for those financials seeing as they have missed the 18 month cure period to deliver as promised. But they are bound by arbitration (see Section XXII) which heavily favors (1, 2, 3, 4) corporations. But guess what? Even so, CIG will just refund them; and probably (depending on the arbitrating judge) never have to provide those financials. That would be the end of the matter. So they might as well give refunds; which is cheaper and has less PR nightmares for them.
In one of my blogs, I stated the following related to the financials as it ties into the executives who are relatives (Chris, Sandi, Erin – Roberts) and lifelong friends (Nick & Simon Elms, Derek Senior), most of whom were part of the Gizmondo collapse from a few years back, and which I covered in an earlier blog. Notwithstanding the fact that every single known venture that Chris has been involved in since leaving the games industry over a decade ago, has ultimately collapsed.
“Please ask them if it’s true that: after they founded a studio (Foundry42-UK) to help develop this game, and Chris pulled in his brother and childhood friends in from another company to head it, that less than two years later, another subsidiary (associated with the project) then turned around and bought the company back from those very people. Thus taking out a significant amount of wealth out of the project and putting it into the pockets of those very friends and family. While still paying his brother Erin, what amounts to almost $250K in yearly salary; not including benefits or bonuses – which aren’t disclosed. Aside from this being reported to be almost 3x what he was making at his previous company, it’s also 2x the average for a director in the Manchester region.”
For those of you clueless as to how a business runs, note that just because you have several shell companies, multiple studios, and hundreds of employees, doesn’t mean squat in terms of longevity, or financial health, let alone the internal state of the company. It’s all in the financials. And for a $124 million crowd-funded project – not taking into account investor amounts, loans etc – those financials are vital in determining whether or not they can in fact deliver on promises. Obviously RSI knew this, which is why they put that clause as a carrot stick in the ToS right from the beginning. Then, as with everything else, have thus far failed to keep their promise; even as they float the money across several shell companies.
Homework: Go look at Frontier’s company/team size, and their burn rate (it’s in their financials). And that’s one studio.
THE LUDICROUSNESS CONTINUES
RSI isn’t operating like a company that is flush with cash, let alone one that has ample cash reserves as Chris Roberts – who has the uncanny ability to lie on cue, even without reason – has claimed. They have continued to use a series of carefully planned and staged tactics designed to continue bilking backers (probably investors as well) in order to raise money. And with a few backers (approximately 2000 last time we ran the metrics), still funding the project, there is seemingly no incentive for them to stop using these practices. They pulled the same stunt this past August at the Gamescom2016 event – to the tune of $4.4 million total take for the month. Based on what many believe to be lies. Multiple sources have in fact confirmed that the demo shown – aside from the analysis by myself and others following the event – was staged for the event in order to show progress. Just like they’ve done before in the past.
And naturally, as part of the on-going fundraising effort, they’re still selling JPEGs of ships. The latest being the above concept ship. This aside from the fact that the engineering debt on those is currently so high, that last we checked, not even 50% of the ships sold, have been created, let alone implemented in the game. And with the upcoming yearly CitizenCon2016 event on Oct 9th, they announced another “concept” sale.
From the latest upcoming sale, ponder this. That’s $750 (not a typo) for an image of a ship, for a game that doesn’t yet exist.
Amid all this, remember that Chris Roberts this past April, came out and flat-out said that the first official release of the game, will be a Minimum Viable Product, instead of the full game promised back in 2012. This after five years, and having raised $124 million.
All of these actions and statements are enough for backers to have questions about how long the company can be a Going Concern, and also what has happened to all this money.
As I’ve stated before, how people choose to spend their money, is up to them. However, the few who, going through Sunk Cost Fallacy, and continuing to pour money into this train-wreck, can only speak for themselves. There are others who just want the game they were promised, or a refund in full. RSI cannot deliver the product promised; this is no longer in question because it’s now a foregone conclusion. What’s in question is what will they have achieved and delivered before they either start the inevitable down-sizing, or when the predicted catastrophic collapse comes?
And what should be even more concerning is that this game – as designed – relies on a very expensive server backend to operate. Built like an MMO, complete with cloud server backend, with database access etc, it simply cannot operate without someone footing the expensive monthly bill. There is no single-player. There is no peer-to-peer networking with private servers which ensures players can play the game once the servers go dark. That’s what a catastrophic collapse of the project means. And anyone still giving them money, knowing all this, amid the high risk and broken promises associated with this project, will lose their money when they fail to deliver.