Star Citizen is likely in financial trouble | Hacker News Reader

Star Citizen is likely in financial trouble

neogaf.com

80 pointsr72184 comments

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

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

Who will suffer are backers who supported this project.

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.

People who crowdfund are investors in the project. If it succeeds - they get the benefit they backed it for. And if it fails, they lose. Not every benefit is supposed to be measured in profits. So there is clearly ROI there, but not the way you described it (monetary gain).

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

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.

"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.

> 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.

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.

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

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?

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.

I'm guessing this will involve unaffordable office space.

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.

I also think this is amusing because I expect this looks a lot like how the sausage gets made in normal publishing -- except it's all behind closed doors.

This time, the Internet is invited to opine, and they're shocked (shocked!) that the business of game development requires dodgy financial deals a lot of the time.

Manchester isn't that expensive.

Locations or locales isn't the same as locals

Thanks

> 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.

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.

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?

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.

Maybe so, but it's probably important not to enact regulations preventing people from doing this. Otherwise we'll lose all the things that Kickstarter et al. helped create.

Anyone who's loved the game Undertale will tell you that was a fine use of their funds. But games like that wouldn't be possible without unsophisticated investors throwing their money at it in small quantities.

There's a lot of stuff on Kickstarter that looks a lot like fraud, I think people see this as part of a trend. You don't have to ban it, just give the "investors" more recourse.

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

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.

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.

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

Are you implying anything?

It's a game that's not complete. What of it?

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

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

The article ends with a disclaimer saying it's all inconclusive.

It "must have been" nothing or anything.

Maybe they actually reached a mutual agreement. Who knows.

What it must be is an expensive and elaborate scam that is in league with moon landing conspiracies.

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. "

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?

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.

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.

But the queen banks with them! /s

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

> 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.

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

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.

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.

> 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."

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

> I looked him up

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

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

Most of the world's population isn't posting comments in English on a computer-oriented site.

I'd expect most people commenting on games could at least name some of the major 90s studios. Origin was kind of a big deal.

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.

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...

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".

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.

Thank you for your suggested experiment, though the set ups are different in one crucial regard.

The water molecules interact with the glass, each other, and the floating object.

The vessel's occupant (as mentioned in my earlier post) is in the vessel's interior which has no atmosphere (vacuum).

The vessel will spin around the occupant. The glass of water test is equivalent to the case where the vessel contains air, and the answer is the vessel still spins around the occupant for a while, until the fluid transmits the motion to the occupant.

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

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.

FWIW, the proximity fuse was a World War 2 invention.

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.

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

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...

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.

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.

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.

You can format the text in a more readable way.

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

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.

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.

Excepted it wasn't planned like that.

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

I'm pretty sure they blew through most of their estimates.

The projects was always hailed as one of the big crowdfunding break and nothing indicates they considered borrowing to finance the project given the massive amount of money they got and the time estimates they posted.

By all means, check for yourself.

It would be irresponsible to operate entirely off of crowdfunded cash because that money could go a lot farther if properly invested. If you invest, then sometimes you need more cash that you have on hand. You could sell some of your assets, but if you can reliably anticipate they'd sell for significantly more at some future time (relative to interest rates), then you're better off taking a loan and then paying it off when you sell assets later.

Why would you assume a company would never use a loan?

Apple takes out loans and they have billions. There could be tax incentive to take out loans.

Apple takes out loans in the US because their offshore billions are subject to 30ish % corporate tax if repatriated, which is indeed a tax incentive albeit a perverse tax dodging one...

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.

$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...

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

Thanks. I didn't knew they funded it separately.

I still think some part of developers working time going on it. And due to how their marketing works they likely had to adjust usual development pipeline. In most of "normal" games there can be untextured models, unfinished animations until very end while on Star Citizen they try to show eye-candy updates all the time. So I guess this would likely drive development cost up.

That's true, I'm not sure how they account for dev time spent on community videos. But at least on the level of the video equipment and the staff who record and edit the shows, they're not spending out of money donated for game development.

I don't know about untextured models and unfinished animations driving up costs. At one point they showed a demo with early draft facial animations and got slammed for it (The Morrow Tour), and since then they've been hesitant to show things that aren't near finished. Stuff's getting to that level of visual polish either way, I think this is more likely to impact whether they publish early drafts of visual features, rather than having an impact on their actual development process.

Not that we don't see progress on stuff though. The procedural planets have been repeatedly featured in videos since back since the first teaser (Pupil to Planet) when it had a single material covering the entire planet. More recent demos are much more detailed and have shown what's slated for release in alpha 3.0, including the Levski landing area.

Other things like animations do get shown in untextured demo levels, and I remember recently seeing one with a person putting a box on a shelf and clipped his arm through a solid object. So they're not total perfectionists, but they're not 100% open about in-progress features either. If you show something too early and it changes significantly before release, somebody's bound to get upset about it.

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).

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

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

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?

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.

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.

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

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