Star Citizen Thread v6

[Tippis]

The product was and is the promise for the product that you can buy in the store.

That's a nice evasion, but it won't hold up in any kind of legal or accounting context.

They sold a product. Period. Doubly so once the crowdfunding portion ended and they went straight into selling virtual goods — goods that they must deliver, or people are owed their money back. No amount of “…but crowdfunding” will change the simple fact that they're selling goods, not a promise. They're a game development company, not an investment bank or a pawn shop.

A crowdfunding company is not prepaying infrastructure and workforce to produce something and then sell it to make a profit.

Yes they are, same as any other company relying on pre-orders, and just like those companies, should they fail to deliver, they are now saddled with all the usual debts and liabilities that accompany such a venture. The only difference lies in the timing of the events: rather than produce then sell then make profit, they sell then produce and then make a profit. The only difference the crowdfunding portion makes is that the first sale is meant to cover the production costs rather than spending money from a loan or from a pre-established nest egg.

Is there a official list of the number of the expenses for employees and facilities somewhere, giving clear data over all the years from 2011? I haven't seen that yet.

Their official Companies House filings.

 

[Britney]

That's a nice evasion, but it won't hold up in any kind of legal or accounting context.

They sold a product. Period. Doubly so once the crowdfunding portion ended and they went straight into selling virtual goods — goods that they must deliver, or people are owed their money back. No amount of “…but crowdfunding” will change the simple fact that they're selling goods, not a promise. They're a game development company, not an investment bank or a pawn shop.


Yes they are, same as any other company relying on pre-orders, and just like those companies, should they fail to deliver, they are now saddled with all the usual debts and liabilities that accompany such a venture. The only difference lies in the timing of the events: rather than produce then sell then make profit, they sell then produce and then make a profit. The only difference the crowdfunding portion makes is that the first sale is meant to cover the production costs rather than spending money from a loan or from a pre-established nest egg.


Their official Companies House filings.

As it is, until today, not clear to me what happens with a crowdfunding project that fails: Can you please demonstrate what will happen when CIG should fail to deliver the promised product. What is the specific legal framework here?

 

[frostypaw]

As it is, until today, not clear to me what happens with a crowdfunding project that fails: Can you please demonstrate what will happen when CIG should fail to deliver the promised product. What is the specific legal framework here?

There are other such projects that have failed...
https://www.recode.net/2017/3/17/14959490/bankrupt-drone-lily-refund-preorders

 

[VR Mr Teatime]

As it is, until today, not clear to me what happens with a crowdfunding project that fails: Can you please demonstrate what will happen when CIG should fail to deliver the promised product. What is the specific legal framework here?

That depends on who initiates proceedings against them, which company they proceed against (i.e. which jurisdiction and law is in force) and on what basis. In the UK if there is no product and your claim is upheld (actually there is a shortcut - look up Statutory Demand) i.e. you have a court judgement, then you can proceed under the Insolvency Act 1986 and whatever consolidation acts have been passed since (I've been out of that game since the early 1990's). If its Coutts and they have a debenture (corporate mortgage) on one of the UK company's assets, then they can appoint a Receiver (that may have changed to Administrator), who then tries to realise the assets of the company for the bank and then other creditors.

The broad order of payment of dividends (realised assets) in the UK is:

The UK Treasury (used to get 15% of every transaction in and out of the insolvency account setup to hold the insolvent's funds)
The Receiver/Administrator/Liquidator (depends on the nature of insolvency) for their fees, which make IT consultant day rates look cheap
Secured Creditors - i.e. the bank's debenture
Unsecured creditors
Shareholders

Kickstarter funders and pre-orders fall into the unsecured creditors section and would get basically any crumbs as pennies on the pound after the preceeding categories have been fully paid.

My involvement in the Insolvency business finished in the early 90's, so someone like Yaffle might have more up to date info.

 

[Tippis]

There are other such projects that have failed...
https://www.recode.net/2017/3/17/14959490/bankrupt-drone-lily-refund-preorders

Or this: https://www.ftc.gov/news-events/pre...project-creator-settles-ftc-charges-deception

…but again, only a very small portion of SC is actually crowdfunding. The rest is just plain old pre-sales, subject to the frameworks of any regular consumer-sales venture.

 

[Britney]

Or this: https://www.ftc.gov/news-events/pre...project-creator-settles-ftc-charges-deception

…but again, only a very small portion of SC is actually crowdfunding. The rest is just plain old pre-sales, subject to the frameworks of any regular consumer-sales venture.

That all sounds like a mess to me. In the mentioned example the guy doesn't have to pay the money back as he already spent it. Sounds promising

But please, provided sources for your points. How do you tell what legal category a purchase on the Star Citizen website is part of? What is your source here?

 

[Tippis]

How do you tell what legal category a purchase on the Star Citizen website is part of?

You know that part where you buy your ships? The one where they add VAT…?

 

[Britney]

You know that part where you buy your ships? The one where they add VAT…?

What does that mean? What does that purchase contain legally?

 

[Ian Skippy]

What does that mean? What does that purchase contain legally?

VAT means its a sale of a product, a pre-order rather than a 'kickstart investment'.

 

[K-NINE]

There is a lot of guessing going on about ... how much cash is left.

Considering that they went to Coutts for what sounds suspiciously like a bridging (or payday) loan, putting up their IP as collateral for what is essentially an upcoming tax rebate, I would suggest that the answer to your observation is "not enough".

 

[AJW]

VAT means its a sale of a product, a pre-order rather than a 'kickstart investment'.

There is no such thing as a 'kickstart investment', legally. It's all pre-orders, and the same legislation (i.e. consumer protection law in most jurisdictions) applies to Kickstarter as to any other product sales.

If CIG fails to deliver, any legal action is likely to be messy, given the multiplicity of companies involved, and the global distribution of backers. I think the only certainty is that lawyers are likely to do well out of it, and backers less so...

 

[Britney]

VAT means its a sale of a product, a pre-order rather than a 'kickstart investment'.

But what is that product legally? What is it exactly that you are buying?

 

[Cmdr Eagleboy]

CIG and Chris themselves have been carefully signalled for long time they just don't have enough money to survive to make both games. And that was 1 year ago. At this point they can't even finish 3.0 properly.

Britney, I loud your sceptical approach to this information (fully agreeing with each other would be boring Internet), but this has been vetted by tons of clever people working in industry. At this point even most optimistic prognosis aren't, well, good.

Also respected to Tippis for explaining it all revenue/profit part so well (can't rep you multiple times, sad puppy). I think two things just automatically kill any chance for recovery - 1) whatever they will try to shore up expenses, refunds, etc. it will blow up in their faces (sodding Steam hand out refunds these days...it is hard to stay alive and play dead and not refund people at same time) and 2) there's just no way they will gather enough money to keep servers running and keep development going after this.

 

[1500]

But what is that product legally? What is it exactly that you are buying?

A product. That is what it is legally.

You seem to be trying to force the discussion into a circle.

 

[Cmdr Eagleboy]

But what is that product legally? What is it exactly that you are buying?

At this point you can pre-order:

1) Star Citizen - as for alpha and beta access, afaik it is not available any more, or they sold separately;
2) digital goods as Ships and other vehicles - I just look up, it is just copy of Star Citizen and goodies, and vehicle as cherry on top;

Both are clearly preorders. Site is btw lying about nature of transaction - it claims it is a pledge, however with paid VAT it is just paying for digital goods. Afaik they were forced to add VAT after legalities and potential court cases in US (CIG would really hard time to claim it's a charity).

So they are presold goods, with charged VAT, with clear declaration what you will get when they will deliver goods. In case of non-delivery they will have to refund you, full stop.

There's just no way CIG can escape from this either without refunding, delivering product, or going bankrupt trying to do so if no other resources are found. Considering burn out and goods required to be produced and industry know how about making such ships.......it just does not compute how they will do that with available and potential future revenue.

 

[Ian Skippy]

But what is that product legally? What is it exactly that you are buying?

Depends on what you pre-ordered. If its a game, you pre-ordered the game with promised characteristics/features. If you pre-ordered a ship, the product is a digital ship in the game, and the ship should have the promised features. Its simply a digital product, like pre-ordering an album or movie. You cant refund because 'you didnt like the album', you can refund if the pre-ordered 'gangsta rap' album turns out to be instrumental country.

 

[Zetta]

Afaik they were forced to add VAT after legalities and potential court cases in US (CIG would really hard time to claim it's a charity).

Just to expand on this. VAT was added due to an EU directive, the main intention was to stop companies claiming a sale was done in a different country to where the actual purchase was taking place, this was allowing companies to pay considerably less TAX. The intent was to combat money laundering schemes like the 'Dutch Sandwich', 'Double Irish with Dutch Sandwich' etc

 

[lysan]

At this point you can pre-order:

1) Star Citizen - as for alpha and beta access, afaik it is not available any more, or they sold separately;
2) digital goods as Ships and other vehicles - I just look up, it is just copy of Star Citizen and goodies, and vehicle as cherry on top;

Both are clearly preorders. Site is btw lying about nature of transaction - it claims it is a pledge, however with paid VAT it is just paying for digital goods. Afaik they were forced to add VAT after legalities and potential court cases in US (CIG would really hard time to claim it's a charity).

So they are presold goods, with charged VAT, with clear declaration what you will get when they will deliver goods. In case of non-delivery they will have to refund you, full stop.

There's just no way CIG can escape from this either without refunding, delivering product, or going bankrupt trying to do so if no other resources are found. Considering burn out and goods required to be produced and industry know how about making such ships.......it just does not compute how they will do that with available and potential future revenue.

Developer fatigue will hit before a game is ready as promised, if they release anything considered a gold release.

 

[Edith_The_Hutt]

The explanation given in the Eurogamer article I could find on the Coutts loan here seems fairly straight forward: They don't trust the pound to retain its value.

My reading of the explanation is:

• They need £4M GBP to pay UK developers for the next year or so
• They have about £4M GBP due in a tax rebate in 2018
• They don't have enough in GBP right now but they do have it in USD
• If they convert USD to GBP to pay current costs then they're gambling that the £4M GBP they receive in 2018 will be worth the same amount of USD they just converted. This is far from certain.
• If they take a loan in GBP which they will be able to pay back with money they know they will have then they will make a fixed loss.
• They'd rather suffer a definite fixed loss to pay these costs than an uncertain loss which may be a lot bigger given currency shifts in the last 18 months.
• Coutts will happily issue a loan with the IP as collateral because they know that the IP is absolutely essential to the project continuing; hence there's a pretty good motivation for the loan to be repaid on time so long as the project is solvent overall rather than in any one currency.
• This certainty will reduce the interest payable on the loan, meaning it's in CIG's interest to offer the IP as collateral rather than anything which may appear less vital to the production of the game.

Please let me know if I've missed something but it seems to me that the existence of the Coutts loan isn't direct evidence that the project is in trouble, just that they've nearly exhausted their reserve of GBP.

 

[Slopey]

That's a really risky strategy just to hedge the GBP rate (which is doing quite well in the last week).

Remember it's not the end of the world making a loss, certainly in the tax year before the product ships, with the UK position on computer games rebate.