LNLT 5.0 Gameplay narrative

Some Thoughts on Kickstarter Financial Benefits and Risks

Is the risk worth the reward? ~

Avery Abernethy, 27 February 2018

Kickstarter has provided significant start-up funds for many gaming projects. Pillars of Eternity raised almost $4 million dollars. The 7th Edition of Call of Cthulhu raised over $561,000 and many smaller PC, boardgame, and tabletop games raised enough money to fund their project. But for individuals, funding a kickstarter game project is fraught with risk. There are no guarantees that a funded project will be completed either on time or ever. Kickstarter itself does not guarantee that projects are legitimate or that they will be completed. There are a number of horror stories about funded Kickstarter projects which never completed their project and ultimately returned nothing to backers.

From a financial perspective, how can you decide if contributing to a Kickstarter Campaign is a good bet? I’ve recently helped fund a couple of kickstarter projects after overcoming extraordinary levels of apprehension. I’ve got a few thoughts on how to consider a decision to fund a Kickstarter game project.

 

The Unavoidable Risk Is Huge

Even a casual reading of Kickstarter’s legal language shows Kickstarter itself does not stand behind any funded project in any way. They do not promise that a funded project will be: competed; completed on time; or completed in a manner consistent with the project’s promotion. Kickstarter’s policies have been tested in US courts. Legally, if you pay into a funded Kickstarter project and the project fails, your only recourse is suing people responsible for the individual Kickstarter project. Good luck collecting from a failed funded project. If an individual or a company does not have any assets, you will not collect anything even with successful lawsuit. The conclusion I draw from this is pretty simple. Don’t fund a Kickstarter project if you are unable to accept the risk of losing 100% of your pledge.

 

What Can Be Done to Limit Your Risk?

As a layperson there are only a couple of things you can do to limit your risk. First, never pledge any money on a project that you cannot afford to lose.

Second, investigate the background of the individuals behind the project. Have they ever completed a game project before? Have they ever completed a game project similar to the scope of what they are proposing? Have they ever successfully completed a Kickstarter project? Was the Kickstarter project completed on time and did it provide what was promised? If these questions are unanswerable or if the answer is “no” to any of these questions then your risk of never getting what you were promised in your pledge increases. More questions with “no” answers indicates higher risk.

 

What Economic Benefits Do You Gain From a Kickstarter?

I’m starting with economic benefits because they represent financial pros and cons. The emotional pros and cons vary extensively between individuals.

An obvious financial benefit is getting a game for less than the eventual retail price. But this comes at a cost of tying up your money for months (or even years) before the project is completed. Also, a potential backer must estimate the retail price versus what their pledge price is. If the pledge price is less than the eventual retail price plus the cost of tying up your money, the individual backing the project has a financial win. At the risk of getting fancy pants, I’ll put this into an equation. A backer benefits if:

Retail Price > (Pledge Price + Opportunity Cost of Having Your Money Tied Up).

The information contained in this article is for the purpose of providing general background information only and does not constitute legal or financial advice or opinion, nor is it a substitute for the professional judgment of a financial planner/advisor or attorney. Before you act or rely on information provided in the article, you should speak directly with a financial planner/advisor or attorney. Grogheads, LLC disclaims all liability for actions taken or not taken based on the information in this article.

A good way of estimating retail price is looking at the current pricing of comparable products before you bid. Both new and used prices should be considered. Used prices can be assessed via ebay, amazon, boardgamegeek and other sources. This is further complicated if the backer buys games only on sale, or only after they have been on the market for a year or more. For a lot of games, the price a year from release on sale is substantially lower than the initial retail price. For this reason, “retail price” is something that will vary from gamer to gamer depending on their normal purchase habits. Buyers purchasing new games when the first come out pays a higher market price than those willing to purchase months or years after release or those willing to buy used games.

A second financial benefit is picking up special accessories, add-ons, or do-dads that will not ever be available when the completed game is sold in the retail market. Assessing the financial benefits of these factors is even harder because the potential backer must also determine if the accessory or what-not will ever be released in the future and the price the gizmo will be sold for. Some Kickstarter projects have special features or add-ons that are not made available on the regular retail market. Other Kickstarter projects eventually sell “deluxe editions” or add-ons at some point after the initial retail release.

A third financial benefit is obtaining the ability to purchase products that otherwise would never be released on the market. Although one individual’s pledge is seldom the determining factor for a project reaching the market, collectively the actions of many individuals may be a determining factor. This even harder to assess as an outsider looking into a project than the first two factors. Having thought about this for months I still lack answers.

 

What About Nonfinancial Benefits of Backing a Kickstarter Project?

There can be many nonfinancial benefits for an individual backing a project. There can be an emotional lift helping something personally important reaching the market. Some gain a benefit from being “in the know” and getting a product before it is available to the masses. Still others may have fond memories of an earlier game and just want to nudge the creative team to keep producing good work. Honestly, the nonfinancial benefits are potentially even broader and more individually centered than the financial benefits.

 

Conclusion

Hopefully this commentary will give you a better framework to assess the potential financial benefits and risks of backing a Kickstarter game project. As noted earlier, many of the risks and benefits depend on your individual financial situation and how an individual judges risk and return. I’m not an attorney, and the legal assessment comes from reading the results of cases reported in the Wall St. Journal plus my reading the Kickstarter disclosures on their website.

 

Avery Abernethy is a Professor of Marketing at Auburn University who has been playing wargames since elementary school.


Chat about it below, or in our forums, or hit our FaceBook page >>