3DO Auction Yields Disappointing Financials

Thanks to Yahoo!/Daily Deal for revealing the final bidding prices for 3DO's assets, totalling a mere $4.6 million, following the company's bankruptcy auction last week. The article indicates the main winning bidders were "...UbiSoft Holdings Inc. for the fantasy games 'Might and Magic' and 'Heroes of Might and Magic,' for $1.3 million; Namco Hometek Inc. for 'Street Racing Syndicate' at $1.515 million; JoWooD Productions Software AG for the 'Jacked' motorcycle game for $90,000; Crave Entertainment Inc. for 'Army Men' for $750,000; and Microsoft Corp. which paid $450,000 for the intellectual property for 'High Heat Baseball'." 3DO founder Trip Hawkins also bought an Internet patent and much of 3DO's back-catalog for $400,000. 3DO's lawyers claimed that the SEC investigation of games companies launched last month made possible suitors back off, saying: "It probably cost us $10 million easily."

Comments

Please, no more Army Men games!

[Man In Black]

Crave Entertainment Inc. for 'Army Men' for $750,000

Damn... just when I thought we'd finally gotten rid of this crappy franchise...

Re:Please, no more Army Men games!

[Rudeboy777]

With any luck, they bought it just for the satisfaction of holding the franchise under a magnefying glass on a sunny day. Hell, I would have bought it for that reason

Crunching the numbers

[NetDanzr]

The average game by 3DO sold 40,000 units worldwide (source: an investment report by Wedbush Morgan Securities). Let's be generous and say that the Heroes of Might and Magic game sold 50,000 units. Let's be generous again and say that 3DO got $20 per game in revenues. As a consequence, the Heroes game brought revenue of $1 million.

According to the report I mentioned and a couple of other reports, the break-even point (a point where 3DO would not show any losses) is $85 million. As a consequence, they'd either have to sell 85 such games or jack up the sales of their exising titles. At $50 million in 2002, however, their costs were almost twice as high. So we can safely assume that developing an average game costs 3DO around $2 million.

UBI Soft paid $1.3 million for something that generates $1 million in sales and $1 million in net losses per game (not counting expansions). Considering UBI's public relations department, they probably expect to loose most of their fan base, which was the driving force behind the sales. As a result, them buying the Might and Magic franchise actually sounds like a really bad deal. I'm not surprised 3DO has gotten so little for its assets; in fact, I expected less.

Re:Crunching the numbers

[simoniker]

Very interesting analysis indeed - but I believe that UbiSoft bought the rights to all the old Might and Magic games, even those that have already been developed, and which they can essentially now sell without sinking much/any new money into them. That's good for starters. And the Might and Magic name still has some prestige value, and if you figure that you can pay up to $5 million just for the right license, then paying $1 million to get your own intellectual property/license forever seems half-decent.

I think everyone got very good deals out of this, actually, considering the average game costs $3-5 million dollars, especially Microsoft, who got a respected and fully-developed baseball franchise for under $500,000 - crazy.

Re:Crunching the numbers

[Doctor Cat]

Let's be generous and say that the Heroes of Might and Magic game sold 50,000 units.

The problem with that assumption is that it assumes most 3DO titles sold roughly comparable numbers. But computer games is a hit-drive industry, and it's likely that 3DO is typical there, with a lot of games selling very poorly, and a few hits selling far, far more. So their better selling titles would be well above 40,000 units sold.

Since they also got the rights to all the Might and Magic games, as well as Heroes of Might and Magic (which I'm a big fan of, though in 3 and 4 they kept adding more features than the game needed, featuritis made it LESS fun in my opinion)... They got the rights to over a dozen games probably, maybe more than two dozen when you count in all the expansion packs. They could easily put out a collection of ALL the Might and Magic products in one box for $60, with zero product development cost, and probably sell enough to make a good profit.

As for Trip Hawkins getting a "sweet deal" - having his game company still running would be a better deal for him. When a company goes bankrupt, leaving behind some "dregs" of titles that didn't sell well even when they were brand new, their future sales potential is generally pretty dismal. Plus not having your own game company to manufacture and sell them also puts him in a worse position to ever do anything with them. It's likely most or all of them will never see the light of day again, and he bought them up cheap because of sentimental value and/or Don Quixote syndrome. After losing control of his old company EA, he was determined to "show them" by making 3DO bigger and better. Guess he didn't succeed...

Some questions

[Daetrin]

3DO founder Trip Hawkins also bought an Internet patent and much of 3DO's back-catalog for $400,000. 3DO's lawyers claimed that the SEC investigation of games companies launched last month made possible suitors back off, saying: "It probably cost us $10 million easily."

First off, why would SEC investigations make companies back off from the auction? To the best of my understanding the investigation is mainly focused on accounting issues, so why should that affect decisions to purchase new properties? That seems only slightly more likely than claiming that the investigated companies have decided to stop working on games because of the SEC. It's not like they're going to stop everything and wait in breathless anticipation until the investigations are over. Is there some correlating factor i'm missing?

Second of all, doesn't it seem like Trip Hawkins got a good deal out of this? Especially if they're right about the investigation lowering the prices. He drove the company into the ground, and then managed to grab most of the non "A" titles and a pantent at bargain basement prices. I bet he'll evntually be able to sell the pieces at a much higher price once they're not part of a bankruptcy "everything must go now!" type auction.

Using the intelectual property as leverage he might even be able to get the venture capital to found a new, smaller game company. Wash, rinse, repeat.