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More On SEC Probe Into Game Publishers

simoniker posted more than 10 years ago | from the kick-game-out-door-post-record-profit dept.

Games 19

Thanks to Reuters for a follow-up article discussing the SEC investigation into videogame publishers, in which Acclaim, Activision and THQ are already a part. Analysts elaborated on the probe: "..the investigation was probably considering two key questions: at what point in a game's release did the publisher recognize revenue from its sale, and whether reserves taken as insurance against weak sales were being used to smooth out revenues." This may mean the rush to get product out at the end of the financial year, as recently occurred with Tomb Raider, may be changed somewhat: "For example, some video game publishers book software revenue on the day the product is shipped. A more conservative approach could be to book revenue the day a retailer takes possession of the goods." Update: 07/21 22:14 GMT by S : There's also a good CNN Money article discussing the implications of this probe.

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19 comments

IYAAL, please explain.. (2, Insightful)

Creepy Crawler (680178) | more than 10 years ago | (#6493711)

I dont understand exactly what Acclaim did illegal (other than make a bunch of shitty games). And it's not like they have a "We are the only game publishers" Patent.

So, why is the SEC doing this?

Re:IYAAL, please explain.. (2, Informative)

Ian_Bailey (469273) | more than 10 years ago | (#6493950)

SEC is involved, so the reason is because the information available to investors is either not complete or misrepresented. This is important, because if companys do not fully disclose all important details, CEOs (and other owners of big bunchs of stock who know more details about the company) can artificially manipulate the stock for their own personal gains.

Now, the current issue is that game companies record a 'sale' when the recieve an order from the store. The article mentions that a better measure might be to record the 'sale' when the store recieves the shipment. This would make sure no games that were lost or damaged in shipment are recorded as sales (although this would most likely be fixed afterwards).

Now, this might not seem like a big deal, they were talking about 2-days in differences. Here's a possible scenario:

CEO hatches a plan to make money of his (or her) game company's stock. CEO buys a bunch of shares at their regular price. CEO launches game, and ships game to stores. Only the CEO knows uses a cheap shipping service, which damages half the shipments. Very few copies have been sold (so far), but 'the books' say tons of copies sold. Issue press release "x million copies sold". Shares go up. CEO sells stock at high price, making a profit. Truth of bad shipments comes out week later. Stock Price plummets, leaving everyone else with a big loss. Repeat a couple of times, and you could make a couple hundred thousand quite easily.

The SEC is suggesting changing this so the situation I mentioned here (and no doubt various other ones) will not be possible. I don't know if what they're doing is illegal, that is for the Commision to decide.

Re:IYAAL, please explain.. (1)

Creepy Crawler (680178) | more than 10 years ago | (#6494179)

Ok, I understand about the "fraudness" possibly made by the CEO. But if the stockholders think that, cant there be a stockholder CEO-Eject vote and find somebody better?

I'm pretty sure I understand, but I'm not well versed with upper-management in large corporations. Still learning though ;-)

Thanks.

Re:IYAAL, please explain.. (2, Informative)

Anonymous Coward | more than 10 years ago | (#6494816)

Acclaim ALWAYS did this. We would get to the end of a financial quarter and there would ALWAYS be a mad scramble so that it would fit within the current financial quarter. Cooked books. Before Turok first came out, a *LOT* of pre-orders were taken before the end of the financial quarter (some vendors were even persuaded to pay ahead of time - so acclaim could have enough cash to duplicate the game). I never understood the logic behind this, now I see the light. It's dishonest and illegal. Fancy Greg Fischbach doing something dishonest? My that's a shock.

Re:IYAAL, please explain.. (5, Informative)

jwilloug (6402) | more than 10 years ago | (#6494252)

Most of the article wasn't devoted to outright insider trading like you're describing, but the shady but very common industry practice of not recognizing revenue as soon as it comes in.

Let's say you're Acclaim. You've just put out Turok, and times are good. Wall Street was predicting you'd make $0.10 per share, and instead you made $0.12. So do you announce that you've beat by two cents? Of course not, you can the same amount of good press with $0.11, and the rest goes in the CEO's mattress for a rainy day.

It's two years later, you've just put out Turok 7 and the kids who loved Turok are starting to get old enough to tell quality games from the crap you're putting out, and now you're about to miss expectations by a penny. The rainy day is here, time to dip into the savings and bump up earning a bit. Yeah, it's a bit artificial, but who's it hurting...

Is this really that important? (3, Interesting)

missing000 (602285) | more than 10 years ago | (#6493724)

Why would the SEC bother with video game publishers when the Enron crooks are still running around?

I can't understand why they continue to waste time with the little fish when the Enron and Global Crossing executives are all running around spending money they stole from employees and retired people.

Re:Is this really that important? (1, Insightful)

Anonymous Coward | more than 10 years ago | (#6493946)

Simple, the Enron and Global Crossing execs are friends with our President.

If the SEC bothers itself with other scandals that don't really matter (Such as the well publicized but not very signifigant Martha Stewart scandal), then maybe people will forget about Enron, Global Crossing, Florida Elections, the California Energy Scandal, etc.

Re:Is this really that important? (1)

karnal (22275) | more than 10 years ago | (#6494162)

Why would the Police bother with red light runners when the murderers are still running around?

I can't understand why they continue to waste time with the little fish when the old guy down the street and the man who lives in a tool shed 3 blocks away are all running around killing people.

Re:Is this really that important? (1)

DragonPup (302885) | more than 10 years ago | (#6494176)

Why would the SEC bother with video game publishers when the Enron crooks are still running around?

Fewer political contributions to the Republican party, perhaps?

-Henry

Re:Is this really that important? (0)

Anonymous Coward | more than 10 years ago | (#6494292)

I think, if the publisher recognizes revenue early they misstate earnings and provides false information to creditors and investors.

Then people invest money for the wrong reasons, and management of the publishers spend the money they stole. Just like Enron.

Probing Lara Croft (3, Funny)

Anonymous Coward | more than 10 years ago | (#6493853)

The SEC is doing what avid videogame players have wanted to do for years.

Re:Probing Lara Croft (1)

Tyrdium (670229) | more than 10 years ago | (#6494115)

Oh shit... The aliens got out of Area 51... Where's Will Smith when you need him?

Will Smith was acquited of rape (0)

Anonymous Coward | more than 10 years ago | (#6494526)

Will Smith [newsmax.com] was acquitted of rape, but he might run for office.

Maybe a rethink? (3, Insightful)

spumoni_fettuccini (668603) | more than 10 years ago | (#6493967)

I think their revenue models are screwy anyway. Take into consideration the people that reserve [deposit] or preorder the games [full price], doesn't that count? Would they also benefit from introducing the title a little cheaper? I wait for a PC or console [PS2] game to drop from $50-$60 USD range down in the ballpark of $20. Many of my friends just rent their console game, about $5, finish it and never wind up buying the title.

Have no fear... Arcadia is here! (-1, Offtopic)

Anonymous Coward | more than 10 years ago | (#6494121)

BEST MUD OF ALL TIME IS MAKING A COMEBACK!

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64.90.160.100:4000

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Question (0, Troll)

Danse (1026) | more than 10 years ago | (#6495383)

This sounds exactly like what Microsoft was accused of doing a year or two ago. Did anything ever come of that?

Re:Question (0, Offtopic)

Danse (1026) | more than 10 years ago | (#6496648)

Troll?! Methinks we have trolling moderators. If they would bother to pull their heads out of their asses they would know that my post was entirely serious and quite related to the topic at hand.

Here's what I have gathered from the articles... (1)

Mike Hawk (687615) | more than 10 years ago | (#6497251)

EA is the biggest publisher so they make the largest political contributions and are therefore so far exempt from the probe. Check.

All other publishers are named or have already been named for this investigation into their accounting practices, even though the practice is standard throughout the industry. Check.

The watchdogs state in the article that they understand the current practice and don't see much wrong with it but they suspect the SEC will require a change. Check.

The new rules are likely to hurt bubble publishers such as Midway and Acclaim and not trouble the big boys EA, Activision and Take-Two who could more easily transition to deal with the new rules. This would also logically exclude all foreign publishers without a US trading stock. Check.

So, the big dogs win and the small fish lose. Stock prices fall sharply throughout the industry for a time, potentially breaking the smaller houses entirely. All of this, despite the fact that noone has really complained that they lost their retirement because of these stocks like we saw with Enron, when in fact the entertainment software industry has been stable to strong throughout the downturn. Check.

Thanks SEC, keep up the good work.

Re:Here's what I have gathered from the articles.. (0)

Anonymous Coward | more than 10 years ago | (#6498824)

So, what? Do you want to wait until people *do* lose their retirement funds with no chance of compensation before stuff like this is uncovered? Revenue recognition is a shady area, even if it is common in the industry. The difference between "common industry practice" and illegal activity is literally pennies.

If this was three years ago, and the SEC was saying that it wanted to investigate Enron, would you be defending them as well, saying that "well, it's really standard practice throughout the industry, and nobody's complained about losing their retirement money yet..."
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