Monday, July 28, 2014

How Gary Gygax Lost Control of TSR



Yesterday was Gary Gygax's birthday: an occasion to celebrate his achievements and successes. Today, I'm releasing a long piece about another, less cheerful part of his story: the upheaval of TSR's corporate governance which ultimately led to Gygax's ouster in 1985. I have noticed over the years that there has been some confusion about the details of company ownership, structure, and performance which led to this turn of events. I therefore spent some time building a historical record based on the evidence as I see it today. You can read it here:

The Ambush at Sheridan Springs

I tried to keep the narrative high level and uncluttered with footnotes, so there are a number of details that would benefit from further explication. Below we will consider just one of them: the situation that, in 1981, TSR was named one of Inc. magazine's ten most profitable privately-held companies due to an apparent misrepresentation of their revenue.

It might seem simplest to chart TSR's rise to stratospheric profits by graphing a few data points extracted from contemporary sources like that Inc. article. But there are often difficulties in assessing exactly how much money TSR made in a given year. This owes to several factors, the most important of which is that the company was privately held, and therefore reported revenue and profit without the sort of oversight that accompanies the activities of public-traded companies. Over time, in statements to the public, various executives reported different figures for a given year: sometimes, very different figures.

The years 1980 and 1981 were especially problematic for TSR's financial reporting. From a number a bit north of $2M in 1979, sales leaped dramatically in 1980 as the Dungeons & Dragons fad took hold of America. Just how dramatically is unclear in retrospect, however. We know that the figure that Inc. magazine reported was $16M: an eightfold increase over the previous year. As we see, this placed them sixth on the Inc. ranking for privately-held companies by 1980 revenue growth.


Where did this number come from? The Inc. methodology at the time, as they describe it, "relied on voluntary data generally accepted as strictly confidential." Any information was "verified through signed statements from company officers, support material from outside professionals, and telephone interviews," though Inc. recognized that its list for private companies cannot be called "definitive" because many companies stay private "to avoid having to reveal financial information." This at least suggests that TSR officers must have provided a signed statement to the effect that their 1980 revenue reached $16M.

But we know that TSR officers later painted a more conservative picture of 1980 revenue: in 1983, the Wall Street Journal reported that TSR earned only $8.7M. We also begin to see talk in TSR internal documents of how revenue doubled between 1980 and 1981, even though 1981 revenue estimates ranged from $14-18M [*], which would point to a number close to the $8.7M range for 1980. It wasn't until the very end of 1981 that Inc. published their 1980 list, and no doubt TSR provided its affidavits to Inc. at a time when revenue was rising still higher.

So what happened here? Did TSR intentionally overstate their 1980 earnings, or did they misunderstand them and then revise them after the fact? Were the figures given in 1981 perhaps more indicative of 1981 earnings than those for 1980? There's no doubt that TSR's sudden success took the company by surprise, and it's possible that they arrived at the figures they gave to Inc. in error. We do know that this recognition was a considerable source of publicity and pride for TSR. They even redistributed the Inc. letter of congratulation to all employees and placed a framed copy in the company lobby.


Whichever way we explain the dubious figures, TSR made an impressive amount of money in 1980 and 1981. It wouldn't be until 1982 that declining revenue became a subject of serious concern, which came to a head in the spring of 1983 and resulted in the fracturing of TSR Hobbies into four separate companies. For more on that, see the "Ambush at Sheridan Springs."

[*] 1981 is confusing because TSR changed the end of their fiscal year from September to June (yearly reporting  earning in June was more common for companies in their sector), which led to an abbreviated nine-month fiscal 1981 year and therefore some confusion in revenue reporting: do you extrapolate a yearly figure from those nine months, add on an extra quarter from either side, or just report the base figure? This too may have retroactively contributed to the confusion about 1980.

16 comments:

  1. You may have seen this interview with Gary - it goes into some financial details: http://www.thekyngdoms.com/interviews/garygygax.php

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    1. Yes, I actually consulted that interview extensively during one phase of writing this piece. You will find that my numbers and sequences of events do not always agree with Gary's recollections. All I can say is that in any place where there is a disagreement, I was very sure I had solid evidence to depart from the story given there. If there are any particular points of difference that require more explication, I'd be glad to speak to them - I didn't want to clutter this piece with tons of footnotes, but I am certainly prepared to back up anything that piece says.

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    2. There's a little discussion on Knights and Knaves about this...I think the biggest criticism is about your reliance on the Internal TSR newsletter (which might be considered propaganda) as opposed to Gary's recollection in the Kyngdoms article. You can see Trent Foster's criticism here.

      http://knights-n-knaves.com/phpbb3/viewtopic.php?f=2&t=12444

      Could you elaborate on that perspective.

      I wouldn't mind seeing a blog post following up this with the footnotes myself.

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  2. Excellent article. Love your book.

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  3. Interesting. I hadn't realized that the Blumes wanted to cash out for so long.

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  4. Two things occur to me based not on my gaming background, but as somebody with an MBA:

    1) TSR's growth 1978-1982 was downright explosive. I think a lot of troubles simply came from that; you had a small niche company run by amateur entrepreneurs that suddenly was shoveling in money faster than it could count it. I think almost ANY company without experienced officers would have come apart at the seams.

    2) In 2005 or 2006 Paul Chapman of SJG estimated the RPG market at about $50M per year. Adjusted, TSR's $22 M in 1982 translates to about $46 M in 2006. That more than anything else shows how much the gaming market has contracted.

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    1. Yes, I do in the piece try to say that the explosive growth of TSR put them all out of their depth, and it shouldn't shock us that the consequences were not positive. I can't say I've tracked the RPG market so recently, but I'd be surprised if it was that small today.

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    2. Oh, sure. My point (and I do have one) is that it's not a situation unique to TSR, or to Gygax and the Blumes; growth is very problematic for ANY small business. The first expansion beyond "the boss can have his hands in it all" is the death of many, many small businesses.

      Mostly I say this as a counter to the popular meme that "TSR died because Gygax/Blume sucked at business." The waters they were navigating are littered with the wreckage of many other vessels.

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  5. I had always heard that Gygax's ex-wife provided some of the shares that put the Blumes and Williams into a position to oust Gygax. Is that entirely invented? Did Gary lose, or his former wide gain, shares of TSR in their divorce?

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    1. I did go to some trouble not to drag certain names into this story, but suffice it to say that Williams did not require much by way of a coalition to have control of the company after acquiring the Blume's shares. She then possessed considerably more than any other single shareholder.

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  6. Great stuff. Just got your book this week, by the way. Thus far every page some completely delightful insight!

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  7. Not to nit pick, but should the photo be covering up the top of the text?

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    1. Hmm? Of this blog post or the one on Medium? I'm new to Medium, but it looks okay there in all the browsers I can point to it at the moment.

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  8. Another very interesting piece - than you, Jon! I wonder if you have any view or further information on the idea, mentioned several times by Gary, that he had been keen for Steve Jackson and Ian Livingstone (of Games Workshop, in the UK) to join TSR? This is mentioned in the following long interview with Gary (which also attributes the acquisition of the Greenfield Needlewomen company to the Blumes; although this is, of course, a later recollection): http://www.thekyngdoms.com/interviews/garygygax.php

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  9. Good point that there was stock in play besides the Blume's stock.

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  10. Gonna have to bookmark that Medium article for later, but this was interesting. Aside from TSR, Golden Corral's the only name I recognize from that list. They seem to be doing well still

    Speaking of birthdays, mine was last week and I finally got your book as a present! I'm only on page 72, but it's been incredibly interesting so far. Still can't believe one of the Amazon reviews complained about the focus on early wargaming, since that's one of the subjects I was most interested in reading about. Love Tim Kask's quote on the back

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