TSR When Random House Sued TSR For $9.5M

Benjamin Riggs is continuing to talk about his research into the history of TSR. He recounts here a tale of TSR's accounting practices which contributed to their eventual demise.

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In April of 1996, Random House sued TSR for lack of payment on an $9.5 million loan.

You may ask yourself how TSR came to owe its distributor such a large sum of money. The answer lies in the 1979 distribution agreement between Random House and TSR, in which Random House became TSR's exclusive avenue into the book trade. In that agreement, signed by Gygax himself, Random House agreed to advance TSR 27.3% of the retail value of their product upon receipt. Random House could also return the product to TSR for a refund. All this meant that TSR could produce cash by shipping to Random House instead of waiting for actual customers to purchase their products.

The arrangement seems bizarre, but Jim Fallone, a TSR alum familiar with the agreement, said there may be an excellent reason for it. TSR's books were beautiful, and therefore expensive. Also, TSR had a back catalog that sold well. Sometimes, TSR faced a choice between printing new material, and reprinting old material that sold well, but might take time to make a return on printing costs. The Random House agreement was a way around this problem. TSR could print and ship new copies of the Player's Handbook knowing that they would get paid for it soon, and then also afford to print new material.

According to Fallone, the math on all this works out fine, so long as no more than 20% of TSR's products are returned. But in the 90's, TSR's many forays into creating new game worlds increased their levels of returns to more like 30%. At the same time, TSR began overprinting products. DragonStrike, for example, was a hit game that was driven into the red by overprinting. The game sold 100,000 copies, and had reorders for 50,000 more. Management, however, decided to print 150,000 copies of the game, which never sold.

Also, TSR began to use Random House to generate ready cash. Fallone said that TSR began to “abuse the loan aspect of the contract by shipping product to Random House that there is no actual sales demand for just to generate the advance payment in order to cover printing debts then you pour gasoline on the fire."
These practices helped cause TSR's near bankruptcy in 1997.

Thanks to historian Michael Calleia for providing me with a copy of the 1996 lawsuit and 1979 contract.

If you're interested, I talk to TSR alums Jim Lowder and John Rateliff here about the contract. "A 1979 contract between Random House and TSR would take 18 years to kill the company that started the role-playing game hobby. Thanks to historian Micheal Calleia, Ben has a copy of that very contract, and discusses how it led TSR to near bankruptcy in 1997 with TSR alums James Lowder, Chaosium’s executive editor, and John Rateliff, an internationally renowned Tolkien scholar."

 

[Jaeger]

Oh, I blame designers with the best of them. But Hasbro is responsible for setting targets and/or providing resources.

And it's very telling that after 4e managed to be beaten in sales by a 3e clone, the design team had significant turnover and 5e is being put out with less resources invested than 3 & 4e.

The 3.x SRD has killed any notion that WOTC could do anything they want system-wise with D&D and not worry about backlash.

 

[Alzrius]

I know Hasbro is a popular scapegoat, but based on all I know that was all the designers work at play. Hasbro didn't mandate any of the unpopular changes they made: see also, 5E.

I seem to recall James Lowder mentioning that it was Hasbro that mandated the death of D&D novels being published, despite them being profitable at the time.

 

[Parmandur]

I seem to recall James Lowder mentioning that it was Hasbro that mandated the death of D&D novels being published, despite them being profitable at the time.

Lowder is not a current insider: the novels not being a great ROI for a side venture isn't something that Hasbro would necessarily have been micro-managing, and that happened in the teens, the third decade in which Hasbro owned D&D/Magic (the cancellation of D&D novels coincides with Magic stopping their lucrative novel line, and probably stems from that decision).

Why should WotC put all the work into hiring staff to make cheap pulp novels, when they can have another company pay them for the privilege?

 

[qstor]

I'd like to know more about the suit between TSR and GDW over Dangerous Journeys.

 

[Zardnaar]

I dont remember where I read this but I recall someone from TSR saying that they began adding superfluous components to boxed sets such as the Dark Sun flip books (as an example) which significantly drove up printing costs which they ignored and continued to do. This had an affect on the bottom line and contributed to their bankruptcy as well.

Stan! Has covered this, maybe others idk.

 

[JFranklin3000]

Stan! Has covered this, maybe others idk.

I thought it was that the Sales department set a price, the Developers created a product, and Production made it without actually talking to each other. So you ended up with a lot of products that cost more to make then what their price point would have allowed.

 

[Zardnaar]

I thought it was that the Sales department set a price, the Developers created a product, and Production made it without actually talking to each other. So you ended up with a lot of products that cost more to make then what their price point would have allowed.

It's basically what Stan! said.

Al Qadim had cheap production costs. Planescape in particular lost money apparently and probably Darksun.

 

[Sacrosanct]

I work in corporate america. The attitude of immediate cash flow on the books and screw what they look like later is not a new thing, so it's no surprise that TSR execs went that route as well. It's quite maddening, actually.

 

[Zardnaar]

I work in corporate america. The attitude of immediate cash flow on the books and screw what they look like later is not a new thing, so it's no surprise that TSR execs went that route as well. It's quite maddening, actually.

Humans in general.

 

[Alzrius]

Okay, lets go over these one at a time.

Lowder is not a current insider

He pretty clearly is. He doesn't work for WotC at the moment, but you don't need to work for a company to be an "insider." You just have to have a reliable source of information that the general public doesn't. Given how small the tabletop RPG industry is, it's not unreasonable to suppose that Lowder might know people on the inside and have, at the very least, a better idea of what happened than, say, some random message board poster on the Internet.

the novels not being a great ROI for a side venture isn't something that Hasbro would necessarily have been micro-managing

Except for the fact that we have an insider affirming that's the case.

and that happened in the teens, the third decade in which Hasbro owned D&D/Magic

So? We're just looking into what Hasbro has mandated, not when they mandated it.

Why should WotC put all the work into hiring staff to make cheap pulp novels, when they can have another company pay them for the privilege?

Well, leaving aside that many (if not most) of the people who wrote the novels weren't staff, being freelancers instead (EDIT: and many of those that weren't freelancers were people who'd already been hired for other positions anyway), how about the fact that other companies aren't paying them for the privilege? Yes, HarperCollins stepped up to negotiate for a couple more Drizzt books, but that's quite clearly been the exception rather than the rule. If you think that Hasbro cancelling the novel division of WotC is going to result in other companies tripping over themselves to offer to take up the slack, go to your local bookstore and browse the fantasy section to see how well that's working out.