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."
 
Last edited:
Russ Morrissey

Comments

DWChancellor

Kobold Enthusiast
Another edition of Business Wile E. Coyote. Someone will find a way to hang the company if good practice isn't enforced throughout all financial and contractual dealings. Reminds me of several 90s tech companies that got complacent with temporary market dominance while putting MBA folks in charge of their prototype divisions.

An operating cash spigot is a dangerous thing.
 

R_J_K75

Explorer
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.
 

lowkey13

I'm sorry, Dave. I'm afraid I can't do that.
More detail no surprises really.

WotC has owned D&D almost as long as TSR.
Oof. So, to be technically correct:*

TSR: 1974-1997.
WOTC: 1997-1999.
Hasbro: 1999-2019.

TSR: 24 Years.
WOTC: 3 Years.
Hasbro: 21 Years.

So by the 50th anniversary, yes, GI JOE will be more important to D&D than the Gygax/Williams lineage. ahem.



*The BEST KIND of correct! :)
 

Parmandur

Legend
Oof. So, to be technically correct:*

TSR: 1974-1997.
WOTC: 1997-1999.
Hasbro: 1999-2019.

TSR: 24 Years.
WOTC: 3 Years.
Hasbro: 21 Years.

So by the 50th anniversary, yes, GI JOE will be more important to D&D than the Gygax/Williams lineage. ahem.



*The BEST KIND of correct! :)
Hasbro has had a light touch on WotC management (don't hurt the goose that lays the golden cards!), so I wouldn't say there is a significant difference between pre-purchase WotC and post-purchase, as far as brand management goes.

For that level of technical correctness, you'd have to cut TSR into various ownership time periods, as well.
 

R_J_K75

Explorer
When you read about how they did business, and no one reigned them in, it is a wonder they did not go under sooner.
Ive never read into it much. Did anyone at TSR ever have a business degree/actually ran a business before that or were they just a bunch of gamers/designers who were appointed titles and ran the company ad hoc?
 

lowkey13

I'm sorry, Dave. I'm afraid I can't do that.
Hasbro has had a light touch on WotC management (don't hurt the goose that lays the golden cards!), so I wouldn't say there is a significant difference between pre-purchase WotC and post-purchase, as far as brand management goes.

For that level of technical correctness, you'd have to cut TSR into various ownership time periods, as well.
Well, I s'pose you could subdivide the partnership (~74), first TSR corp. (~75-83) and second TSR corp (primary spinoff, 83-97), but there is a continuity there despite a change of corporate form.

Where with WoTC, while there is a very light hand, that's a complete takeover by Hasbro. It's like saying noting that ESPN is, in fact, owned by Disney (via acquisition of ABC).
 

jacleg05

Explorer
They brought in for-realsies business people early on, just not terribly competent ones.
I think the ones with any business experience bought in when TSR was at it's height used the company as a piggy bank. After that Lorraine Williams was bought in, and she probably helped, but she had no feel for her customers.

It seemed while Gygax was doing business with a hand shake, TSR needed a CFO to reign in the expenses.
 

Parmandur

Legend
Well, I s'pose you could subdivide the partnership (~74), first TSR corp. (~75-83) and second TSR corp (primary spinoff, 83-97), but there is a continuity there despite a change of corporate form.

Where with WoTC, while there is a very light hand, that's a complete takeover by Hasbro. It's like saying noting that ESPN is, in fact, owned by Disney (via acquisition of ABC).
I grant that there is a real legal distinction, but in concrete terms the change of ownership at TSR was even more drastic for the game than Hasbro gaining ownership.
 

Parmandur

Legend
I think the ones with any business experience bought in when TSR was at it's height used the company as a piggy bank. After that Lorraine Williams was bought in, and she probably helped, but she had no feel for her customers.

It seemed while Gygax was doing business with a hand shake, TSR needed a CFO to reign in the expenses.
There were some telling quotes from Lorraine WIlliams in the Art & Arcana book released last year, about the fiduciary responsibility situation at TSR when she came on board. Not pretty, apparently.

They got away with it because their revenue stream was solid
 

lowkey13

I'm sorry, Dave. I'm afraid I can't do that.
I grant that there is a real legal distinction, but in concrete terms the change of ownership at TSR was even more drastic for the game than Hasbro gaining ownership.
Maybe! I mean ... it's kinda sorta hard to disentangle now.

For example, without getting to a very unpleasant conversation, it's surely an interesting question as to whether or not D&D would have developed differently if WoTC had not been subsumed within Hasbro, right? Just take 4e, for example.

A light touch isn't the same as no touch, and a benevolent, mostly-absent corporate overlord still might send Cobra Commander over to check the books on occasion.
 

Parmandur

Legend
Maybe! I mean ... it's kinda sorta hard to disentangle now.

For example, without getting to a very unpleasant conversation, it's surely an interesting question as to whether or not D&D would have developed differently if WoTC had not been subsumed within Hasbro, right? Just take 4e, for example.

A light touch isn't the same as no touch, and a benevolent, mostly-absent corporate overlord still might send Cobra Commander over to check the books on occasion.
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.
 

lowkey13

I'm sorry, Dave. I'm afraid I can't do that.
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.
Oh, I blame designers with the best of them. But Hasbro is responsible for setting targets and/or providing resources.
 

Von Ether

Explorer
Oof. So, to be technically correct:*

TSR: 1974-1997.
WOTC: 1997-1999.
Hasbro: 1999-2019.

TSR: 24 Years.
WOTC: 3 Years.
Hasbro: 21 Years.

So by the 50th anniversary, yes, GI JOE will be more important to D&D than the Gygax/Williams lineage. ahem.


*The BEST KIND of correct! :)
Or suggest the words "managed" or "produced" instead of "owned."

There is, technically, more than one way to be "technically right."

The real technical lesson to learn, though, is when people talk about D&D's real money making days, we have to ask how much of that was real and how much of that was gaming the system?
 

R_J_K75

Explorer
Just take 4e, for example.
I read 5E was planned before 4E even came out but how well did 4E sell? I didnt care for it and switched to PF shortly after it came out but there was some interesting fluff in some of it. I liked the points of light concept.
 

Parmandur

Legend
Or suggest the words "managed" or "produced" instead of "owned."

There are, technically, more than way to be "technically right."

The real technical lesson to learn, though, is when people talk about D&D's real money making days, we have to ask how much of that was real and how much of that was gaming the system?
They were able to game the system because the income stream was real.
 

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