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."

 

[Parmandur]

It's not either/or here. Hasbro has never been all that thrilled about the fiction program. This goes back to when they bought WotC and did not even realize that the company published fiction. (I was told a Hasbro VP noted in an early meeting something along the lines of "We do fiction?" when told about the latest Salvatore bestseller.) Fiction publishing and distribution is not the same as game publishing and distribution, and Hasbro knows they are not experts there. They normally license that out, just as they license out comics and other stuff that is not part of their main business.

So long as WotC's fiction program was making sufficient money, Hasbro was willing to let it go on, but they were not throwing more money at it to grow that part of the operation. There were talks shortly after the WotC purchase to make the WotC fiction department a more robust operation within Hasbro, where WotC Fiction would publish material tied to other Hasbro IP or projects. There were even some books commissioned and written, which will likely never see the light of day because Hasbro decided it did not want to go in that direction before any were published.

Since that happened, the book department at WotC has steadily shrunk and was eventually subsumed by games. (D&D-related fiction had been a separate department since around 1990, back at TSR.) Fiction got fewer and fewer resources, and was cast more and more as support product to games. They lost many of the fiction experts in house. WotC came to run the fiction in ways that made it less attractive to fiction authors. Sales overall continued to diminish, as might be expected. The exception here was Bob Salvatore's Drizzt material, but WotC had figured out some time ago that they should leave Bob alone to write what he wanted and, basically, build his own teams to get his books done.

Barring some major change of direction, it was inevitable after Hasbro decided not to make WotC Fiction a bigger part of the Hasbro operation that the fiction lines would eventually be closed and the fiction licensed out. Because that's the standard Hasbro approach to fiction--which eventually became the standard WotC approach. When Mike M. and other WotC folks talk about the company not being fiction experts or not having the resources, I would venture a guess that we are all in agreement on the problems and the history of how the fiction program got to the point where it made limited sense to continue.

By the by, fiction had never been a strong aspect of WotC's identity, either. They had tried to do Magic fiction in house, but ended up burning the program to the ground once or twice even before the TSR purchase. They went the licensing route at one point with Magic fiction, too, so it was not a big jump for them to start thinking like Hasbro on this. (Side note: I was offered the job of heading up a new Magic fiction line at WotC after the TSR buyout, but turned them down because I did not see a really clear, longterm commitment to fiction within the company. It was the right move; the line I was going to head up was killed a couple months later, along with a planned Magic RPG that was going to created in tandem. Though I admit the overall fiction program hung on a lot longer than I had expected.)

The interesting thing now, of course, is that both WotC and Hasbro are realizing that their best chances of branching out into other media rests with narrative content, such as fiction. You don't make miniatures or Netflix series out of the Encumbrance Rules, but WotC got a lot of subsidiary use and related products out of my novel The Ring of Winter (Artus Cimber, Ras Nsi, etc, etc, in RPGs, minis, board games, card games, computer games...). So it is possible they (Hasbro + WotC) end up bringing fiction back in some form. That now fits in with the larger vision for D&D's value as an IP, and vertical content creation and delivery are back in fashion (eg WotC buying a computer game company), so fiction could get better resources and more support this time. What happens with the latest planned D&D movie will impact the fate of fiction at the company quite a bit, so we shall see how that plays out.

Cheers,
Jim Lowder

So far, it appears the strategy is to license it out to traditional publishers.

 

[JLowder]

So far, it appears the strategy is to license it out to traditional publishers.

Yes. Go with operations who know the market and plan to make all your money through licensing fees. The fiction market right now is a disaster. (I am dealing with distribution headaches as part of my work with Chaosium.) There are a lot of good reasons to be cautious about publishing fiction right now.

Licensing does leave the content a little less in your direct control, though, and adds a long time to the development process. Doing fiction in house means you can get a book out within a year if you spot a trend. It's harder to do that with licensed books, because the review and approval process can add months to the schedule.

It's also harder to coordinate content between things being published in house and things that are licensed, though Google Docs, Skype, Slack, and a lot of other tools make that much easier than it was even a few years ago.

The financial question becomes: Can you make enough money through licensing fees that it's worth the company's time to employ staff to do approvals? And there's also the creative/IP control question, though: Would you be better off making the narrative IP development part of your main business?

Cheers,
Jim Lowder