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."
 
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Russ Morrissey

Comments

Jaeger

Explorer
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.
 

Parmandur

Legend
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?
 

Zardnaar

Legend
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.
 
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

Legend
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.
 

Alzrius

The EN World kitten
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.
 
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Morrus

Well, that was fun
Staff member
Well, leaving aside that many (if not most) of the people who wrote the novels weren't staff, being freelancers instead, 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.
Taking the emotive "paying them for the privilege" language out of it, I'd be curious to find out how much money they make comparitively from DMs Guild (while being adventures and supplements, not novels). I know that the OBS rep at UKGE last year told me that many DMsG publishers were selling more than major publishers on DTRPG.
 

ccs

39th lv DM
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! :)

Nah.
* Gygax (+ Arneson etc) will always be the most important.
Even if the current + generations of fans/players never learn of them. Without them there'd be no D&D. With no D&D there wouldn't have been anything for the industry (including MTG & WoTC) to grow around.
* THEN comes WoTC/Hasbro. Without them we'd still have D&D. We'd still have other RPGs (though some like PF likely wouldn't exist :(). We just wouldn't have 23 years & more of new D&D stuff & our #s of fans/players would be much smaller (and older) vs legion.
Williams? She's just a minor detail in the whole story.
 

Parmandur

Legend
Okay, lets go over these one at a time.



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.



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



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



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.
They had editorial staff, and other publishing infrastructure.

They have Magic novels going again, being paid by a licensed without that overhead.

There is no reason to think that "Hasbro mandated" stopping the novels, rather than WotC not being interested in that field anymore.
 

Alzrius

The EN World kitten
They had editorial staff, and other publishing infrastructure.

They have Magic novels going again, being paid by a licensed without that overhead.

There is no reason to think that "Hasbro mandated" stopping the novels, rather than WotC not being interested in that field anymore.
Except for the fact that an insider told us so. :p

Seriously, I'm not sure why you're married to your hypothesis given that someone who has an entirely plausible basis for knowing more has made it clear that his understanding contradicts yours?

EDIT: Also, how much do they really have Magic: the Gathering novels going again? The Wikipedia entry for them makes it sound like, other than two free e-books that WotC released (which I'd guess were essentially completed manuscripts that they just released for free, similar to Rich Baker's old Birthright novel "The Falcon and the Wolf"), there's just been one licensed novel from Random House and that's it.
 
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Parmandur

Legend
Except for the fact that an insider told us so. :p

Seriously, I'm not sure why you're married to your hypothesis given that someone who has an entirely plausible basis for knowing more has made it clear that his understanding contradicts yours?
Former insider.

Mike Mearls was asked about why the novels stopped (during one episode of the Happy Fun Hour), and he is a bit more in the loop for inside decisions at WotC in the Teens: he said that WotC decided that they didn't want to spend resources at a side project they didn't have the expertise for, when they could let outside publishers pay them instead. It's better for WotC to have publishers pay them to make a few books, than to pay for pumping out books internally.
 

Alzrius

The EN World kitten
Former insider.
Remember: you don't need to still be working somewhere to be an insider. ;)

Mike Mearls was asked about why the novels stopped (during one episode of the Happy Fun Hour), and he is a bit more in the loop for inside decisions at WotC in the Teens: he said that WotC decided that they didn't want to spend resources at a side project they didn't have the expertise for, when they could let outside publishers pay them instead. It's better for WotC to have publishers pay them to make a few books, than to pay for pumping out books internally.
Can you provide a source or citation for this? I did for Lowder's quote, so hopefully you can here. (That and you have to wonder how much a current employee is going to say "it was out of our hands completely, we received a directive and had to comply.")

Of course, the fact remains that other publishers aren't queuing up to go that route, so if that was their decision then you'd be inclined to wonder why they haven't reversed course given that it hasn't worked. Not to mention the fact that they quite clearly did have the expertise for publishing novels, since their novel division was quite profitable and regularly turned out bestsellers (e.g. the Dragonlance books, the Drizzt novels, etc.).
 
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Parmandur

Legend
Remember: you don't need to still be working somewhere to be an insider. ;)



Can you provide a source or citation for this? I did for Lowder's quote, so hopefully you can here. (That and you have to wonder how much a current employee is going to say "it was out of our hands completely, we received a directive and had to comply.")

Of course, the fact remains that other publishers aren't queuing up to go that route, so if that was their decision then you'd be inclined to wonder why they haven't reversed course given that it hasn't worked. Not to mention the fact that they quite clearly did have the expertise for publishing novels, since their novel division was quite profitable and regularly turned out bestsellers (e.g. the Dragonlance books, the Drizzt novels, etc.).
There's no full transcript of that show, but Mearls did touch briefly on the same theme in this AMA:


Their new publishing strategy seems to be working for them, and is not likely related to Hasbro proper.
 

Alzrius

The EN World kitten
There's no full transcript of that show, but Mearls did touch briefly on the same theme in this AMA:
Looking through the EN World thread that you linked to, this is the entirety of what Mike Mearls said:

It turns out that as a game company, we're not so good at being a novel publishing company. We've talked about them, but nothing to announce.
This is no way refutes what James Lowder said. If WotC's novel division was making a profit that wasn't high enough to satisfy Hasbro's target numbers for an acceptable return on investment, then that fulfills the "we're not so good at being a novel publishing company" bit of his statement. So there's nothing there to back up the idea that Lowder is incorrect.

Their new publishing strategy seems to be working for them, and is not likely related to Hasbro proper.
I'm not sure what your basis is for saying that it's "working for them," and there's nothing in what you've posted to say that the decision didn't come from Hasbro.
 

Parmandur

Legend
According to that link you've posted, this is the entirety of what Mike Mearls said:



This is no way refutes what James Lowder said. If WotC's novel division was making a profit that wasn't high enough to satisfy Hasbro's target numbers for an acceptable return on investment, then that fulfills the "we're not so good at being a novel publishing company" bit of his statement. So there's nothing there to back up the idea that Lowder is incorrect.



I'm not sure what your basis is for saying that it's "working for them," and there's nothing in what you've posted to say that the decision didn't come from Hasbro.
He went more into detail about it elsewhere, but Google Fu hasn't turned that up. The gist was, WotC didn't see a point to continuing to invest in producing the novels internally. Believe it or not, no big Hasbro boogieman killed the novel division, that was all WotC.
 

Alzrius

The EN World kitten
He went more into detail about it elsewhere, but Google Fu hasn't turned that up. The gist was, WotC didn't see a point to continuing to invest in producing the novels internally. Believe it or not, no big Hasbro boogieman killed the novel division, that was all WotC.
Except that you can't seem to provide anything definitive to back up that statement, whereas there's an insider (current, not former) saying the opposite.
 

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