This is a first, of many, in a series, to explain the effect of moneyhatting in financial statements.

As a person fairly new in videogaming news and financials, I would like to show how I think “moneyhatting” should show up in the financial statements of the companies involved.

Most people comment that some console companies “moneyhat” certain game/software companies to make “exclusive” games for them.  However, most of the time there is no specific proof to any of those claims.

In order to have some validity of the claim, one can look deeper into a company’s financial reports in order to find some evidence of moneyhatting.  Of course, there is no specific way to prove moneyhatting, unless specifically reported by the companies involved.  However, with some investigation, there may be a way to at least show or make a strong case, if indeed a moneyhat transaction took place between 2 companies.

Here are some ways that I think console makers can “moneyhat” game developers.

For simplicity, I will use MSFT (as the console maker) and EA (as the games developer) as the names in my examples.

Direct Cash Payment

This should be the simplest way to moneyhat a game developer.

For example:

MSFT pays $50 million to EA to make a game.

In MSFT’s financial statements, this $50 million can:

1. Be lumped in with R&D, Marketing or Other expenses.  This would have the impact of increasing expenses, and therefore profitability will be lower, than if there was no moneyhat involved.
2. In MSFT’s balance sheet, there is $50 million less in their CASH/CURRENT ASSET accounts, than what it would be.  You would have to compare this with the Statement of Cash Flows in order to determine where all the cash flows went.

In EA’s financial statements, this $50 million can:

1. Show up as a extraordinary revenue (one time).  If significant enough, normally it is reported separately from “regular” revenue.
2. The $50 million would also show up in the balance sheet and statement of cash flows.

Please note that if this is a direct payment of $50 million CASH, with just an agreement to provide a game to the console maker, then generally, the money would have to show up in their financial statements.

Hence, in my opinion, this method of moneyhatting is simply not an effective way to do it.  It creates “irregularities” in your financial statements and therefore is not a very “nice” way of moneyhatting, especially if there are public investors to hold your company to account.

Of course, if the amounts are insignificant, it would not really show up in the financial statements of both companies.

Discuss.  If you have to add something, let me know.  I can rewrite this whole article to incorporate your suggestions.

As always, any questions or comments are welcome.

Other methods of moneyhatting will be discussed in future threads.

As long as we, the consumers, get better games at their expense, I see nothing wrong with the system.

There is nothing wrong with it. Just a simple explanation, if people want to look for evidence of it.

There is also the moneyhat of no licensing fees/licensing fee discount + guaranteed advertisement. Neither of those will have to be shown on financial statements, and can get to be quite expensive if it is television advertisement.

That - in my opinion of course, since IANAL, nor am I in the industry - is the 'best' way to moneyhat. No need to report it to investors outside of 'Marketing', no need to make questionable line items on financial statement, relatively little evidence for others to view and be like, 'HAHA moneyhat!'

what is IANAL?

anyway, that's another post... coming soon. re: licensing