Moneyhatting - GUARANTEED GAMES PURCHASE

[bumidan]

Guaranteed Purchase of Games

In theory, this is very possible and does not distort financial statements at all.

For example, if Sony guaranteed the purchase of MGS4, then nothing irregular will show up in their financial statements.

If Sony guaranteed to purchase 2 million units of MGS4 and bundles them up with the console, it is not uncommon. Therefore, the financial statements won’t show any irregularities.

Below is a simple analysis.

Sony purchases 2 million units @ $25
Sony bundles 2 million units with 2 million consoles. The cost of the console is $350.
Sony sells 2 million bundles to their customers and sells it for $400

Revenue:
Consoles = $800 miillion
Less:
Game Purchase = $50 million
Cost of Console = $700 million

Gross Margin = $50 million
These types of costs for the console maker can be represented in marketing expenses and/or cost of goods sold. One can argue that either is a valid accounting argument as to where you can put the expense of the games that were purchased for the bundle.

On the game developer side, it is fairly transparent as well.

Revenue = $50 million

In both cases, there are no extraordinary items, nor interest expense or income, nor any balance sheet adjustments to show any “special arrangements”.

Since the majority of new game sales occur fairly early in their lifecycle, it is not strange for a game developer to report a large number of games sold during the launch period.

Therefore, this type of moneyhatting MAY be fairly common in the world of videogames, especially for the console makers – due to its simplicity and non-effect on financial statements.