11.6 million games sold in 5 years, a new IP originating from a developer with only 20 staff. LBP was Huge.
They have an opportunity now to re-imagine and rekindle gamers interest in the franchise on a new platform, taking it to 3D or bringing in some new gameplay concepts could see it become a strong seller once again.
As far as the management of the series goes, I think they did handle it poorly. They saw the huge sales of the first game and the the timing of the sequel was off. LBP Karting wasn't even necessary.