The bullet we (may) have dodged…

Friday, April 8, 2016 by spiralspy

… or: how do you close down an MMORPG?

When I wrote my last blog post, I actually meant for it to describe the worst case scenario. So, let’s catch up on that now. Please keep in mind that what I lay out below is only one possible outcome and, given the circumstances, not a very likely one. The reason for writing it down anyway is as a lesson we all should keep in mind when signing up for those “free” accounts on the internet.

To summarize my previous blog post: SEGA only bought OOO because they had some ready to market games. There never was any serious thought of further developing Spiral Knights (except through a mobile spin-off which flopped terribly). The plans for SK were more or less: milk a few dozen players with a constant stream of cosmetics. Pretty much everything that SEGA published came from a huge library of premade stuff that only had to be put into the game. The problem with selling shelved content: it’s not a sustainable business model. Sooner or later you run out and once you do, your principal source of income goes away and the remaining cashflow is no longer sufficient to cover the cost of operation.

So, being SEGA, what do you do once one of your games starts drifting into the red numbers? The obvious answer is naturally: shut it down. Only problem: it’s not as easy as it sounds. Why? Well, this is where things get difficult as we have to consider the legal situation (think of it as a fun trip to the land of Mordor).

We (=the players) all have a contract with OOO. In fact, that is the very reason why SEGA bought the entire company instead of just the games. As in the later case, they’d have to offer each player a change contract (actually, I’m curious how Grey Havens will handle this). Ok, I hear some of you guys screaming now: “Contract?! How do I have a contract? I never signed anything!”. What most people realize is that a contract is defined as “formless, but legally binding agreement (between two or more parties)”. You can enter a contract by various means, e.g. by signing a piece of paper, a handshake (though you better have witnesses for that) or by clicking a “I accept the terms” button. In other words, the contract you have with OOO are the terms of service (curious remark: minors are allowed to sign up for an account, even though they are not sui juris).

As with any online service, the SK TOS are extremely onesided. That’s why I always tell people: before creating a “free” account anywhere, first print, read and sign the TOS. Use a text marker to highlight all the passages you don’t understand. Just to get a “warm” feeling for what you are about to agree to. Anyway, I digress. Here are the relevant points of the SK TOS:

  • Nothing in the TOS acknowledges that you acquire any property. You may, for example, use real world money to buy a sprite pod off the supply depot, you may even name the pet, but it is not yours. OOO can change it in any way they seem fit  (they did that with the mechanics of the Divine Avenger, the Dark Retribution and the Radiant Sun Shards, to name a few), or even take it away entirely (anyone remember the Prismatic Bolted Vee fiasco?).
  • Your contract can be canceled by either side without prior notice and without obligation to the other party. You can simply walk away from the game and OOO can kick you out (usually after you show some serious misconduct). In either case you won’t get any refunds. There is, however, no explicit clause for discontinued service in case of a shut down (though you can argue that none is needed).

So, looks like, OOO/SEGA has their asses covered? Simply shut down the servers and cancel all the contracts? Err, not quite. Contracts are not program code (though we often tend to understand them as such). And just because something was “agreed” upon, doesn’t necessarily mean that it is legally binding. If you happen to, for example, hide a clause, written in ancient latin, somewhere in the fineprint, then no court in the world will enforce it. The legal term for this is Unconsionability.

SEGA however has a different problem. They are an international corporation and that means they might get dragged to court in every country in which they have a branch office. Arguably, America is the worst. If SEGA was to sell off every last bit of shelved content and then  shut the servers down a week after, this would be as fraudulent as selling tickets to an amusement park up until 5 minutes before closing time (without telling anyone that it’s closing time soon). All, a skilled (American) lawyer would have to do is to find anyone who spent thousands of dollars on the game (and we know there are a couple of those). And sue SEGA in his/her name for damage. If SEGA looses, they’d not only have to refund (some) of the money, the player spent, but also cover court and attorney fees. A single lost lawsuit  could easily cost more than the entire 5 year profit of SK combined. Now imagine that kind of threat multiplied by the number of big spenders, added to the potential for a class action lawsuit and potentially have it all repeated in every jurisdiction, SEGA can be dragged to court in. And let’s not make a mistake here: SEGA is a large company. They do have money and that attracts sharks. Lawsuits would be inevitable.

In summary,  SEGA’s problem is that that they can either continue to operate SK at a loss or risk an even bigger loss through legal actions if they just shut the servers down. So, how do safely get rid of such a liability? The answer is simple: establish a shell company (Panama Papers anyones?) and transfer the entire unprofitable IP to it. Creating a shell company really is nothing problematic. Just go with a Limited. That costs a few hundred bucks and about two weeks for processing time. Afterwards you have a company that only exists on paper and that may safely go bankrupt after burning through its seed money (be nice and fund it for a couple of months). No shark lawyer will go after it (they know that there’s no money in the coffers).

Could it become any worse (for us)? You betcha! The thing to understand about the shell company outlined above is that it gets started as a fall guy. There is every incentive to allow it to phase silently out of existence by actively diminishing the playerbase and eventually just shutting down once it runs out of money. However, things can naturally go horribly wrong. The company might run into debt prematurely (e.g. because some some renegade tries to sue) and has to be liquidated. In that case, all the company’s assets become bankrupt estates. Which may (must) be sold to reimburse creditors. By that time, the only thing of value, the company has left will be the customer database.

That was actually the point I was trying to make in my last blog post: Whenever you sign up for a “free” account anywhere, take into consideration that the service you sign up with may go up in flames. When it does, you may find your “business records” (e.g. name, email, credit card number, password,…) to be on the market.