Op-Ed

Op-Ed
How Fine Print Could Kill Videogame Shows

Doug Mealy | 7 May 2009 21:00
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The ups and downs of major games shows, the cancellation of GC Leipzig, and the "temporarily suspended" status of other shows indicate that developers and publishers who plan to exhibit in 2009 and 2010 need to read their space contracts more carefully. In some cases, the contract language has changed in very significant ways which - if a show is canceled - can easily bankrupt a small studio, and put new and unanticipated financial burdens on larger studios.

I've identified the six worst examples of "fine print abuses" that exhibitors need to know about before they sign the dotted line for 2009 and 2010 shows. All six abuses focus on two themes: show organizers reducing exhibitors' rights, and show organizers transferring risks and liabilities to individual exhibitors.

Example 1. Watch out for new and potentially huge exhibitor penalties if show organizers decide to cancel the event.

As the global recession continues, show organizers are keenly aware that slow sales of exhibit space, sponsorships, and tickets may force them to cancel their show at the last minute. What's new in 2009 is that some show organizers are - by contract - giving themselves the legal right to recoup all their losses from individual exhibitors!

Here is a direct quote from the Exhibitor Space Contract for a new show scheduled toward the end of 2009: If the show cancels, "you will be obligated to defray a reasonable share of the expenses resulting from the preparation of the event." In other words, the show organizers can add up all the show-related costs to date (including show cancellation fees for venue contracts, union contracts, marketing and advertising contracts, etc.), and divide the total cost among all the signed exhibitors, and you're legally liable for paying your assigned share. The show organizers have full authority (which you cede to them when you sign their Space Contract) to decide what costs are included in their tally, how much those costs are, how those costs are divided up (square foot purchased vs. number of exhibitors), and you have no legal recourse as per the contract you signed.

Here is an example of how financially risky this can be. Let's assume four things:
1) exhibit cost is $50 per square foot and you buy a 10x10 booth;
2) only 30 exhibitors signed up instead of the expected 50-60;
3) the show cancels; and
4) show organizers claim they have incurred liabilities of $800,000 (not unreasonable for a mid-sized show).

What happens now?

If show costs are divided up on a per exhibitor basis, your original liability of $5,000 (100 sq. ft. x $50) is now increased by $26,000 ($800,000 divided by 30 exhibitors = $26,000 per exhibitor) bringing your total liability to $31,000 - for a show that no longer exists!

This is very important to studio employees who have a stock option arrangement with studio owners/investors. That $31,000 in our example must come from operating capital. This means it could come in part from your budgets for development, QA, and community expansion efforts which could negatively impact game quality and sales, and may ultimately reduce the value of your shares.

Example 2. There is a new "application" step being introduced into the space selection process, and it puts you at risk.

Until 2009, exhibitors signed a Space Contract that was legally binding. Starting in 2009, some shows now require you to take one preliminary step first: you need to "apply for the right to purchase exhibit space" and once that application form is received, the show organizers will then give you access to the Space Contract.

Here's the trick you need to watch out for: The show organizers consider the first preliminary step - applying for the right to apply for space - as a legally binding agreement, even without your signature. This means that you have automatically committed to buy space - any space, any hall, any size - but you now must purchase space. If you don't, you'll get billed for a 10x10.

The next step - completing the actual Space Contract itself - is where you identify the amount of square footage you want to purchase and maybe the actual booth number you want.

Example 3. Show organizers boldly tell you they are not obligated to honor their own contracts or agreements.

Did you know that even if you get all the official approvals for your exhibit, that the show will not necessarily honor those approvals? A "real life" Exhibitor Contract for a 2009 show reads, "Irrespective of official approvals of the booth, any objections made by [the show organizers] concerning the booth must be immediately complied with." That means you can get all the engineering approvals for, say, a two-level exhibit, and then once it's installed on the show floor, the show organizers can arbitrarily void already-obtained approvals and demand you pay for - immediately and in full - any and all changes requested by anyone on their management staff. If you don't comply, they can shut you down and you don't get a refund. And, no appeals process is in place; their decision is final no matter how outrageous it is.

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