An interesting factoid emerged in the wake of 38 Studios struggling to come up with the cash to make a good faith loan payment back to Rhode Island and fund its payroll: it was announced that it costs them US$4m per month in operating costs to stay open. 38 Studios apparently has 379 full-time staff.
I’ve seen some reactions that are amazed but this figure, but I don’t think they should be.
When You Make An Assumption, You Make An Ass Out of You and Umption
US$4m divided by 379 FTE equals US$10 554 per employee. That might sound like a lot, but that’s consistent with other information indicating that a gaming studio should expect to spend $10 000 per person per month.
Now, 379 FTEs covers a lot of different possible professions and salaries (and even possible payments to people like R.A. Salvatore that run to the millions), with game industry average salary information ranging from about US$49 009 per year (for the lowest level, Quality Assurance) to US$106 452 per year (for the highest paid areas of business and legal). Taking the average of those averages (and I’m sure that kind of calculation just killed a maths fairy somewhere) and you end up with US$77 017 per year. Or US$6 418 per month for each FTE.
So that’s roughly two-thirds of that $10k taken up by direct salary costs. The next operational cost to consider is rent. Here is where 38 Studios is located – a six story office that has around 100k square feet of rentable space, possibly at at monthly rental rate of $21 per square foot. Although 288 FTEs are housed at 38 Studios’ Providence offices, let’s assume that the Big Huge Games office costs in Maryland is costing the same amount so we can use the full 379 FTE count.
Taking a rough rule of thumb that each employee requires 200 square feet (not that they actually get 200 square feet that’s usable, but just in total space including walls, desk areas, space between desks, etc) then maybe 38 Studios needs 75.8k square feet. That’s a cost of US$1.59m per month in rent, or US$4200 per full-time 38 Studios employee.
So salary (US$6419) plus rent (US$4200) easily makes that $10k per month per employee in operational costs. And those figures above don’t include (and I’ll steal this from a more authoritative source) “software, computers, desks, office chairs, Maya site licenses, devkits, servers, running your company website and so on“ or any other specific costs related to employee benefits. Yes, 38 Studios probably has paid for a lot of those things, but repairs and renewals add up too.
That’s a lot of assumptions, but my point was to show how quickly costs add up when it comes to game development. I may be off – perhaps 38 Studios isn’t paying that much in salary, or actually rented less office space at a lower rate – but the $10k per FTE in operational cost rule seems to have held true in this case.
When Is Accepting a $75m Loan A Bad Idea?
Here’s the key question about 38 Studios: how does a studio blow out to almost 400 people with over a year to go from releasing their key title? Big Huge Games is 91 FTE and it actually released something, but 38 Studios has run out to three times that figure without having anything external to show for it (and no, the fly-through demo doesn’t count on the grounds that it is meaningless eye candy).
As a requirement that to get the full loan, 38 Studios needed to create 450 jobs in Rhode Island: “125 were required within a year of November 2010, […] another 175 by November [2012 and] by the end of 2013 another 150 jobs” or face a penalty payment of $7500 a year per unfilled spot and also potentially not receive job creation milestone payments totalling US$62m. Apparently they’ve received US$50m of that payment already.
So it’s entirely possible that in chasing the jobs goal, 38 Studio has burnt all the money it has to stay operational. When is accepting a US$75m loan a bad idea? When it will cost you more to actually meet the requirements (remember: $10k per FTE per month, or $120k per FTE per year which continues to add up as the studio gets bigger) than just paying the penalty ($7500 per unfilled position per year plus perhaps not getting milestone payments but paying a smaller cumulative FTE cost) and someone doesn’t do – or doesn’t want to accept – the financial maths.
UPDATE 1: I found this link shortly after posting the above and the timeline at the end really shows the problem – 38 Studios has received the bulk of its loan from Rhode Island by now (if the timeline is correct) up to US$50m, but now lacks an income source that will let them finish Project Copernicus. At the same time, all those employees hired to meet those milestones will still need to be paid.
UPDATE 2: I should have made the point that when 38 Studios says it costs them US$4m a month in operating costs that I’ve assumed it includes paying for Big Huge Games as well. If it doesn’t then obviously the above costs should be reconsidered on a base of 288 FTEs, not 379 FTEs.