Reply from NCSoft

[dwturducken]

Several comments have been made here as to the tone of their response, as though they are responding directly to our OP.  If you read the entire FB thread, which I didn't really do so much as skim, you see a pattern of negative response, ranging from disdain to outright mean-spirited. There was more than one in Korean, as well.  I don't think the response was directly to us.  Do I think the OP, here, triggered the response?  Perhaps.  Did they blink? Oh, hell yes, so it's still a win. I just felt their tone and wording needed some context.

[TimtheEnchanter]

I agree here.  NCSoft isn't that stupid.  Cancelling CoH to make COH 2 would make no sense cause it would piss off damn near every player who played COH 1 and they would loose too much loyal customers.  COH 2 may be in production but if they canceled COH for COH 2 then it is a wonder they have stayed in business with plans like that.  There is always the option maybe they don't wanna sell the IP cause they already intended to sell it to someone else to make COH 2.  Pure speculation though.

Well now there's an interesting thought. Though that would still royally tick off the original fanbase, if they cut Paragon's funding for a CoH 2, just to give it to another developer.

Not that other companies haven't been able to do that and get away with it, such as Lucas Ltd. Both with the SWG/SWTOR debacle regarding developer politics, AND destroying the film franchise for the original fans.

[Atlantea]

Well now there's an interesting thought. Though that would still royally tick off the original fanbase, if they cut Paragon's funding for a CoH 2, just to give it to another developer.

Not that other companies haven't been able to do that and get away with it, such as Lucas Ltd. Both with the SWG/SWTOR debacle regarding developer politics, AND destroying the film franchise for the original fans.

But HAS Lucasarts et al. actually gotten away with it though? Really? The move to F2P for SWTOR after less than a year (announced in less than 6 months after release!) and the general contempt and disdain among fans for George Lucas and his continuous efforts to "tweak" the original trilogy (Han shot FIRST, DAMNIT!) and for the Prequels (Jar Jar!) says to me that Lucas Ltd. has actually damaged their IP pretty badly over the last few years. True - nothing there is a fatal blow to sales. But Star Wars is no longer quite the unstoppable juggernaut it once was. Many fans have given up and chosen to move on. They may have "gotten away with" shutting down Star Wars Galaxies, but like with City of Heroes, that's left a sizable cadre of fans with a very bitter and jaundiced view of Lucasarts*, just as we have now with NCSoft.

And that's not even mentioning the effect that the Mass Effect 3 debacle had on Bioware and EA.

Factor all of that in, and I think in the long run, even if they "got away with it" it is, at best, a Pyrrhic victory.


(*  I still see many fans mistakenly attribute the closure of SWG to Sony Online Entertainment when it was actually Lucasarts unwillingness to renew the license in favor of SWTOR that forced the closure. In fact, other than SWG, SOE's track record is actually one of the absolute BEST for supporting older MMOs. The original Everquest was theirs and it's STILL GOING. Albeit at reduced capacity on fewer servers.  If they follow the same pattern over the next 10 years it's conceivable that DCUO may outlast Champions Online!)

[Lily Barclay]

In the meantime, sunsetting CoH without selling the IP creates a very advantageous (tax-wise) loss of value for them...something to use in their EoY profit/loss accounting. I still maintain that that write-off of loss of value of the IP is more than they could possibly have secured from a potential buyer...which makes the decision a no-brainer for any competent C-level exec. I don't like it...but it's how it works.

This.

[TimtheEnchanter]

So, more or less, insurance fraud then.

[Victoria Victrix]

In the meantime, sunsetting CoH without selling the IP creates a very advantageous (tax-wise) loss of value for them...something to use in their EoY profit/loss accounting. I still maintain that that write-off of loss of value of the IP is more than they could possibly have secured from a potential buyer...which makes the decision a no-brainer for any competent C-level exec. I don't like it...but it's how it works.

I'm not convinced.  Just because we know how US (and Canadian) companies work in terms of tax write-offs, it does not follow that this is how Korean corporate law is written.  We don't even know if there is such a thing as a tax-write-off in Korean corporate law.  Is there anyone here who knows how Korean corporate and tax law works?  Don't ever assume that because something is true in the US corporate structure, it is true universally.

However there was a very interesting set of implications in one of Ammon's posts and one of Codewalker's (IIRC).

Ammon suggested that for the purposes of "future use," NCSoft is valuing their dead IPs at about 100 million dollars each--which would make the dead-and-dying 6 IPs "worth" (on paper) about 600 million dollars.

But Codewalker (IIRC) dug up a corporate (tax?) audit that stated NCSoft valued ALL of their IPS, alive AND dead, at a mere 2 million total.

Is it possible that NCSoft is playing some kind of shell game with their stockholders?  Claiming assets in terms of held IPs in excess of a billion dollars, when in fact they are actually worth a tiny fraction of that?

[Terwyn]

I'm not convinced.  Just because we know how US (and Canadian) companies work in terms of tax write-offs, it does not follow that this is how Korean corporate law is written.  We don't even know if there is such a thing as a tax-write-off in Korean corporate law.  Is there anyone here who knows how Korean corporate and tax law works?  Don't ever assume that because something is true in the US corporate structure, it is true universally.

However there was a very interesting set of implications in one of Ammon's posts and one of Codewalker's (IIRC).

Ammon suggested that for the purposes of "future use," NCSoft is valuing their dead IPs at about 100 million dollars each--which would make the dead-and-dying 6 IPs "worth" (on paper) about 600 million dollars.

But Codewalker (IIRC) dug up a corporate (tax?) audit that stated NCSoft valued ALL of their IPS, alive AND dead, at a mere 2 million total.

Is it possible that NCSoft is playing some kind of shell game with their stockholders?  Claiming assets in terms of held IPs in excess of a billion dollars, when in fact they are actually worth a tiny fraction of that?

I have no words for describing just how illegal that is in most of the world...

[Lily Barclay]

So, more or less, insurance fraud then.

Tax fraud, I think, but yup.  That's exactly what it is.  Which is why they won't be able to sell the IP after they write it off, because they will never get the ridiculous price they will write it off for.  If they sell the IP for what it is actually worth afterwards (likely way less than how they will value it for the write off), the fraud will be obvious.  That's why the PR cost has to be huge right now, before they make that write off, so they have time to reconsider if it is really a cost effective decision.

NCSoft has a history of doing this.  This is why they have closed so many games. Every time they have a bad quarter, they close a game and write off the IP for more than it is worth to cover their losses.  It makes them still look profitable on paper.  I think that's why they chose Paragon to close instead of Aion or GW. Paragon had TWO games, two IPs, in the works and was a little more profitable, so they can overvalue it all for a lot more, and cover their HUGE losses this quarter better.

NCSoft is the worst example of a sleazy, dishonest corporation.  It's our job to let other gamers know that this is how they function and that no game is safe from them. It's going to be really hard to drum up enough negative PR in time, I think, but this blink today is a big sign in our favor.  And at the very least I think everyone feels that if we can't save the game, we still want to watch NCSoft go down in flames for their terrible business practices, and I think we will at the very least have that.

[Lily Barclay]

Is it possible that NCSoft is playing some kind of shell game with their stockholders?  Claiming assets in terms of held IPs in excess of a billion dollars, when in fact they are actually worth a tiny fraction of that?

That could be it, too. Whatever they are doing, it's obvious that they are trying to look more profitable than they actually are, and are likely committing fraud.

[Victoria Victrix]

They don't even have to have a tax write-off in order to claim 100 million in assets held for the IP of a dead game.

[Lily Barclay]

They don't even have to have a tax write-off in order to claim 100 million in assets held for the IP of a dead game.

Ugh.  That's awful. They are just awful. At least we seem to be making them hurt.  Let's keep doing so.

[Kaiser Tarantula]

Tax fraud, I think, but yup.  That's exactly what it is.  Which is why they won't be able to sell the IP after they write it off, because they will never get the ridiculous price they will write it off for.  If they sell the IP for what it is actually worth afterwards (likely way less than how they will value it for the write off), the fraud will be obvious.  That's why the PR cost has to be huge right now, before they make that write off, so they have time to reconsider if it is really a cost effective decision.

Okay... if this is fraud of some kind, can we get NCSoft's investors to A). become aware of it and B). pursue litigation?  I mean, sure, identifying it as fraud is one thing, that's all well and good, but it does us no good unless we can leverage in some way against NCSoft.

Personally, I'd love to see NCsoft burn in class-action litigation hell for this kind of stuff.  However, I'd settle for exposing their little writeoff shenanigans and using it as leverage to force them back to the table to renegotiate CoH's closure.

[Lily Barclay]

Okay... if this is fraud of some kind, can we get NCSoft's investors to A). become aware of it and B). pursue litigation?  I mean, sure, identifying it as fraud is one thing, that's all well and good, but it does us no good unless we can leverage in some way against NCSoft.

I don't think we can actually come out and SAY that it's fraud, that would open us up for libel suits and what not.  What we can do is point out the closures coinciding with bad quarters and make it obvious enough for people to connect their own dots.  I've been wanting to do a blog post about this, but I've had trouble actually finding the time to do the research (to be sure I'm actually correct) and write it with work and college.

[Victoria Victrix]

Okay... if this is fraud of some kind, can we get NCSoft's investors to A). become aware of it and B). pursue litigation?  I mean, sure, identifying it as fraud is one thing, that's all well and good, but it does us no good unless we can leverage in some way against NCSoft.

BE VERY CAREFUL about actually claiming fraud.  That can get you sued.

You can say things like "is it possible"...?  You can lay out "one knowledgable poster suggests that NCSoft might be claiming defunct IPs as 100 million dollar assets" and "a company audit discovered by another source says NCSoft actually values ALL its IPs at 2 million dollars in total" and maybe even add "this begs the question as to why NCSoft refused a buyout of CoH from Valve at more than the total for all IPs stated in the audit" and just let the reader connect the dots.

But you really really really really need to be very careful about using the word fraud in a public story.  Here on a private board, it's just speculation.  Out on the public front page of, say, CCCP, it becomes something I can lose my house over.

[Kaiser Tarantula]

... you really really really really need to be very careful about using the word fraud in a public story.  Here on a private board, it's just speculation.  Out on the public front page of, say, CCCP, it becomes something I can lose my house over.

So I'm aware.  Hence the "if" in my statement.  Still, I think we'd be doing NCsoft's investors a disservice if we didn't at least hint that they should do a little of their own digging into their investee's business practices, just for the sake of protecting their investments.

Honestly, that should be the first action and standard practice of any potential stockholder looking to make a major investment in a business.

[Aggelakis]

It's not fraud, it is massaging the tax laws to their benefit and utilizing loopholes and subtext. Thousands of companies, big and small, do it all over the US (which is where it would apply since City/Paragon was American). It's terrible, and it should be criminal, but it isn't.

[JaguarX]

It's not fraud, it is massaging the tax laws to their benefit and utilizing loopholes and subtext. Thousands of companies, big and small, do it all over the US (which is where it would apply since City/Paragon was American). It's terrible, and it should be criminal, but it isn't.

Yea didnt companies like GE and a few make record profits last year or year before but ended up not paying a cent in taxes on their billions they raked in due to loopholes?

[Victoria Victrix]

(which is where it would apply since City/Paragon was American).

Not true, and I have to keep emphasizing this.  City/Paragon was not American.  The existence of NCSoft West no more makes the Parent company of NCSoft American than the Toyota plant in Georgia makes the parent company of Toyota American.

NCSoft is Korean and operates under Korean corporate law.  City/Paragon was wholly owned by NCSoft, just as the Toyota plant in Georgia is wholly owned by Toyota.

[Aggelakis]

NCsoft has to pay American taxes for all of their games and companies in the US. Then they also pay whatever taxes there needs to be for the Korean side of things.

[Aggelakis]

Yea didnt companies like GE and a few make record profits last year or year before but ended up not paying a cent in taxes on their billions they raked in due to loopholes?

This is correct. There are all kinds of slimy things you can do with your excess money to make it not affect your taxes.