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Dhruin
Stranger In A Strange Land
Joined: 20 May 2002
Posts: 1825
Location: Sydney, Australia |
| Interplay: Rent, please... |
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While the details were contained in the financial stuff we posted about Interplay yesterday, most observers were paying more attention to the game-related news. After looking through the papers, <a href="http://www.gamespot.com/news/2004/04/15/news_6093683.html" target="_blank">Gamespot</a> is highlighting that Interplay are three months behind on their rent:<blockquote><em>Besides highlighting the disparity between its cash balance of $1.2 million and working-capital deficit of $14.8 million, the notice also revealed interplay is facing eviction from its Irvine, CA headquarters. The filing states that "As of April 1, 2004, the Company [Interplay] was three months in arrears on the rent obligations for its corporate lease in Irvine, California." During the conference call, Caen revealed the rent for Interplay headquarters is around $150,000 a month, meaning the company currently owes its landlord approximately $450,000--nearly half its cash on hand.</em></blockquote>The article goes to to point out the lessor served formal notice to pay or surrender possession on April 9th, meaning this issue may already be resolved one way or the other. |
Sat Apr 17, 2004 9:35 am |
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the mighty stamar
High Emperor
Joined: 01 Feb 2003
Posts: 602
Location: arcata ca, humboldt county |
Um.... the rent is 150,000 a month.....
well no wonder they are broke. LOL thats stoopid! |
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Sat Apr 17, 2004 9:36 am |
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EverythingXen:
Guest
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Not really. Even their older games typically retail in packs for 30 dollars or so. 150,000 for rent isn't that big a deal. Worldwide they'd have to sell 5000 thirty dollar packs per month to cover rent expenses.
If a game company the size of Interplay isn't pushing at LEAST 15 to 20 thousand units a month through international distribution they have bigger problems than owing their landlord 450,000. |
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Sat Apr 17, 2004 2:34 pm |
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Roqua
High Emperor
Joined: 02 Sep 2003
Posts: 897
Location: rump |
This is a common problem usually associated with companies that grow to fast. I'll say right in the beginning that I have no real way to model this in regards to a game company since I don't know what their cash flow models look like.
But with all the othe businesses I have valued it works like this:
You take there day sales outstanding (DSO, which is accounts recievable divided by sales times 365, this tells you how long it takes for them to get paid by credit purchasers). Then you take the days purchases in inventory (DPI, which is Inventory divided by cost of goods sold times 365, this tells you how long it takes to sell a product). Then you take days payables outstanding (DPO, which is accounts payable divided by cost of goods sold times 365 and tells you how long it takes to pay your bills, it looks like in Interplays case it is 90 days).
With this information you can find out the cash conversion cycle. (DPI+DSO-DPO). Whatever number you get is the number of days you need to be financed.
I'm sure you have all heard of the term technical insolvency. This happens government funded contractors a lot. They have 20 million owed to them in 5 yrs, but they don't hsave the money to pay their bills today.
Unless Interplay is retarded the only reason they would stay there and not move to a smaller office is because breaching the lease would be more expensive than a lower rent. Or they are are holding off for eviction which is also smart. There is a time value to money; a dollar is worth more today than in 2 years. I am not clear with California law but usually you can only hold tenants accountable for just the amount of rent owed. Late fees and breach of lease penalties will not hold up in court. So if they paid the landlord off now they would have to pay him more, as well as with todays dollars which works out to even more. But if they get evected and pay the legal amount owed (just the rent expense), they will have to pay less of an amount that doesn't even factor in the time value of money since they will have to pay in the future. And since it didn't go to court they won't have to pay court costs and lawyer fees of the landlord or their own (in every lease I've seen the loser pays all court and lawyer fees of both parties).
If I was Interplay I wouldn't pay rent three months late, I wouldn't pay it at all. I also suspect they are shooting for bankruptcy, which is BS but can really help a business out if they have profitable IPs. (I also have never valued IPs but I have heard that some forms of bankruptcy are blessings for IP owning companies in debt).
But this all makes being financed a lot harder. And also explains why they can't recieve more debt to pay their bills and get their DPO down to 30.
I just deleted about 8 paragraphs of crap like project evaluation and how the game industry cash flows must be hugley front ended but this post is basically all useless babble. And in case any moderators have to read through every post to see if people are breaking the rules I deleted it all. I wrote it and I didn't even want to read through it all.
_________________
Vegitarian is the Indian word for lousey hunter. |
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Sat Apr 17, 2004 4:51 pm |
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