After The Layoffs: CCP Is Not Dead Yet

"The reports of my death have been greatly exaggerated."

- Mark Twain

Some people are using last week's layoffs as proof that CCP is either about to go out of business or sold to a larger company.  One prominent blogger who really hates CCP and Eve Online even used a post of mine to justify a prediction that CCP would declare bankruptcy in 2012.  While I appreciate the traffic, my first thought was that analysis was, considering the well known views of that blogger, wishful thinking.  I was sure that more objective and informed analysis would soon emerge from the Eve blog-o-sphere.

As it turns out, Jester had already published an analysis, "Burn Rate", of what the layoffs actually mean:

"A closer examination of the financials in that June statement confirmed it: CCP had a burn rate of between 7 and 8.5 million USD per year.  They needed to be at 6: 12 million USD over two years.  Therefore, they were burning cash higher than the rate supportable by the loan.  Therefore, what they were doing was not sustainable unless that investment started returning a profit before the two years were over.

"That, obviously, did not happen.  DUST isn't out yet.  WoD isn't out yet.  Therefore, they were going to be in trouble when that loan came due.  Instead of trying to develop a second product, they tried to develop a second and a third product at the same time.

"That made what happened yesterday at CCP inevitable.  Hilmar had to show his investors that he was serious about making his business sustainable.  In the longer term, CCP could repay that loan.  But the ability to repay the loan isn't what this was about.  This was about demonstrating that CCP had a sustainable business model that could fit within their burn rate and maintain liquidity.  DUST still isn't out, which means that Hilmar needed to have that liquidity loan renewed by his investors.  And that meant that he had to show his investors that he was serious about fitting his business within the burn rate for the next two years."

So how much money will the layoffs save?  According to CCP's 2010 financial report, CCP spent $38 million in salary and other employee expenses in 2010 (p. 21).  If it is true that CCP laid off 20% of its workforce then the average employee count in 2010 of 558 was the employee headcount at the time of the layoffs.  Assuming that the costs are approximately the same year-to-year, I feel pretty confident that the layoffs will save between $7-9 million in 2012.  Cutting 20% from $38 million is $7.6 million, but with 80 of the 114 positions cut in the U.S., that number may be higher.

Some have speculated about possible cost savings by closing the office space in Stone Mountain, Georgia (the U.S. state, not the country).  The office wouldn't close completely since it is the home of White Wolf games, but with the cut of 80 of the nearly 200 employees CCP could choose to relocate next year depending on the term of the lease.  CCP launched the opening of their Stone Mountain office in 2007, so it is possible they could move if they have a 5-year lease.

Two other factor plays into the financial calculations.  Up until now, the development of DUST 514 has just meant outlays that CCP paid for development.  If all goes according to plan, next year DUST 514 will actually generate revenue.  How much no one knows, but if the game just breaks even a lot of the financial pressure will lift from CCP.  The second is the partnership with Nexon to produce a Japanese language client and customer services.  If the effort brings in 30,000 new accounts, that would mean over $6 million in additional revenue per year.

Of course, CCP needs to keep the Eve player base happy and its numbers at least stable for all of the financial theories to work.  So far I think CCP's plans for the winter expansion will keep the player base happy.  After this summer's events, most are probably waiting to see CCP's actions and not just rely on their words.  But if CCP can "walk the walk", then the reports of CCP's demise are greatly exaggerated.