A few days ago, the Federal Trade Commission took its first-ever legal action against a crowd-funded project: the Doom That Came to Atlantic City board game. Since then, a lot has been written regarding the settlement, but I feel that it's worth the time to have a look at what the takeaways are of this ordeal.
First ones there: Our industry now has the dubious honor of being on the forefront of what is likely to be a series of legal cases aimed at regulating the crowd-funding phenomena. Don't get me wrong, it's not like creators in other fields are not getting their fair share of heat. The tech sector, traditional book publishing, and even some zealous appliance designers have all given us some great pitches that failed to deliver after funding (for far more money than what was raised for Doom), but it's interesting to note that Doom was the first open-and-shut crowd-funding case that the feds tackled.
Definition: crowd-funding campaign is now defined as "the practice of funding or otherwise financing a project or venture by raising or soliciting money from a large number of people, typically, but not exclusively, via the Internet." Thorough omission or intent, it would appear that the FTC is identifying project backers as 'customers' rather than 'investors' in their settlement.
Deception: One of the deciding factors in this case was the fact the the creator blatantly misrepresented how the backer's money was going to be used. Erik Chevalier raised over $122,000 to create Doom but, according to the FTC, the great majority of those funds were spent "on unrelated personal expenses such as rent, moving himself to Oregon, personal equipment, and licenses for a different project."
Thou shall pay: the settlement imposes a settlement of $111,793.71, which was suspended due to Chevalier's inability to pay. However, should it later be revealed that Chevalier misrepresented his financial situation, the full amount will become due.
Thou shall not 'do it again' or 'benefit': Chevalier is also barred from any "deceptive representations related to any crowdfunding campaigns in the future," and "he is also barred from disclosing or otherwise benefiting from customers’ personal information, and failing to dispose of such information properly."
Fortunately, in this particular case, the story has somewhat of a happy ending. While the backers will most likely never see their money returned, nor will they obtain the coveted stretch goals in the foreseeable future, they've at least received a copy of the game (even if a few years past due). Cryptozoic Entertainment, the current publisher of Doom, agreed to fulfill the orders placed by backers on KickStarter at their own expense in 2014, and is currently considering a second print run as the original quantities dwindle through established retail chains.
While this is the first time federal authorities have taken action over a crowdfunding campaign, consumer protection authorities in Washington state filed a lawsuit over an undelivered Kickstarter last year. The state attorney general sued Ed Nash and his company for failing to deliver its promised Asylum Bicycle Playing Cards, a "retro-horror themed playing card deck." So, while the law is stepping up its game, it is important to realize the legal world moves at a much slower pace than what we consumers would like. In the meantime, crowd-funding remains a wild-west scenario for those dabbling in it. Without clear definitions or consequences, funded projects that end up 'heading south' slowly spiral out of control over periods of years.
What troubles me the most about crowd-funding in our industry is that it removes barriers that prevent hobbyist from making the jump to professionals. While this is certainly one of crowd-funding's greatest strengths, it is also its Achilles's heel. Let's face it, pretty much everyone has dreamed of turning a hobby into a livelihood at some point in time, but not all of us are equipped with the tools (or the stamina) to do what it takes to turn that dream into a reality. Dreams can turn into nightmares when you owe your backers and the pressure to deliver piles up. The ease with which a crowd-funding project can be launched eliminates a lot of the steps (and responsibilities) involved in obtaining other means of financing, resulting in far more 'jump before you look' scenarios than in the past.
Legal actions such as this will hopefully give some measure of protection to the consumer AND the project creator. I, for one, tend to be lot more cautions about requesting funding if it means losing my home, my business and my retirement fund. Pausing to consider the consequences of failing to deliver on a project means more time spent in market research, cost and revenue analysis and product development.
The end result? Hopefully, better games, legions of satisfied consumers and a rise in the number of professional, responsible and (eventually) self-funded creators.