League of Geeks: "We'll fight till the last breath"

Armello developer League of Geeks has just announced that it's laying off 50% of its staff.

The entire team behind Jumplight Odyssey, which launched in Early Access in August, has been made redundant, with the title put on a hiatus indefinitely as the studio seeks more funding.

In total, 31 people were laid off, including the Jumplight team, staff on the operations and publishing teams, and contractors. Armello's support and Solium Infernum's release (due in February) are not affected by the situation.

Talking to GamesIndustry.biz about the layoffs, studio director and co-founder Trent Kusters doesn't shy away from the exec team's responsibility for the situation, all while shedding light on the context that led up to the redundancies.

He first confirms that affected team members will get "full benefits," with League of Geeks also working with union Game Workers Australia to ensure a smooth process. All staff will get access to a qualified therapist, with League of Geeks also supporting affected folks in finding new jobs – a couple of them have already started elsewhere.

50% of Jumplight Odyssey's profits for the next year is also going to the team that was laid off.

"It seemed wrong [to pull the game down] because we've spent all this time working on it," Kusters explains. "It's just sitting there, it should earn money. We're a business at the end of the day but it feels weird to make a profit. Profit sharing has been at our core. League of Geeks was literally founded on the idea that maybe you can get some people together and make something for profit share.

"We integrated a company profit share system in 2018 and so we were like, well, now is not the time to back away from [our values]. It felt like a great way to honour all those folks on our team. We set up a profit share system specifically for Jumplight so that even if you leave the studio through these redundancies you can still receive profit from the experience. At least folks will know that 50% of the profit that we will see from the game is going to the people who made it, the team who were impacted by this."

We talked to Kusters just last month, and he highlighted then just how much of a difficult time it is for large indie developers, and the importance of being resilient in that space. Neither of us expected to talk again so soon and with such bad news.

The studio was in talks with two major investors to get funding that would have kept it afloat through 2028, but had the rug pulled from under its feet in the span of a few weeks, in what Kusters describes as "the darkest time in League of Geeks' history."

While a wealth of external factors (which we will go through here) contributed to the situation, Kusters insists that he doesn't want to make it sound like he and his co-directors don't have a responsibility in this.

"That's really important: this is our fault. At the end of day, we're the directors of this business. It's our responsibility to ensure that our products and our team are protected. It's not lost on us that we've landed them in this situation and that it was our responsibility to avoid this, no matter what kind of boogeyman we could point to.

"Are we fallible human beings? Sure. Did we have all the information then that we have now? No. But these are the lessons that will be taking away from it. And this is why every step of the way we've chosen our team and our community where we can. The difficulty modifiers on running an independent publisher and developer are just insane."

He continues: "What we had was a funding gap [compared to] our original budgets that were created in 2021 – that obviously we updated along the way and everything. The world has changed since then. The Australian dollar fell like a stone, and all of our software and everything is paid for in USD. Inflation across the board. Cost of rent. Tech salaries rose in Melbourne by 40% last year.

"You add all these things up and it almost creates the exact amount that we were missing right at the end of the project. We have contingency in our budget, so we make the same mistakes or stupid decisions that every developer makes and this game wouldn't have come in on budget anyway, even if all these things didn't happen, but the amount it's blown out is just wild."

The layoffs announcement was made internally on November 17th during an all-hands meeting.

"I think there will be a future on the other side of this. I just don't know what it looks like"

"Everyone kind of knew [about the situation] because in the previous all-hands meeting, one quarter ago, we showed the cash flow and we pointed out that money was running out," Kusters explains.

"We have two accountants on staff, it's always been something that we've cared a lot about, sound financial governance and foresight. We were here during the global financial crisis, we saw what happens when people don't run video game companies like companies, and so we've always focused on that stuff. [Having] revenue spikes when you've got big releases, especially if you're a publisher like we are, is normal. Our job as directors is to fill the gap [in between]."

However, securing that funding proved extremely difficult, Kusters shares, giving us an insight into what the year has no doubt felt like for many indies. He says he started reaching out to potential investors late last year and talked to platform holders about funding at DICE as well.

"We met with Xbox and PlayStation, and the answer that we were getting from people for the first time ever about funding was completely vague. And so we walked away from that being like 'what the fuck?'. Everyone was kind of thinking that was the economic impact [of the war in Ukraine]. But we came away from DICE with basically nothing in hand, which was very strange to us. We have over a decade-long relationship with these institutions, so we actually felt like we went back in our prospects of funding. Whereas the year before, everything was sure things."

With every event throughout 2023, it got "a little weirder," Kusters continues. League of Geeks' co-investor Kowloon Nights put some more money into the studio's projects, which Kusters says got them a little bit further but didn't "close the whole gap."

"So we're like, okay, it's time, it's been 13 years: let's sell off a chunk of League of Geeks. As you can imagine, a studio like ours during 2021/2022, people were kicking down our door to try and buy the studio, or into it. We're the largest independent developer in Australia, we're a publisher, and we have IP. So I started looking for minority investment.

"We picked a series of partners that we would want to work with and we started having those conversations and they went very well. And basically, we got the studio to a point where we were nearing a $60 million dollar evaluation and getting an injection that's a portion of that, that would ensure the security of the studio through 2028 essentially."

The exec team got things to a term sheet with two potential parties, which Kusters describe as "some of the biggest video game companies in the world."

"It's not like the company was haemorrhaging money, it was just a funding gap that once it's plugged, we then move on"

"We were talking to them, very excited, and then one of them peels off from the negotiation… And they say very vague stuff like, 'We've got a lot of investments to digest' and 'We're going to come back in the new year' or something like that. And basically it becomes about timing. We told them that part of the money that they were investing was to solve this cash flow gap. It's not like the company was haemorrhaging money, it was just a funding gap that once it's plugged, we then move on."

But the potential investor just said that they couldn't work to League of Geeks' deadline anymore and pulled out saying they were slowing down on investments.

"Then a week or two later, the final partner we were working with pulled out as well, basically stating that their entire investment process internally had changed, that it was now a multi-stage process, and they were actually not doing any investments for the rest of the year – and this is one of the major investors in the international industry," Kusters continues.

"And we were just like: holy fuck... We'd been talking to these parties for years. So, it's not like we didn't know them. We knew that the market was a bit weird, but for things to just drop off, it definitely surprised us. And we were, okay, shit, now we still have our cash gap and we got to do something about it."

Kusters says he then started calling "everyone in the industry that has two cents to rub together," from publishers to VCs to local Australian devs, to try and pull some funding together.

"But ultimately, it was all happening too fast, we were put into a position where we just couldn't close funding by November 17," he sighs.

The cost of closing a studio in Australia is quite high due to strict employment laws and, by December 1, League of Geeks was going to reach what it internally referred to as the 'RIP zone' which is essentially a running tally of what it costs to close the studio.

"That involves everything: paying out the rest of our lease for our rent, closing off the accounts, etc. That adds up to about $2.5 million for us, to just close the studio and let everyone go. So, we are sitting here with literally millions in the bank account but that's the point where we got to close the studio. So November 17 was when we pulled the 'RIP cord' because we were approaching the RIP zone and we were never going to cross that.

"We basically were faced with an impossible scenario of: if we continued on to December 1, we would have to close the entire studio. But if we pulled the RIP cord two weeks earlier, we would be able to [survive]. We would have to cancel Jumplight Odyssey and make that entire team redundant, as well as those publishing operations, and slash all of our marketing costs. But we would have more time to be able to then secure funding for Solium Infernum. So we had to make that call."

Kusters is hopeful that Australia's newly adopted digital games tax offset will help the studio find its feet again.

"The film industry has had an equivalent called the producers offset, which is a 40% tax rebate for film – we're 30% in games. Because it's been around for decades in film, they have a very mature financing model and ecosystem around it where private lenders will finance projects, especially cash gaps. You can borrow against the loan. So you go to an accountant and [get an] accountant's opinion letter, and they say 'We've gone over all of their budgets and everything and this is what they're going to get back from the producers offset, you can lend them 80% of that for the film' and then that basically just get paid to that lender instead.

"So because of the DGTO we now have this opportunity to draw down on that and ensure that Solium Infernum gets launched. So we managed to save the studio, we'll get Solium Infernum out as, luckily, we made very minimal cuts to the Solium Infernum team."

"We've got time to look for funding. We've got time to make this game as good as it can be. But really we're at the mercy of the market, both in how well this game performs and how likely it is for us to get funding"

League of Geeks now has cash flow until the end of March, with Solium due to launch on February 14.

"We've got time to look for funding. We've got time to make this game as good as it can be. But really we're at the mercy of the market, both in how well this game performs and how likely it is for us to get funding. We're also a different studio now. We don't have a burn rate of 70 people, we're 30. So we look different to an investor. There's obviously no investment coming to us between now and Christmas. And next year, it looks really grim. So I don't know what kind of studio we're going to look like on the other side of this.

"The thing that I always say – and I'm saying this to the team – is we'll fight till the last breath, for the team, for the projects, and then for the studio, in this order. We've lost half a team, if we have to lose the rest of them that fucking sucks, but they're the first that we fight for. And then maybe we can save a project if we can't save the team or something, and so we've been able to do that for Solium Infernum. And then the last thing is if the company has to continue to exist in some form where it just services the games or something, then that's that. But I think there will be a future on the other side of this. I just don't know what it looks like.

"The big thing we've heard from everyone we've been talking to, investors and other studios going through this, is to basically survive until 2025. I fully believe that investment is going to kick off again in Q4 of next year/Q1 of 2025."

He shares his worries for next year, for indie studios across the board, adding that he doesn't want to be prophesying a doomsday but that it's "pretty scary what could happen in the first half of next year, and who we could lose."

"There are a number of studios all around the world – hundreds probably – who just haven't been able to sign a project or get funding and they're just literally going through whatever money they have in the bank. And it's just going to run out at some point."

When asked about the impact of this situation across the games ecosystem in Australia, Kusters says it's "resilient" but "not invulnerable."

"When you remove investment, funding and capital from an industry, it will just have an impact. It's as simple as that, even if we have a world class community and industry."

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