You could assign a value in credits to every piece of work - a 3D model, an hour of coding, whatever; you 'pay' these credits to the people involved so they accrue a balance... and you know the total number of credits issued. Now each $1 of profit is split between all credits existing at that time. So credits can keep being created... like real money by banks... and work is automatically valued.

Yes, something like that could work, and is along the lines of what I was aiming towards explaining in my two posts.

EDIT: but I think that the profits should be divided by the final number of credits. That way a small and simple concept drawing submitted at the start of the project is not worth more than for example ten large and complex concept drawings in the middle of the project.

This idea makes as much sense as measuring contribution to aircraft design by weight added.

Please see point 2 in my second post in this thread.

b - project is profitable - why pay - the product is done, the workers transferred their rights, owner has pure profit

...

There is never any rational reason to pay for anything that is not, by definition, a charity. Might as well give money to red cross.[/quote]

Unless, as has been suggested in this thread a few times, a legal contract is drawn up guaranteeing a share of the profits to each contributor proportional to the contributions said contributor has made.

This is actually not an uncommon buisness practice in new trading companies in London City. Workers are sometimes given a choice as to whether they want a steady wage, or a share of profits, and the worker makes the choice based on whether they need the money now and on how successful they think the buisness will be. The latter choice can make them millionaires in the right company.

In fact the whole concept of owning shares, which every single company participates in, is based on profit sharing.

[quote]Here is why all these "when it makes money" schemes fail and a very real world example why it caused the current recession.

If you feel your idea has market value - take a loan and pay the people.

If not - then give it away for free and state that there will be no payment.[/quote]

People working for a share of future profits did not cause the recession. What caused the recession, in part, is people and governments taking out loans they could not repay due to inadequate investment of said loans.

Investing a loan into a project that has a significant chance of failing is a very unwise decision, especially when you don't have the safety net of a long track record of success. I would therefore strongly recommend against an indy team doing that.

Instead, for an indy team, I would recommend working for a share of future profit (enforced by a contract) supporting yourself in the mean time through other means, and when you achieve a commercially successful project, decide on whether or not to re-invest the profit into future projects.

Further, there is a glaring inconsistency in your post. If a team can afford to work for free and give their work away, then they can more easily afford to work for a share of profits...

3 - EDIT: The contribution you specify would be attached a fairly estimated profit percentage worth like any other contribution. I don't understand why whether someone is a friend, family member, yourself, or your company is relevant. If an entity contributes they deserve a share imo.

It usually is relevant, look up hollywood accounting, its unfortunatly not an uncommon practice.
Profit = revenue - expenses. marketing, server hosting , etc are expenses not contributions (These will cost real money, you won't get these in exchange for a share of profits, and normally there is nothing that requires you to buy these services from the best/cheapest provider(If you are a corporation you have an obligation to your shareholders to maximize your profit but even then you can shift the money around within the corporation to keep a project in the red to avoid paying royalties to third parties), unless expenses are regulated you can legally have the project pay 10 million dollars for a banner on a freewebs website that nobody visits thus eliminating any profit for the project while at the same time shifting any revenue to yourself or people who will share their money with you.

This is an area where people have to be extremely careful when signing up for any profit sharing scheme because its extremely easy to get ripped off big time and if you are an honest project leader you will ensure that the contracts leave no room for these practices.

[quote name='JDX_John' timestamp='1301237725' post='4790975']
You could assign a value in credits to every piece of work - a 3D model, an hour of coding, whatever; you 'pay' these credits to the people involved so they accrue a balance... and you know the total number of credits issued. Now each $1 of profit is split between all credits existing at that time. So credits can keep being created... like real money by banks... and work is automatically valued.

Yes, something like that could work, and is along the lines of what I was aiming towards explaining in my two posts.

EDIT: but I think that the profits should be divided by the final number of credits. That way a small and simple concept drawing submitted at the start of the project is not worth more than for example ten large and complex concept drawings in the middle of the project.[/quote]There is no such thing as a final number of credits, because a piece of software is rarely 'finished'. Even if it is, this is several years down the line and you might start selling it while work is still in progress. I would say profit should be split based on the shares (this is a more sensible term) existing at the time the profit is made... if you make a few early sales then the first people working get a bigger split of that, later as the game has 10X more work gone in and sells 10X as much, things automatically figure themselves out.
I would also say YOUR share should be calculated just the same way.


I don' agree with Antheus' argument at all. Sure you are sharing risk but not getting rid of it - you also are working for free. The sensible thing would be to try and provide more payment in return for the high risk. e.g if you would hire a developer at $50/hour in a regular cash-rich business, their projected earnings if things work out should be more like $100/hr.
And the bottom line is, if people choose to work in a high-risk way, that's their choice.

Unless expenses are regulated you can legally have the project pay 10 million dollars for a banner on a freewebs website that nobody visits thus eliminating any profit for the project while at the same time shifting any revenue to yourself or people who will share their money with you.

Perhaps I'm being slow, and if so I apologise, but this doesn't make sense to me. We have a situation where someone one is willing to pay up front for the service, and in exchange for that contribution (that of paying for the service up front) he wants a share of the profit. Further, the share of the profit that person would recieve, would not be proportional to the money paid, instead it would be proportional to the practical value the service provides, which in the case of the banner ad on a site no one goes to would be insignificant. That money has to come from somewhere. So who in their right mind is going to cough up $10,000,000 for an insignificant share of the profit on a project that might make no profit at all?

This is an area where people have to be extremely careful when signing up for any profit sharing scheme because its extremely easy to get ripped off big time and if you are an honest project leader you will ensure that the contracts leave no room for these practices.[/quote]

I completely agree, much care is required, and the contracts need to be sound.

I would say profit should be split based on the shares (this is a more sensible term) existing at the time the profit is made... if you make a few early sales then the first people working get a bigger split of that, later as the game has 10X more work gone in and sells 10X as much, things automatically figure themselves out. I would also say YOUR share should be calculated just the same way.

Ah OK, I thought you meant at the time the contribution was made, my bad. But yeah, at the time the profit is made works.

Sure you are sharing risk but not getting rid of it - you also are working for free.

Anyone working in anything IT or IP related should thoroughly understand both, the psychology as well as implications of "free", especially people wanting to help with such projects.

Owner of projects remains in ownership of whatever work is done. It stems from "to work for" rather than "equal ownership". The latter means any member can choose to take entire project and sell it on their own.

Owner works for free, but whatever gets done, they get to keep it.
Workers contribute, but at the end of the day they have nothing.

The above is being exploited to the degree of becoming a norm. Owners play the "I'm not making money either" card, failing to mention that they get ever-increasing value.

Let's say you hire someone to work for a week. They won't complete the work, the project takes years total. So you hire some more people for a week, and more and more. After dozens of people, you have completed a year's work. Each of those was paid zero, but you have a completed project.

This is how many open source projects work. But there, contributors use the product. In case at hand, contributors have nothing.

And the bottom line is, if people choose to work in a high-risk way, that's their choice.[/quote]
Ah, choice. Oft repeated, always abused.

Especially in IT, dangling a little technology gem and shiny stuff will take choice out of the equation.

I'm not speaking randomly here, I'm just summarizing the basics of how to start a business with no cash and no expenses, based on actual experience. I know of half a dozen business which used this model to move into multi-million revenue range, but only for founders/owners.

And yes, whenever ethics of such behavior come into question, the reply is "they chose to work for us, they knew how things are". As the saying goes, "there is one born every minute". Business, under control of MBAs has just developed a reliable process out of it. The mistake comes from assuming that individuals behave rationally. This is almost never the case.

Let's say you hire someone to work for a week. They won't complete the work, the project takes years total. So you hire some more people for a week, and more and more. After dozens of people, you have completed a year's work. Each of those was paid zero, but you have a completed project.

You seem to chose to ignore the contracts drawn up when the contributors contributed their work. Under the system we propose said contracts would legally enforce a sharing of any monetary gains amongst the contributors proportional to the contribution they made. The workers are not paid zero.

You make the point that the owner has added value because not only does he get his fair share of monetary gain he also owns a project which he can use as he sees fit, which is not the case for the other contributors. But that is the case with any company, regardless of the remuneration model.

Under the system we propose said contracts would legally enforce a sharing of any monetary gains amongst the contributors proportional to the contribution they made. The workers are not paid zero.

That would be an unfortunate wording, especially on an open project.

One image is larger than another, are they equal contributions? One person draws a 16MP wall poster while another draws a 16MP texture sheet, are they equal contributions? One person generates placeholder animations that are used through the entire development cycle yet are replaced at the last second, since it doesn't ship does this qualify as a contribution?

One programmer submits 50000 net lines of source code relating to hundreds of minor features, yet there are many bugs; Another programmer submits 5000 net lines of code and they are bug free and critical to the game; A third programmer has a net of -7000 lines of code, and by removing and simplifying has radically improved both the quality of the code and the performance of the game; How do you compare these contributions?

A producer contributes thousands of hours to getting the game finished, negotiated publishing deals, submitted ESRB ratings, and managed the funding through the project, yet has not contributed any code or data to actual game. What is their proportional contribution?


More importantly, if your organization was sued to ensure that the proportion was correct, how does this get verified?

This is why it is much better to make compensation entirely discretionary.

KISS wins out when it comes to profit - don't complicate things. Especially when complicating this particular thing can lead to oh so many nightmare scenarios (which has happened, will continue to happen, and hey, it might just be you next!)

[quote name='SimonForsman' timestamp='1301253604' post='4791050']Unless expenses are regulated you can legally have the project pay 10 million dollars for a banner on a freewebs website that nobody visits thus eliminating any profit for the project while at the same time shifting any revenue to yourself or people who will share their money with you.

Perhaps I'm being slow, and if so I apologise, but this doesn't make sense to me. We have a situation where someone one is willing to pay up front for the service, and in exchange for that contribution (that of paying for the service up front) he wants a share of the profit. Further, the share of the profit that person would recieve, would not be proportional to the money paid, instead it would be proportional to the practical value the service provides, which in the case of the banner ad on a site no one goes to would be insignificant. That money has to come from somewhere. So who in their right mind is going to cough up $10,000,000 for an insignificant share of the profit on a project that might make no profit at all?
[/quote]

The project owner would, using the projects money, not his own.
The project owner would also own the freewebs website recieving the money.
The money doesn't have to exist, the project can have a debt to the website that is payed off as revenue start rolling in.

This way the project will make a net loss (it won't pay off its debt ever, and if it does the project owner can always buy a second banner) and any revenue made will be used to pay off the debt, as the project isn't making a profit noone gets payed (not even the project owner). However the owner of the freewebs website will get quite alot of money as the project has to pay off its debt.

Basically it all boils down to the fact that profit and revenue are two separate things and any project owner who promises a share of profits rather than a share of revenue is in a perfect position to take advantage of you.

I think I understand some of the concerns now. Basically, how do we stop the project owner from assigning ridiculously large numbers of shares to contributions made by himself or by people who would pass a cut of the monetary gains back to him?

An open to all project members monthly review of contribution contracts made in the past month would have to be performed. Any contract not logged as reviewed would be declared null and void. Lets see how long his project and reputation lasts when people know what this blatant fraud is up to.


Simon:

The project cannot incur debt. The project owner can only pay someone with either his own or his company's assets, his own or his company's debt, or shares in project revenue. The project owner or his company can own shares in project revenue but it cannot negate the shares other contributors have. Please see above for a counter to the potential for grossly overvalued contributions

About the distinction between profit and revenue, you are correct. Profit was the wrong term to use. The shares would be shares in revenue of the project.


frob:

a value in terms of shares for the contribution would have to be agreed upon by the project managers and the contributor and set down in a contract. This would not be subject to change except in the case pointed to by my next sentence. Please see first and second paragraphs of this post, which also counters the potential for grossly overvalued contributions.

KISS wins out when it comes to profit - don't complicate things.

I presume you're not talking about the 70's rock band. What is KISS please?


EDIT: I'm not sure I want to get into more detailed discussion of revenue sharing. The concept of sharing future revenue is a proven one in buisness today. Well, when I say proven I mean I have anecdotal evidence I admit its not simple, but this buisness revenue and law stuff never is right?