This is probably only interesting to an accounting nerd, but the point is just how far the law is trailing behind virtual reality.
http://online.wsj.com/article/BT-CO-20110701-712257.html
Zynga is the maker of Farmville, a very successful game where people run a virtual farm growing virtual food. As hard as it may be to believe, people spend real money to buy make believe stuff.
Zynga is not make believe – they are a real company with employees and computers – and they are filing to “go public”. One of the important questions people will ask is “are they making money?”
So if I spend $5 and buy a virtual tractor for my virtual farm – how much profit did Zynga just make? The correct answer is not $5 🙂
Accountants rely on several basic principles – the most important of which is you record expenses as soon as you incur them and don’t recognize income until you actually earn it. Thinking like an accountant, I would ask
– is there any condition where a person can demand a refund?
– can the player sell their virtual stuff (or their account) to other people, which would reduce the future real income to the company?
– what is the legal obligation of the company to keep running the game?
The article explains Zynga puts virtual goods into two piles – consumables like energy – Zynga takes the real world profit only when you use the virtual energy. For long lived assets like a virtual tractor, they basically figure they earn the entire $5 only when you lose interest and stop playing the game.
Some might say the stock market is no more real than Farmville.
What is becoming reality with these games are taxation and asset claims.
My partner is an attorney, and in recent months she’s been asked to look into the legal ramifications of IRS taxation, divorce, and even probate cases involving ‘virtual assets’.
You raise the same question I had posed regarding the game/database/security.
What are the legal/financial obligations (liability) of the company running the game?
Something tells me we’ll soon see ‘virtual’ liability and malpractice insurance…
I wrote about “There” maybe a month ago – they were on the cutting edge of having to sort out some of the stuff.
There was kind of a cross between a video game and eBay. The company sold the game currency and players could buy and sell items inside the game using an auction system. Players could design new items and sell them to other players. Unlike Runescape, there was no ban on buying and selling the virtual currency in the real world – a person designing clothes could sell them, then sell the Therebucks to a banker for real money – and then the banker would resell the virtual money to other players. It was a novel idea, and part of why it was interest to me beyond flying around a make believe world on a hovercraft 🙂
While the company made it clear the “money” was not refundable (although they did consider it), the virtual currency being readily convertible to real money creates lots of virtual questions…. they decided that any kind of in game gambling was a problem, although they couldn’t stop people from doing whatever they wanted to in their own virtual homes.
The day that the last Private Equity folks probably decided to flee was the day the folks made a programming mistake. A fundamental rule and assumption within the coding was that an account could not have a negative balance. A change they made accidentally allowed a person who sold goods to lose money on an item, and tried to make their balance less than zero. Being an unsigned integer, they suddenly had a balance of around 2 billion therebucks, something in the many millions of real dollars. Rather than just notifying There, they ran around the virtual world handing out the equivalent of thousands of real dollars to total strangers. Was there any crime involved there in the real world? You be the judge.