After the fiasco that came with Extra Credits leaving The Escapist (check it out here if you need to get up to speed), a lot of people on the internet had been saying things along the lines of “How could Escapist be taking money away from a charity?! That’s outrageous!” or “Way to steal from a charity, never going to The Escapist ever again” or “I hat The Escapst!!! Stop steling from CHARITEE. YOU DUMASZS.” Not to bring up old blood, but I think that an examination of the technical aspects of the incident is in order for the sake of clarifying some issues that some people may be confused about.
Firstly, Alexander Macris (CEO of Themis-Group) on the Facebook page for The Escapist, posted the following response to the public at 9:30 PM on August 9 (as recreated here),
Alexander [another user on Facebook], the thing is, RocketHub is not a charity. No one gets a charitable tax deduction [quotes in the article are italicized for emphasis]. My understanding when we supported the effort was that we were trying to “save Extra Credits.” I feel personally betrayed that the excess funds are now being used for James to start a publishing business rather than to support Extra Credits. If James had intended to use RocketHubs to start his dream business of indie publishing business, power to him, but we wouldn’t give lots of t-shirts and pub club memberships out to support that, you know? I just did my own Kickstarter and you didn’t see anything about it on The Escapist.
So, he felt that he wasn’t taking from a charity, because it was a joint effort by The Escapist and Extra Credits to raise money for Allison’s surgery and the show. He felt betrayed that James would take the money that was originally for a different cause to fund his own publishing business. (It’s been a hot issue of contention between both sides of the argument as to whether or not Extra Credits is running a business versus a fund, but more on that later.)
There is a specific mention to meaning of whether or not Extra Credits was running a charity. Let’s take a technical look at this issue.
As defined by U.S. law, a charity is generally an organization that is consider tax-exempt at Section 501(c)(3) of the Internal Revenue Code. As defined at this page at www.irs.gov:
The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
However, just because it wasn’t a tax-exempt charitable organization, doesn’t mean it wasn’t a charitable cause, as Alexander Macris said himself in his Facebook post responses (recreated here):
Unfortunately, Kickstarter refused because they don’t do charity. I then suggested James try RocketHub and RocketHub agreed.
This was true, as noted in the second point of the Kickstarter Guidelines (here):
No charity or cause funding. Examples of prohibited use include raising money for the Red Cross, funding an awareness campaign, funding a scholarship, or donating a portion of funds raised on Kickstarter to a charity or cause.
And you can see in RocketHub’s guidelines “Who can launch a project on RocketHub?”, they don’t make this restriction:
RocketHub is focused on creative projects, but we allow any project, as long as it is legal and in good taste.
So I suppose it might be considered a charitable cause, but Alexander Macris would be right to say that it was not a tax-exempt charitable organization or what is legally known as a charity. In comparison, LoadingReadyRun (another group of contributors from The Escapist) does raise money for charity in their yearly Desert Bus charity drives. You can see at their FAQ:
Q: How does donating money work? What do you do with all that?
A: We don’t actually collect the money. It is deposited directly into the Child’s Play PayPal account. We never actually see the money. We’re like a street corner Santa, ringing a bell to get you to donate to the charity pot, but instead of a Santa, it’s a sleep deprived gamer, and it’s a virtual pot. Remember – Child’s Play is a registered charity, so if you live in the United States, your donations are tax deductible. You can get a tax receipt by contacting Child’s Play. We cannot give you a receipt because we do not actually handle the money.
Also of note, LoadingReadyRun doesn’t deal with the messiness of handling the money– their money goes straight to Child’s Play. This is not true for handling money from RocketHub, as Extra Credits must go through the following steps:
- raising awareness for the RocketHub page
- handling the “thank you gifts”
- having some of the money taken away due to fees (explained below)
- getting the money from an escrow account
- recompensing the money to The Escapist for the cost of T-shirts and membership fees, which indeed got messy.
The fees that were deducted were explained by RocketHub as the following:
4% RocketHub Fee
RocketHub charges 4% of the money you raise, if you reach your financial goal. (If you do not reach your financial goal the fee is 8% of the total funds raised). This structure encourages you to set a reasonable financial goal, work hard, and publicize your project.
4% Transaction Fee
Credit card processing companies charge between 3 — 5% (on average) per transaction. The charges spike dramatically for smaller transaction amounts, but RocketHub aggregates and averages all transaction fees in order to minimize the charge to each Creative
Another issue that was a point of contention between the two groups was the overflow. The funding indeed does not cease at RocketHub for overflow as explained by their FAQ:
Can projects raise more money than their financial goal?
Yes. There is no limit to the amount of money a project can raise.
What is RocketHub’s All & More™ fundraising system?
RocketHub has blended these two ideas, to create a new paradigm. As a Creative, here is how RocketHub’s All & More™ system will work for you:
All — Keep all the money you raise (standard fees apply). Aim high with the confidence of a safety net.
More — Unlock additional perks. If you reach or exceed your project’s financial goal, the submission fees for your first 5 LaunchPad Opportunities are waived.
You might think to yourself: “Well, if they didn’t plan on overflow, then when they did hit their limit, they should have ended the fund right there. Since they didn’t, they were greedy!” I would have to correct you on that since RocketHub has another stipulation on financial goals and time limits:
Are financial goals and time limits required?
Yes. Every project must have a financial goal and time limit. Financial goals can be any whole dollar amount. Time limits can range between 15 — 90 days.
Can I change my financial goal?
No. Once your project launches, your financial goal cannot be changed
Can I change my time limit?
No. Once a project launches, the time limit cannot be changed.
So they couldn’t do anything about having overflow. When this was discovered by both sides, it got ugly. According to what was said in public about their contract, The Escapist wanted 75% of what was left over from what Extra Credits earned to go towards the production of the show. They apparently quickly retracted this demand after realizing that Extra Credits didn’t like this idea at all. So we’re back to where we were before: Extra Credits isn’t using the money towards the show and The Escapist feels betrayed because Extra Credits is using the money towards an indie publishing business… Or are they? Well, since you asked so nicely, I suppose this would be a good time to explain.
Extra Credits is not a business. Extra Credits makes it clear in their RocketHub post (here) that the money is a fund. In their own words:
“Once Allison is well, we’d like to use any excess money to pay that forward by helping to create jobs that allow others to build their dreams, and, in doing so, maybe change the industry for the better. We would like to create a fund to publish quality games.”
“we won’t take any money from the fund and any profits earned off titles published will go back into the fund to help kick start additional games.”
All the money they make will go back into making games and none will go to the owners, all will be going to the developers who they are collaborating with and back into the fund. They also stated that they are going to be looking to publishing games that are going to progress the medium, so could this possibly be covered under Section 501(c)(3) of the Internal Revenue Code for the progression of literary, scientific, or education endeavors related to video games? Possibly. (They have also said similar things in their video about Publishing which is attached to this article.)
So they aren’t making any money out of this. However, I must say that the fact that Extra Credits isn’t a business or a charitable organization, that doesn’t necessarily make Extra Credits the good guys. From what the public has come to understand, they did seem to take the fund in another direction after starting it as a joint effort with The Escapist. The Escapist didn’t want to make a big issue of taking 75% of the RocketHub money but James brought it up in a public forum, costing The Escapist what must have been a lot of public relations damage. (You might even say that The Escapist could sue Extra Credits for defamation charges for making them appear to be stealing from a charity, but I don’t think they would want to look like the evil corporate bad guys again. Anyway…)
Still, I don’t think either side is to blame for the issues at hand, I think there’s something else to blame:
To be honest, I think this could have been easily avoided if both sides had discussed the issue of overflow ahead of time rather than have made a lot of seemingly knee-jerk reactions to an unplanned situation. The Escapist wanted Extra Credits to stay and Extra Credits didn’t want to leave. All the stipulations by RocketHub and the contract that Extra Credits has with The Escapist made the situation a little difficult to manage on both sides and just led to the ugliness that ensued.
Neither side really wanted this to happen, but because some words were thrown around and some people got their feelings hurt, they reached an irresolvable conflict and they parted ways. I am a fan of both The Escapist and Extra Credits so covering the conflict between the two was a personal mission for me. The only thing we can do now after it all is move on and wish everyone the best.
Thanks for reading.
(If you want to start your own Kickstarter or RocketHub, stay tuned in the coming week for more tips on how to raise money for your own indie game or project.)
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