The Entertainment Software Association paid more than $5 million last year to stop hosting their annual trade show in Los Angeles, only to bring their new, downsized show back to the city a year later, according to IRS documents obtained by Kotaku.
The expense of breaking a contract that locked the show in LA through 2012, along with the expected drop in E3 revenue associated with the event's downsizing, led the association's board to drastically increase their membership dues last year.
Rich Taylor, Entertainment Software Association senior vice president of communications and research, said that all of the changes made by the association, including the costly jump from LA and the increase in dues, were decisions made by the group's board, which is made up of executives from 19 of the association's 25 member companies.
"I don't think it's a mistake," he said. "There was a model in Santa Monica that we tried and after the event we polled participants across the board about what they thought of it and then we tried to figure out what we could do to make it better and returning to the Los Angeles Convention Center was the right decision."
But that decision, the accompanying jump in dues, may have been the impetus for three high-profile member companies dropping out of the association. Lucas Arts, Vivendi and Activision all canceled their memberships with the association in the past month. While all three companies declined to comment for this article, it is rumored that the increased cost in dues played a part in their decision to leave the association.
Taylor also declined to comment on their departure.
Documents filed annually with the IRS by the Entertainment Software Association, and obtained through open records request by Kotaku, spell out the more than $5 million dollar change of heart and its almost immediate repercussions.
According to the forms, the association paid $5,377,808 in "event cancellation fees" tied to getting out of their contract with the Los Angeles Convention Center. Those same forms show that the association's membership dues more than quadrupled in their 2006 fiscal year, which ended on March 31, 2007, jumping from more than $1 million in fiscal 2005 to more than $4.5 million in fiscal 2006.
Taylor said that the board members knew going into their decision to move from the convention center that there would be sizable fees, they also realized that it would mean what they called a shift the annual show from a "profit generating E3 to a revenue neutral summit."
"In the past the membership dues here were deflated significantly because of income that was coming from other sources including the summit," Taylor said. "Now we're closer to what other trade associations charge."
Historically, the association survived mostly on the revenue generated by the summit, but when the board decided to cut down on the size of the show and make it "more intimate" they realized revenue would drop.
Although the 2007 fiscal year ended in March, the association had not yet filed that information with the IRS and figures from the form were not yet available. In the 2006 fiscal year, which included the last of the big E3 shows, the association brought in nearly $18.5 million from the show, up about a million from the previous year. Taylor declined to say how much was brought in from last year's smaller show.
"We are still working to close the books on last fiscal year," he said.
Taylor disagreed that this year, with three well known members dropping out and the E3 Critics Awards in jeopardy, has been a trial by fire for the E3 Summit & Trade Show.
"Traditionally there have always been a lot of issues leading up to E3, this time they are just more public," he said. "This is just part of the pleasurable experience of putting on a trade show. I don't think there is any trial by fire, I think it's how the process works.
"Anyone who is anybody who has anything to do with the industry will be at this year's E3."