For four days, America converged on Indianapolis to attend the nation's largest convention of gamers -- GenCon, short for "Lake Geneva, Wisconsin Convention," where the festival began more than four decades ago. And for the sixth year in a row, GenCon set new records for attendance:
- 61,423 unique attendees -- 9% more gamers than last year.
- 197,695 movements through the "turnstiles" (repeat visitors).
- "More than" 400 companies exhibiting wares for sale -- in fact, I think I counted more than 500.
According to Visit Indy CEO Leonard Hoops, the 48th annual GenCon generated "more than $67 million in annual economic activity" for the city of Indianapolis over those four days.
But this, as they say, is just the beginning of the story.
The big story out of GenCon 2015
While others attend GenCon for the games, I go in search of investing stories. It seems every year, you can spot a new business trend at GenCon -- and often more than one.
Last year, for example, the big story was Hasbro's (NYSE: HAS) release of Dungeons & Dragons, fifth edition, a franchise that's produced more than $1 billion in sales over the past 40-odd years, and that dominated GenCon 2014. A secondary theme was the continuing strong popularity of the Magic: The Gathering (MTG) card game (also owned by Hasbro). And here's a fact: While Hasbro no longer owns GenCon, the MTG franchise generates about $250 million in annual sales for Hasbro, meaning it's probably even more valuable than D&D.
$67 million? $250 million? $1 billion? Those are all big numbers. But this year, the "big news" at GenCon was even bigger.
Kicking off a revolution in small business
GenCon 2015's biggest story was Kickstarter.com, the online crowdfunding site that's helped raise $1.8 billion in funding for more than 90,000 small business projects in just six years of existence.
You see, size varies widely in the gaming industry. The upper end of the ecosystem -- the apex predators of the gaming world -- is dominated by well-known brand names from Electronic Arts and Activision Blizzard (in video games) or Mattel and Hasbro (in board games, toys -- basically everything other than video games).
Descend just one level, and revenues fall off rapidly. GenCon's two co-sponsors this year were Paizo Publishing (the company behind Pathfinder, with perhaps $11 million in annual revenue) and Mayfair Games (which makes Settlers of Catan and boasts annual revenue of just $5 million). According to S&P Capital IQ, both are privately held.
After that comes "everybody else." Many of the companies I spoke with at GenCon this year are real mom-and-pop shops. In contrast to the $6 billion Mattel did in sales last year, or Hasbro's $4.3 billion -- or even Paizo's and Mayfair's millions -- these smaller businesses are still seeking their first six-figure payday. Figuring in start-up costs, overhead, and game design, they need to sell anywhere from 500 to 10,000 units in order to break even.
One failed product, though, and they're operating at a loss -- which is a big risk to take.
Kickstarting an entire industry
Luckily, small game designers don't have to assume as much risk anymore. With the advent of Kickstarter, these companies can pre-sell games to would-be buyers. They can rack up enough orders to ensure profitability before pulling the trigger and placing an order with a contract manufacturer.
Now, I didn't speak with every exhibitor at GenCon (there were, after all, more than 400). But among those I did speak with, over and over, they told me their projects were funded through Kickstarter. From Warpo (collectible action figures) to Chip Theory Games (board games), to Harebrained Holdings ("digitally enhanced" miniatures), nearly every small exhibitor I spoke with at GenCon 2015 had obtained financial backing on Kickstarter.
What comes next?
Between funding from Kickstarter and the turboboost of publicity at GenCon, the sky could be the limit for these small businesses. One of them might one day become the next Oculus, and sell itself to Facebook for $2 billion. Another might develop a loyal fan base and grow up to be the next Mayfair Games or Paizo.
All I can say for certain is that thanks to Kickstarter, a lot of small entrepreneurs who once had nothing more than a great idea, but no money to fund it, have now morphed into actual, viable small businesses. And as they showed at GenCon 2015, they now have the products to prove it.
Wherever they ultimately go from here, that's already a good thing.
Rich Smith mainly covers the military industry for The Motley Fool. He does not own shares of, nor is he short, any company named above. You can find him on our virtual stockpicking service, Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 328 out of more than 75,000 rated members.
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