Tax Incentives in MA for Video Games

In his June 12 Op-Ed in the Globe, Jeff Jacoby (@jeff_jacoby) writes that “the video game industry wants to be bribed to do business in Massachusetts.”

He goes on to describe how the state shouldn’t pick winners when it comes to businesses.  That tax benefits have not worked in the past for the green industry, movie industry, or for mutual funds.  Each of these industries is completely different, and the attempt to apply a single rule to all markets is a fallacy.  In fact, there have been incentive programs in Massachusetts that have worked extraordinarily well, bringing in jobs and revenue into the state.  A fine example of this is illustrated in the success of the biotech industry in Massachusetts.

As State Rep. Vincent Pedone (Worchester Dem.) has pointed out in the past, “Twenty-five or 30 years ago, no one in the commonwealth knew what biotechnology was, and it has now become a critical part of our Massachusetts economy. We think the video game design industry has equal potential.”  Rep. Pedone has been a key figure in introducing the legislation that would support video game companies.

Some argue that MA should be more business-friendly in general.  While it’s true that MA taxes are some of the highest around, there are other benefits which help to balance this challenge.  According to CNBC’s 2010 report, Massachusetts is ranked #5 in America’s Top States for Business.  This score is mostly due to the fact that Massachusetts is #1 in Education.  We have some of the greatest minds coming out of the greatest schools in the country.  In the games industry especially, we end up sending that talent away to greener pastures for game development because the jobs are in California, Washington, or Texas.

Here at Fire Hose Games, we are constantly getting inquiries from eager, qualified applicants that could be contributing to the MA economy, if only there were a position for them.  Tax incentives would allow companies like ours to retain our capital for longer so we could employ more people, over longer periods of time.  Jacoby claims that MA games companies want to hire more senior-level people, but it is much more than that.  We want to hire more senior-level, junior-level, and entry-level people.  We want to create jobs here and grow the already flourishing community into one of the strongest in the United States.  We want to keep our talent here in Massachusetts instead of shipping our grads off to California.

The video game industry is traditionally highly project-based.  Development cycles are long, and when capital runs low, layoffs are made.  Again, tax incentives from the State would allow us to smooth the bumps during ups and downs of project cycles so that we would not lose people during downturns.  Furthermore, this model is changing, as the industry increasingly trends toward less project-based cycles and more sustainable, long term revenue cycles.

In grand editorial style, Jacoby goes as far as insulting the game companies that want to help Massachusetts, as well as our own businesses, grow, quoting Pushkin to call us pigs.  He also makes comparisons to rich Hollywood actors and Fidelity Investments.  Those kinds of comparisons are not only completely inaccurate, but they speak to a basic lack of understanding or research about the games industry whatsoever.  According to the 2010 IBISWorld Report on the Video Games industry, the average wage in the games industry was $47k, and the wages/revenue ratio was about 25%.  Not exactly the fatcats you were expecting?  We aren’t asking for Massachusetts to bribe us, we simply want to aid our businesses so we can stay here, instead of having to leave like 38 Studios did.  Already, 17 other states have tax incentives of some form for video games.  Massachusetts is behind the curve. 

Our Fire Chief, Eitan Glinert, had this to say, “If Fire Hose was offered a deal like the one that 38 Studios got with Rhode Island we would leave Massachusetts. To some degree we feel like we’re the only ones missing out; we see the federal government giving out billions of dollars in bailout money to huge business (usually to financial companies that create nothing of value but profit for themselves) while small businesses get the handout shaft. We see other states giving tax incentives or loan guarantees to incoming high tech and media companies. We see foreign governments investing in small businesses with grants designed to help them get off the ground. Here in Massachusetts we get none of these things, and to be frank it feels like we get no government support. A tax break, even a small one, would go a long way to help us make ends meet in an expensive city and keep us rooted in a state we love.”

Video games are a fast moving, technologically intensive industry that is expecting growth rates upwards of 8% in total U.S. Revenues over the 2011-2016 period, as well as increased profitability due to digital distribution.  This is a burgeoning industry in its growth phase with increasing globalization; in other words, a huge opportunity.  Why shouldn’t Massachusetts want to invest in an industry like ours, and enjoy some of that GDP?

Comments

  1. Very well written. As I have stated in the past, I’m not looking for a handout, I’m looking for a break. Especially as a startup with very little funding in the first place, we at Lantana have had enough to deal with financially already. If the state doesn’t want to give us a break, the least they could do is lower startup costs for upcoming businesses or the state will continue to lose potential tax income to Delaware.

  2. Good write up, it gets me all fired up on the subject! Jeff Jacoby’s statement “the video game industry wants to be bribed to do business in Massachusetts.” does a great disservice to those who have started game companies in the state. Is there not already a thriving community of people starting companies here in Mass? There is! (as we know) His statement completely ignores these companies. It shows his ignorance in the area because he falls into the common trap of thinking that ‘the game industry’ consists of ONLY the huge companies.

    I feel this is a symptom of ignorance about the nature of the game industry (design and production). The big companies are easy to see, but the small start ups labor in obscurity, until they are offered a better deal somewhere else and get attention by moving. Jeff’s op ed focuses on only large companies being attracted to Mass from the outside, and does not address small companies that are already in Mass struggling to get going.

    This whole argument should be re-characterized by calling it “assistance to Massachusetts startup companies, who happen to make games” (Not literally, that’s a terrible name). Perhaps putting it in those terms would make Jeff and others realize that there are companies starting in Mass that could become ‘the game industry’ someday. I agree with Jeff that tax incentives which make Mass appear more attractive to outside companies are a waste. Mass can dominate with more help for home grown bootstrap startups.

  3. Here is the letter I sent to the Globe after spotting your tweet. Thanks for the heads-up!

    “Mr. Jacoby does a disservice to our state planners by advocating a blanket opinion that no companies should ever receive tax incentives from the state to encourage them to stay. He compares the idea of Worcester Rep. Vincent Pedone’s plan to offer incentives to game companies to that of the film industry. As a ten year veteran of the game industry in MA, I would point out that unlike films, which come to use a location and then leave, game companies remain long-term. They employ some of the most skilled and creative people in the workforce. We have many of the top educational facilities on earth here in MA, and finding ways to keep more of those people living here after they graduate is good for our state. In the 1980’s the tech sector in MA rivaled Silicon Valley. No longer. Now we have an opportunity with a rapidly expanding industry that has more growth potential than almost any other. Our state should use both public incentives and private investments to encourage development of the game industry in Massachusetts.”

  4. Caroline

    Fantastic letter! I am glad to see that others are getting behind the effort!

  5. Bill M

    Comparing it to the movie industry is not fair, and if anything Mass shot themselves in the foot. Though the idea was a good one, they handled it wrong. Check out any of the movie sets that are going on or have gone on. Look at the trucks, you will notice, most are not from Mass. The problem with the movie industry is that, they bring in workers from out of state to work on a film for a few weeks/months. After filming is done, they all go back to their home states. So we are giving tax breaks, but hardly anyone in the state is actually getting hired, ( cept maybe the police and catering companies). Directors, producers, camera guys, lighting guys, make-up people, etc, etc, all the high profile jobs, are people from out of state. Sure, they have to pay Mass income tax while they work here, but after the job is done, they are gone and the revenue to Mass stops.

    In the gaming industry however, we hire people, they work in Mass for years and years, feed into the economy and the income tax. It’s much more sustainable for Mass, it provides longer term jobs,with benefits. I have tons of friends in the industry who lived in New England but had to go to California, Florida, or elsewhere for jobs because there is only a hand-full of studios in Boston with the ability to hire big staffs. This can, and needs to change.

    I myself live in NH, but I work for a Boston studio. I have been paying Mass income tax, and feeding into the economy ( esp. for lunch! ) the entire time I have worked in this industry. The more MA helps studios, the more revenue the state will see.

  6. Amen! Great article, 100% relevant to all developers large and small in the Bay State. Nicely done.

  7. David

    Nice response. Of course, I’m not surprise that Jeff Jacoby would get his facts wrong. He starts with a conclusion and goes from there.

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