A couple years ago it seemed like everyone had a contest to create the next best game. Some of these were genuinely great for developers, and others were thinly veiled attempts to snatch up great ideas on ridiculously bad terms.†Sadly, Atari's Pong Indie Developer Challenge, announced today, appears to be the latter.
I can't (and won't) try to speak to the intent of the people behind the contest. Instead I'd like to focus on the facts as outlined in the Official Contest Rules, and show how and why these are bad for developers.
Ownership of Submission:†This is the first thing developers need to be aware of when considering whether or not they should enter a contest. Good competitions like the IGF, are very clear about the developers maintaining full ownership of their ideas and submissions throughout the contest. Lesser competitions will assume ownership of the final product for just the finalists and/or winners. This one however, is very clear that Atari has full control and ownership over everything you submit to the contest†regardless of whether or not you make it through any of the rounds in the competition (Section 6.d-f). This means that if you come up with a great idea for a game and submit it to this competition you cannot create that game elsewhere even if you are not a finalist.†
For the initial submission step, this is bad enough. Where it becomes much insidious is for the 20 semi-finalists and 10 finalists. For the Semi-Final round, developers must create a playable version of their game, and provide a promo video for it. This step can require significant development time, energy and resources, yet at this point there is still no guarantee for any sort of financial reward. Atari will be getting 20 developers to spend a couple months building out playable versions of their games, at each developer's own expense. Atari will then own full rights to all 20 submissions, and only half of the developers will receive any sort of monetary compensation in return.
Misleading Prizes:†Atari touts the ability for developers to win "up to $100,000" yet the odds of the winner seeing anything close to that are extraordinarily low. This is because for the Top 3 "winners" half of their prize money is given up front, and half is earned out in the form of royalties on the final released game. The remaining 7 finalists each receive a $5k prize, and the same split of the royalties.
Horrible Royalty Structure:†Tying up half of the prize money in royalties is bad enough, but Atari takes it a step further by providing an absolutely horrible deal structure for these "winners." As a group the top 10 finalists all share equally from 20% of gross revenues received (less a number of deductions which I'll address in a minute). That 20% is split equally amongst all of the finalists, which Atari expects will be 10. Thus each individual finalist will receive the prize money indicated previously, and then 2% of gross revenues received from sales of the game. The final game would need to gross $5 Million in the first year, in order for the Grand Prize winner to receive their full $100,000 prize.†
Yet it gets worse as Atari has even more limits in place. The "winners" only receive royalties for the first 12 months the final game is on sale. As such the developers lose out on all of the long-tail revenue a game like this could earn over it's lifetime. For many games that revenue is minimal but for the kind of title that could gross $5 Million this revenue after the first year can be very significant.
Further, the royalties are capped for the top 3 winners (the contest rules do not state if the other 7 runner-ups have a cap). So if the game does actually become a hugely successful hit, the upside for the developers is limited to the $25-$50k they "won" already.
Finally, Atari has a number of deductions they take off the top before calculating the Gross Revenue they share with the developers. Many of these are somewhat standard in publishing contracts, but the biggest one to be concerned about is marketing costs. Every dollar that Atari spends promoting the final app gets deducted off of the gross revenues, before the developers see their share. In effect, the developers are being forced to pay for the basic function that a publisher performs (marketing).
If this were a typical publishing contract, there's no way I would recommend any developer to sign these terms, no matter how desperate or cash strapped they are.
To recap: Atari's Pong Indie Developer Challenge seeks to get all entrants to give away game ideas to Atari that Atari can then exploit, and the entrant relinquishes all further interest in the idea. Atari then selects 20 "semi-finalists" to put months of work into building out their ideas into playable versions that Atari has full ownership over. Half of those finalists will then receive a modest $5k payment for putting in even more work to complete their game. Finally the Top 3 "winners" will receive half of the advertised prize as a result of all their work, and are then subjected to a horrendous royalty structure as they seek to earn out the rest of their awarded prize.
Atari wins big as they get to cherry pick the very best ideas developers submit with absolutely no risk or costs. They then stand to make a huge profit on the resulting product long with terms that practically guarantee they will be profitable long before the developers see any sort of reasonable return for their efforts.
This kind of contest preys on developers who want to jump at the chance to work with a huge brand, and think it could be a great opportunity to make their big break. The reality is that the terms of this contest, exploits developers and only provide benefit to the sponsors putting it on.
[UPDATE Feb 29] David Paris pointed out in the comments Intel's Level Up 2011 Contest. Their contest rules address pretty much everything mentioned above. Entrants maintain ownership of their submissions, the prizes aren't misleading, Intel is upfront about the Steam contract being a future negotiation, and they don't lock entrants into abusive contracts. In my opinion the Intel contest provides a much better model for how companies should run contests like this.