02 January 2018

Passive Income from a Video Game: Arkadia Moon Deeds in Entropia Universe

I have a small holding in the MMO game, Entropia Universe, which is now undergoing another expansion of the investment opportunities that exist there. What follows is a posting I made elsewhere in an investment forum I'm a member of, with a few updates to bring the information I'm presenting current to today. Not familiar with this game? Then please, read on...
First, a little background.

Entropia started off over a decade ago as "Project Entropia." It was then what it is now, a futuristic SciFi online game. What was new about it among others was the full incorporation of a real cash economy in-game. Rather than merely tolerating secondary markets popping up outside of the game for in-game items (such as with World of Warcraft, for example), the creators of Project Entropia, MindArk, made it a key feature of the game, establishing a system where a player could deposit real world currency at an exchange rate of 1 USD to 10 "Project Entropia Dollars," AND vice versa.

The game took place on a planet, Calypso, and players began depositing, playing, and withdrawing. Some even began to make a living through the game.

Fast forward several years...

MindArk began to expand upon the in-game ownership opportunities by creating a new continent on Calypso, with a major new feature: player ownership of plots of land. These player-owned land areas featured a tax system on two key activities, mining and hunting, which generated revenue for the land owner.

The first major land area was put up for auction and quickly sold for around $27,000 USD. The buyer later reported that he recovered his initial investment in under one year...

Several years later, MindArk began to develop space, outside of Calypso's atmosphere. This opened up a whole new area for players to travel through, hunt, mine, and even hunt and loot each other. It also became the platform upon which MindArk created the first destination off of Calypso: a space station.

This space station later went to the auction block, too. It was purchased by a player who goes by NEVERDIE, who in real life is a DJ, producer, and amateur filmmaker. He took out a mortgage on his home and purchased the space station for $100k USD, then transformed it into a hunting, mining, virtual real estate sales (apartments were offered for sale to other players), and nightclub destination, CLUB NEVERDIE.

Nightclub? Yes, a nightclub.

NEVERDIE arranged things with MindArk such that DJs spinning in a sound booth in the real world would have their music piped into a club setting on the space station, complete with virtual turntables and an avatar to represent them. Players could purchase tickets to the venue and catch the shows via their own avatars.

NEVERDIE sold the station in pieces several years later (if memory serves, the total of the sales approached $750k USD), after reportedly having earned millions in USD from revenues over a period of about three years.

Sometime around this period, MindArk created "Calypso Land Deeds." These are essentially shares of Planet Calypso, notes that a player can hold ownership over that pay a weekly dividend derived from revenues earned by MindArk on Calypso. These debuted at a par value price of 1000 Entropia Dollars each ($100 USD). They trade in the in-game secondary market, too, the current in-game asking price sitting at an average of 1984 ED, an increase of nearly 100% over par, with an average annual yield at present of 7.49%.

MindArk then continued the expansion of Entropia by expanding on space in a brilliant way: the creation of new planets. But these were not planets created by MindArk; rather, MindArk created the opportunity for outside investors to set up new worlds incorporated into Entropia, with their own visions, themes, unique creatures, items, etc. At this point, "Project Entropia" became "Entropia Universe."

Several new worlds were created (NEVERDIE owns one of them, "Rocktropia," which is apparently where some of his profits from selling CLUB NEVERDIE went). Players were now able to travel space between the original world of Calypso, the space station, and these new worlds (in fact, several transportation businesses sprung up in-game after this, all owned and operated by players, not MindArk or other investing firms).

Then along came Planet Arkadia.

Planet Arkadia is owned by a company outside of MindArk, Arkadia Studios, just like most of the planets in the game now. It started off as just another world with its own backstory, unique creatures, minerals, etc. But then Arkadia Studios created a new area within the planet itself, "Arkadia Underground."

But this planet owner, unlike the others before them, sought outside financing for this project. To do this, they worked with MindArk and created the "Arkadia Underground Deed," which distributes daily dividends from the revenues generated by players hunting and mining within the area.
200,000 of these deeds were then created and offered for sale, just like the Calypso Land Deeds years before. They went on sale through the Entropia Web Shop (outside of the game) at a par value of $5 USD each. All of them were sold about a year later.

Today, they are worth an average of $8.40 USD each, a gain of 68%, and at present offer a 4.35% yield.

Now the current news...

Arkadia Studios is doing it again. A new moon is to be added to the orbit of Arkadia, and deeds are now on offer that represent the entire area of the moon. They will function the same as the Arkadia Underground Deed, paying daily dividends, which will come from a uniform, fixed tax rate of 5% on all activities that take place on the moon.

A key difference this time is that the deeds will have a par value of 60 ED, but until the end of January are on sale for 50 ED. The moon will be launched in-game by the 3rd quarter of 2018.
Details here: https://www.entropiauniverse.com/bulletin/buzz/…


Like I said, this is a small holding I have within my entire portfolio. My avatar has a cost basis of approximately $1400-1500 USD, and is at present worth just shy of $2900, not counting on-going revenue it earns from Calypso and Arkadia Underground deed holdings.

There's four reasons I hold this as an investment:

1) The fixed exchange rate of ED to USD, 10-to-1, gives this holding liquidity and stability of the in-game currency (for those of us living in the U.S. anyway; players from other countries must still contend with FX fluctuations). If I liquidate everything I own in-game and convert it all to ED, I know precisely how much I would then be able to withdraw from the game.

2) Because capital gains and revenues generated in-game are in an unrecognized currency, "Entropia Dollars," none of the capital gains I might realize, nor the revenue I receive daily and weekly, create taxable events. It would only be upon withdrawal of funds from the gain above my cost basis that I would owe any taxes to Uncle Scam. Thus, the revenues I'm earning in-game can be assessed on a "tax equivalent yield" basis, how an investor can gauge the worth of the yield of a non-taxable instrument, such as a municipal bond, versus a taxable alternative, like a dividend paying stock. As such, in my current U.S. income tax bracket, 25%, the yields I stated above for the Calypso and Arkadia deeds are the equivalent of taxable alternatives yielding 9.99% and 5.8%, respectively.

3) This is a unique diversification opportunity given that it's virtual property, but specifically it offers two things in that regard: it is about as non-correlating as you can get to things like stocks, bonds, precious metals, etc, and being international in nature, it is receiving cash inputs from players all over the world in numerous currencies, which confers some benefit from purchasing power entering the game through currencies that have greater or lesser amounts of relative strength at different points in time.

4) It's fun! I own property in a freakin' video game and I get paid to do it! lol!

Entropia Universe is but one more example among many of the investing opportunities that now exist, all thanks to cyberspace, that simply could not have existed earlier in our lifetimes. It's new, it's weird, people who don't understand it mock it, but it works. And it will keep working, and growing...


(What I wrote to my fellow forum members, just this morning)

I've started accumulating the Arkadia Moon Deeds I wrote about a few weeks ago. I decided to make them a "January project" since they're on sale at about a 17% discount until the end of this month ($5 each currently, par value is $6).

As of this morning my avatar had a value of $2918.82 and is yielding $182.96, 6.29%, or 8.06% tax-equivalent yield in my new tax bracket of 22% (yeehaw!).

The income from these deeds will not kick in until the new moon launches sometime around May. I'm willing to wait though because if the price appreciation of two other types of deeds I own is a reliable guide, then from their inception to the present, I could be looking at 60-100% price appreciation of these new deeds once dividends start to flow.


If you're feeling intrigued by this, take some time and check out the game. Entropia Universe is free to play, depositing is 100% optional. Enjoy!


No comments:

Search Paul E. Zimmerman.com

Disclosure Policy - Privacy Policy
jenna jameson chasey lain tera patrick briana banks sunny leone lanny barby stefani morgan savanna samson monique alexander cassidey