Editing TSR, Inc. (section)

====Final years: Financial trouble and sale (1995–1997) ====
By 1996, TSR was experiencing numerous problems, as outlined by various historians of the company. Shannon Appelcline wrote: "Distributors were going out of business. TSR had unbalanced their ''AD&D'' game through a series of lucrative supplements that ultimately hurt the long-time viability of the game. Meanwhile, they had developed so many settings&mdash;many of them popular and well received&mdash;that they were both cannibalizing their only sales and discouraging players from picking up settings that might be gone in a few years. They may have been cannibalizing their own sales through excessive production of books or supplements too."<ref name="appelcline30">{{harvnb|Appelcline|2011|p=30}}</ref> Ben Riggs agreed that TSR was factionalizing the AD&D audience by continually releasing competing new settings (Forgotten Realms, Al-Qadim, Dragonlance, Planescape, Dark Sun, Birthright, Karameikos, etc.), a strategy intended to lure in new customers, but that actually divided its own core customers.<ref name="riggs272">{{harvnb|Riggs|2022|pp=272–275}}</ref> TSR's products essentially competed with themselves, requiring more development effort to reach the same number of total customers. [[Ryan Dancey]] and [[Lisa Stevens]], who examined TSR's finances for Wizards of the Coast, found that many of the AD&D settings products were never profitable, and more worryingly never ''could'' have been profitable&mdash;the cost of production was simply too high compared to the price they sold for.<ref name="riggs272"/> [[David M. Ewalt]] writes that ''Spellfire'' and ''Dragon Dice'' "were both expensive to produce, and neither sold very well".<ref name=ODaM>{{cite book | first=David M. | last=Ewalt | author-link= David M. Ewalt | year=2013 | title= Of Dice and Men: The Story of Dungeons & Dragons and the People Who Play It | publisher=Scribner | isbn=978-1-4516-4052-6 |page=174 }}</ref>

Another factor that hobbled TSR in the long-term was a financial arrangement known as "factoring." Factoring worked like this: TSR first arranged contracts with retailers in the [[Hobby shop|hobby trade]] (gaming stores, comics stores, and so on) to preorder their products and offered a discounted rate for contracts signed in January. TSR then took these contracts to investment banks, and was advanced money immediately by the banks, with the banks to be paid off from the eventual sales of the product. This financial innovation allowed TSR to be essentially "paid in advance", less fees from the banks and from discounts given to suppliers, which worked out to keeping about 82% of the revenue. Getting all of the money in January allowed TSR to budget with more certainty and potentially fund projects with a long lead time immediately, rather than waiting on sales. Other than the direct cost of losing 18 pennies on every dollar of revenue, factoring had the other downside of not being flexible to changing market conditions, as TSR was essentially locked into its budgeting from January. It was partially why ''Spellfire'' was made on a tiny budget, as TSR was attempting to take on a new initiative in the middle of the year, and led to a fiasco with its ''[[Advanced Dungeons & Dragons CD-ROM Core Rules]]'' product where a preorder arrangement with [[GameStop#NeoStar_Retail_Group_(1994–1996)|Babbage's]] was continued despite Babbage's becoming financially insolvent.<ref name="riggs204">{{harvnb|Riggs|2022|pp=204–209; 212}}</ref>

TSR's old deal with Random House, which had been mutually beneficial in the 1980s, began to be used by TSR in ways that would paper over short-term financial problems. Since TSR was paid up front on the assumption that shipped goods would ultimately sell, TSR began shipping overstock to Random House to generate loans on demand. This caused people in the know at TSR to call it the "Banco de Random House".<ref name="riggs164"/> It also dulled TSR's internal sense of which products were selling, leading to overprinting of niche products. Ben Riggs cites the introductory product ''[[DragonStrike (board game)|DragonStrike]]'' as an example, which sold well but was vastly overprinted.<ref name="riggs164"/> The extra copies were still sent to Random House to generate loans, however. The result was a steadily expanding "debt bubble" with Random House as returns of product soared. Random House eventually noticed something was amiss, and began demanding TSR shrink its debt load with them&mdash;around $11.8 million in June 1995. Random House sued TSR in April 1996 for repayment.<ref name="riggs196">{{harvnb|Riggs|2022|pp=196–202}}</ref>

Despite total sales of around $40&nbsp;million in 1995,<ref name="riggs196"/> TSR ended 1996 with little in cash reserves, and the company was deep in debt.<ref name="appelcline30"/> Random House returned an unexpectedly high percentage of unsold stock, including the year's inventory of unsold novels and sets of ''Dragon Dice'', and charged a fee of several million dollars. Random House returned around $14 million of product between 1995 and 1997.<ref name="riggs215"/> TSR found itself in a cash crunch. With no cash, TSR was unable to pay their printing and shipping bills. J. B. Kenehan, the logistics company that handled TSR's pre-press, printing, warehousing, and shipping, refused to do any more work.<ref name="riggs215">{{harvnb|Riggs|2022|pp=215; 220–223; 231}}</ref> Since the logistics company had the production plates for key products such as core ''D&D'' books, there was no means of printing or shipping core products to generate income or secure short-term financing.<ref name="30years">{{cite book |last=Stark |first=Ed |author-link=Ed Stark |title=30 Years of Adventure: A Celebration of Dungeons & Dragons |publisher=Wizards of the Coast |year=2004 |isbn=0-7869-3498-0 |location=Renton WA |page= |pages=55, 216}}</ref> The company laid off thirty staff members in December 1996, and other employees including [[Jim Ward (game designer)|James M. Ward]] quit over disagreements about how the company managed the crisis.<ref name="appelcline30"/><ref name="riggs215"/> In large part due to the need to refund Random House, TSR began 1997 more than $30&nbsp;million in debt.<ref name=ODaM/> TSR was threatened by lawsuits due to unpaid freelancers as well as missing royalties, but TSR made sufficient earnings from products already shipped to stores to keep their remaining staff paid through the first half of 1997.<ref name="appelcline30"/> With no viable financial plan for TSR's survival, Lorraine Williams sold the company to Wizards of the Coast in 1997 in a deal brokered by Five Rings Publishing Group (FRPG).<ref name="Gygax-GygaxFAQ"/><ref name="believer"/>