by Jon Peterson (author of Playing at the World)
In the fall of 1985, Gary Gygax was the most famous and powerful figure in hobby gaming. He was President and Chief Executive Officer of TSR, Inc., the company that published Dungeons & Dragons. Gygax had personally directed the development of the game for the last decade, most recently producing new titles for its Advanced Dungeons & Dragons line: earlier in 1985, he was the lead on Unearthed Arcana, and in the fall they were putting the finishing touches on his Oriental Adventures. He had been featured in People magazine, and appeared on national television. His name and his game seemed inseparable.
October 22 was a Tuesday, and Gygax was wrapping up another day at TSR corporate headquarters on Sheridan Springs Road in Lake Geneva, Wisconsin. His last appointment was a board meeting just after close of business; with 1,371 shares of stock, he held controlling interest in the company, and thus chaired the board. The meeting started late, at quarter past five. Five of the company’s six directors were present: two of the independent directors, James Huber and Wesley Sommer, and then the three principal shareholders: Gygax, Brian Blume, and Kevin Blume. Gygax was surprised to find both of the Blume brothers in attendance. Though they held a substantial stake in the company—as a family, nearly one thousand shares total—they had lost their executive positions at TSR following a reorganization the previous year.
The board proceeded to review the company’s turbulent negotiations with the American National Bank before moving on to the ostensible purpose of the meeting, a discussion regarding TSR’s royalty payments to authors. In recent internal memos, Gygax had insisted that the company allow its employees, himself especially, to retain all copyrights, trademarks, and royalties for works authored rather than assigning them to TSR; in the eyes of other directors, this was in violation of existing contracts. During the course of this discussion, Gygax mused that since it seemed the board would find it easier to afford him these privileges if he were not an employee, perhaps he should just resign.
It was of course preposterous for a majority shareholder to suggest their own resignation, but Gygax found the room coldly receptive to this course of action. The presence of the Blumes worried him. He turned to the Board Secretary, Willard Martens, to ask if his personal stake relative to the other shareholders had changed recently. At first, Martens replied only that Lorraine Williams had exercised her option for 50 shares in TSR. Williams had joined the company in April as Vice President of Administration; her options alone could not endanger Gygax’s majority.
“Have there been any other changes?” Gygax further inquired.
Martens only then volunteered, “Brian Blume exercised his option for seven hundred shares.”
Realization set in. Gary Gygax said simply, “I see.”
What did Gygax see, in that moment? He saw enough shares in play that he stood to lose control of TSR, a company he had founded and transformed into a global brand. But he surely also saw something even more dear at stake: that he might lose control of Dungeons & Dragons.
Yet matters are never so black and white. Control of TSR was something that Gygax possessed but fleetingly in the decade-long history of the company. In fact, Gygax had only decisively acquired controlling interest as of March 1985, at a time of great upheaval in TSR’s business. Previously, TSR followed a consensual governance model, one that the industry celebrated during TSR’s ascent but disparaged after the company’s fortunes faltered. As Dungeons & Dragons took the world by storm, Gygax led by virtue of his design talent and his extraordinary community presence, rather than his financial stake in the company.
Control of Dungeons & Dragons depended on many contingencies of TSR’s founding. TSR Hobbies formally incorporated as a Wisconsin entity in July 1975—but that was eighteen months after the publication of Dungeons & Dragons. Previously, there existed the partnership of Tactical Studies Rules, which formed in October 1973 with two principals: Gygax and his childhood friend Donald Kaye. They lived blocks apart in Lake Geneva, and both were members of a local wargaming group called the Lake Geneva Tactical Studies Association, from which Tactical Studies Rules took its name.
At the time the partnership was formed, Gygax had not held a steady job in nearly three years. He repaired shoes in his basement for subsistence income, but dedicated his creative energies to game rules, for which he received little by way of royalties but widespread acclaim in the hobby games community. Thus Gygax was unable to make a capital investment in the Tactical Studies Rules partnership; it was Kaye who provided the initial $1,000. This was sufficient to publish a single slim wargaming title, but not to cover their planned flagship product: the three-volume boxed set of Dungeons & Dragons, authored by Gygax in conjunction with Twin Cities gamer David Arneson. That required a more substantial investment.
Gygax and Kaye therefore admitted to the partnership another member of the Lake Geneva Tactical Studies Association, Brian Blume, who contributed a further $2,000. The partnership lacked the means to employ any of its principals, however, so they worked on its administration after hours on a best-effort basis. Blume would later remark that he applied to join the partnership because “it seemed like a fun way to spend weekends and afternoons.” Kaye served as President of the partnership, Blume as Vice President, while Gygax held the title of Editor.
When Dungeons & Dragons first came to market in January 1974, no one yet thought to call it a role-playing game. TSR marketed it as a wargame, a game of conflict simulation: the legend on the box read “Rules for Fantastic Medieval Wargames Campaigns,” a construction that situated the game in a niche hobby market for such wargames that had existed since the 1950s. It was largely through his leadership in the wargaming community that Gygax initially popularized the game, which sold around one thousand copies its first year on the market. While this may sound like a paltry figure by mainstream standards, it was promising enough for a wargaming title to warrant a second printing early in 1975.
Tragedy intervened when Kaye died suddenly of a heart attack on January 31, 1975. As a result, Blume and Gygax entered into a new partnership agreement which named Kaye’s widow, Donna, as an equal partner. While the official TSR offices stayed at the Kaye residence on Sage Street in Lake Geneva, and Donna Kaye remained in charge of accounting and shipping through the spring, she had no interest in gaming and, especially as the business grew, little time for an enterprise that could not afford to employ her.
Gygax recognized that in the absence of salaries, only love of games could fuel the partnership. As a result, he committed TSR to a stark governing principle. He promised in a letter to David Megarry, designer of the Dungeon! board game, dated March 6, 1975: “We will never allow TSR to become a company which is run by any outside group. That is, we may take others in as partners eventually, but we will never seek any non-wargamer capitalization.”
Protecting control required a new corporate structure. Gygax and Blume had planned the creation of a separate “TSR Hobbies” company to handle mail order sales and possibly a retail store in Lake Geneva. When they incorporated TSR Hobbies, they decided to repurpose it to purchase the assets of the partnership and thereby relieve Donna Kaye of her ties to gaming. In crafting the governance structure of TSR Hobbies, they were understandably preoccupied with the possibility that a major shareholder would die suddenly, and thus they borrowed much language accounting for this eventuality from the stock agreement of a company run by Blume’s father Melvin, President of Wisconsin Tool and Stamping. The gist of this language was to guarantee that, should any shareholder die or seek to divest themselves from the firm, TSR Hobbies would reserve a right of first refusal to buy back their stock.
The original TSR Hobbies stock agreement, executed by Gygax and Blume on August 1, 1975, awarded Gygax 150 shares of stock and Blume 100. Thus, as the company was initially structured, Gygax held controlling interest. But Gygax could not have intended for this situation to last long. TSR Hobbies required capital to purchase the assets of the partnership. For that, it would need investment. The first two stock certificates, issued to Gygax and Blume as stipulated in the August 1 agreement, were given “in consideration of our being a part of that corporation,” as Gygax would later put it—not in exchange for money from either party.
The next two stock certificates issued reflect a substantial investment in the company’s future by the Blume family. Certificate #3, issued to Melvin Blume on September 1, 1975, was for 200 shares of stock, which he purchased at a price of $100 each. Certificate #4 designated that Brian Blume had simultaneously bought 140 shares at the same price. In total, then, the Blume family invested $34,000 into TSR Hobbies within the first month of its operation. These funds were crucial for the acquisition of the game products of the dissolving partnership, which TSR Hobbies formally purchased on September 26, and furthermore for the development and publication of new titles. But the sum probably looks larger than it actual was: due to Blume’s one-third stake in the partnership, some of this money must have effectively gone back into his family’s pocket.
The Blume capital infusion immediately rendered Gygax a minority shareholder, with his 150 shares now well below the total Blume family holdings of 440 shares—and he would remain a minority shareholder for the next decade. Thus, although Gygax enjoyed fleeting control over TSR Hobbies in 1975, it was only at a time that the company did not even own Dungeons & Dragons. But ownership did not translate into executive titles: Gygax retained the office of President of TSR Hobbies despite the reversal of control.
The steadily mounting popularity of Dungeons & Dragons enabled TSR Hobbies to bring Gygax and Blume on board as salaried staff. Further new hires drawn from the gaming community, including the immediate family of both Blume and Gygax, assisted with advertising, creative design, artwork, shipping, and manufacturing. Employees were given the opportunity to purchase small amounts of equity, though most shareholders possessed less than 20 shares at the end of 1975. Even Dungeons & Dragons co-creator Dave Arneson, who joined TSR around this time, only held about 30 shares; he was sidelined late in 1976, and although his famous resulting lawsuits against TSR ensured his presence at board meetings, he had little practical influence over company direction.
Gygax and Blume bolstered their own positions in the company as profits and investment increased, mostly thanks to a preemptive right to purchase new shares pro rata but also through various grants. Fatefully, in July 1976, TSR Hobbies issued both Gygax and Blume options to purchase up to 700 additional shares at a price of $100. Through gradual accumulation, Gygax’s stake rose to around a third of the company by the late 1970s; while Brian Blume always owned roughly 100 shares more than Gygax, his own holdings slid a few percentage points down from its peak over 40%. As Melvin acquired no further shares, his position declined precipitously, from around a third to just under a tenth of TSR. But, again, irrespective of ownership, it was clearly Gygax who ran the business; a 1976 issue of the Strategic Review shows pictures of both Gygax and Blume, the former identified as “TSR’s founder” and the latter as “TSR’s second banana.” Three years later in an interview, Gygax cast the situation more formally: “I am the President of TSR, and Brian Blume is V.P. and Secretary.”
By the end of 1977, there were 1,933 shares of common stock outstanding from an authorized 5,000, and the governance of the company was effectively stable: only 105 more shares would be issued in 1978, and after that, the number of shares outstanding would increase by just 23 over the next seven years. Sometime in 1978, the Blume family position in TSR Hobbies diluted below a 50% stake—no single party would own controlling interest in TSR again until 1985. As the 1970s wound to a close, TSR Hobbies still valued its shares near $100: when William Niebling joined the company as a Vice President in May 1979, he was offered an option to purchase 500 shares of TSR Hobbies stock at $125 each. But shortly thereafter, a turn of events would send TSR’s sales and valuation into the stratosphere, putting enormous pressure on the company’s management.
Up to the end of the 1970s, TSR Hobbies grew at a respectable but predictable rate. Gross sales of around $300,000 in 1976 doubled the following year, thanks in no small part to the release of the revised “Basic Set” of Dungeons & Dragons edited by Eric Holmes. It was also at this time that installments of the Advanced Dungeons & Dragons product line, a complete rewrite of the game, began to appear. While the Monster Manual (1977) came out too late in that year to impact fiscal reporting, it was joined the following summer by the Players Handbook (1978), and together they helped drive net sales in 1978 near the million-dollar mark, falling a bit short of doubling again. The release of the Dungeon Masters Guide (1979) twelve months later completed the core Advanced Dungeons & Dragons product set, and made the game available to the public in attractive hardbound volumes suitable for display in booksellers. Moreover, TSR had begun to flood the market with inexpensive modules, pre-packaged adventures that reduced the preparation needed to play.
What catapulted the game into the national mainstream, however, was an accident of history. In July 1979, a student named James Dallas Egbert III disappeared from a Michigan college. A private investigator hired to find him learned that Egbert played an obscure game called Dungeons & Dragons. This sleuth then developed and widely publicized a curious hypothesis: that, believing the game to be real, Egbert was wandering the steam tunnels beneath the school in search of monsters and treasure. It transpired that this hunch was incorrect—Egbert had absconded to Louisiana for unrelated reasons—but the media furor surrounding this sensational conjecture thrust Dungeons & Dragons onto the front page of newspapers and into the popular imagination.
The Egbert incident is probably the best place to mark the beginning of the Dungeons & Dragons fad, which lasted from mid-1979 into 1982. During this period of disruptive sales growth, TSR had to expand rapidly and develop the skills to succeed beyond the confines of a niche hobby community. Neither Gygax nor Blume had any business or management education—Gygax had not even graduated from high school. In early interviews, they frequently boasted that gaming and business required the same competencies. Gygax even compared the rise of TSR through 1980 to a Dungeons & Dragons campaign, with it starting out as “a low-level-character sort of company” but gaining “excellent experience” to advance towards the “really high-level game producers such as Milton Bradley and Parker Brothers.”
TSR’s accounting and fiscal reporting in this period were irregular, and sometimes problematic, but even within a considerable margin of uncertainty the company’s growth was unmistakable. TSR’s gross sales stood around $2M in 1979. By one internal account, sales the following year reached $16M, a 5,233% increase over just five years before—it was on the strength of this figure that Inc. Magazine awarded TSR sixth place in its 1981 list of the one hundred fastest-growing privately held companies. That eightfold leap in sales seems unlikely, however, as later TSR statements peg 1980 revenue at only half that, $8.7M, a number that conforms far better to the company’s overall growth curve. But that lower figure still reflects quadrupling revenue and a solid business: the Dungeons & Dragons Basic Set alone was selling 12,000 copies a month, and TSR payroll had risen to 120. TSR’s next annual financial return is complicated by a number of structural changes, including an abbreviated nine-month fiscal year 1981, but sales continued to increase: an October 1981 report pegs sales for the previous quarter alone at around $6M.
That quarterly figure comes to us via the TSR internal newsletter Random Events in an article written by Kevin Blume. Kevin had joined TSR Hobbies at his older brother Brian’s behest in 1977 to help mind finances; he also oversaw hiring in the following years as the company began recruiting outside of its immediate circle of friends and family. After holding the titles of Controller and Treasurer, Kevin joined Brian and Gygax on TSR’s Board of Directors as of the November 4, 1980 shareholder meeting. Surely the Blume family stock holdings influenced that decision, and in September 1981, at the height of TSR’s boom, Melvin Blume transferred his 200 shares of stock to Kevin—previously Kevin held only 5 shares. This was a controversial transaction within TSR; William Niebling argued it should be blocked for violating the shareholder agreement, but over his objections Kevin was issued a certificate. He then became the third-largest shareholder, behind Gygax and his brother, who then acted as Chairman of the Board.
Kevin’s presence on the board led to some confusion about the governance of TSR. An article in the March 1982 Random Events briefly outlined that TSR Hobbies had a “President’s Office” which is “held by three individuals: Gary, Brian and Kevin… all decisions of the President’s Office or of the Board of Directors are unanimous—they agree or no decision is made. All votes are equal, no two can be a majority.” Those words were written by another member of the Blume family, Doug Blume. In the following issue of the newsletter, however, a front page article by Gary Gygax, accompanied by a foreboding portrait of him, qualifies the previous issue’s “explanation of how our corporation operates” as only “basically correct.” While conceding that “TSR is managed by its Directors, and the three of us do operate by consensus,” he bluntly insists that “decision making at the senior exec level is not by consensus, however. The Presidential Office [i.e. Gygax] is on top… Next is the office of Brian, the Senior Executive Officer. Then comes Kevin as Chief Operating Officer.”
After a reorganization implemented in July 1982, the pecking order was writ large in the org chart: the President of TSR Hobbies, Inc. (Gygax) has as direct reports the President of TSR Service Group (Kevin Blume) and the President of TSR Fun Group (Brian Blume). This short-lived arrangement is remembered by employees of the time as the “Year of Three Presidents.” Yet ambiguity about control remained: the President of TSR himself reported to the Board of Directors, which then consisted of Gygax and the two Blumes. It was unclear where power truly lay, probably even to the principals involved.
During TSR’s boom years of 1981 and 1982, it thrived under this ambiguous management structure, rapidly adding to staff and making prominent acquisitions. In the gaming space, TSR acquired the assets of wargames publisher Simulation Publications, Inc. (SPI) following a loan default, after a brief period where Kevin Blume served as President of that company. TSR also had a strong periodicals business by this time—circulation of its house organ The Dragon exceeded 100,000 by 1983—so it was unsurprising to see them purchase Amazing Stories, a seminal popular fiction magazine. A more curious acquisition was the Greenfield Needlewomen company, a craft firm that produced needleworking products. Gygax at the time justified the purchase internally by explaining that “we had been seeking likely acquisitions outside of gaming,” and that “crafts is a larger field than hobbies.” TSR predicted that the needlework company would contribute about a fifth of its gross income moving forward.
The interest in diversifying beyond the games business must have reflected worries about the potential for the continued growth of Dungeons & Dragons. All of TSR’s projections for the following two years, however, suggested that they believed there was plenty of games market left to claim. In a January 1982 interview, Niebling revealed that “we are expecting sales of close to $45 million this year.” The same month, in an internal statement, Gygax extrapolated this even further out: “A safe estimate for 1983 places TSR’s growth rate at 150% of the preceding year—let’s say $75,000,000,” though he stressed that “volume could grow beyond that,” even. In light of current revenue and these predictions, the board set a par value for TSR stock of $3,000 per share: thirty times higher than the price Brian Blume had paid in 1975.
With this amount of money and business expected, TSR understandably staffed up aggressively. TSR had filled sixty new positions in 1981, bringing the total payroll up to 180; as of August 1982, nearly 40% of all employees had been hired in the last twelve months. In January 1983, Gygax told the Wall Street Journal that TSR had immediate plans to hire 100–150 more employees: by April, TSR comprised a total of 312 workers. Staffers now sprawled across six buildings in Lake Geneva alone, to say nothing of a warehouse in New Jersey and a licensing office in New York.
In retrospect, one can only surmise that TSR’s frantic preparations for success blinded the company to shifts in the market. A contemporary survey conducted by the industry gossip magazine The Insider showed that total consumer spending on hobby games in 1982 increased only 12.6% over the previous year, a level barely above the inflation rate of 11.3%. If we grant, accounting for the irregularity in the fiscal year, that TSR pulled in $14–18M in 1981, their revenue over the following twelve months grew quite modestly when compared to the prior year-over-year doublings, increasing to only $21–22M in 1982, about half of the projected $45M. Inc. Magazine, which had earlier praised TSR’s expansion, now advised that its recent revenues “crept forward cautiously.” More troubling still, The Insider projected that sales of the Basic Set of Dungeons & Dragons had declined 16% over the previous year, and that Advanced Dungeons & Dragons book sales were down almost 25%. No doubt this partly reflected the lack of a new Advanced Dungeons & Dragons title in 1982, but it also foretold that the Dungeons & Dragons fad would someday come to an end.
By June 1983, it became clear that the business was not growing as expected: TSR would report revenue for that fiscal year of $26.7M, well short of the predicted $75M. April and May revenues especially alarmed the company’s managers. The purchase of Greenfield Needlewomen had failed to deliver its promised returns, so TSR was forced to write off the acquisition—and as a consequence, to post its first loss. In need of liquidity, TSR secured a $4M loan from the American National Bank in Chicago. Negotiating that deal became Kevin Blume’s responsibility, though TSR now entered unfamiliar waters: for such a task, as Kevin put it at the time, “I was the best there was in the company, but I wasn’t the right person.”
Yet for all its worries, TSR kept hiring: 25 employees joined the company in June alone. Drastic measures would be required to align the business with the market. Therefore, on June 24, TSR Hobbies reorganized into four separate companies: TSR Inc., which retained all games, toys, manufacturing, and marketing; TSR Entertainment Corporation, which controlled television and motion picture properties; TSR Ventures, which comprised licensing and research; and TSR Worldwide Ltd. which formed an umbrella corporation for international subsidiaries and sales. As it underwent this reorganization, TSR also began to shed workers, starting with an initial round of 40 cuts; the bank only agreed to its loan on the condition of a sizeable staff reduction.
While the four companies had effectively the same three-man board of directors—Gygax with Brian and Kevin Blume, where now Gygax served as Chairman rather than Brian—each had a designated President in charge. Brian became President of TSR Ventures, for example. Internal messaging at the time stressed the superiority of appointing only “one boss” for each company over the uneasy triumvirate of TSR Hobbies. Since games fell under the scope of TSR, Inc., one might well expect that Gygax would take its helm. Instead, that role went to Kevin. Gygax, for his part, became President of the TSR Entertainment Corporation. As the name of TSR’s flagship property enjoyed far greater brand recognition than the company itself, this subsidiary was soon rechristened the Dungeons & Dragons Entertainment Corporation.
Placing Gygax in charge of media over games merits further scrutiny. TSR believed that its potential growth through television and film was large enough to warrant Gygax’s undivided attention. By the fall of 1982, Gygax had already begun to delegate responsibility for the ongoing development of Dungeons & Dragons. “Most of you are not aware that soon I will retire from the position of ‘sole authority’ regarding the D&D game system,” he announced in September. “Frank Mentzer has ‘volunteered’ to assume a new trainee position where he will work directly with me.” While Gygax published a steady stream of additions to Dungeons & Dragons in his “Sorceror’s Scroll” column in the Dragon that year—much of which would later populate Unearthed Arcana—the articles petered out by the summer of 1983, as Gygax focused his energies elsewhere.
It was long in the works: Gygax had revealed that the board was “considering the formation of a new corporate division just to handle licensing and exploitation of our products in the entertainment media” as early as the January 1982 issue of Random Events. Gygax’s new company would pursue TSR’s long-held goal creating a Dungeons & Dragons feature film—the company pegged its hopes on a screenplay penned by veteran writer James Goldman. The enterprise scored an early success with the September 17, 1983 premier of a Dungeons & Dragons CBS Saturday morning cartoon produced by Marvel. Media drawing on TSR’s intellectual property would serve both as a source of licensing revenue and as a further marketing tool to draw new fans to Dungeons & Dragons.
And what did running the games business entail, at this point? Kevin Blume presided over TSR, Inc., hopelessly overstaffed and confronted with a contracting market. As such, he oversaw several rounds of acrimonious downsizing, cutting hundreds of employees in groups of thirty or forty at a time. As aggressive as the reductions were, they did not satisfy TSR’s creditors, who insisted on the addition of three outside directors to the board in 1984: James Huber, Robert Kidon, and Wesley Sommers. At the behest of these independents, Kevin Blume “removed himself” from executive duties, as TSR’s spokesman would put it, and Richard Koenings became acting President and CEO of TSR as of December 1984. Koenings implemented punishing salary deferments and wage reductions on the remaining staff effective December 10 in an attempt to balance the company’s teetering budget. In the coming year, sales of Dungeons & Dragons were projected to fall by a further 20%.
It was thus unsurprising that TSR pegged its hopes elsewhere: in Hollywood. But the prospect of a silver screen debut for Dungeons & Dragons remained tantalizingly out of reach. In October 1984, Gygax reported that, in addition to Goldman’s script, there was “a treatment (by Gygax and [Flint] Dille)” but “no studio has yet optioned either.” As he built media products, Gygax also developed contacts who might potentially take a position in TSR. He now split his time between Lake Geneva and the Hollywood Hills, though he found the travel wearisome and was grateful for the chance to spend most of the summer of 1984 in his home town. By early 1985, he had lined up a few investors interested in a deeper partnership with TSR. Rumors swirled after TSR public relations staff announced that a Beverly Hills investment group had filed a letter of intent to “acquire a major position” in TSR, Inc., though TSR concealed the identity of this bidder, the Forman group (FSRB). To satisfy these potential investors, the TSR board abolished the preemptive right of Gygax and Blume to purchase stock pro rata, thereby opening the door to an outside group gaining controlling interest. But abruptly, at the end of March, TSR announced that instead the company would be “restructuring itself financially” using current resources, and that “any negotiations with outside investment groups are void.”
This reflected the events of a board meeting on March 18, 1985, where Gygax announced that he had exercised his July 1976 option for 700 shares of TSR, Inc. stock. This raised his total holdings to 1,371 shares, which fell just slightly below half (49.6%) of outstanding TSR shares, then numbering 2,761. But the 40 shares owned by Gygax’s son Ernie, when combined with his father’s holdings, secured controlling interest (51.1%) in TSR. Immediately Gygax pushed to “nix” the Forman deal, according to the raw notes taken by the secretary at that meeting; he had found a path, he believed, that would keep control of TSR away from outsiders. By a vote on March 29, 1985, the board named Gygax President and Chief Executive Officer of TSR, Inc., in addition to his current position as Chairman of the Board. When Gygax returned to the post, downsizing had left only 95 employees at TSR.
There remained the lingering question of the Blumes and their ownership position. Though neither then held an operational role at TSR, they remained on the board of directors, and with a combined 990 shares of TSR stock they could not be ignored. Since their removal, the board attempted to negotiate a clear severance agreement with the Blumes, but they made acceptance of any such agreement contingent on the sale of their stock—otherwise, they reasoned, they must remain active in the company to protect their substantial investment. At the same board meeting that voted Gygax into the Presidency, the board also agreed to purchase the Blumes’ stock, including Brian’s unexercised option for 700 shares (minus the strike price), at a valuation of $340.87 per share, for a total of $506,070.30.
However, capital was scarce within TSR, and their bank was reluctant to release so large a sum at a time when creditors were urging the company to seek additional liquidity; at the end of the spring, TSR reportedly operated at a deficit of $750,000. Additionally, lenders behaved conservatively at the time, as the American financial industry suffered under the throes of the savings and loan crisis which toppled several prominent Midwestern banks in 1985. In a letter to Gygax dated April 9, the American National Bank judged “such a transaction inappropriate for TSR given its financial condition and consequently the Bank will not consent to the buy back.”
At the April 16 board meeting, the board informed the Blumes that the bank had blocked the transaction. As a result, the Blumes once again expressed reluctance about signing a severance agreement with TSR. What happened next is a matter of some dispute. During a recess in the meeting, Gygax met with Kevin and Brian Blume privately. Accordingly to the Blumes, they offered their shares to Gygax, who agreed to purchase them personally with his own funds. Gygax later refuted this claim, stating that he merely agreed to help “to find a consortium of individuals willing and able to purchase Blume-held shares at the price discussed” but insisted that “no offer or promise was ever made.” As the discussion happened behind closed doors, it is no simple matter to ascertain the truth either way.
On May 6, Brian and Kevin Blume did execute a severance agreement with TSR. When neither Gygax nor TSR made any further movement to acquire their position, they subsequently issued to TSR a “Notice of Intent to Sell and Offer to Sell” on July 22 which again declared their interest in selling their shares at $500 each, a price Gygax deemed unreasonable. Kevin Blume then sent a mail to TSR on August 25 which stressed that their severance package “was accepted based on E.G. Gygax’s offer to buy the Blume’s stock in TSR, Inc.’s stead.” He concludes by demanding directly, “When can we expect to receive E.G. Gygax’s offer?”
At the Sheridan Springs board meeting on the evening of October 22, 1985, Gygax must have immediately recognized that the exercise of the Blume option for 700 shares had diluted his own stake below 50% of the outstanding stock in the company. But who would control these newly-issued shares? Surely he also remembered receiving yet another notice of intent to sell from the Blumes on October 8, but this one far more specific, declaring their imminent intent to sell “all, but not less than all,” of their position in TSR, Inc. at $350 a share.
As these events played out in real time, he had little opportunity to reflect—Wesley Sommer then formally requested that Gygax tender his resignation. No doubt still grappling with his new circumstances, Gygax refused. Sommer therefore proposed the following to the TSR board for a vote: “Resolved that, in the best interests of the corporation, E. Gary Gygax be terminated as President and Chief Executive Officer and Chairman and that TSR and Mr. Gygax negotiate and seek to enter into an agreement whereby Mr. Gygax would continue to do creative work and the Company continue to utilize his creative talent.” This last clause no doubt related to the royalty issue previously under discussion. James Huber seconded this motion. The motion passed with three directors in favor, one opposed, and one abstaining.
While this stunning turn of events might seem momentous enough for one meeting, the board then turned its attention to the newly-created vacancies in TSR’s senior management. Immediately, the Blumes put forward Sommer to succeed Gygax as Chairman of the Board. This passed easily. But then Sommer advanced another, more surprising proposition: that Lorraine Williams should replace Gygax as President and CEO of TSR.
Blindsided, Gygax pushed back against this proposal—Williams had only worked at TSR for six months, and had no background in games. But Sommer championed Williams on the grounds that she previously had acted as President in Gygax’s absence; she would transition into the role with the least disruption to the company. Gygax counterproposed bestowing the position on Willard Martens, who, in addition to acting as secretary for the board, was a finance Vice President of TSR, but Martens declined, ostensibly due to his other responsibilities.
After a short discussion, the board approved the motion to appoint Lorraine Williams President and CEO, overriding Gygax’s strenuous objections. But Gygax probably would not have bothered to contest this appointment had he understood the true situation. Unbeknownst to him, everyone else in the room was privy to a critical piece of information that he lacked. Gygax had missed the warning signs: he overlooked how immediately prior to the board meeting, several of the other directors, including Sommer, Huber, and Kevin Blume, had congregated in Williams’s office. In that private conference, these parties agreed not to reveal the extent of the changes in shareholder positions to Gygax, and swore Martens into secrecy as well. What they all knew was that just one day before, TSR had issued stock certificate #107 to Williams for 1,690 shares. Williams was now the largest shareholder.
Those 1,690 shares represented the entire holdings of the Blume family: the 990 shares that they held prior to October, plus the 700 shares they had just exercised. In fact, the funds for that exercise came directly from Williams, in the form of a “down payment” of $70,000 on the total purchase, exactly enough money to exercise the 700 shares at $100 each. The Blumes and Williams had agreed to this exchange weeks ago, on October 8. The transaction valued TSR shares at $350, which required Williams to pay the Blumes a total of $591,500 for their position in TSR.
Given that neither Gygax personally nor TSR could raise the capital to purchase the Blume family stock, how was Williams, a new hire, in a position to do so? The answer is that Williams came from money, and that her hiring was actually contingent on her investment in the company in several respects. Gygax had first met Williams through her brother, Flint Dille, who worked with Gygax on several projects of the Dungeons & Dragons Entertainment Corporation in Los Angeles; their grandfather John F. Dille published the original Buck Rogers comics, and the Dille family owned the rights to the character and controlled a trust collecting the resulting royalties.
Thus, before Gygax invited Williams to join TSR as a Vice President, he had a number of discussions with her around February 1985 about investing in the company, including a proposal to acquire TSR stock valued at $150,000. Her offer letter, dated April 1, 1985, includes several stipulations relating to investment. For example, Williams’s employment agreement deferred a third of her salary of $90,000 per year into stock purchases. It furthermore required her to immediately purchase $50,000 worth of TSR stock upon accepting the agreement, and to buy a further $100,000 worth of stock in the 1986 calendar year. Given TSR’s precarious financial situation, this represented a significant cash infusion, but also a substantial risk to Williams as an investor. Gygax writes in the offer letter of her “commitment to TSR” as evidenced by her “determination to acquire a substantial holding in the corporation,” though the amount in question fell far short of a controlling interest—Williams, after all, was not a gamer, and Gygax had to be cautious about outsider control.
Gygax made hiring Williams a high priority: consider that the board voted him President and CEO on a Friday afternoon in March 1985, and her offer letter dates to the following Monday. Gygax believed at the time that she would make an excellent addition to the Board of Directors. The board granted her an option to purchase 50 shares at $300—she would quietly exercise those on October 16, a small but crucial addition to her holdings in advance of the October 22 meeting.
Why did Williams seek control of TSR? Shortly after she came on board back in April, the relationship between Gygax and Williams began to sour. The financial situation of the company continued to deteriorate, and Williams did not approve of the company’s handling of the Blumes. If she were going to invest further in TSR, it would have to empower her to make real changes in the way the company was operating. Therefore, in October 1985, she saw no need to give Gygax any advance notice of her deal with the Blumes. “Gygax and I were not talking very much during the time because we had very fundamental differences,” she remarked. Furthermore, informing Gygax that she intended to purchase the Blume family shares would be, as she put it, “an invitation for him to get in and just try to screw it up, and to once again try to thwart the ability of the Blumes to sell their stock and to get out and to go about their lives.”
So on October 22, Gary Gygax walked into an ambush. Ignorant of Williams’s newfound stake in TSR, he could only watch in amazement as the board stripped him of his job and appointed Williams his successor. As the final action of the meeting, the Board moved to grant Gygax a severance package “consistent with what has been done in the past,” presumably a reference to the package extended to the Blumes. Kevin Blume seconded this motion. The severance package was approved by the board, and the meeting adjourned at quarter of seven. In only ninety minutes, Gygax watched control of TSR transfer to a non-gamer.
In the weeks that followed, Gygax took forceful but ultimately futile steps to undo the damage—attempting a bit of retroactive continuity, as gamers would say. His most surprising move was sending Brian Blume an unsolicited cashier’s check for $113,750 on November 5, a 50% down payment to secure 650 of the Blume family’s shares. This sum would restore control of TSR to Gygax by a comfortable margin. But from the moment the Blumes had signed their agreement with Williams on October 8, their shares resided in escrow, so Brian was in no position to accept such an offer. So, since Gygax’s accompanying material invoked the conditions of the shareholder agreement intended to prevent outside parties from seizing control, the matter was destined for the courts.
The resulting legal battle stretched into the second half of 1986. The court reviewed TSR’s 1985 upheavals and concluded that the Blumes had satisfied the obligations of the shareholder agreement by providing TSR, and Gygax personally, with ample notice of their intention to sell, as well as numerous opportunities to purchase their shares. When neither stepped forward to buy, the Blumes were free to sell to an outsider. The court also considered the question of whether or not Gygax had promised to buy the Blume family position on April 16, and finally ruled on the basis of testimony from the independent board members that Gygax had “agreed to buy their stock, and the Blumes and [Gygax] reported that commitment… to the other directors.” The court upheld the sale to Williams.
Faced with the prospect of holding a minority stake in a TSR, Inc. run by Williams, Gygax elected to walk away from the company, resigning all positions in October 1986. As he put it in a farewell note to The Dragon, “The shape and direction of the Dungeons & Dragons game system… or that of the AD&D game system, are now entirely in the hands of others.” Although he no longer controlled Dungeons & Dragons, his name has remained intimately connected with the game ever since. Gygax tried his hand at many other ventures, but for the rest of his life, he shared much of his time with the many people whose lives had been transformed by Dungeons & Dragons. While the vagaries of business can strip fortune from an inventor, fame is a less fickle commodity, and Gygax’s fame will endure as long as his game.
The author would like to thank Matt Shoemaker, William Meinhardt and Frank Mentzer for their contributions to the research behind this piece. Read more about the history of gaming at the blog Playing at the World.