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[Update] Firefall Studio Red5 Finally Pays Employees, Denies Financial Troubles

by Mike Futter on Dec 30, 2015 at 07:00 AM

Update 4: As we mentioned with our original report, a GoFundMe campaign was created by a member of the industry not affiliated with Red5. The intent was to help those employees who suddenly found themselves without pay on Christmas.

Now that employees have been paid, the campaign manager has issued an update. No additional donations will be accepted. If any Red5 employee suffered late, overdraft, or other similar fees, they can contact her to request assistance. If no one requires assistance, funds will be returned to donors. 

Update 3: Red5 is now denying that it is in a financially precarious position. Nearly a week after the company missed payroll, the studio has issued a statement to the media.

Red 5 Studios, Inc has paid all employees in full. Recent rumors of Red 5 Studios’ financial situation are not accurate.

Firefall is currently operating a limited-account beta test in China. Red 5 studios is encouraged with peak 2nd day retention reaching 84% and working on optimization and content updates for both US/EU and China clients. The upcoming content is now being tested internally and scheduled to be updated to the Firefall US/EU servers in Q1 2016. 

Red 5 Studios continues to develop content for Firefall and is planning to have synchronized global updates after the US/EU update. In the first half of 2016, Firefall will have a major content update in China in preparation for the Chinese Open Beta test. Red 5 Studios is committed to provide a high quality interactive experience to gamers all over the world. For more information, please visit www.firefall.com.

We've inquired with Red5 about why it missed payroll and which facts it specifically cites as "not accurate." We'll update should we receive a response.

As we mentioned earlier, multiple current employees reconfirmed with us this morning that they had not been paid for the disbursement due on December 24. Those employees tell us that a direct deposit payment was made today, December 30.

Update 2: Multiple current employees at Red5 indicate that the company did disburse payment as promised today, December 30. We are still awaiting an official comment from the studio, but did manage to reach someone there.

Yesterday, website MMORPG.com publishes a story indicating that staff had accused Red5 of spying on employees via a closed Facebook group frequented by current and former staff members. We reached out to Steven Na, marketing and business development manager, who was allegedly responsible. Na flatly denied MMORPG.com's report that he or anyone at the company had been collecting information about those discussing the matter via Facebook. (Note: We have clarified the language regarding MMORPG's story containing the staff allegations. Our apologies for any confusion.) 

MMORPG.com has since retracted its statement. 

Update 1: Following our report this morning regarding Red5's failure to pay employees on Christmas Day for the most recent two-week period, the company held an all-staff meeting this morning. At that meeting, management confirmed that due to potential investments falling through, the company could not pay employees on time.

The company says it will try to issue payments via direct deposit on December 30. However, the promise comes with a hint that problems may continue. Red5 is considering moving employees to a monthly pay cycle starting as soon as January, though no decision has been made. In addition, the December 30 payment will only be for the two weeks owed, meaning that if the company remains on a two-week cycle, another disbursement will be due on January 8.

Payroll companies typically require an employer's account to hold enough to pay employees and handle required state and federal deductions two or more business days in advance of disbursement. If Red5 does pay employees on December 30, it could find itself in the exact same position just one week later. The company has still not responded to our requests for comment.  

Original Story:

Over the weekend, we received multiple reports that Firefall developer Red5 Studios was unable to make payroll recently. We've spoken with employees who corroborate the information and offer additional details about the studio's failure to communicate with staff as it missed the Christmas payday.

Red5 has had a hard road in its decade of operation. The company was acquired five years into its life by Chinese publisher The9, and the board of directors eventually ousted founder Mark Kern (who previously worked on World of Warcraft) in 2013.

The studio has taken a significantly more dire turn in recent days. The company suffered significant layoffs in November, and as of last week, the developer has failed to make payroll. While it is never a good sign when a company can’t pay its employees, this particular missed payday fell on Friday, December 25. 

Employees were not informed in advance of the situation, and few have even received responses from management on the matter. An email circulating via social media, which we can confirm to be accurate, was sent by Red5 management to a handful of individuals. The communication printed below confirms that there were not enough funds to make payroll.

Hi Team, I regret to inform you that Red5 currently does not have the funds necessary to meet our payroll scheduled for today Friday, December 25. Due to this, there will not be payroll paid this week. Red5 and The9, our parent company, is currently working to resolve this, during the holidays, as soon as possible. We are hopeful we'll be able to resolve this and will update the team immediately.

Red5 has not reached out to the entirety of its employee pool of approximately 80 individuals to inform them. This left many to discover that their scheduled direct deposits didn’t arrive on Christmas as anticipated. One Red5 employee, who asked to remain anonymous because he is still with the company, indicated that the studio's third-party payroll provider offers a website to track disbursements. There, employees saw a deposit amount followed by indication that the transaction was voided.

Multiple sources also indicate that the company typically issues payroll on Thursdays when bank holidays, like Christmas, fall on a Friday. The previous payroll disbursement was also anomalous. The entire company was issued paper checks instead of direct deposit, as Red5 cited a "bank error" and assured employees there was no reason for alarm. When asked about receiving a direct deposit instead of a paper check for that two-week period, employees were told that it was not an option.

This news follows confirmed layoffs in late November that occurred right after Firefall’s launch in China. At that time MMORPG.com reported that approximately 40 individuals were let go across departments, including senior staff. MMORPG indicates that a source affected by the layoffs suggested that the cuts amounted to 20 to 25 percent of staffing. Both of our sources confirm the approximate number of layoffs and the portion of total staff they represent. 

We have also been told that three more employees were laid off on December 23. We reached out to Red5 three times and gave the company more than twenty-four hours to participate in this story. As of this writing, we've received no word back.

There is a glimmer of hope, though. Other members of the industry have started a GoFundMe campaign to assist employees who suddenly found themselves without pay on Christmas. In speaking with one of our sources, we inquired about how he discovered he hadn't been paid and what it means for him.

"I'm pretty much the breadwinner," he told me when we discussed his family. "I was pretty depressed, but I was setting aside my feelings so I could at least have a good Christmas Day with my family. I was going crazy inside. This situation has possibly left me in a position where if I can't come up with something in the next three weeks, I might not have this apartment." 

 

Our Take
Red5's current problems are what we call an "open secret," as employees have been discussing the situation and comparing notes among themselves via a number of channels. Everyone knows they didn't get paid on time. They know that the company has not addressed its employees en masse.

It's tragic when a company falls on hard times, but management can avoid making it worse by letting employees know whether they are going to get paid at all. I'd love to hear that this matter is resolved tomorrow when work begins, but the pattern of the past two pay periods is alarming.