Thursday, 3 January 2019

Ships, Shares and Startups

A primer on economics in space mercantilism.

Introduction


This post discusses a few ideas on how to apply real-world economics to handle low-level space mercantilism and distribution of earnings between PCs and NPCs. The baseline discussion will use the concepts introduced in Stars Without Number Revised book, as well as the supplements Suns of Gold, Skyward Steel and Scavenger Fleets.

The discussed scenario focuses on low-end space merchant groups, ones with relatively small amount of crew where you expect to take big risks and get big rewards. On high-end scale, you’d expect the majority of people employed to have a relatively stable income and fixed payouts for whatever loot they gather. On that scale, refer to Skyward Steel, especially section “Prizes and Captures” on page 19.

If you are looking for some high-crunch mechanics around everything related to space trading and trucking, Traveller's Far Trader might have everything you need and more.

The Problem


Say Gaius and Hixon have earned some money together and managed to buy themselves a ship. They both contributed $500k, bought a ship for $900k and have $100k left over to invest in buying cargo for trading. They agree that they both own half of the ship and are contributing equally to running it, so everything is perfectly balanced. Whatever money they earn, they split 50-50.

Now, let’s say after a while Hixon wants to make a monetary contribution to his academy and wants to cash $10k out to do so. How do you handle this withdrawal from the ship’s funds to keep things fair? You could withdraw $20k and give Gaius $10k to spend on whatever he wants, but maybe he doesn’t have anything he’d want to buy and would rather buy more cargo to turn more profit. Keeping track of that cargo separately would be a problem, so maybe we should find a different solution…

Meanwhile, turns out running the ship with two people isn’t enough. The ship needs another crewmember. They want to hire Magnetar for the standard rate, but she knows working on a dinky little ship is a very risky line of work, as well as that if they score a big score she won’t see any of the extra profits. Now the crew has to figure out how to properly integrate Magnetar into the payout structure so as not to make anyone feel cheated…

And here is where we bust out our computers and engage in a bit of Spreadsheets in Space!

Ship Shares, but different from Traveller


Before we talk about a solution to our problem, let’s briefly touch on similar concepts you might be familiar with.

In the Traveller RPG, your character could earn Ship Shares, which represented 1% ownership of the ship you were on. While an interesting concept, it’s a bit too rigid and doesn’t do enough for our needs.

In Scavenger Fleets you had the concept of Cargo Shares, representing a claim to a certain amount of cargo space on a scavver ship. While an interesting concept in itself, it’s also not what we’re looking for. Cargo Shares are more useful for running small-scale trading on the side of a campaign where the PCs are tied to a specific ship, rather than being more in charge of things like what we are looking for.

In our scenario, Ship Shares would represent a proportional claim to the ship, its cargo and everything associated with it. The number of Shares is not fixed, it can increase and decrease as needed. The value of the Shares is also not fixed not to make them a stand-in for Credits. Ship Shares thus are closer to real-world shares in a company.

Practical example 1 - cashing out


To be able to use the Ship Shares, we have to determine their value. We simply start at some point where we’re liquid - when we have a freshly bought ship, all the credits and no cargo. So in our previous example we have a ship worth $900k and $100k in credits:

What is it?
How much is it worth?
Ship
$900k
Cash
$100k
Total:
$1’000k

We decide to create 1000 Ship Shares and divide them equally:

Who?
How many shares do they own?
Gaius
500
Hixon
500
Total:
1’000

So with our simple math, each Ship Share is currently worth $1’000 credits.

Now, if Hixon wants to cash out $10k out of his own pocket, he has to “sell” his Shares. So our adjusted tables look like:

What is it?
How much is it worth?
Ship
$900k
Cash
$90k
Total:
$990k

Who?
How many shares do they own?
Gaius
500
Hixon
490
Total:
990

The value of the Shares is preserved, but their number has decreased. Gaius owns the same number of Shares he used to, but he owns proportionally more than Hixon.

Practical example 2 - paying with shares


Now let’s say we want to hire Magnetar. She wants a cut of the future profits, but also wants a salary at the end. We agree to pay hey $10k and 10 Shares at the end of our trip.

Who?
How many shares do they own?
Gaius
500
Hixon
490
Magnetar
10
Total:
1’000

Practical example 3 - round trip


Everyone is ready and we lock things in. Now we’ll be dealing with a lot of cargo and other things, so cashing out will be really hard. We spend our $80k and get some guns, and we’re off with a bit of liquid cash.

What is it?
How much is it worth?
Ship
$900k
Cash
$10k
Guns, 80 tonnes
$80k?
Total:
$990k?

We don’t really know how much those guns will sell for in the end, so we don’t try to keep their value too closely. We have a few adventures, our ship takes a beating, we trade cargo a few times, and our spreadsheet looks like a bit of a mess:


What is it?
How much is it worth?
Ship, damaged
<$900k? $700k maybe?
Cash
$1k - we’re kind of illiquid
Cats? Why do we have cats? 1 tonne
???
Roses, 30 tonnes
???
Computers, 10 tonnes
???
Total:
Heck if I know...

At this point, if someone wanted to cash out, we couldn’t give them a fair payment since we don’t know what anything is worth. We could try negotiating what would be a fair cat-to-share payout, but let’s keep things simple and assume you can only cash out when everything is liquidated. So at the end of our journey, we cash out our cargo. Now it’s time to cover our costs:

Item
Net amount
Cash balance, starting
$1k
Cats
+$70k
Roses
+$40k
Computers
+$300k
Refuelling fees
-$1k
Ship repair
-$100k
Magnetar’s Salary
-$10k
Final balance
$300k

Okay, our final cash balance ended up being $300k! We turned a profit! Time to update our sheets:

What is it?
How much is it worth?
Ship
$900k
Cash
$300k
Total:
$1’200k

Our final total balance is $1.2M, so we’re up 20% from our starting point. Not bad! We still have 1’000 Ship Shares, but now each of them is worth $1’200! This means Gaius has earned $100k ($500k investment, current shares worth of $600k), Hixon has earned $98k due to cashing out early, and Magnetar has earned $10k in salary and $12k in Ship Shares! Not bad!

Share salaries and investments


There are a few more concepts you should keep in mind when using this system. First, if you intend on paying the ship crewmembers a regular salary in Ship Shares, you shouldn’t forget to pay the important people on the ship as well. In our example, if Gaius and Hixon would keep paying Magnetar 10 Ship Shares per each trip and she wouldn’t cash any of them out, in 50 missions she would own one third of the ship. It might not be the ideal solution to go for.

Instead, you could pay each member of the crew a certain salary in Ship Shares. Say, everyone would be paid 20 Ship Shares, and they could take a smaller amount of Shares in exchange for a fixed salary. This way the final ownership would tend to represent how much everyone contributed to the ship over the whole campaign, etc. You could increase and shrink your crew easily without worrying about the regular crew being edged out completely.

Similarly, you could also allow people to “invest” in the Ship by purchasing Shares with their own money. If you’d invest in the Ship as a whole, you’d put the money in the pile and get new shares proportional to how much you contributed (in our example, investing $60k at $1’200k per share would net you 50 Shares). If you want to purchase someone else’s Shares, they’d get the money and you’d get their Shares - the Ship wouldn’t see the money.

Finally, if you want to kick someone out of the crew in a fair way, you could force-liquidate their Ship Shares at a fair market value (if Magnetar decided to leave, Gaius and Hixon could force pay her $12k from the Ship to buy back her 10 Ship Shares). This could be useful if you don’t want people that aren’t on the ship to be still eating into your future profits. On the other hand, if you’re strapped for cash, you might want to hold off on that…

Everything else


Now that you are basically running your spaceship like a startup, you can open the game up to a whole world of fun stuff you can find in the real world. Angel Investors that invest in new ships to earn a fair bit of money. Doing Seed Rounds to sell Ship Shares and raise money for future endeavours. Multiplying or dividing the number of shares to keep their value within a certain range (say, if 1 Share becomes worth $100k, you can multiply all Share balances by 100 to make the new Share be worth $1k again). Being straddled with debt for owning some Shares that went belly up, or perhaps re-inventing Limited Liability Company. Etc. Etc.

Your only limit is how much do you want to play Spreadsheets in Space, and how many Space Lawyers do you want to include ;).

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