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Inside the Disarray Facing the Video Game Organization Behind E3

The video game association that conceived the industry’s national ratings system, handles all lobbying efforts and runs the massive annual E3 showcase is in disarray. The Entertainment Software Association is still staggered by the departure of its president and what numerous current and past employees tell Variety was a toxic environment rife with internal politics, witch hunts and in-fighting.

In the past six months alone, half of the association’s leadership have either quit or been fired, and a survey of member companies conducted by Variety shows waning faith in the organization and its efforts. An internal survey obtained by Variety also indicates a lack of trust by the general public of the game industry.

The board that oversees the association has yet to name a permanent replacement for the head of the organization, and some dues-paying members of the association are unhappy with the group’s efforts and in particular with the current state of E3.

Over the course of a months-long investigation into the departure of Entertainment Software Association president Mike Gallagher by Variety, nearly a dozen current and former employees and industry professionals described an ESA struggling to find a path forward. Questions have been raised by employees and members of the association about its relevance, its efficiency and whether the E3 trade show should be spun off from the lobbying group.

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Employees spoke to Variety under conditions of anonymity and it seems their concerns were justified. Over the course of this investigation, staff at the ESA checked phone records of employees and fired one seemingly without cause, later offering a settlement in exchange for his silence.

The association’s growing issues seemed to come to a head late last year with the departure of Gallagher as president and CEO. To outsiders, it seemed like a surprising turn of events precipitated by concerns of an increasingly out-of-sync and antagonistic leader as well as rumblings of favoritism toward one particular staff member, according to 11 sources with knowledge of the situation.

These sources, all of whom asked that their names not be used for fear it would lead to their firing or destroy their careers, told Variety that Gallagher’s split with the Entertainment Software Assn. came after board members traveled to the association’s Washington, D.C. office to conduct one-on-one interviews with members of his staff.

CREDIT: Scott Robinson

While Gallagher’s $1.4 million annual contract with the ESA did not expire until early this year, he resigned following a meeting he had with the board of directors. Some believe he was forced to leave the association.

Publicly, the trade association has remained tight-lipped about the goings-on at the Washington, D.C. office and why a permanent president for the group has yet to be named.

In an interview in February with Variety, Stan Pierre-Louis, interim president and CEO of ESA, acknowledged that the current transition has its hurdles, but declined to discuss specific allegations against Gallagher or whether he was asked to leave the association.

“Every transition has challenges and opportunities and I’m really excited about the way our team has risen to those challenges to create great opportunity,” he said.  

He added that the board has confidence in the team that they have in place to “move forward and do the mission of the organization and ensure we position the members and the organization for success moving forward.”

In terms of the length of the search for a new president, Pierre-Louis said such searches can take a while and that he doesn’t believe this one is an uncommonly lengthy one.

Gallagher, responding to an email from Variety, said none of the allegations levied against him are true, but did not directly answer any specific questions.

“My 11 years of success and industry leadership speak for itself,” he wrote.

Mike Gallagher
In an Oct. 3 press release announcing his resignation, Gallagher said the ESA has an “excellent team, ample resources, state-of-the-art DC headquarters, and members who are fueling growth at fantastic levels. Together, we have delivered an unbroken string of victories in the states, on Capitol Hill, and before the U.S. Supreme Court, all of which bolster the industry’s ability to create and innovate. Extending and protecting that opportunity has been extraordinarily fulfilling.”

Gallagher had big shoes to fill when he assumed the role of president of the ESA in 2007, taking on the position formerly held by the association’s founder, Doug Lowenstein.

The organization was formed in 1994 in reaction to a congressional hearing on violence in video games sparked, in part, by arcade game “Mortal Kombat.” Initially named the Interactive Digital Software Assn., the group formed the Entertainment Software Ratings Board as a voluntary rating system for video games, preemptively stopping a proposed government-run Video Game Ratings Act. The group was renamed the Entertainment Software Assn. in 2003 to better reflect its membership and goals. The association, made up of many of the video game industry’s top publishers, has a strong lobbying arm, a group that works on intellectual property rights and a public relations group which focuses on running the annual E3 trade show.

Gallagher’s hiring came at a time when the video game industry was still looked down upon by many inside the D.C. beltway, and violence in video games was typically the only reason politicians discussed the game industry. It was also at a time when the impact of the K Street Project — an effort by the Republican Party to pressure lobbying firms to hire Republicans to executive positions — still loomed large.

Gallagher, the former assistant secretary of commerce for communication and chief telecommunications and policy adviser to the Bush administration, came to the industry with strong Republican ties, conservative views and a solid pitch to the association’s board of directors, which is comprised of executives from some of the biggest entertainment companies in the world.

But it became apparent early on that Gallagher’s approach to leadership and his personal politics weren’t a natural match for the long-term employees of the association and, increasingly, the video game industry at large.

” …if you had not burned people out in three years you probably haven’t been working them hard enough …”

Several employees described Gallagher as a boss who was very difficult to work with, saying he was seen as manipulative, moody and sometimes nasty. He told at least one person in the game industry that he liked to pit his employees against one another to elicit the best work from them as they vied for his approval. He would occasionally send what sources said were vicious, belittling emails to employees.

Constance Steinkuehler, a professor at the University of California-Irvine who served as a senior policy analyst in the Office of Science and Technology Policy at the White House Executive Office under then-President Barack Obama, told Variety that Gallagher discussed his management techniques with her during a reception at the Game Developers Conference in 2017.

Steinkuehler told Variety that she was hosting a reception for the Higher Education Video Game Alliance, which she helped found and was the president of at the time, when Gallagher ran into her.

She said something off-handed about how managing so many high-level people on the ESA’s board must be interesting and Gallagher started discussing his management techniques with her, offering unsolicited advice, she said.

“He said he really learned about how to maximize your workplace [at his previous jobs],” she said. “One thing he said was that if you had not burned people out in three years you probably haven’t been working them hard enough. Another was that pitting people against each other competitively was a way to really get the most of them.”

Steinkuehler said a couple of weeks after that conversation she ran into a colleague who worked at the ESA who asked her about her conversation with Gallagher.

After hearing the story, the employee agreed that it matched Gallagher’s approach to management, but said they were surprised he was overtly telling people that was his philosophy.

While Gallagher’s heavy hand with association employees was well known in some circles of the video game industry, it didn’t seem to hurt his standing with the board.

That may have been because of the ESA’s handling of the 2011 U.S. Supreme Court case, which ultimately ruled in favor of the video game industry — noting video games are both a form of protected speech and a form of art. The decision bought Gallagher a lot of goodwill in the game industry and in particular among some of the association’s board members.

Some members of the board even pitched in to buy Gallagher a watch valued at more than $10,000 to thank him for his service. A mix of issues, however, then started to erode Gallagher’s and the ESA’s standing in the industry.

In the past, when Gallagher would suggest something that other ESA employees thought might be off-putting to the game industry at large, they were able to guide him away from potential landmines.

But it appears he began to push even further into his conservative views. He was, one source told Variety, a big fan of Trump’s — stocking his office with Trump wine and proudly displaying a copy of Trump’s boxed game in his office. This was something that some office visitors (often members of the typically left-leaning video game industry) found worrisome, sources said. To make matters worse, Gallagher started pushing for the ESA to publicly support Trump-backed policies when possible, a shift in behavior compared to his arms-length approach to the Obama administration.

For instance, in November 2017 the ESA announced its support of the Republican-led tax reform proposal, a move that angered many in the game industry and, according to sources, cost the ESA some potential members.

That added to a host of other controversies that began to hit the industry, like the World Health Organization’s view of gaming as potentially addictive, the concern over gambling and loot boxes and another attempt to blame video games for violence — this time focused exclusively on video games, not other forms of entertainment.

“Morale was terrible,” a source said of the 40 or so employees at the association. “I could name ten staffers who were looking for a new job.”

There was also a significant change on the board. In the summer of 2017, the tenure of the then-head of the ESA’s board of directors, Strauss Zelnick, ended and Robert Altman, chairman and CEO of ZeniMax Media, became the new chairman of the ESA’s board.

Following the leadership change in the board, Gallagher asked if they would approve the creation of a new role: chief of staff, with an eye on promoting a young employee, sources said. But several members of the board questioned his need for one.

“Something had to change. Several people were saying that if he didn’t get the ax, they would be going to the press.”

Months later, Gallagher fired a well-respected, high-level staff member, sources said. Gallagher then created a new title and gave the young employee a raise, assigning her several high-profile roles at the association once held by the person fired, according to sources. This move was particularly devastating to morale, sources said. Internal unhappiness with the series of changes was made worse by the fact that some believed the employee wasn’t ready to take on the added responsibility. In one internal email sent to Variety, a working group noted that there were fundamental problems with a major plan by the employee and that it wasn’t ready to be rolled out.

Over the summer of 2018, amidst the increasing turmoil at the ESA, Altman and Phil Spencer, executive vice president of gaming at Microsoft and the ESA board’s vice chair, both traveled to Washington, D.C.

They spent two days meeting with a number of employees at the association in a conference room, asking them about — among other things — Gallagher’s management and behavior and whether it was negatively impacting the ESA and its goals. After the meeting, the two left, and those at the ESA didn’t hear a word for months, according to sources.

Neither Altman nor Spencer responded to Variety’s request for comment.

One person familiar with the meetings characterized them as an in-depth look into the association and its leadership: “Everyone was on pins and needles for the summer,” said the source. “Something had to change. Several people were saying that if he didn’t get the ax, they would be going to the press.”

Then in August 2018, the ESA held its annual public relations summit, kicking off the event with a talk by Steve Clemons, Washington editor-at-large of the Atlantic.

The summit — which outlined the goals for the coming years and noted a need for change within the association — included some dire news for the group and its members about the impact the association is having on the general public’s view of the video game industry.

A survey conducted by KRC Research in February 2018 (and leaked to Variety) noted that more than half of those spoken to didn’t believe video games benefited society and didn’t believe the industry showed strong values and moral behavior. Nearly half also didn’t believe the industry is ethical or transparent.

By that fall, word floated down that Gallagher knew the board had lost faith in him and that he was negotiating his exit, sources said.

Those who attended Gallagher’s impromptu farewell party in the office said it was lightly attended and seemed thrown together at the last minute. At the party, Gallagher made allusions to running for political office.

His office was completely cleared out days later and remains empty.

“Everyone is thankful that the board made what was no doubt a difficult decision,” one source said. “They did do the right thing, the hard thing, when they could have just let him ride out his contract.”

ESA and E3
Gallagher’s job remains vacant with some discussion about what sort of leader the ESA needs to represent a much larger, much more influential game industry. Gallagher’s departure also sparked an internal discussion about the type of organization the ESA needs to be and what form and focus it should take moving forward and seems to have led to at least one other departure.

Erik Huey, who spent nearly ten years at the association and was most recently the senior vice president of government affairs, left the association on Dec. 18 amidst the indecision of who might take over Gallagher’s role. Reached for comment, Huey decline to speak about the departure but noted that he has been tapped to help Platinum Advisors’ new Washington, D.C. office.

The future of E3, or at least what form it will take in the long run, also seems in question. Late last year, Variety broke the news that PlayStation wouldn’t be attending the association’s annual E3 show, spurring questions about the trade organization’s largest investment and money maker.

Internally, there is some question about whether it makes sense for ESA to split its energies between lobbying on behalf of the video game industry and running a major trade show. And this isn’t the first time the question has been raised.

Sources tell Variety that ReedPop, which runs New York Comic-Con, the different PAX shows and Star Wars Celebration, made a formal pitch to take over E3 years ago, but that the offer never went anywhere.

Reached for comment, ReedPop declined to discuss the story with Variety.

In the years following that effort, though, the Game Awards organizer Geoff Keighley worked with the ESA to create a series of talks held alongside E3. The show was also open to the public, to some degree.

Currently, the ESA says it has a contract with the LA Convention Center through 2023 to hold E3 there, though the association has broken its contract with the LACC in the past.

E3 is an integral part of the ESA, not just because of the publicity that the show provides the game industry, but also the money it provides the ESA. According to the association’s 2016 non-profit 990 tax filing, the most recent filing with the IRS, the trade show made up about 48% of the ESA’s entire annual budget (which comes out to about $34.8 million) that year.

The other major part of ESA’s budget — about 37% — comes from the dues paid by ESA’s 42 member companies. Variety reached out to all 42 to ask what their thoughts are on the current state of the ESA and E3. Several of the nearly dozen companies that agreed to comment voiced concerns.

The biggest complaint about the trade organization is what those companies perceived as a lack of strong support when it matters. One called the ESA “hopelessly emasculated” while another said it has a “mysteriously soft voice for an industry-leading body.” Another noted that the group should push harder for industry self-regulation. Other companies see the association as a way to get discounts and better access to E3, but feel disconnected from the “high-level discussions.”

There were also positive comments made by member companies. One company praised the association’s work in areas such as lobbying, rights advocacy and group trade events. Another said the ESA has been instrumental in protecting it from damaging change.

In terms of E3, the response was much more universal: The annual trade show is recognized as being a big part of the industry, but observers say it is also a show that needs significant rework. And no one seems to know how to fix it.

One company said the ESA needs to continue to evolve E3, lowering the barrier of entry for indie devs and embracing off-site, live-streamed events. Another company worried that E3 distracts the ESA from its primary goals of lobbying and representation. While several companies said they were happy with the trade show, there were others who said they simply don’t participate.

The Path Forward
While it’s unclear why the ESA still hasn’t appointed a new head, or what the future plans are for the association and its trade show, what does appear to emerge from Variety‘s investigation is that many in the industry are looking for change. That means change both internally at the association, which seems to be slowly taking shape in the wake of Gallagher’s departure, and change in the way the association does its job both as a lobbying group and the main organizer of E3.

Pierre-Louis told Variety that his focus “remains ensuring that the organization is positioned for success and ensuring the amazing team we have at ESA has an opportunity to shine at what we do best, and that is to represent the greatest industry on earth.

“We are excited about where the ESA is and where it is headed. One of our important goals is to ensure that the success of the video game industry gets told, to help shine a light on the benefits of video gaming.

“The ESA has been running very effectively throughout this transition and will continue to do so.”

One source told Variety that those who remain at the association, while demoralized, understand the importance of their job and love what they do.

“They love getting to defend the industry, even on the worst days and even when the issues just seem downright impossible,” the source said. “It would be a shame if past failures in leadership tarnished the reputations of the individuals who put their backs to the wheel every day, often in a thankless task.”

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