Friday, May 3, 2013

Potomac Mortgage Company, Blue Sky Operators, and Other Golden Age Ripoffs

During the writing of my book, I slowly came to believe that every video game and every video game manufacturer, not matter how boring they might seem, had a story to tell. I've sometimes doubted that belief, but today's post is a good illustration of its truty.
Recently, on the AtariAge Forums, the subject of Potomac Mortgage came up.
Potomac Mortgage was a Dallas-based manufacturer primarily known (by the few who know them) for a handful games they produced in the 1980s - Star Invaders, Star Fighter, and Star Warrior

Before reading the post and doing some research, that was bascially all I knew about the company. Well, it turns out they were quite the interesting - and sleazy - little company.

A check of the trademark office shows that they reigstered trademarks for a number of other games: Star Fighter, Star Assassin, Star Quest, Star Legion, Star Pirate, Star Defender, and Ayatollah Assassination.

A little more digging reveals some more unsavory details about the company.
In 1981, they were sued by Irem who claimed that Star Invader was a bootleg of their own UniwarS. Here's an article from the 12 April 1981 New Braufels (TX) paper:

Potomac denied the claim . I don't have a screenshot or flyer from Star Invaders handy but here's side two of the Star Fighter flyer.

I don't know if they ripped off Uniwars but Star Fighter certainly appears to be a carbon copy of Moon Cresta (though maybe they licensed it):

But that's not the end of it - not by a long shot.
The June 1, 1981 issue of Play Meter reports that the California Attorney General's office also took action against Potomac (along with Fascination International Ltd of Chicago and Leisure Time Electronics) for misrepresenting the amount of revenue buyers could expect from their equipment. The article reported that the 3 companies actually didn't manufacture games (so maybe they did license it from Gremlin/Sega or Nichibutsu but I doubt it).
Potomac told potential customers that a $6,500 investment for 10 machines would produce a $300,000 annual profit within 18 months and that they could conservatively expect to make a 70-170% return on investment (the numbers may not add up, I'm just reporting the claim). California law required that the makers of such claims file a statement with the Secretary of State's office detailing the facts supporting the claims and also provide a copy to buyers. Potomac apparently failed to do this and was assessed a fine of $5,000 and was forced to give refunds to 23 California customers.

Looking further, I found a number of ads for Potomac from papers accross the country - it appears they were quite prolific. Here are just a few examples:

Portland, Oregon, 22 June 1980

San Diego, 22 June 1980

Syracuse, NY 9 February 1981

It appears that they were also a real estate company. I found a number of ads from 1970s offering loans for real estate development.
From the above ads, it appears that Potomac may have been what was known in the industry as a "blue sky" dealer.
Largely forgotten today, these sleaze merchants were somewhat common in the 1980s.
They would sell you coin-op video games at inflated prices, promising unrealistically large earnings (often supported with overblow newspaper stories) and even offering to help you find a location, service the games for you, provide insurance etc.
Once they had your money they would (if you were lucky) deliver substandard games that failed to live up to their performacne. If, that is, they delivered anything at all. Sometimes they just took your money and skipped town.
I can't say whether Potomac was this kind of outfit, and I don't know any more details, but I can describe a typical example of this kind of operator.

Blue Sky Operators

Known as "blue sky operators" or "blue suede shoes men" these kind of scammers had been around since the beginnings of the video game industry. The reason many in the industry distrusted cocktail games when they were all the rage in 1974 and 1975 was that many were sold by such con artists.
The December 1, 1981 issue of Play Meter tells the story of one such outfit - Marketing Associates, Inc. - aka Return on Investment Inc. aka William Beilman.
Gustav Gagne, who was taken for $20,000 by Beilman, did something about it.
Gagne, a Colorado entrepreneur, first made contact with the company when he saw their ad and called their phone number. They sent him an information packet with a projected incom/expense statement from a "CPA", a document claiming they had an "A" rating from the Better Business Bureau, a contract, and copies of articles from TV Guide and the Wall Street Journal touting the amazing earning potential for coin-op video games.

The WSJ article (13 August 1980) included the quote "In a choice location a popular video game grosses about $200 a week and may gross as much as $400 a week in its early stages".

Here's a copy of the contract:

After calling back, Beilman met with Gagne for two hours on January 23 and Gagne signed over a check for $10,000. He was supposed to get five coinop video games from Beilman's company, who would also find him prime locations, service the games, and provide insurance. He was supposed to pay the rest of the fee in two weeks when he got the games. Gagne didn't get the games but he he did pay another $10,000 on Feburary 19. On April 27, he finally got two of the promised five games - along with a bill with another $5,000 in COD charges. He apparently refused delivery and complained and the games were redelivered a week later (sans charges).
The promised "sophisitcated location survey" of Gagne's turned out to be nothing more than Gagne and Beilman driving around town looking for anyone who would take the games off their hands. Gagne called Beilman repeatedlly but never got anymore games. He even picketed in front of Beilman's office carrying a sign but to no avail. Finally on June 25, he went to the FTC who investigated Bielman for fraud.
As it turns out, Gagne wasn't the only one Bielman had fleeced. In a way, Gagne was lucky. Some customers didn't get any games at all. Bielman would sometimes buy games from distributors - for far less than his suckers paid him. Sometimes, that is. Other times, he wrote bad checks to distributors, who soon learned not to sell him games unless he paid in cash. And many of the games Beilman sold (when he did deliver) were far less than primo. One was cobbled together from used parts of other games.
On one occasion, Beilman arranged for Automated Amusements of Denver to service his machines. He never paid them. Unfortunately (for them) he put their name down as the service rep when he installed the games and Automated Amusements started receiving calls from irate location owners and had to service games at their own expense to avoid losing business.
The FTC charged Beilman with misrepresenting sales, lying about delivery dates, overstating earning potential, and failing to perform contracted warranty obligations. They also charged him with failure to send his customers a disclosure document with information about judgments and claims against him by former and current franchisers, company financial info, and the criminal background of the company's officers. Oh, did I fail to mention that Beilman had a previous felony conviction for fraud?

When he failed to answer the charges, the US District Court in Denver granted an injunction against him.Beilman was even investigated by a local newsman with a hidden camera posing as a customer.

Looking at the contract above, it may seem obvious it was a ripoff. The $20,000 figure seems way out of line given that new games cost $2,000-$3,000.
It may seem hard to believe that he would fall for the $200 a week claim. Such cliams were common in the media at the time but they represented peak earnings for a top machine. Yes games could sometimes make $400 a week but only in prime locations and for a shor time.
Play Meter actually published weekly earnings for specific games on their Players Choice chart for a time and the top games made around $200-250 a week but that was only a handful of games and only during their peak. The average "shelf life" of a coin-op game (the period when it actually earned money) according to various Play Meter and RePlay operator surveys was in the neighborhood of 7-9 months at the time.
And the blue sky companies rarely, if ever, delivered "top" games. If they delivered anything, it was often junk.

So, was Potomac Mortgage on the same slmy level as Beilman?
I can't say for sure, but it sure looks like they were playing in the same ballpark.



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