Zynga chief’s $1 billion-plus payday

One-Percenter of the Week: Mark Pincus made more than $1 billion last week when shares hit the market at $10 each. Plus, even before the IPO, he got to sell a bunch of shares back to his company at $14 a share.

By MSN Money Partner Dec 21, 2011 4:18PM

By Michael Brush


To get a leg up in the popular social networking game "Farmville" on Facebook, hard-core players buy virtual coins so their avatars can purchase virtual farm equipment.


But there's nothing virtual about the huge amounts of wealth being amassed by the inventors of popular online games.


Mark Pincus, Zynga CEO / © Jeff Chiu/APTake Mark Pincus, CEO of Zynga (ZNGA), the company behind "Farmville" and big online gaming hits like "CityVille," "Mafia Wars" and "Words With Friends." When Zynga shares went public last week, the world got to see just how astonishingly lucrative the fantasy world of social networking games can be.


At the opening price of $10 a share, Pincus was up a cool $1.2 billion for his efforts in founding Zynga in 2007 and nurturing it into a company that will take in $1 billion in revenue this year. For the sheer size of this payday, and what it says about incomes in the U.S.A., I'm making him my latest One-Percenter of the Week.


An edge on the sale

Pincus owns 112.2 million shares of Zynga, or about 16% of the company, and he has 7.2 million options, most of which have an exercise price at 17 cents, according to filings. So even after the shares slipped to $9.25 this week -- leaving everyday investors who bought the first day at $10 to $11.50 a share in the red -- Pincus' stake was still worth over $1 billion.


The hit to his wealth might have been worse. But earlier this year, in a move that raised eyebrows in the IPO world, Pincus hedged his bets by cashing out a sizable stake in the company before it came public, at a time when other Zynga employees were blocked from doing so.


In March, he pocketed more than $109 million when he sold 7.8 million shares back to Zynga at nearly $14 per share, 40% more than  the  IPO price of $10. In fairness, while Zynga blocked other employees from selling in March when fervor for the IPO was pitched, hundreds of employees have been allowed to sell tens of millions of shares at prices ranging from 25 cents to $17 a share.


Tribute to the pay gap

Now, I don’t begrudge anyone who gets paid well for founding a successful company. Entrepreneurship is part of the lifeblood of our economy. Zynga employs 2,800 people, and it's already profitable. It is the world’s leading social game developer, with 152 million users in 175 countries. About 54 million people play Zynga games each day.


But Pincus' $1 billion in earnings for creating a game company that runs on virtual money clearly underscores the widening gap in reward between those at the top and the rest of working Americans. So it's tough to let him off because "this is how the game works." It's precisely because this is how the game works that so many people are ticked off about widening pay disparities, and so many academics are concerned about the damage it does to our social fabric. The last thing we need is a huge underclass that gives up because they have the sense the game is fixed.


Over the past few decades, the CEO-worker pay gap has widened to about 350-1, from around 40 in the 1980s. And research by Emmanuel Saez of the University of California, Berkeley shows that between 1993 and 2008, the top 1% of families raked in more than half the gains in overall income.


Pincus' huge payday exemplifies this trend. I'm pretty sure the entrepreneurs who came up with Monopoly, one of the most popular games ever, never even dared to dream they could make the inflation-adjusted equivalent of $1 billion off the game in the first three years, let alone in their entire lifetimes.


Besides, a billion-dollar payday still seems a little outrageous at a time when so many people are unemployed -- including, most likely, many "Farmville" fans who have plenty of time to play the game because they're out of work.


While many people struggle to pay their mortgages and lose their homes in foreclosure, Pincus has two houses on the market in San Francisco -- one at $8.1 million and the other at $2.2 million, according to The Wall Street Journal. His newly minted $1.1 billion in Zynga wealth is one-seventh of the entire worldwide market for fantasy game virtual goods, which is worth around $7.3 billion, according to In-Stat, a market research firm.


So for the way his IPO payday underscores the vast and growing pay inequity in our country, and for the sheer remarkable size of his score, I'm making Pincus my latest One-Percenter of the Week.


More One-Percenters of the Week: