A studio may have three promising projects and enough money to fully fund only one. One is a reliable sequel, another is an ambitious new IP, and the third is a smaller online game with recurring revenue potential.
Which one deserves the capital? Understanding how studios measure expected value helps explain how publishers compare opportunities that have very different costs and risks.
Rather than asking which game has the biggest possible sales number, portfolio teams combine probabilities, development costs, future cash flows, strategic value, and downside scenarios to estimate which investment creates the strongest risk-adjusted opportunity.
Expected Value Turns Uncertainty Into a Comparable Number
Expected value starts with a simple idea: different outcomes have different probabilities.
Imagine a game has a 25% chance of generating $300 million, a 50% chance of producing $120 million, and a 25% chance of making only $30 million. Management can multiply each outcome by its probability and combine the results.
Corporate Finance Institute defines expected value as the probability-weighted average of possible outcomes, a concept that can also be applied when comparing investment projects.
This does not predict exactly what will happen.
Instead, it gives studios a common framework for comparing projects with different upside and downside profiles.
Studios Build Several Revenue Scenarios
Forecasting only one sales number creates false precision.
A healthier model usually includes downside, base-case, and upside scenarios. Each version can change unit sales, average selling price, downloadable content revenue, player retention, marketing costs, or post-launch operating expenses.
Scenario analysis is commonly used in financial decision-making to understand how different assumptions change expected profits and losses.
For a new IP, the downside case might assume weak awareness and heavy discounts after launch. The upside case could include strong reviews, organic community growth, and sequel potential.
A sequel may have a narrower range because historical sales provide better information.
The model is not about pretending uncertainty disappears. It makes uncertainty explicit.
Development Cost Must Be Included in the Comparison
Revenue alone can make expensive games look deceptively attractive.
Suppose Project A has an expected lifetime revenue of $250 million but requires $160 million in development and marketing. Project B expects $100 million of revenue against a total investment of $35 million.
Project A produces more money in absolute terms, but Project B may generate much stronger capital efficiency.
Studios therefore estimate contribution after development costs, platform fees, marketing, localization, external development, live operations, and other expenses.
This is where comparisons become more realistic.
A spectacular sales forecast can become a mediocre investment once the full developement requirement is visible.
NPV Adds the Cost of Time
A dollar received five years from now is not economically identical to a dollar received today.
Large games may require several years of production before launch, followed by revenue across additional years. Net present value, or NPV, discounts those future cash flows back into today’s value.
CFI notes that NPV is commonly used in capital planning because it considers the time value of money and helps companies compare long-term investments.
This can change which project looks attractive.
A title requiring six years before meaningful cash generation may need substantially larger lifetime revenue than a smaller project capable of launching in two years.
Studios can therefore compare not only how much value a game might create, but also when that value arrives.
Probability Assumptions Need Real Evidence
Expected-value models are only as good as their assumptions.
Assigning a 70% probability of success because management loves the concept does not create useful financial analysis.
Studios can instead use comparable game performance, franchise history, wishlist data, prototype testing, retention tests, genre trends, platform demand, production velocity, and previous launch data.
Capcom provides an interesting example of portfolio discipline.
Its development leadership says the company manages investment returns based on ROI and uses a five-to-ten-year Medium-Term Development Map covering release timing, earnings contributions, new IP, and established franchises.
Historical evidence does not eliminate uncertainty, but it reduces arbitrary assumpitons.
Market Competition Changes Expected Value
A game’s financial value cannot be estimated entirely from internal production data.
It will launch into a market where player attention is already scarce.
Newzoo reported that PC and console gaming revenue grew 7% in 2025, while emphasizing that future growth is increasingly driven by monetization, pricing, and platform economics rather than large increases in player time.
That matters for investment modeling.
A new multiplayer game might have enormous theoretical revenue potential, but its probability of reaching that upside should reflect how difficult it is to pull players away from established ecosystems.
Expected value therefore combines market size with realistic probability of capture.
A huge market does not automatically create a huge oppurtunity for every project.
Risk-Adjusted Return Helps Compare Different Bets
Expected value alone still does not capture every risk.
Two games might have the same expected profit, but one could have a narrow range of outcomes while the other swings between a major hit and a near-total loss.
Management may prefer the more predictable investment, particularly when cash reserves are limited.
Studios can adjust hurdle rates or portfolio scores for technical risk, schedule uncertainty, marketing dependence, team experience, new technology, and franchise concentration.
A sequel using a proven engine might receive a lower risk penalty.
A new online IP involving unfamiliar technology, untested monetization, and a huge production team would receive a higher one.
The objective is not to punish innovation. It is to price uncertainty properly.
Strategic Value Can Sit Outside the Financial Model
Some games create value that is difficult to capture in a single spreadsheet.
A project may establish new IP, train a team in multiplayer development, expand the company onto another platform, or create technology reusable across future titles.
Capcom explicitly includes new IP creation alongside sequels, remakes, and ports in its longer-term development planning.
Studios can give these benefits a strategic score alongside financial expected value.
However, strategy should not become an excuse for weak economics.
If executives repeatedly justify low-return projects using vague phrases such as “brand value,” the comparision framework loses credibility.
Strategic value works best when its assumptions are visible and measurable wherever possible.
Knowing how studios measure expected value reveals why game investment decisions require more than optimistic sales forecasts.
Probability-weighted scenarios, development costs, NPV, market conditions, and risk adjustments help studios compare very different opportunities on common terms.
Portfolio leaders should regularly update those assumptions as development progresses, because the best investment today may not remain the best one six months from now.