Gizmondo: The $300M Failure

The history of video games has no shortage of landmark moments of bold innovations, disruptive products, and, occasionally, spectacular failures. Among these, few stories are as dramatic, confusing, and cautionary as the rise and fall of Gizmondo. It’s the perfect blend of ambition, scandal, and lessons for aspiring entrepreneurs. It was a failure so catastrophic, it would go down as one of the most notorious misadventures in tech history.

(Unless indicated otherwise, prices and conversions are what they were at the time)

Best of Intentions

The Gizmondo was developed by Tiger Telematics (not to be confused with Tiger Electronics), a Swedish tech company founded in 2000 by Carl Freer. (Originally called Eagle Eye Scandinavian, the company renamed itself in 2002 following a merger with Floor Décor, a carpet retailer based in Jacksonville, Florida.) In 2001, he brought on fellow Swede Stefan Eriksson, whom he had met several years earlier — more on him later.

With Europe still reeling from the Soham murders in 2002, Freer, a parent himself, began wondering how to integrate GPS technology into a child tracking device. In an interview with Eurogamer, Freer said, "Do you remember the Soham murders? Terrible. We were all parents and we were talking about the issues around that. We started looking at doing a child tracker." As he and his moved forward, they felt that the best way to ensure kids would actually want to carry it with them would be to incorporate it into a gaming console. "So we thought, how about we make it more fun? What if we put in a gaming interface?"

The ideas began to snowball into a multifunctional, all-purpose device. Basic by today’s standards but innovative in the early 2000s, which Tiger Telematics saw as an opportunity.

Towards the end of 2004 Sony’s PSP and Nintendo’s DS dominated the handheld market, but were dedicated gaming consoles, and this was a time when multifunctional devices were a bit in limbo. The PDA trend was in the midst of dying off and the smartphone had yet to come to fruition.

All-in-all, the Gizmondo promised not just gaming, but also multimedia capabilities, GPS navigation, and SMS messaging—essentially a smartphone before its time. The hardware itself also appeared promising on paper, featuring:

The Hype

The pre-release hype of the Gizmondo is a story of ambition unrestrained by reality.

It was unveiled to the world with the kind of pomp and buzz typically reserved for a new iPhone. Its flashy media events, high-concept advertising, celebrity endorsements, and big promises sparked intense curiosity. For a fleeting moment, it seemed like this obscure upstart could actually take on the giants of the industry. The tech media speculated that it could carve out a niche among tech-savvy gamers who wanted more than just a game machine. The press releases were bold, and the demos even bolder. Every preview painted the Gizmondo as a sophisticated alternative to the traditional handheld.

Tiger Telematics wasn’t shy about spending money to build up that hype either. In 2004, they opened a high-profile flagship store on London’s exclusive Regent Street, costing $334,000 a year in rent

In 2005, the company threw a launch party in London’s Park Lane Hotel that was more akin to a Hollywood premiere than a tech launch. Busta Rhymes, Daryl Hannah, Pharrell Williams, and Sting all attended. Models strutted with Gizmondos in hand. There was even a planned F1 racing team branded with the Gizmondo name.

The whole thing cost a reportedly £1 million (over $1.8 million). For a startup that hadn’t yet turned a profit or even proven its product, this was... bold.

But what made the party’s cost so absurd wasn’t just the price tag—it was the disconnect between the hype and the product. At the time of the party, the Gizmondo had very few games, and reviews of the early hardware were underwhelming.

Despite all the buzz, there were warning signs even during the height of the pre-release hype. Tech reviewers began pointing out how few games had actually been shown. Developers were hard to pin down. The company’s finances seemed murky. And the device itself, when demoed, was often a stripped-down prototype. Yet, these red flags were often waved away with reassurances that everything would be ironed out by launch.

But the elephant in the room was the Gizmondo’s price tag. For comparison:

Nintendo DS 2004 launch price = $149 ($252 adjusted for inflation)
Sony PSP 2005 launch price = $249 ($408 adjusted for inflation)
Nokia N-Gage 2003 launch price = $299 ($520 adjusted for inflation)

In late 2004, it was announced that the Gizmondo would cost an eyewatering $399 ($650 adjusted for inflation). That’s the same price as the high-end Xbox 360, which also launched in 2005.

UK Release

The Gizmondo was released at its flagship store in London on March 19, 2005, priced at £229 ($430), with only one game, Trailblazer. But they still managed to sell through their entire stock of between 800-1000 units in one day. At face value, a store selling through their entire stock may sound good, except when every other factor is taken into consideration.

First, other than the Gizmondo website (where they claimed to have 500,000 pre-orders) the Regent Street store was the ONLY location where it could be purchased. Now that they were sold out, the console as a whole was effectively no longer selling, which meant the Gizmondo only sold 1000 units on its opening day.

Second, remember that £1 million launch party? Well, if that number is to be believed, at £229 per unit, that means the Gizmondo would need to sell over 4,300 units just to pay for the party, let alone make any kind of profit.

The system launched in the US later that year, but before it would, there were two key announcements.

Smart Adds (not a typo)

(Intentionally misspelled, Smart Adds Inc was created as a subsidiary of Gizmondo.)

Prior to the US release, Tiger Telematics announced the Smart Adds Gizmondo. This version of the system would cost less (£129/$229) but would display up to 3 advertisements randomly throughout the day.

Much like the freemium model that thrives today, the "Smart Adds" system was intended as a way for advertisers to help subsidize the manufacturing cost of the unit.

Ironically though, the "Smart Adds" service was never activated, so customers who bought the cheaper console effectively got the premium version at a reduced price.

New & Improved

In September 2005, with the US launch just weeks away, Tiger Telematics announced a new redesigned Gizmondo to be released in 2006, featuring: A larger, 4” widescreen; Wi-Fi; TV-out support; 480x272 resolution; 2-megapixel camera; 500 MHz processor.

However, in a prime example of the Osborne Effect, this prompted what already few would-be buyers the Gizmondo had to hold off and wait for the new version.

The Osborne Effect – A social phenomenon of customers canceling or deferring orders for the current, soon-to-be-obsolete product as an unexpected drawback of a company's announcing a future product prematurely. The term alludes to the Osborne Computer Corporation, whose second product did not become available until more than a year after it was announced. The company's subsequent bankruptcy was widely blamed on reduced sales after the announcement.

US Release

In the United States, the Gizmondo launched on October 22, 2005, with a line-up of eight titles, retailing at $399 for the premium version, or $229 ($375 adjusted for inflation) for the "Smart Adds" version.

However, in addition to being near unaffordable to the average person, it was just as difficult find. At launch, it was only available at about 12 total kiosks located in shopping malls throughout the country, at least 2 of which were in Texas, and somehow 0 in New York.

(Confirmed kiosk locations include Texas, Los Angeles, Seattle, and Miami. There were plans to open an additional 38 kiosks, but I was unable to confirm whether or not they actually did.)

A total of 14 games were released in Europe while only 8 made it to the U.S.A before being discontinued.

Mo Money

In March 2004, Carl Freer’s basic pay was set at £500,000 (roughly $915,000), then was doubled six months later. Freer’s wife, Anneli, also received £90,000 (roughly $165,000) for “marketing services”.

Around the same time, Stefan Eriksson was appointed as a director at Gizmondo. The promotion was justified by Freer saying that Eriksson was going to leverage his connections in the auto-racing world to secure sponsorships and investors. But he also used his new position to bring in some old friends of his: Peter Uf as a director and Johan Enander as head of security — more on them later.

Eriksson started with a salary of £400,000 (roughly $730,000) but this was also doubled after six months. He also received a car allowance of £5,000 (roughly $9,100) every month. He had two limited-edition Ferrari Enzos — one red, one black, worth about $1 million each — plus a Mercedes SLR McLaren worth over $400,000.

To top it all off, additional bonuses brought both Freer and Ericksson’s 2004 salaries to about £1.1 million (roughly $2.01 million) each. The company spent around £2 million ($3.6 million) on leasing cars. It also bought a share in a racehorse. Papers also showed that about £400,000 ($730,000) was spent on luxury watches, many for potential investors and people with whom Freer wanted to do business. But Freer and Eriksson also had a taste for timepieces themselves, Eriksson and his girlfriend, Nicole Persson, had their watches and jewelry valued at nearly £700,000 (around $1.28 million), and Freer’s watches were valued at £93,000 ($170,000).

Mo Problems

In September 2005, after Freer and Eriksson moved to Los Angeles over the summer to oversee Gizmondo’s US launch, Tiger Telematics released its long-awaited FY2004 full-year financial performance report… and it wasn’t pretty. Not only did it bring to light the company’s lavish spending habits and very generous executive compensation packages, but it also revealed a $99.2 million loss. Furthermore, the SEC (Securities Exchange Commission) report revealed that in just the first six months of 2005, the company had an operating loss of more than $200 million. According to Tiger, this was primarily due to the development cost of the Gizmondo.

In an attempt to cover its mounting losses, Tiger Telematics began releasing more stock onto the market. This was actually the main reason for the 2002 merger with Floor Décor, Floor Décor shares were traded in America under the so-called pink-sheets system, enabling Freer to issue new shares to raise money. But flooding the market only diluted its value. Stock prices tumbled, investors fled, and the financial situation became unrecoverable.

According to a marketing executive who worked directly under Freer and Eriksson, “Everything Carl did was about press releases. That’s how we made our money, by pumping and dumping the stock on the exchange.” They would explain that Freer would sign deals with major companies, issue a press release about it, and then not follow through with the deal because they simply just wanted the publicity to boost their stock price.

In early 2004, Jordan Grand Prix, whom Eriksson secured a sponsorship with, would file a lawsuit against Gizmondo for $3 million. On August 19, 2005, Ogilvy PR, whom Gizmondo hired to handle global marketing and media communications, would file a lawsuit for $4.1 million plus interest. And on September 2, 2005, MTV, whom Gizmondo signed an advertising agreement with, would demand payment of a $1.5 million invoice from March 31, 2005. All of which were on the grounds that Gizmondo never paid for them for their services.

Pay Yourself First

In August 2004, Gizmondo bought Indie Studios AB, where Stefan Eriksson and Peter Uf were directors. The acquisition was valued at about $850,000 but was paid for with stock shares valued at $2.74 million.

Gizmondo also paid $3.5 million to Northern Lights Software Ltd. for the development of two games, Chicane and Colors, which were already in development by Indie Studios and Warthog. However, it was revealed that Freer and Eriksson were co-owners of Northern Lights and controlled almost 50% of its stock; the rest was controlled by a Panama-based entity named “Asiatic Securities at Asiatic Commerce Bank”. Now, there was no record of an Asiatic Commerce Bank in Panama, but there was record of one in London. When it was dissolved in March 2007, it was revealed to be owned by Stefan Eriksson and registered at the Mayfair offices of Martin Stein.

In another deal, Freer and Eriksson paid a game licensing fee of $4 million to a company called Game Factory Publishing, but no games were ever delivered, and it was discovered that Game Factory Publishing was directed by a close friend Freer’s, Robert Stein… son of Martin Stein… who was also a director.

Uppsala Mafia

On October 24, 2005, the Swedish newspaper Aftonbladet published an article revealing the criminal history of Stefan Eriksson, Peter Uf, and Johan Enander as part of the “Uppsala Mafia”, named after the Swedish town north of Stockholm.

In the early 1990s, the three cronies became notorious under the name "Uppsala Mafia". They were sentenced to long prison sentences in several different trials, including for trying to defraud Bankgirocentralen of SEK 22 million.
Stefan "Fat-Steffe" Eriksson, 43, was sentenced in 1993 and 1994 to a total of ten and a half years in prison for extensive economic crime.
His accomplice at the time, Peter Uf, 42, was sentenced to a total of eight and a half years in prison. Uf is currently the director of the group.
Johan Enander, 46, who was called the Uppsala mafia's hitman, received over six years in various sentences. He was convicted of several counts of assault and breach of home peace, as well as extortion. In December 2003, he was sentenced again to one year and three months in prison for, among other things, assaulting women.
Immediately after serving his sentence, he became "Head of Security" within the group that includes Gizmondo.

The article could not have come at a worse time for Gizmondo. The system had just been released in the US, and the company was already facing significant controversy due to their previously mentioned shady financial practices.

On October 20, 2005, when hearing of the upcoming article, Freer, Eriksson, Uf, and Enander would all tender their resignations. Although Freer was not accused of any criminality, he resigned knowing that the article would implicate him as an associate of the others.

Liquidation

On January 23, 2006, Gizmondo Europe officially filed an application to go into administration with the UK High Court (the UK version of filing for bankruptcy). Several days later, it was announced that their application was denied, and the company has officially gone into liquidation. On February 2, 2006, the court appointed two separate liquidation firms: David Rubin & Partners and Begbies Traynor. David Rubin & Partners would oversee the evaluation and selling of Gizmondo’s assets, while Begbies Traynor would be investigating the cause of the company's collapse and the extent of the losses.

But tracing a money trail of over $300 million was not going to be easy amongst all the corporate tricks, shell games, and false-front companies. Even after months of investigating, Gizmondo’s spending was so extravagant and unorthodox, often getting very little in return for what they paid, liquidators still had no idea where all the money had gone.

Paul Davis of Begbies Traynor once said, “No matter how much you spend on cars, watches and directors’ perks, you just can’t get through a sum as big as this quite as quickly as Gizmondo did.” He would also tell the LA Times, “They are staggering numbers by almost anybody’s standards. It’s clear the directors lived lavish lifestyles with fast cars, planes, boats and travel. But certainly, that wouldn’t account for all of [the lost money].”

Later that February 2006, the U.S. arm of Gizmondo also ceased operations, its Beverly Hills store was shuttered, and the system was officially discontinued.

Fewer than 25,000 units were sold globally.

Stefan “Fat-Steffe” Eriksson

In the early morning of February 21, 2006, while driving intoxicated along the Pacific Coast Highway in Malibu, Stefan Eriksson eviscerated a $1M Limited-Edition 2004 Ferrari Enzo — 1 of only 400 ever made. (It was originally priced at $650,000, but it’s limited quantity, and the fact that it was only sold to previous Ferrari owners, had increased the resale value to roughly $1.2 million.)

*The Ferrari was eventually restored and* *sold at auction* *in February 2016 for $1.75 million.*

Police originally estimated Eriksson was going about 160mph when he crashed, but investigators later changed this to closer to 195mph, and he somehow managed to walk away with only a bloody lip. He claimed to have been a passenger and that a “Dietrich” was the one driving and had fled the scene. This has been widely dismissed as a lie and that there was never a Dietrich, as DNA test matched Eriksson to the blood found on the driver’s side airbag, proving conclusively that he was the driver.

But this being Gizmondo, you know this was more than just a car accident. After hearing about the crash, the Bank of Scotland contacted the LA Sheriff’s Department claiming that the red Ferrari Enzo belonged to them. The car had been leased to Eriksson in 2005, prior to him moving to the US, but he had stopped making payments on it within a few months and was now in default. The bank had not reported the vehicle stolen yet because they believed it was still in the UK.

Soon after, the Lombard Bank in Sweden also contacted LA Sheriff’s Department inquiring if Eriksson also had a black Ferrari Enzo, which had also been leased and was still owned by the bank, was also in default, and was also illegally exported.

On March 29, 2006, Nicole Persson, Eriksson's fiancée, was pulled over at the corner of Beverly Drive and Wilshire Boulevard in Beverly Hills while driving their third car, a 2005 Mercedes-Benz SLR McLaren, when an officer found the car's European license plate suspicious. Not only did Persson not have a valid driver’s license, but the vehicle was not registered in the US. This time the LA Sheriff’s Department contacted Scotland Yard themselves and learned that the car may have been stolen. Similar to the Enzo’s, the Mercedes was owned by a third bank, Yorkshire Bank, and had also been illegally exported from the UK. The Mercedes, however, had been reported stolen when it was not returned after Eriksson defaulted on payments.

It all came to a head on April 6, 2006, when police raided Eriksson’s $3.6 million Bel Air home while he was preparing to leave the country. Eriksson was arrested on suspicion of embezzlement, grand theft auto, drunk driving, cocaine possession, and weapons charges stemming from a .357 Magnum revolver found during the search. Authorities had learned about his prior convictions in Sweden, which he had omitted from his visa application, and convicted felons are not permitted to own firearms.

All-in-all, Eriksson was facing seven felony charges and two misdemeanors. If convicted on all counts, he was looking at 14 years in prison. He ultimately accepted a plea bargain for 3 years and subsequent deportation. He was released in January 2008 and deported back to Sweden where he received a further 18-month sentence for extortion and aggravated assault.

When talking about the years he spent pursuing Stefan Eriksson, Lars Nylén, a former police commissioner said, "He might have been the smartest criminal I’ve ever encountered. But as smart as he was, being noticed seemed to mean more to him than staying out of jail."

The Worst of All Time

The spectacular rise and fall of Gizmondo is a maddeningly complicated story to try and tell coherently. Ambition, hype, greed, incompetence, deception, scandal, fraud, and a criminal underworld. It was a perfect storm that reads more like a Hollywood crime thriller than the story of a tech startup. In just two years, it became one of the most infamous stories in gaming and startup history — not only for the scale of financial loss, but for how brazenly the executives treated the company as their own personal piggy bank.

In 2007, GameTrailers named it "the worst console of all time."

The Gizmondo is more than just a console failure — it’s a legendary case study in business failure.