Because people outside the industry fall into the same traps over and over again when buying contract services. It's not just game dev, it's all over the software industry.

I don't want to call these studios predatory, but they know what they are doing. They underbid the labor effort, and make sure the contract scope is vague enough that they'll get paid if something gets delivered. They know exactly how to downplay skepticism of past failures while working "the vibe" to make these deals with people who are in way over their heads.

Another big part of it is that these studios are willing to sign contracts major studios won't with regards to who owns what at the end. A major studio will want to hold back some proprietary asset pipelines, or trade secret code - for good reason. But the shovelware peddlers know they arent offering anything of such value, so they agree to sign over everything, which is a misleadingly useless value add to shovelware buyers.