Even with a rushed game in hand, Atari anticipated enormous sales based on the popularity of the film, as well as the enormous boom the video game industry was experiencing in 1982. By the time the game was complete, so little time was left before the game's desired ship-date that Atari skipped audience testing for the cartridge altogether. Emanual Gerard, who served as co-chief operating officer of Warner at the time, later suggested that the company had been lulled into a false sense of security by the success of its previous releases, particularly its home video version of Pac-Man, which sold extremely well despite poor critical reaction.
Additionally, Atari had expected the game would perform well simply because, the previous October, it had demanded its retailers place orders in advance for the entire year. At that time, Atari had dominated the software and hardware market, and was routinely unable to fill orders. At first, retailers responded by placing orders for more supplies than they actually expected to sell, but gradually, as new competitors began to enter the market, Atari started receiving an increasing number of order cancellations, for which the company was not prepared.
While the game did sell well (it ranks as the eighth-best selling Atari cartridge of all time), only 1.5 million of the 4 million cartridges produced were sold. It is an often-stated bit of misinformation that more copies of E.T. were produced than Atari 2600 consoles owned; however, 12 million copies of Pac-Man were produced at a time when Atari research showed that there were about 10 million consoles owned. Despite reasonable sales figures, the quantity of unsold merchandise coupled with the expensive movie license caused E.T. to be a massive financial failure for Atari.
This game was one of many decisions that led to the bankruptcy of Atari, which posted a $536 million loss in 1983, and was divided and sold in 1984.
In September 1983, the Alamogordo Daily News of Alamogordo, New Mexico reported in a series of articles that between ten and twenty semi-trailer truckloads of Atari boxes, cartridges, and systems from an Atari storehouse in El Paso were crushed and buried at the landfill within the city. It was Atari's first dealings with the landfill, which was chosen because no scavenging was allowed and its garbage was crushed and buried nightly. Atari's stated reason for the burial was that they were changing from Atari 2600 to Atari 5200 games, but this was later contradicted by a worker who claimed that this was not the case. Atari official Bruce Enten stated that Atari was mostly sending broken and returned cartridges to the Alamogordo dump and that it was "by-and-large inoperable stuff."
On September 28, 1983, The New York Times reported on the story of Atari's dumping in New Mexico. An Atari representative confirmed the story for them, stating that the discarded inventory came from Atari's plant in El Paso, Texas, which was being closed and converted to a recycling facility. The Times article did not suggest any of the specific game titles being destroyed, but subsequent reports have generally linked the story of the dumping to the well-known failure of E.T. Additionally, the headline "City to Atari: 'E.T.' trash go home" in one edition of the Alamogordo News implies that the cartridges were E.T. As a result, it is widely speculated that most of Atari's millions of unsold copies of E.T. ultimately wound up in this landfill, crushed and encased in cement.
Starting on September 29, 1983, a layer of concrete was poured on top of the crushed materials, a rare occurrence in waste disposal. An anonymous workman's stated reason for the concrete was: "There are dead animals down there. We wouldn't want any children to get hurt digging in the dump."
Eventually, the city began to protest the large amount of dumping Atari was doing; a sentiment summed up by commissioner Guy Gallaway with, "We don't want to be an industrial waste dump for El Paso." Local manager Jack Keating ordered the dumping to be ended shortly afterwards. Due to Atari's unpopular dumping, Alamogordo later passed an Emergency Management Act and created the Emergency Management Task Force to limit the future flexibility of the garbage contractor to secure outside business for the landfill for monetary purposes. Mayor Henry Pacelli commented that, "We do not want to see something like this happen again."
The story of the buried cartridges has become a popular urban legend, which in turn has led some people to believe that the story is not true. As recently as October 2004, Warshaw himself expressed doubts that the destruction of millions of copies of E.T. ever took place, citing his belief that Atari would have recycled the parts instead in order to save money.