Where exactly are you estimating this from? I honestly have no idea what sort of money goes into a game. I know there's an art department, QA, coding, marketing (and ad campaigns which probably add a bunch) etc., but how much money are all of those, really? I seem to recall reading somewhere on these forums that Cryptic has 60 employees. If all of them get about $50k a year, that's 3 million a year, but that's just a normal operating cost, and doesn't need to be factored in to "investing" towards a new faction.
Well, we know from a PWE statement last year that they expect to pull $2 million in revenue a season. My guesstimate there is that they pull around $5 million a year.
And given that they have around 50 employees and the average game designer in the bay area is making $80k (and $50k is a pretty meager living), that means they're probably reinvesting just about everything (annual payroll for the game of around $4.5 million when you estimate taxes). So the strategy right now I'd guess centers around reinvesting everything and betting on growth for a profit later.
And if your payroll is $4.5 million a year (at least while developing an expansion like LoR) and it takes anywhere nearly as long as it seems to have taken to develop this (they've spent time on it for two years and have been running at capacity focusing on it for several months), then about $2 million of the standard annual budget would probably be a very conservative estimate of how much this cost to make. It may have been money they would have spent on something else if not this but I'd venture that in the last 12 months, $2 million or more worth of labor has been spent on LoR.