After defaulting on a loan payment to the Rhode Island Economic Development Corporation (RIEDC) in the amount of $1.1 million, 38 Studios founder Curt Schilling has asked the firm for additional support. In response to this, the board scheduled an emergency meeting yesterday morning. They did not vote on the issue, and will be meeting again Monday, but Keith Stokes, the head of the board during the time the loan was given and the current (now former) executive director of the Economic Development Corporation, resigned. The board is still trying to determine whether they should help the Kingdoms of Amalur developers or not.
38 Studios was founded in 2006 as Green Monster Games, a play off of the famous left field wall at Fenway Park, the home of the Boston Red Sox for whom Schilling became a sensation throughout New England. Schilling founded the company with a focus on MMOs as a direct reflection of his personal interests. Less than a year later, the company adopted its current name, based off of the number he wore on his jersey throughout his career. Over the next few years, the company did a series of acquisitions and hirings, when finally In July of 2010 it began talks with the RIEDC about securing a loan. On November 3rd of that same year, the studio announced it had secured the loan; among the terms of the financing were moving the company to Providence and creating 450 jobs. The company began its relocation on April 8th of 2011, ahead of schedule.
On June 24th of 2011, the first signs of financial struggle appeared: the company’s auditor gave notice that “the company will require additional financing to fund future operations” and that there’s “substantial doubt about the company’s ability to continue as a going concern.” This opinion was cited again this year in a March 15th securities filing, which also revealed that the company has created 250 jobs to date – only 50 short of its deadline for October of this year.
The Rhode Island Economic Development Corporation is an agency of the State of Rhode Island. It is able to offer up to $125 million in loans, and is intended to act in a manner which will allow for the creation of jobs and industry in Rhode Island. Keith Stokes was appointed head of the Economic Development Corporation after serving on its board for 16 years. Although he said the available $125 million was not intended for a single company, the loan given to 38 Studios was a calculated risk he claimed “well worth taking” after months of analyzing the video game industry and creating an agreement that went “to great lengths to safeguard taxpayers and ensure economic performance.” After Lincoln Chafee replaced Donald Carcieri as governor last year, the board implemented a policy that placed a $10 million cap on the amounts loaned.
Stokes is not the sole person to blame for the excessive loan, however; Carcieri and his people pushed heavily for the deal. Stokes’ resignation also leaves a hard-to fill gap in the leadership of the RIEDC. Rhode Island Senate President Teresa Paiva-Weed said as much, as did House Speaker Gordon Fox.
Following yesterday’s events, it has been reported that 38 Studios opted to pay the $1.125 million loan payment to save face by firing temporary and contract employees, and hand delivered the check today. Despite this, the check has reportedly been returned because the company admitted that they did not have the available funds to cover the check. A statement from the RIEDC states that they will accept the money once the company has the funds to cover it.
Analysis: Things are looking pretty grim at this point. Kingdoms of Amalur: Reckoning had a mixed reception, with some reviewers praising it while others harshly criticized it. It did not sell nearly as well as 38 studios had hoped, and the result was them falling short of needed cash. The studio does have another game in development, however – an MMO currently titled Project Copernicus.
It’s been reported that the terms of the agreement state that if the company defaults on the loan and can’t pay, the RIEDC can sell their games, the rights to their games, and anything in development to make up for the owed money. This effectively means that in the worst case scenario, Kingdoms of Amalur belongs to the state of Rhode Island as does Project Copernicus. The RIEDC most likely does not wish for the company to fail, however. Given that a fire sale does not generally recover all of the cash loaned and the loss of the company would be the loss of hundreds of Rhode Island jobs (the main reason the loan was approved), they’ll probably try to do everything in their power to help.
The purpose of the RIEDC is to help boost the Rhode Island economy by allowing the business sector to flourish and facilitate job creation. Loaning 60% of their available cash to a single business seems highly reckless, but we also have to take into account that Curt Schilling is a legendary baseball player. I have little doubt in my mind that his name and feats are one of the main reasons he acquired this loan. Now, to be fair if the studio had not put all their eggs in one basket (Kingdoms of Amalur), they might have been feasibly able to repay their loan in a timely manner. But handing out $75 million on the premise of “he’s good for it, he gets shit done” isn’t very prudent. At this point, the company isn’t able to make payroll, writes rubber checks, and as we’ve seen with other players in the game industry – this means death is nigh. Rhode Island taxpayers might just have to bite the bullet on this one.
As a final note, the RIEDC’s funds are only available in part due to the federal stimulus of 2009. Given that Schilling has been quite clear on his opinions of Obama, this makes him a bit of a hypocrite, if you ask me.