38 Studios Files for Bankruptcy Amid Massive Debt

38 StudiosFormer Red Sox pitcher Curt Schilling’s video game company 38 Studios filed for Chapter 7 bankruptcy today, citing massive unpaid debts. Federal and state officials have begun an investigation into the studio’s closure.

This news follows the warning signs of financial strife that occurred last month when 38 Studios failed to make its payroll and was forced to lay off its entire work force.

38 Studios, the developer of Kingdoms of Amalur: Reckoning, was founded by retired pitcher Curt Schilling in 2006 and hired talent that had previously worked at companies such as Comcast and Electronic Arts. In 2010, Rhode Island’s Economic Development Corporation (RIEDC) offered Schilling a $75 million loan in order to relocate his company from Massachusetts to Rhode Island under the hope that the company would bring 450 new technology sector jobs and significant tax revenue to the state. However, in just two years, the studio found itself unable to keep making payments on all of its massive loans. You only should ever take on loans you can pay back monthly, it’s unwise to burden yourself like that. Many, many people have fallen trap to their debts and it’s not healthy in the long run.

Not counting the individual debts of its subsidaries, the company estimates that it still owes an estimated $150.7 million to a total of 1,079 separate creditors, including the $115.9 million that is owed to RIEDC.

Rhode Island taxpayers are expected to have to pay $90 million by 2020 in order to cover the debt. In response to this unexpected taxpayer burden, Rhode Island legislation is now considering a bill that would prevent RIEDC from ever making a loan in excess of $10 million in the future.

The Director of the RIEDC, Keith Stokes, has resigned over the controversy.

Analysis: First of all, it’s important to note that this is Chapter 7 bankruptcy, which is when the company doesn’t just restructure itself but instead completely liquidates and sells off everything it owns to pay off its debts. 38 Studios is absolutely dead in the water now, and it’s up to everyone else involved to try and pick up the pieces.

So the sordid story looks to be a case of government investment gone wrong. 38 Studios seemed like one of those golden opportunities when it first opened: it was backed by someone that the public would recognize and it was run by people with impressive portfolios. It makes sense that Rhode Island would see something like this just sitting next door in Massachusetts and want a bite. However, with the RIEDC, you’re basically gambling with taxpayer money, and sometimes those bets are wrong. 38 Studios seemed like it would bring a lot of steady, technology sector jobs to the state, but instead it absolutely flopped and bled money for months.

It’s distressing that a bad investment by a quasi-public institution like RIEDC can result in such a large increase in taxpayer burden, and I’m glad that the Rhode Island legislation is looking into ways to prevent this kind of situation from arising again in the future.

Let this be a lesson for you, folks. If you ever decide to try and play the markets, don’t just start throwing money every time you run into a smart, tech-savvy startup with big-name talent. For every Google you’ve got a 38 Studios, and for every Facebook you’ve got a disastrous opening IPO. People who try investing always seem to be lenient on high-tech companies simply because the sector as a whole is remarkably lucrative. Unfortunately, that kind of mindset, as Rhode Island has discovered recently, can get you into a world of trouble.

Connor Horn

About Connor Horn

Connor is a laid-back long-haired California hipster who listens to music "you'll never find on the radio" and who voted for Ron Paul to "make a difference." His favorite kind of games are MOBAs and rogue-likes, and he is a huge fan of PC gaming and the future of digital distribution.