In 2006, baseball player Curt Schilling, Red Sox hero of the 2004 World Series and a fan of online role playing games, founded a video gaming company he named “Green Monster Games, LLC,” reportedly after the left-field wall in Boston’s Fenway Park, and set up offices in Maynard, Massachusetts. Schilling, as founder, chairman and “executive visionary” of the company, set the date of 2010 for the release of their first product and then set about to raise money for this venture.
Massively Multiplayer Online Games, or MMOs, are incredibly expensive to produce. He shocked Boston area Venture Capitalists by proposing they invest $48 million in his start-up but the Venture Capitalists declined the opportunity. Mr. Schilling, who earned $118 million over the course of his career, including $8 million for a season where he didn’t pay a single game, says he invested $30 million of his own funds in the venture, which he renamed “38 Studios” in 2007 in reference to Mr. Schilling’s former number and possibly to avoid copyright infringement issues.
Then, in 2010, Curt Schilling met Rhode Island’s Republican Governor, Donald Carcieri, at a fundraising event.
Rhode Island was in a world of hurt. Cities were on the brink of bankruptcy. Hit hard by the recession, Rhode Island’s unemployment numbers stayed stubbornly high at 11.2%. It seemed like something of a good idea to target segments of the “New Economy” to replace the jewelry manufacturers who fled to China’s leaden shores and perhaps blinded by Mr. Schilling’s star power, the Governor and his Economic Development team passed through legislation for a $125 million dollar fund to guarantee loans for small businesses even as their Slater Technology Fund, started in 2007 to make small investments in new technology start-ups, was cut.
Curt Schilling, though a registered Independent, had actively campaigned for George W. Bush and John McCain’s Presidential campaigns and for Scott Brown in Massachusetts, had been a vocal champion of “small government,” but in this case he made an exception and accepted a $75 million loan guarantee from the State of Rhode Island.
“I will tell you that the growth of our company 38 Studios is government doing – gone right,” Mr. Schilling told Fox News.
Mr. Schilling claimed that his company would create 450 new jobs in Rhode Island by 2012 and would generate millions of new dollars for the State. He touted that by backing Studios 38, Rhode Island was positioning itself to become “a hub for game development” and lead to the creation of 2,000 new jobs. He boasted that Studios 38 would turn out to be a “multibillion dollar enterprise, eventually.”
And a pony, he should have added, for good measure.
Among the first things Studios 38 did with Rhode Island’s largess was to repay a $2.5 million line of Credit Curt Schiller had taken out in his name. In February, 2012, Studios 38 released the single player game, Kingdoms of Amalur: Reckoning, which had been under development with partner Electronic Arts before the Rhode Island Windfall. The game received good reviews and sold about one million units at $60.00 each. Three million would have had to have been sold just to break even.
Studios 38’s big bet was on a MMO called Copernicus. From the founding of Studios 38 this had been the goal and immediately upon formation heavy-hitters Todd McFarlane and R.A. Salvatore were signed on as Art Director and Creative Director, respectively. A trailer was eventually released in the middle of March for the game that Mr. Schilling promised would change “the landscape of the online marketplace” to much alarm as the consensus was it seemed to be, “not enough focus on the gameplay.”
Under the terms of the loan, Studios 38 was supposed to pay $5.1 million in interest on 2012, with the first installment of $1.25 million due May 1st, and $12.7 million a year thereafter between 2013 and 2012.
On April 20, 2012, the rating agency Standard & Poor affirmed its “A” rating of Studios 38 stating the company had a “stable outlook.” Studios 38 then missed its next payroll and on May 1st it defaulted on its interest payment to the State of Rhode Island. The company had hand-delivered a check for that amount but the informed the State that if they tried to redeem it the instrument would bounce higher that a foul ball hit to left field.
Curt Shilling met with Rhode Island officials, including Democratic Governor Lincoln Chaffee who had been opposed to the loan guarantees from the start, to beg for more taxpayer dollars to be thrown at his private enterprise but before any decisions were made it was announced that Studios 38 had folded, laying off all 350 members of its staff and terminating their health benefits immediately. CEO Jennifer McLean, formerly of Comcast, and the Senior VP of Development and Marketing John Blakely, formerly with Sony Online Entertainment, resigned just ahead of the mob.
When the original deal was proposed there were many detractors, including former Red Sox executive Jeremy Kapstein who was running as a Democrat for Rhode Island’s Lieutenant Governor at the time. Mr. Kapstein worried that if Studios 38 failed Rhode Island taxpayers “would be on the hook,” and that the money would be better invested in “small businesses already in Rhode Island that are struggling and unable to get financing.”
Curt Schilling dismissed such concerns saying, “The chain of events that would have to happen for one dollar of taxpayer money to be spent to repay this loan – it’s pretty staggering.”
Less than two years later that chain has been triggered and Rhode Island taxpayers, despite holding back approximately $20 million in case of default, will “be on the hook” for as much as $112.6 million in payments on principal and interest payments. Governor Chafee has informed Moody’s that Rhode Island intends to meet its obligations on these “moral obligation” bonds and a new policy has been put in place that no more than $10 million dollars in taxpayer money will be invested in any one company.
At the time the Rhode Island deal was negotiating the deal with Studios 38 it was reported that six other States and several Canadian Provinces were interested in luring the company to their location. If true, these jurisdictions must be thanking their lucky stars to have dodged such a bullet because for a little State, Rhode Island has been left holding a very big bag.