PROVIDENCE, R.I. – The government deal that guaranteed a $75 million loan for baseball star Curt Schilling’s video game company focused almost exclusively on how quickly the firm would bring jobs to Rhode Island and overlooked requirements for attracting outside investment or other steps that could have helped protect the public’s money.
The state’s agreement with 38 Studios in 2010 demanded job creation – and virtually nothing else — at a pace described as aggressive both by former employees and those familiar with the video game industry.
While Rhode Island was by far the company’s biggest investor, officials did not demand a seat on its board or require that 38 Studios raise outside capital according to any timetable, though the firm’s success hinged on its ability to bring in the tens of millions of dollars needed to finish its game.
Gaming industry and other experts agreed in interviews with The Associated Press that, in short, the state Economic Development Corp. crafted an agreement under which 38 Studios could fail despite, and in some ways because of, its attainment of every milestone Rhode Island set down.
“I think it’s kind of stupid for anybody who isn’t familiar with the industry to invest in it,” said gaming industry analyst Michael Pachter, of the firm Wedbush Securities. “You want to believe that the state did their homework and they’re sophisticated investors and understood the risks, but clearly they didn’t. Obviously, they thought they were buying jobs.”
38 Studios laid off its nearly 300 employees in Rhode Island in May and filed for bankruptcy protection in June. The state, which has the country’s second-highest unemployment rate, is likely on the hook for more than $100 million, including the $75 million in bonds it floated as part of the deal, plus interest.
Judy Chong, an EDC spokeswoman, said the agency is doing an “extensive review” of the 38 Studios transaction and could not answer questions from The Associated Press until it was complete.
Keith Stokes, who resigned as executive director of the EDC in May, and Michael Saul, the EDC’s former managing director of finances, did not return calls seeking comment.
Schilling has not responded to the AP’s requests for comment.
38 Studios planned to hire aggressively on the way to meeting the launch date for its “massively multiplayer online game” — games that are incredibly expensive and time-consuming to create.
The EDC built into the deal a $7,500 per-job penalty if 38 Studios fell short of its hiring requirements.
Employees had no indication the company was in financial trouble until they didn’t get paid; within weeks, all of them would be let go.
Pachter, the analyst, said most gaming studios typically don’t have more than 200 employees.