38 Studios Bankruptcy: Executives Say Tax Credits Could have Saved Company
Wednesday, July 11, 2012
The President of Curt Schilling’s defunct video game company told a federal bankruptcy court that the company could have survived had the state signed off on tax credits, according to media reports filed from the bankruptcy hearing today in Wilmington, Del.
38 Studios had received initial certification for $14.3 million in tax credits, but the state balked after the company’s financial problems came to light. Even though the tax credits were never issued, Providence lawyer Michael Corso had already pledged the entire lot as collateral for an $8.5 million BankRI loan in January.
Corso’s name came up during the bankruptcy hearing when 38 Studios representatives were asked who he is and why he was wired $232,000 on March 30, just over two months before the company filed bankruptcy, according to Boston Globe reporter Todd Wallack.
Court documents show the company owes over $150 million to more than 1,000 creditors and has less than $22 million in assets. The state is the largest secured creditor at $115.9 million and Corso is the largest unsecured creditor at over $11 million.
According to WPRI, Thomas and Rick Wester, the company’s former Chief Financial Officer, indicated that a local investor was willing to loan the company $15 million as late as June if the state signed off on tax credits. It is unclear who that investor was, but Michael Sweeney, a Providence lawyer who headed up a group of five Rhode Islanders who loaned 38 Studios funds in 2009, told GoLocalProv he was not involved.
Thomas and Wester also acknowledged that the company's first game, “Kingdoms of Amalur: Reckoning," was not as successful as Schilling has said in the past. The game sold about 1.3 million copies and the company was expecting close to 2 million copies to be sold. Governor Chafee has characterized the game as a "flop," but Schilling always said that it outperformed expectations.
38 Studios received a $75 million loan guarantee from the state’s Economic Development Corporation (EDC) to come to Rhode Island in 2010. The controversial deal was made possible after the General Assembly jammed through legislation that allowed the EDC’s Job Creation Guaranty Program to expand from $50 million to $125 million.
The company filed for bankruptcy in June several weeks after laying off all of its employees in both its Providence and Baltimore offices. The company’s financial problems came to light after it defaulted on a $1.125 million payment due to the EDC on May 1.
Dan McGowan can be reached at email@example.com.