38 Studios Fallout—What Next?
Saturday, May 26, 2012
A day after former Red Sox star Curt Schilling’s 38 Studios laid off every single employee, Governor Chafee called for a forensic audit of the collapsing video game company and reiterated his concern that the Schilling will be unable to find an investor to help save the company.
Chafee, who confirmed the company is back in default of its $75 million loan guarantee, said the state has yet to take any steps toward securing any company documents that might be needed for the audit,
Schilling’s company defaulted on a $1.125 million and then attempted to pass a bad check to cover the debt. The company ended up making the payment but was unable to pay its employees. By Thursday, every employee in Providence and Maryland was informed of the layoffs.
Chafee reiterated his concern that Schilling has been unable to find private money to help keep the struggling company afloat, but said the state will continue to try to help the company find an investor.
While Schilling, who made over $114 million in salary pitching in the big leagues, has stated that he has invested the “majority of money I've earned in my life” in the business, the Governor said he still has not received documented information stating the exact amount.
"I have put the majority of the money I've earned in my life on the table," Schilling said in a 2010 case study by the Harvard Business School. "If I make another investment, I will have crossed the point of no return from a personal investment and company standpoint."
Chafee said no one has come forward yet to help save the company.
“I’m not optimistic,” he said. “In fact, I’m very pessimistic.”
Chafee said the fact that 38 Studios is back in default makes it ineligible for any tax credits. The company had sought over $8 million in film tax credits.
As of Friday, the Governor’s office still had not received official notification from 38 Studios that it had laid off all of its employees. During a press conference on Thursday, Chafee said that lack of communication has been a major part of the problems the state is having with Schilling’s company.
The state’s Economic Development Corporation (EDC) voted 8-1 to award Schilling’s company the $75 million guarantee in 2010, but the deal did not have the support of any candidate in the Governor’s race, including Chafee. Chafee said he knew that he was embarrassing himself him by showing up at EDC board meeting to protest the deal at the time, but said he felt strongly that the deal was bad for Rhode Island.
“It was a horrendous mistake,” Chafee said.
This week, the EDC was roundly criticized for holding 63 meetings (full board and subcommittees) between September 27, 2010 and last month, and only referencing 38 Studios on a handful of occasions. During that time span and the company’s financial health was never discussed.
General Treasurer Gina Raimondo, who was the only general officer in the state not briefed on the situation by Chafee on Thursday, took to the airwaves this week to criticize the lack of oversight after the original deal was hatched.
“To me the much bigger question is what’s been happening over the past 17 months,” General Treasurer Gina Raimondo said in an interview on the Dan Yorke Show on Wednesday. “How has the Governor and his staff in his capacity as chair of the EDC board been monitoring this investment? A company does not run out of money overnight. “
Former EDC executive director Keith Stokes resigned last week and the board’s vice chairperson Helena Foulkes resigned Thursday. Chafee has also indicted that Timothy Babineau and Daniel Sullivan will not return as members of the board. He asked George Nee to resign, but the union official has declined. Chafee spokesperson Christine Hunsinger said the Governor remains in conversation with Stephen Lane about his future on the board.
Dan McGowan can be reached at email@example.com
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