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 dmcgowan@golocalprov.com
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Comments:
a y
7:48am on Saturday, May 26, 2012
This type of venture capital investing only works when you spread the risk. A million dollars each for 75 companies is one thing, but $75 million for one company is just a hail Mary pass. At least when the state spent millions for Digital Equipment Company they weren't left empty handed. After that failure they had shiny new on / off ramps and a business park they could use to compete with the private sector.
The State should take a lesson from the successful parents of college students- You're better off buying the building, then just paying four years of rent.
Lance Chappell
8:31am on Saturday, May 26, 2012
I have always question how effective this ”corporation” really is. These fiefdoms usually end up failing and get mired in corruption investigations. They are also dumping grounds for political appointees to encourage favorable rulings on questionable projects. No one has asked the question of the performance record of this “corporation”. What companies have started in this state and are still here? I think we all know that answer.
The only way this state will crawl out of this recession is through tax reform and serious spending cuts. With a state budget approaching $8 Billion dollars and taxes going through the roof, people are fed up and those that can leave are heading for the border. When the principle employer of the state is government, you know you have a problem.
Charles Beckers
8:34am on Saturday, May 26, 2012
Nobody seems to be thinking about the fate of the now unemployed people who worked at 38 Studios. For example, the video gaming industry is aware that a number of them accepted a deal to move to Rhode Island that now leaves them holding the bag on two mortgages (with no job). Some investigative reporter needs to look into this.
Charles Beckers
8:37am on Saturday, May 26, 2012
See, for example, the gaming blog site:
http://www.theverge.com/gaming/2012/5/25/3043282/38-studios-downfall-leads-to-second-mortgages-for-some-employees
Paul Marshall
9:09am on Saturday, May 26, 2012
@Lance: Excellent points.
One also has to ask what "oversight" the legislative bodies like "Senate Govt. Oversight Cmte" was actually providing.
And: what was our great governor doing with his time? He knew this loan was ultra-risky, yet did nothing until the last second.
Raimondo is Right...it takes substantial time to go broke.
My guess is that "Chafe-Me" was too concerned with his "Social Justice Agenda" to be concerned with the JOBS and TAXPAYER MONEY in this case....just what vindictive game was our Village Idiot playing here?
We have to STOP VOTING FOR LIBERALS.
David Beagle
9:30am on Saturday, May 26, 2012
I can't help but draw comparisons to this debacle and the way too many cities and towns in Rhode Island put THEMSELVES into untenable positions by inking unsustainable contracts with labor, handcuffing themselves into a corner, thus putting more and more of the burden on the tax payers.
guy smily
10:21am on Saturday, May 26, 2012
Raimondo has used this as a perfect opportunity to attack Chafee. Chafee of course is an Independent, and an easy target by anyone. This is clearly an opportunist moment. Now if she went after another Democrat such as Cicilline (whom she supports) one may be convinced of her primary motives of doing the right thing.
Chafee has no idea what he is doing and this company should have been watched from the beginning. Clearly nobody in state government was doing their job.
Ned Rivers
10:29am on Saturday, May 26, 2012
*ahem* @Paul Marshall: Correct me if I'm wrong, but wasn't Don "Big Audit" Carceiri the biggest most vocal cheerleader for this nightmare? So your point re: liberals would be what again?
Ned Rivers
10:38am on Saturday, May 26, 2012
oh, and @Paul Marshall, last time I checked, Schilling was a card carrying, dyed-in-the-wool conservative Republican. So your point re: liberals would be what again?
E.J. Dunn
11:04am on Saturday, May 26, 2012
David Beagle's right. This is perfectly in character for Rhode Island.
louis rizzo
11:17am on Saturday, May 26, 2012
I wonder who leased the furniture to 38 studios? I doubt it would be any politician's son..never in RI
victor crit
11:20am on Saturday, May 26, 2012
Can anyone confirm or dispel the rumors about higher than industry compensation for talent, lots of gifts/swag, re-occurring expensive catered dinners for employees? I'm good with doing that kind of thing when there's real big success and profits to support spreading the appreciation around. I think it's different when it's taxpayer moneys from a state that can't afford it in times when folks are losing part of their retirement benefits and we're all taking it on the chin and being asked to suck it up. I don't blame the employees for saying every moment they spent there was the best. They were treated like royalty and now they are also hurt by what's happened. It raises huge questions for me about the competency or intent of the management though.
jeremy hart
11:29am on Saturday, May 26, 2012
Thank you Ned for pointing that out to Paul. He still won't understand though, because he believes liberals are to blame for everything.
Howard Miller
11:35am on Saturday, May 26, 2012
what do you think had a three and two count on us in the clutch looking for a fast ball Schill threw us a curve then went to the showers
jon paycheck
7:21pm on Saturday, May 26, 2012
I'd like to see a list of payments by vendor
See who made money off this and how they
We're connected
Olin Thompson
8:47pm on Saturday, May 26, 2012
This deal smelled of political BS from the beginning. Having a little history in the venture capital world (on both sides of the ledger) I was always mystified.
From purely a business point of view, this was a very high risk industry to invest in. If Schilling could not get his rich (ex-baseball) millionaires, jock sniffers or venture capitalists to put up the money, that should have been a very big red flag to any politician. Yes, the promise of a lot of high tech jobs sounds great, but not in such a high risk industry as computer games.
If a professional investor had put in the money, there would have been a lot of oversight and the money would have been passed out on a more meaningful program that the number of employees, like the progress on the game itself, validated by a third party expert.
It looks like the EDC just played yes man to the head jock sniffer on Capitol Hill. Any prudent investor (it would be nice if EDC qualified here) would not put all the money they had on one race horse but spread out the money among a few different options.
Schilling goes on Fox and blast the people who take handouts for the government. I assume he will apologies to everyone for taking a RI handout and then asking for a second help.
Now we all have to eat a very big amount of that political BS in the form of many millions of dollars due from the tax payers.
Bob Myron
10:34pm on Saturday, May 26, 2012
It's very simple what's next....Past and Present Pro Athlete's lining up at the State House...the words out....The Stooges in RI are easy....Before ya know we'll be in the Salsa Business, Beer, Snack, Horse Shoeing business with every Tom, Dick and Harry around......
Because of one thing.....WE LACK LEADERSHIP...CASE FREAKIN CLOSED...
Donna Day
1:03am on Sunday, May 27, 2012
THE CITY OF PROVIDENCE IS LEGALLY OBLIGATED TO PAY RETIREES PENSIONS BY VESTED PROPERTY RIGHTS UNDER THE GUARANTEE OF THE 14 TH AMENDMENT
WHAT THE HELL IS THIS MORAL OBLIGATION CRAP WHEN TAVERAS TRIES TO BREAK LEGAL CONTRACTS WITH RETIREES
CAN YOU SEE HOW HYPOCRITICAL HE IS!!
Donna Day
1:06am on Sunday, May 27, 2012
TAVERAS SAYS WE HAVE A MORAL OBLIGATION TO PAY BONDHOLDERS 125 MILLION
BUT HE WANTS TO SCREW THE FIREFIGHTER & POLICE RETIREES OUT OF THEIR HARD EARNED PENSIONS.
THE COURTS WILL SEE JUST HOW MESSED UP THIS HARVARD BOY IS
Donna Day
1:11am on Sunday, May 27, 2012
Let's see BONDHOLDERS BOUGHT BONDS KNOWING THE INVESTMENT RISK YET ALL THE POLITICIANS, TAVERAS, CHAFEE CIANCI, PROVIDENCE CITY COUNCIL All think MORALLY THE STATE SHOULD BACK THE BONDS AND PAY OUT THE 125 MILLLION FOR NOTHING IN RETURN
THESE SAME TAVERAS TWISTED TORNADO FANS WANT TO HELP HIM SCREW TRETIREES OUT OF THEIR LEGALLY AND MORALLY HARD EARNED PENSIONS
DOES ANYBODY ELSE SEE HOW MESSED UP TAVERAS IS????????????
SCREW THE BONDHOLDERS AND PAY THE RETIREES
Gary Arnold
8:18am on Monday, May 28, 2012
RI does need to foster a business environment that entices companies to launch here. But we need to have people in charge that understand business issues, finance, business plans and risk/rewards, WE DON'T HAVE THOSE PEOPLE.
Everyone is talking like don't do anything so we don't get burned and sticking their heads in the sand hoping everything will go away and things will automatically get better. It does not work that way. Go the the states that are building their business content and you will see a very involved strategy and planning to get and nourish new business, WE DON'T GET IT IN RI.