Providence Investors Gave Schilling 7-Figure Loan in 2009
Monday, June 04, 2012
A year before Curt Schilling’s 38 Studios received a $75 million loan guarantee from the state, a group of five investors led by a Providence lawyer gave the company a seven-figure loan, GoLocalProv has learned.
By September 2010, Sweeney, who said he was unaware Schilling had plans to move his video game company to Rhode Island when he invested in 38 Studios, was helping to negotiate the lease for the company’s downtown headquarters.
While Sweeney did not reveal the names of his fellow investors, he said the group was comprised of private citizens and did not include any elected officials or lawyer Michael Corso, who helped bring 38 Studios to Rhode Island and was attempting to help sell off film tax credits on behalf of the company in the months before its financial woes became public.
Schilling Blames Politics
Last month, 38 Studios defaulted on a $1.125 million payment due to the Economic Development Corporation (EDC) and later attempted to pass a bad check to help cover the debt. The company ended up making the payment, but was unable to pay its employees. The company found itself back in default when it was forced to lay off every single employee nearly two weeks ago.
Schilling, who says he has invested the “majority of the money I've earned in my life" in the company, has suggested Governor Lincoln Chafee helped scare away new investors by going public with 38 Studios financial problems and revealing that the “Project Copernicus” game was not scheduled to be released until June 2013.
Chafee, who was opposed to the $75 million deal during his campaign in 2010, has defended his public comments by warning that taxpayer funds are at his risk. The Governor, who says he encouraged every EDC board member who voted for the deal to resign, has also disputed the claims that he helped drive investors away from the company.
“I don’t believe [my comments] scared away investors,” Chafee said during a State House press conference last week. “An investor is not going to be scared away by some Governor’s comments.”
Questions Unanswered
Still, questions of how much politics played a role in the original deal that brought the company to Rhode Island have gone unanswered.
In order for the EDC to award the $75 million loan guarantee to 38 Studios, the General Assembly had to pass legislation to expand the corporation’s Job Creation Guaranty Program from $50 million to $125 million. Lawmakers have continuously stated that they were unaware the entire $75 million had been earmarked for one company.
Sweeney, who has made minimal campaign contributions to House Speaker Gordon Fox, former Governor Don Carcieri and former House Finance chairman Steven Costantino over the last decade, said he was not at all involved in the deal that brought the company to Rhode Island. He also said Schilling never approached him for another loan after the 2009 deal.
But Corso, who has made millions dealing in tax credits and has close ties to Fox, was involved in the 38 Studios deal from the very beginning. Corso hosted a meeting between Fox, former EDC director Keith Stokes, Schilling and 38 Studios director Tom Zaccagnino in March 2010.
Steven Nappa, a friend of Corso’s and the owner of a construction company that filed for bankruptcy in December 2009, was awarded the contract to build out the interior to the 38 Studios headquarters at One Empire Plaza.
Coincidentally, Zaccagnino’s name is associated with several LLCs that were formed in Rhode Island in May 2009 and list Sweeney as the registered agent. However Sweeney told GoLocalProv that those entities were related to a $12 million real estate project in Little Compton and had nothing to do with 38 Studios.
Future Uncertain
But while Schilling was able to make good on paying back Sweeney and his fellow investors, it remains unclear whether taxpayers will be left on the hook for the $75 million the state essentially co-signed for. Gaming industry experts say the state may only receive pennies on the dollar for the intellectual property it will own if the company goes bankrupt.
University of Rhode Island business professor Dr. Edward Mazze said poor management, a lack of planning, inadequate capital and the fact that it was growing too fast are among the reasons the company has fallen on hard times.
“38 Studios had the opportunity for the last eighteen months to raise additional funds after they received the state guaranteed loan and/or to enter into strategic partnerships with other firms in the industry including distribution channels,” Mazze said “As of today, 38 Studios has been unsuccessful in accomplishing these tasks. They have done a lousy job in communicating with their stakeholder groups including the State of Rhode Island. 38 Studios has become their own worst enemy.”
Dan McGowan can be reached at dmcgowan@golocalprov.com.
EDITOR'S NOTE: Michael Sweeney is an investor in GoLocal24, LLC, the parent company of GoLocalProv.com.
Related Articles
- 38 Studios Debacle - A Timeline
- 38 Studios Fallout—What Next?
- EDC Never Discussed 38 Studios After September 2010
- Dan Lawlor: The Political 1% Need to be Held Accountable for 38 Studios
- Insiders Had Hands All Over Schilling’s 38 Studios Deal
- Lawmakers Feel Duped by Schilling’s 38 Studios Deal
- Schilling Claimed 38 Studios Would Create Over 1,500 Jobs
- Schilling has Invested ‘Majority of Money I’ve Earned in My Life’ in 38 Studios
- Schilling’s 38 Studios Lays Off Entire Staff—Taxpayers May Be Stiffed
- Who Created the 38 Studios Deal?
- Who Fought Against the 38 Studios Deal?
- Is Curt Schilling’s 38 Studios Going Broke?
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Comments:
pearl fanch
5:20pm on Monday, June 04, 2012
I don't understand the purpose of this story.
Shilling was given a loan and he paid it back.
That's newsworthy?
I've paid off loans too, and never seen a story written about it.
Dan McGowan
5:28pm on Monday, June 04, 2012
Hey Pearl,
Thanks for reading. I think you raise a good point. Although it certainly shows that Schilling had RI connections long before that March 2010 date that has been reported.
Dan
dmcgowan@golocalprov.com
Gary Arnold
10:11pm on Monday, June 04, 2012
This is about playing politics in RI, it is not about the politicians making money for the state it's about politicians making money for themselves.
The only time the people of RI come into the picture is to pick up the tab with taxes.
Todd B
9:26am on Tuesday, June 05, 2012
This story is merely saying that 38 Studios repaid its debts when it was able to do so. That's great. Not much of a story, but I'm glad to see some Rhode Islanders were able to benefit from the presence of 38 Studios.
Shalala Shamba
12:33pm on Tuesday, June 05, 2012
This news story is bigger than you think. In other news media, we are beginning to see the lists of lawyers who were involved on the RIEDC side. Dan McGowan has done well to expose the 2009 “bridge loan” by Sweeney’s investment group, a deal certainly made at his firm, Duffy and Sweeney. A “bridge loan” is a short term loan pending arrangement of larger or longer-term financing.
Question: did D&S lawyers know the big RIEDC loan was coming? Was D&S working for Bank Rhode Island on the RIEDC deal? If Sweeney was “not at all involved” in the deal that brought the company to RI, what would you call “negotiating the lease”?
All the little pieces of the puzzle were performed by different law firms, and all of them need to be audited to get to the bottom of it. The auditors should be very interested in whether this group of investors knew about the RIEDC $75 million loan from which they were likely repaid. Of course, Schilling never approached this group of investors for another loan, because it was a high interest rate bridge loan made by venture capitalists who made a nice chunk o change.
Another good question: Who approached who in the first place? Was Schilling introduced to this investment group (created specially for him) through any of the politicians or business people we see listed in this article?
Sweeney’s firm D&S has so far not been on the list, but should be put on it now, since they likely did work on the RIEDC – 38 Studios loan for Bank Rhode Island, the bank where Schilling dropped off his gold coins as collateral.
Shalala Shamba
1:13pm on Tuesday, June 05, 2012
There is an even bigger can of worms here if we begin to tip the can over: Elsewhere we read that in 2009 Schilling’s 38 Studios (at this time based in Mass) purchased the Maryland-based Big Huge Games.
Was the 7-figure loan by Sweeney’s 38 Bridge Partners investment company used for this purpose? Was the “bridge loan” repaid in 2010 with mere pocket change from the 8-figure RIEDC loan? And if you follow the money, did Rhode Island taxpayers ultimately pay Schilling to buy a new company in another state? Was that money earmarked only for his Rhode Island company expenditures?
The mind reels now that Schilling’s employees in both MD and RI have lost their jobs. The 2009 bridge loan needs to be investigated, and it will come up once auditors audit the books of Bank Rhode Island.
Jack Cottone
2:54pm on Tuesday, June 05, 2012
I thought these were bonds for sale to the public. I didn’t buy any bonds, so why should I pay?
Some people think this article discloses nothing important or related. BUT… Since Golocal news is a client of this attorney, I’d be interested to know how this interview came about? …. AND Why come out with this information now unless someone is breathing down your neck? Would it be better to “come clean” with a boring storyline (‘limited hangout’) about an unrelated loan? It is unwise to come to conclusions too early on this.
JC
Jack Cottone
3:04pm on Tuesday, June 05, 2012
Shalala, good work. It's beginning to look like Schilling was fleeced by Rhode Island attorneys long before he moved his business here. Poor bastard had no idea the chicken coop here is guarded by the foxes (bankers, lawyers, politicians).
Dan McGowan
9:48pm on Tuesday, June 05, 2012
Jack,
Just to be clear, I never found about GoLocal's relationship with Mr. Sweeney until after the story was in the works. I have nothing to do with the business side. Not smart enough
Jack Cottone
1:24pm on Wednesday, June 06, 2012
Dan, you did a great service with this article and interview! Glad to hear you didn't know about Golocal's relationship with this law firm when you interviewed the top partner. But my reference to "coming clean" with a "limited hangout" was not pointed at you, but to the law firm itself. Just wondering how the interview came about and whether it was just a hunch on your part, or whether it was his idea.
Also BTW, this article doesn't come up on the related posts list below the articles about Schiller and 38 Studios, and it should because it's related and more people should read it! Can you get your staff on that? We wouldn't want this gem to go underreported!
Thanks for your work.