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.
On July 17, 2009, Duffy & Sweeney co-founder Michael F. Sweeney formed 38 Bridge Partners LLC to provide Schilling’s company with a short-term bridge loan, Sweeney said during a brief weekend interview. He did not reveal the exact amount the group loaned 38 Studios, but said the investment was “significant” and that Schilling honored their agreement and paid off the loan.
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.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTWhile 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 [email protected].
EDITOR'S NOTE: Michael Sweeney is an investor in GoLocal24, LLC, the parent company of GoLocalProv.com.
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