EDC Director: $75M Schilling Deal Was ‘Misunderstood’
Thursday, November 04, 2010
In an exclusive interview with GoLocalProv, the man behind the state’s deal with Curt Schilling’s video game company, 38 Studios, said it was easily misunderstood during a heated election cycle—and a recession to boot.
“You have something such as $75 million in a recession. You had a persona of Curt Schilling. You had an industry that few people could see. They saw it as a game, not as industry,” said Keith Stokes, executive director of the Rhode Island Economic Development Corporation.
“They didn’t get the fact that the men and women behind the game are software engineers and designers and that they were coming out of Rhode Island School of Design or Brown. They didn’t get that. They just heard ‘game.’ So it was very easy for people to come to a very quick conclusion that something must be going on here. It doesn’t fit. And it was an election cycle.”
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‘20 years from now everyone will love 38 Studios’
In the campaign for governor, three out of the four major candidates—with the exclusion of Republican John Robitaille—heavily criticized the deal, which was widely perceived as being unpopular with voters.
But Stokes said history will repeat itself. When first proposed, he said the Providence Place Mall, Convention Center, and T.F. Green Airport weren’t so popular either.
“But now today I can tell you 20 years later everyone will now tell you they were behind those projects and they led those projects and they loved those projects. But that’s the way the economic development works,” Stokes told GoLocalProv. “So 20 years from now everyone will love 38 Studios and all the clusters of digital media video companies that are in our capital city behind it.”
Loan program ‘never ever’ about one company
Stokes went into detail about the train of events that led to the $75 million deal—which came to a close yesterday when the bonds that fund it were sold. The loan guarantee took a big chunk out of the $125 million the General Assembly authorized the EDC to make in loan guarantees in a bill that passed in June. But Stokes said the program, known as the Job Creation Guaranty Program, was “never ever ever” a program for any one company at any one time.
“I don’t like special legislation for individual companies,” Stokes said. “What I like to do is create a program and then that program—under rules and regulations—would meet the needs of a number of companies.”
He said he had approached state lawmakers with the idea of creating a loan guaranty fund of $50 million before 38 Studios ever came into the picture. He said the fund was targeted toward technology companies that did not have assets like machines or equipment. In their early stages they instead might have intellectual property, such as a license or patent—which are hard to use as collateral to get a loan, Stokes said.
Stokes said he discussed his idea for this special program—or loan guaranty fund—with lawmakers about a month before he was confirmed as Executive Director of the EDC, which was in February 2010.
Schilling deal has its beginnings in WWII fundraiser
It wasn’t until early March, he said, that 38 Studios entered the picture, when Gov. Don Carcieri met Curt Schilling at a fundraiser for World War II buffs in Massachusetts.
“He and the governor met and he mentioned to the governor, ‘I have a company. I’m looking to grow. Does Rhode Island have anything to offer?” A few days later, officials from 38 Studios contacted House Speaker Gordon Fox with the same question. Both Fox and Carcieri turned to Stokes, who first met with Schilling in mid-March and was told the company needed $60 million to $70 million to help it grow—far in excess of the $50 million envisioned for the loan guaranty program.
“I was trying to be innovative, creative, and seize an opportunity,” Stokes said. “Because I knew the General Assembly was openly engaged in economic development (and) were looking at this creating this job creation fund, I simply went back to leadership and said this 38 Studios might be an opportunity.” As a result, lawmakers bumped up the amount of loan guarantees the EDC could make from $50 million to $125 million.
It still may seem like a lot of money, but Stokes is quick to point out that the EDC rejected several alternatives that would have involved spending public money up front—such as asking voters to approve a bond on the ballot, or asking lawmakers for an appropriation.
Benefits of the deal
The risks of the deal have been well-publicized—and fueled by the heat of an intense campaign for governor—but the many benefits have not been discussed, Stokes said. He elaborated on those benefits, many of which he said have yet to be made public:
• Over the next five years, 38 Studios will pay any “excess revenue” that it earns to the EDC, up to $20 million. In other words, the EDC is getting a return on the investment.
• Not only will the state see 450 new jobs, but the income taxes on those salaries will generate $3 million a year in new revenue for the state.
• Once 38 Studios has paid back the loan, in 10 years or less, the EDC will be able to issue $75 million in loan guarantees to other companies. In other words, the $75 million is not a one-time deal.
• The excitement generated by 38 Studios’ move to Providence has sparked interest from other entrepreneurs. Stokes said half a dozen companies in the life sciences, financial services, and defense technologies have contacted the EDC expressing an interest in applying for the remaining $50 million in loan guarantees. He said those companies are seeking smaller amounts—closer to $5 million.
“My premise has been is that … you invest your way out of a recession and that’s exactly what we’re doing,” Stokes said. “We’re making strategic investments but we’re also evaluating—measuring the return on that investment because these are public monies, or public obligations, or public guarantees.”
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