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EDC Never Discussed 38 Studios After September 2010

Thursday, May 24, 2012


Curt Schilling’s faltering video game company was rarely mentioned—let alone discussed—during Economic Development Corporation (EDC) board meetings in the 19 months after signing a lease to move into downtown Providence, a review of board meeting minutes dating back to September 2010 shows.

The board and its subcommittees held 63 meetings between September 27, 2010 and last month, but 38 Studios was referenced on only a handful of occasions during that time span and the company’s financial health was never talked about.

In July 2010, the EDC’s board voted 8-1 to award Schilling’s company a $75 million loan guarantee to move his gaming company from Massachusetts to the Ocean State. Schilling pledged to create 450 direct jobs and another 1,113 indirect jobs by 2013.

Last week the company attempted to pass a bad check to cover a $1.125 million payment due to the EDC and failed to make payroll. Governor Lincoln Chafee has labeled the company’s first game, “Kingdoms of Amalur: Reckoning,” a “flop” and has said he is opposed to offering anymore taxpayer funds to 38 Studios.

A Company Doesn’t Run Out of Money Overnight

But while the Governor, who campaigned against the deal in 2010, says the state is attempting to do anything it can to keep Schilling’s company from going under, critics are now questioning why state officials weren’t paying closer attention to the company’s finances.

“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. “

Raimondo, who was also opposed to the deal in 2010, said she doesn’t believe the government should be in the business of high risk venture capital. She says she asked to be briefed on the situation last week, but Chafee postponed their meeting. Rather than reschedule their sitdown, the two have taken to the airwaves to take jabs at one another over the issue this week.

During a press briefing at the State House Wednesday evening, Chafee said Raimondo has not been factually accurate with her criticism.

But Raimondo isn’t the only one that has been critical with the lack of information that has been provided about Schilling’s company. Donna Perry, executive direction of the Rhode Island Statewide Coalition (RISC), said it is time for either the Governor or a coalition of reform-oriented lawmakers to demand that a top-to-bottom review be conducted on the oversight procedures the EDC is supposed to follow.

“The EDC has a large budget, a seasoned deputy director, a full Board, legal counsel and a staff and it defies logic if the agency lacks a transparent, well defined process to vigorously monitor companies awarded loans,” Perry said. “It’s very unsettling to learn that the EDC believes it’s an adequate response to tell the Governor and the state that no documented reports exist from the supposed monitoring of 38 Studios by the IBM Corporation.”

Not Chump Change

Schilling has been unwilling to speak with the press, but the outspoken former Red Sox ace has taken to Facebook to say state officials and the public have been misinformed about what is happening at 38 Studios.

“I wanted to clear up some misinformation around 38 Studios first product, Reckoning,” Schilling said in response to Chafee’s criticism. “Sales of Reckoning OUTPERFORMED EA’s expectations and sold more than 1.2 million units in the game’s first 90 days in the market.”

But State Rep. Doreen Costa remains skeptical. She said the EDC should have been monitoring 38 Studios long before it defaulted on a payment and stopped paying its employees. She said she is frustrated because the EDC’s money could have gone to small businesses in that state.

“It’s not like we gave them chump change,” Costa said.

Job Fund Discussed at Length

The $75 million came from the EDC’s Job Creation Guaranty Program (JCGP), which the General Assembly expanded from $50 million to $125 million shortly before the EDC reached an agreement with 38 Studios.

The JCBP has been discussed at length in numerous board meetings over the last two years, with several members suggesting the EDC do a better job at marketing the program. To date, only 38 Studios, NuLabel and The Corporate Marketplace have received loan guarantees.

The EDC also implemented a rule that caps the amount a company can receive at $10 million, $65 million less than Schilling was awarded.

But while board members discussed the program and reviewed applications, that September 27, 2010 meeting was the last time 38 Studios’ finances were discussed until the board held an emergency meeting last week. During that September meeting, executive director Keith Stokes mentioned that the “favorable bond ratings are an indication of the value of the 38 Studios project.”

Stokes resigned from his post last week.

A Major Overhaul Needed

For University of Rhode Island economist Dr. Leonard Lardaro, the 38 Studios saga shows the state needs to revamp the way it conducts its business. He said simply blaming to EDC would be a failure to recognize the larger problem.

“We start with a major overhaul of our tax and cost structure (i.e., taxes, fees, regulations, electricity costs, and skills of our labor force), put in place a mechanism for systematic analysis on an ongoing basis, for both the Governor and the Legislature, then incentivize investment-oriented spending over consumption-oriented spending,” Lardaro said.

But he remains skeptical that change is on the horizon.

“So does RI have the political structure or the will to do this? Probably not until the people of Rhode Island finally begin to demand results from their leaders,” he said.

Dan McGowan can be reached at [email protected].


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The EDC is so stupid that they didn't mandate a seat on the board or mandate that RI would have access to the books and bank accounts.


Comment #1 by Jim D on 2012 05 24

Now the "experts" come out of the wood work!

Comment #2 by Walt Barrett on 2012 05 24

Calling all lawyers (the ones who are not in the General Assembly, if any.) Can't the citizens of RI organize a class-action suit? I seems pretty clear that elected and appointed officials had some feduciary responsiblity to take at least a passing interest in how the $75 million was being used and the finanacial health of 38 studios. It seems like there are guilty parties from the Carcieri administration, and maybe even more so in the Chafee administration if the EDC didn't even monitor the situation since Sept 2010. And, although I am a great fan of Raimondo, didn't her office have some duty to at least say "Hey folks, what's going on with that $75 million dopey loan to the game company, is anyone looking at it?" Perhaps it might have been mentioned in a staff meeting or something? I'll join the class action suit if a law firm can put it together. Any others interested?

Comment #3 by Captain Blacksocks on 2012 05 24

Well, at least we have the America's Cup...oh yeah, they fumbled that, too. And where the hell is that Carcieri dope?

Comment #4 by Ned Rivers on 2012 05 24

Yes, Walt I was one of the many that said right up front that this would be a disaster.

I imagine from your weak attempt at sarcasm that you were supporting the idiots who made this happen.

Carcieri, Weed, Fox and Stokes.

Comment #5 by Jim D on 2012 05 25

@Walt: The Projo did a poll at the time of the deal and found that over half of the state opposed the deal.

Experts from the private sector investment community warned it was a risky deal and highlighted that there may be a reason venture capital firms passed.

3 out of the 4 gubernatorial candidates--Chafee, Raimondo and Caprio--went on the record opposing the deal. Chafee went so far as to threaten to sue Carcieri and the EDC board over it. Robitaille, the 4th candidate and Carcieri's communications director, said he'd have rather seen the program support RI's existing small businesses, although he caved in and supported Carcieri on the deal in the end.

So it's not like experts are now coming "out of the woodwork". They've been there from the start. Carcieri, Fox, Constantino and to a lesser extent, Paiva-Weed pushed this deal despite the warnings and the rank-and-file members of the General Assembly followed like automatons.

Comment #6 by Todd B on 2012 05 25

I love the main photo that GoLocalProv picked for this story. I would like to see that used as the State Flag. Pretty much sums up how RI is run.

So venture capitalists thought the risks were too steep? I wonder why.
Was it?

1. A company with no track record of product success?
2. A company with no real assets to post as collateral?
3. A CEO with no years of operating any other significant company?
4. A start up company entering one of the most risky segments of the media market?

But to RI leadership, that looked like a fabulous deal! Me thinks something smells a little fishy in the Ocean State.

Comment #7 by Captain Blacksocks on 2012 05 25

On the bright side, this will be the icing on the cake catalyst that finally awakes the majority of clueless Rhode Islanders to vote anti-incumbant this November. Th sh*t hitting the fan couldn't have happened at a better time.

Comment #8 by Jeffrey Brown on 2012 05 25

Just for the record John Robitaille was against the 38 Studios deal and felt that the EDC should have given 75 -$1 million loans to small businesses instead. After the EDC and the legislature approved it, he then got behind it to support it being successful.

Comment #9 by Michael Napolitano on 2012 05 25

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