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slides: 38 Studios Secret Documents - See Copies

Thursday, June 14, 2012

GoLocalProv News Team

 

It is clear that documents presented by Curt Schilling's 38 Studios to private investors were fundamentally different that those presented to the State of Rhode Island's Economic Development Corporation. The disclosure documents included in the "deal book" to investment bankers outlined the highest risk in the most speculative of businesses. Many of the leading venture capital groups passed on the opportunity to invest in 38 Studios.

But those documents, key documents that GoLocal was first to publish, offered more tempered language and outlined risk in a nomenclature that was nearly all positive.

For the first time, see the key provisions of the private investor documents.  

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Risk Factors

Documents provided to private investors outlined their entire investment was at risk. 

No public document provided to the State of Rhode Island outlined this level of risk.

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Launch Factors

The 38 Studios business model was designed to launch gaming products in both the US and in Europe, "this may be difficult to mange."

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Doing Business

With 38 Studios focused on a global market - risks were outlined to private investors and the disclosure of risk was clear. 

These documents are in contrast to the documents provided to RI officials.

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Dependency

Like many start-ups, the 38 Studios is highly reliant on a small number of key employees. In documents provided to private investors the risk of the "loss of any one of them could diminish the success."

Documents to RIEDC underplayed key players.

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Inherent Risk

Unveiled documents show that 38 Studios clearly outlined to private investors that their industry was "highly speculative and inherently risky. There is no guarantee."

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Far Less Risk

Documents provided to EDC were more bullish on 38 Studios and diminished the risk. 

In the risk factors presented to EDC, the risks were minimized and the industry was called, "hit-driven."

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Plenty of Positives

In critical documents presented by 38 Studios and their advisors, the psotives of the investment were sweeping and a 47% Return on Investment (ROI) was a major feature of the deal.

 
 

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Comments:

louis rizzo

10:50am on Thursday, June 14, 2012

need a magnifier to read

Jack Cottone

4:51pm on Friday, June 15, 2012

Thanks for digging this up. The folks at Golocalprov are doing a great job. Private Offering Memos are traditionally done in very small print. Why, who knows? What is the exact date on this document? When in 2009?

Could it have anything to do with this private venture (“bridge loan”) Dan McGowan discussed with Michael Sweeney at Duffy Sweeney a few weeks ago? He said Michael Corso was not in on this venture. We’d all love to know who Sweeney’s partners were on this deal. A bridge loan bridges financing between empty pockets and expected future funds. This memo was likely not done specifically for RI EDC but for any interested private financiers like this 38 Bridge Partners. Who are these financiers?

http://www.golocalprov.com/news/38-studios-loan/
“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.”

I doubt the collateral was merely the “work product (the game)”. You would not put down a high risk bet on simply work product. Elsewhere we learn from the EDC’s own Keith Stokes the collateral being eyed for any high tech investment is intellectual property. The EDC was specifically looking to invest in companies which had little to offer other than their patent rights. The collateral was likely the patent assignment, previously owned by Douglas MaCrae, a member of the board at 38 Studios, which was procured on 6/1/2009. The dates fit in a nice pattern, May, June, July, 2009. I’m getting this all from local reporting and the bankruptcy documents posted at ProJo.

Jack Cottone

4:57pm on Friday, June 15, 2012

Schilling had to be offering something in return. I have written about the intellectual property/patent elsewhere. At the risk of being boring, I will repost the chain here.

http://www.golocalprov.com/news/2011-keith-stokes/
“Stokes worked with the General Assembly to pass the Job Creation Guaranty Program which authorizes RIEDC "to guarantee up $125 million in private loans to innovative, technology-based companies with primarily intellectual-property assets to help them create permanent, high-paying, full-time jobs." The program most notably allowed RIEDC to guarantee former Red Sox pitcher Curt Schilling's, 38 Studios, an entertainment and IP creation company, $75 million (out of the $125 million that is available in government-backed loans).

Note in the above story that the Job Creation Guaranty Program was looking for technology companies with primarily intellectual property assets. Why?

My forensic audit would look something like this. I’m seeing a curious “patent assignment” on 6/1/2009 in the bankruptcy papers. The patent belongs or belonged at one time to Douglas MaCrea, who is on the board of directors of 38 Studios.

July 2009: A mysterious entity called 38 Bridge Partners (interview with Michael Sweeney of Duffy and Sweeney) made a “7-digit” loan to 38. What was the collateral? These well taught lawyers not only spin tax credits but they also spin other intangible wealth like intellectual property. That’s the collateral.

Who was on the 38 Studios board of directors? It’s gone from their website, but here’s a “cache” of the board of directors with a description of each of them. Interesting on there is the super wealthy Douglas MaCrae. This guy retired but then became buddies with Schilling over their love of adolescent video games.
http://blogs.law.harvard.edu/lamont/2012/05/18/38-studios-board-of-directors/

If you look at the unsecured creditors in the bankruptcy, you will see a patent assignment on 6/1/09. The patent was previously owned by Doug MaCrae and Thomsas Westberg. These ultra rich people buy patents just to spin them and use them as collateral for loans. Whoever ends up with the collateral in the end is the winner. That won’t be Rhode Island. That will be the last bank to own it: JP Morgan. I believe the patent was assigned to JP Morgan bank as collateral on 3/17/2010 (date of execution).


http://bks9.books.google.as/patents/US7814511

http://assignments.uspto.gov/assignments/q?db=pat&pat=7814511

Donna Day

4:17am on Saturday, June 16, 2012

" THE CURSE OF THE BAMBINO"



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