Don Roach: 38 Studios Was Never a Good Investment

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Wednesday, May 16, 2012

Don Roach, GoLocalProv MINDSETTER™

Well, that was quick. GoLocal reported yesterday that 38 Studios, the video game company owned by Curt Schilling, may be having financial problems. Is anyone surprised? It doesn’t take a rocket scientist to know that video game makers come and go like the wind. One day a video game maker might have the hottest selling game on the market and the next day they are just another relic. The video game industry isn’t kind to the last great thing and quite frankly, like the movies, many expensive endeavors never meet their lofty expectation.

If recent reports are correct then 38 Studios missed a $1.1M payment to the EDC and on Monday 38 Studios held a meeting with the EDC to talk about its current financial standing. That a company is going through financial difficulties during this time period in Rhode Island isn’t strange, that this company that received millions from the state recently is, well that’s cause for frustration, anger, and head shaking.

I’d like to cover the reasons why giving $75 million dollars to this company was a bad idea. Regardless of how this ends up, and trust me RI Taxpayers want 38 Studios to succeed, this was a bad deal for Rhode Island.

Never, ever put all your eggs in one basket.

The main problem with giving $75 million to one company is the fact that the EDC gave too much money to one company. Let’s imagine if the EDC gave $5 million to 15 different companies and one of them defaulted on their payments back to the EDC. Well, there’s still 14 other companies that are making their payments on time and also contributing to the economic health of Rhode Island.

Not so with this $75 million deal. Instead, Rhode Island is heavily dependent upon this company succeeding and fulfilling its potential to bring jobs and a return on the $75 million dollar loan. If it fails, it taxpayers foot the bill.

The deal was a big F-U to small businesses.

I’m not one to curse but how else would you feel as a small business owner or a would-be small business owner? Essentially, Curt Schilling spoke to former Governor Don Carcieri and asked him if Rhode Island was willing to do a deal to bring his company to Rhode Island. I won’t fault Carcieri for making a move to bring Schilling’s company to Rhode Island, but I will fault the perception of a sweet heart deal it left with Rhode Islanders looking to expand or enter into a new business.

During a time when unemployment was rampant the Governor and EDC Direct Keith Stokes needed to make a deal that would jumpstart the economy and inspire confidence in the average Rhode Islander. This certainly didn’t do the latter and that was a mistake – a very big mistake.

Schilling’s name does not equate profits.

If I came to Governor Carcieri back then with the same deal, I doubt the state would have given me $75 million if I had the exact same deal. But, since it was Curt Schilling, baseball hero, there was a legitimacy with his business venture that was not wholly deserved. Again, I’m not saying that 38 Studios will fail, but I am saying that simply because Schilling is associated with the company does not mean it will be more or less successful than other business ventures the EDC was reviewing at the time. The EDC made a serious miscalculation when approving this deal because of the cache that comes with Schilling being a part of this company.

Deal proves business climate in Rhode Island “sucks”

If we need to loan a company $75 million dollars just to come to Rhode Island how bad is the business climate in Rhode Island? Wait, don’t answer that because by the fact that we loaned a company $75 million to move their business here – aka we paid them to provide jobs – means the climate is horrible. I shouldn’t have to tell you that Rhode Island ranks as one of the worst states for business. Just google “Rhode Island business climate ranking” and you’ll find a report from RIPEC which found:

A review of five business climate ranking studies indicates that Rhode Island is not perceived as a good place to start or grow a business. Four of the five studies – two from research organizations (The Tax Foundation and the Small Business and Entrepreneurship (SBE) Council) and three by media outlets (Forbes, CNBC and Chief Executive – ranked the Ocean State’s business climate in the bottom ten in the country. RIPEC examined the five reports and found that the state consistently performed poorly with regards to its tax and regulatory environment, cost of doing business, transportation infrastructure and economy.

Surprised?

I’m not. While this deal has brought a few hundred jobs to Rhode Island are we going to have to loan a business a few hundred thousand dollars for every job they bring to Rhode Island? Seriously? This deal did not better the business climate in Rhode Island, it just showed the rest of the country how bad it is.

Depressing.

What else do we need to tell us this deal was bad?

There really isn’t much else to say other than this was a bad deal for Rhode Island. You knew it, I knew it, and John Robitaille knew it. We’re here now and 38 Studios failing so soon after its launch in Rhode Island cannot happen. Now, we’re faced with the situation of coming up with tricky financing solutions to help the company through its cash flow problems. Sound familiar fellow taxpayer? AIG, bailout, and stimulus packages come to mind.

I’ll leave you with this – can we have a week where we get some good economic news, Rhode Island?

Don Roach is a member of the RI Young Republicans. He can be reached at don@donroach.org.

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