The 38 Studios Debacle

Image courtesy: Gamerant.com

Living in Rhode Island, I have come to realize that this is the state the gaming industry, hell most of America, forgets about completely. Oh sure, there are developers in Massachusetts, like Harmonix, but for the longest time this state simply did not exist to the development community. That was, until 38 Studios. And, thanks to 38 Studios, I fear we will be right back where we started.

The full story of 38 Studios is quite remarkable, complete with political intrigue. And, to be quite honest, it is all normal for this state. Let’s start at the beginning, shall we?

In 2010, our Governor, Donald Cacieri, was facing the end of his second term. In the last couple years of his tenure, the recession hit RI hard. Very, very hard, to the point that our unemployment was up there with Michigan’s. The economy in RI got slammed, and several towns and cities were feeling the pinch so badly that they were looking right at bankruptcy. Yes, it was bad.

So, Gov. Cacieri wanted to bring new business into the state. Local colleges had started offering degrees in Game Development, and neighboring Massachusetts had a number of successful studios, so he started looking at enticing a game studio to the state. Enter Curt Schilling.

Schilling was a successful retired baseball player, who was traded to the Boston Red Sox in late 2003. Upon becoming a member of the Sox, he promised he would help bring them their first world championship since 1918. A year later, and he delivered. The Red Sox won the World Series in 2004, then again in 2007. In 2004, specifically, Schilling put on a performance for the ages, pitching through a badly injured ankle to beat the hated New York Yankees. To say Schilling was a local hero is an understatement.

Late in his playing career, Schilling started Green Monster Games, later renamed to 38 Studios, with the express intent to develop an MMORPG. Schilling, an avid World of Warcraft and EverQuest player, wanted to create the ultimate MMO experience. He hired some of the best creative talent he possibly could, and development on a game codenamed Copernicus started immediately.

Eventually, Cacieri met with Schilling, apparently at a dinner party. Discussions soon started, about moving 38 Studios to Rhode Island, and about a $75 million loan. Cacieri, who controlled the Rhode Island Economic Development Council, or RIEDC, helped to negotiate a guaranteed $75 million loan in exchange for 38 Studios moving to RI and employing 450 people in the state.

When word of this loan came out, in the middle of the 2010 gubernatorial campaign, about 70% of Rhode Islanders disapproved of it. All of the candidates running could not agree on anything, but they all agreed that this loan was an awful idea. One of the candidates, Lincoln Chafee, tried to testify in front of the RIEDC but was not allowed into the room. To be blunt, this was pushed through by an outgoing governor.

Come November, 2010, Lincoln Chafee is elected to replace Cacieri. Around this same time, the RIEDC announced that the $75 million loan had closed. Thus, Chafee’s hands were tied.

Fast forward to May of this year. 38 Studios had released their first game, Kingdoms of Amalur: Reckoning. It sold well, about 900,000 copies. But, unfortunately, it needed to sell much better. They needed 3 million units sold to turn a profit. Simply put, the game flopped. And they were still in development of Copernicus. Reports started to come out that they would not show this off at E3.

Right when it all looked bad, 38 Studios missed their first loan payment to the RIEDC, about $1 million. After some wrangling, in which 38 Studios gave the state a check they said would not clear, the state ended up getting their $1 million. Shortly after that, reports of 38 Studios employees not being paid since April started surfacing, then reports that their health insurance was getting canceled came up. The state was, understandably, concerned. Members of the RIEDC who had pushed this loan began to resign, as did the CEO of 38 Studios. The mess was getting bigger.

Then, on May 24th, 38 Studios laid off their entire staff, effectively going out of business after getting $75 million in state money. And they did this via e-mail. Classy.

To say the people in RI are angry is quite the understatement. Of course, people here blame Gov. Chafee more than Schilling, even though Chafee fought against the loan as hard as he could. You can’t get away from news on this;  it is on everything from the evening news to sports radio. Sometimes you hear people blaming Chafee for this mess, other times you hear people saying Schilling is completely blameless here; he was just an entrepreneur trying to start a business.

Schilling, for his part, nearly completely blames Gov. Chaffee. In a radio interview on WEEI, he claimed that they had funding lined up for Kingdoms of Amalur 2, which was to be developed by their Baltimore studio. This funding quickly went away when Chaffee questioned the solvency of the company. He thought he would be given some leniency in paying the first loan payment, since he told them he would not be able to pay it right away, and was “blind sided” when the state told 38 Studios they defaulted on the loan. He counted on tax credits to help shore up his company; however, those credits were only for companies formed in RI, which 38 Studios was not. He also admitted a mistake with the loan, in that to get the loan money he had to hit certain employment milestones instead of development milestones. This lead to 38 Studios employing more people than they should have, which lead to this mess.

In the end, I think if you are going to blame anyone, it would be Schilling and Cacieri. Cacieri had a decent idea, get a new industry to the state in an effort to foster job growth. A great idea. Unfortunately, he went after a company that was doomed from the start. Why was it doomed? Because Curt Schilling is an awful businessman, and he got into business with politicians who had absolutely no clue what the gaming industry is like. The deal they made had some massive flaws, particularly with having to employ 400+ employees for a company that was still in development of their main product. And he got into business with a state, in dire economic times, during an election year, one where one of the main candidates was completely against this loan. In the end, the employees were the main victim here, as they were truly blindsided when they did not get a paycheck for the first half of May. The news media in RI focuses on the Governor or on Schilling, when these employees, some of who moved cross country to join 38 Studios, are now left without a job in a state with absolutely no game industry ties.

Well, at least we got Kingdoms of Amalur out of this, so it’s not a total loss.