Sections

Former RIEDC head accuses Rhode Island governor of blocking 38 Studios’ attempts to avoid bankruptcy

Saturday, 5th October 2013 22:08 GMT By Stephany Nunneley

The former head of the Rhode Island Economic Development Corporation has accused Rhode Island governor Lincoln Chafee of blocking attempts made by 38 Studios to handle debt and raise capital before it file for bankruptcy.

The studio’s co-founder, Curt Schilling, said when the company filed bankruptcy in May 2012, Chafee had made public remarks “that were devastating to the company’s attempts to stay solvent,” and according to a lawyer for former RIEDC head Keith Stokes, the did more than mouth off in public to hurt the game developer.

According to a report from the Boston Globe, Stokes’ lawyer said Chafee actively blocked 38 Studios’ attempts to restructure and refused to meet with executives in 2011 over the matter. The claim also states he forgoed attempts to even discuss the matter with the RIEDC’s board of directors.

Chafee, on the other hand, claims he “made every attempt to save the company.”

It has also been noted before by Chafee, that he was against the $75 million taxpayer-guaranteed loan brokered between former governor Donald Carcieri and 38 Studios.

The deal saw 38 Studios relocate from Massachusetts in 2010.

A lawsuit accusing the Kingdoms of Amalur developer of “fraud, negligence, breach of fiduciary duty, racketeering and conspiracy” as well as misleading Rhode Island’s economic development agency has been brought against the company by the state, with other defendants including four former 38 Studios executives and its insurer.

Thanks, GI International.

Latest

21 Comments

  1. DSB

    RIEDC pooped on the carpet. It’s really little wonder that they don’t want to own it.

    #1 12 months ago
  2. Luciferous

    Not surprising at all. I’ve been thinking something like this was happening right from the get go.

    It always felt like they had given them the loan and then instantly demanded it back without giving 38 Studios a chance to recoup earnings from Amalur. I hope the dicks responsible are found guilty of ruining a promising company.

    #2 12 months ago
  3. DSB

    @2 They did get the chance though. A 75 million dollar backing from the state.

    The game didn’t sell, and Chafee, who said the deal was bad even before it was signed, didn’t feel like floating them even more money, so they could make another (and vastly more expensive) game that likely wouldn’t break even either.

    So he pulled the plug. If you have good cards, you play. If you have bad cards, you fold. That has to be the rule when you’re playing with other peoples money, which is obviously what Rhode Island was doing.

    It’s really too easy to just blame “the man” here. Chafee may be a politician, and that’s obviously one point on his douchebag account, but if you look up his predecessor, who made this deal based on what was at best mindless optimism and a lust for prestige, you’re looking at an entirely different league of asshole.

    I think Curt Shilling meant well, but his game just wasn’t good enough. Carcieri on the other hand was just your typical grandstanding political swine.

    Can you imagine how many firefighters, cops and teachers you could pay for with 120 million dollars? It’s a lot. Instead it was wasted on an untested business, so Carcieri could wave his dick around and say “I bring high tech jobs to this state”.

    #3 12 months ago
  4. FrankWhite

    Yeah, this was always about politics. Most developers and publishers have financial troubles and find ways to work their way out of it. 38 Studios never had the chance though. If the people involved were smart they would have realized that getting the MMO to launch day was the top priority. They could have ended up making back a lot of money if the game ever launched, now they have 75+ million in debt and only the husk of a disgraced IP to try and auction off.

    Bad business, bad politics. Nothing was more important than making it to launch and recouping the investment money, but the governor wanted to say “I told you so” and now Rhode Island gets to hold a bunch of debt.

    #4 12 months ago
  5. sebastien rivas

    first question first,

    Given/Provided loans by public organization should not be allowed!
    Maybe a funding but certainly not a loan.
    They may have no choice but to keep 38 Studios Solvent or the money will just be gone in smoke, though it can only be solvent if something is done for more attractive games or perhaps at least better PR/marketing which I assume the game sorely suffered from. After all, I never heard of Amalur unless we speak perhaps of a game made on X386 like 32 years ago…

    @3 +1 for your last paragraph.

    #5 12 months ago
  6. DSB

    @4 How didn’t they though? Until they declared bankruptcy, they had every opportunity to secure funding.

    Of course it’s easy to claim that Chafee was the reason why they were rejected by the people they spoke to, but come on. Have you played Amalur?

    The game is about three times bigger than it would ever have to be, it’s not up to snuff, and it didn’t sell well. I personally wouldn’t throw 5 bucks their way, let alone grant them another 75 million dollar guarantee in tax payer dollars.

    Chafee had no motive to see them go bankrupt, unless he thought it was inevitable anyway.

    It seems to me like people are just really reluctant to take responsibility for their actions. The only way your business is gonna survive long term is if it’s succesful, you can’t expect anybody else to just bail you out when it isn’t.

    #6 12 months ago
  7. Iwasthere

    @DSB, First of all, Rhode Island agreed to $75 million, but they only released $49 million. Reckoning, on the other hand is still in Walmart and Gamestop for full price. Last accounting indicates Reckoning has sold somewhere between 3-5 million units worldwide including online. Check practically any game site and you’ll find overwhelming approval for the game. No one has said the game was a failure EXCEPT Lincoln Chafee. He gets to play the I told you so card, the only card being played.

    #7 12 months ago
  8. DSB

    @7 It doesn’t matter if it sold 50 million. It obviously wasn’t enough to make 38 Studios a viable business.

    If a company defaults after receiving 49 million of a 75 million payout, you’re saying you want to give them the whole thing? This is also failing to include the money raised using the guarantee they were given, which with fees and interest adds up to 112 million dollars.

    What kind of madness is that?

    It seems to me like people just expect Rhode Island to keep throwing tax payer dollars (which the state badly needs) after a videogame company, simply because it’s a videogame company, and we like videogames.

    To hell with whether that videogame company is actually worth a damn, or anyone sees a return on that investment.

    It just strikes me as unbelievably naive.

    … And again, why on earth would Lincoln Chafee seek to undermine his own states investment? Is he 38 Studios evil stepmother? Are we in a Disney movie?

    #8 12 months ago
  9. PancreaticDefect

    Kingdoms of Amalur is a good game. It’s a shame that the company imploded. I dont know much of what went on behind the scenes, but if a studio could survive based on the quality of their product alone, this company would still be around today. I dont know where the money for Amalur goes anymore (probably EA), but everyone should buy a copy. This is one instance where a developer deserved better.

    #9 12 months ago
  10. Sylrissa

    Yeah I remember EA being quite happy with the sales of Amalur, and saying that they easily got back the money they put into the project.

    #10 12 months ago
  11. DSB

    Facts, facts, facts.

    http://www.ign.com/articles/2012/07/13/38-studios-executives-testify-in-bankruptcy-hearing

    http://www.shacknews.com/article/73968/kingdoms-of-amalur-needed-3-million-sales-to-break-even

    As I see it there were two problems. Curt Schilling got put to the wall by EA in the deal they made. That’s purely his own fault for failing to negotiate a proper deal.

    So Amalur needed to sell 3 million just to break even, and it didn’t even sell 2. This is primetime sales, not tail end. Bread and butter sales.

    But that, coupled with the fact that they were unable to pay their bills, should really tell you something about their viability.

    … And then you play something like Kingdoms of Amalur. The game is fucking huge! Content costs money, even if it’s mediocre. I would wager that they could’ve made half the game and survived.

    What were they thinking? You’re a new studio, you’re untested. You’re doing your first project, and you make a pseudo-MMO colossus, and expect it to sell around 5 million?

    Nuts!

    #11 12 months ago
  12. PancreaticDefect

    Thats true. The game was enormous. I love it and I’ve never even completed it and I’ve played 135 hours of the game across two characters. It’s a shame that ambition overwhelmed this studio. I sure wish I’d sprung for the collectors edition. It would be a gem in my collection.

    #12 12 months ago
  13. Iwasthere

    As usual, there’s always someone ready to jump in and offer their WRONG opinions, and clamor for facts. Rhode Island promised $75 million because they were aware that was how much was needed. Curt Schilling had already put in $50 million of his own money and personally borrowed more. Then the state withheld one third to protect investors, many of whom remain anonymous even after Freedom of Information requests. The state placed impossible hiring practices on top of that. When the governor refused to talk except to publicly condemn the studio and Reckoning, investors quietly disappeared, because “why would the Governor not want to help”? If you knew Rhode Island, you’d understand the political climate that made Chafee look like he knew it was a mistake. The Providence Journal reporter was at the front door questioning employees about missing payroll the day BEFORE pay day. Where would she get that “tip”? There was never a “bad check” given to RI as reported. No grace period was extended to make the payment (it was paid but not reported) Rhode Island lost 300 well paid tax paying, home buying, economy boosting citizens so Chafee could crow “I told you so”

    #13 12 months ago
  14. DSB

    @13 Tell us about the impossible hiring practices.

    Considering the testimony by Rich Wester, you’d need Copernicus to be a hit making 100 million a year if you were ever gonna pay it back.

    After making one failed game, why would the state of Rhode Island have any faith in that projection?

    No doubt that politics are dirty and that Chafee would’ve been orchestrating the press left and right, that even happens at the city council level, but that’s what you contend with when you get in bed with the government.

    It is sad for everyone involved though.

    #14 12 months ago
  15. FrankWhite

    @DSB you seem to genuinely believe that Rhode Island and investors cutting their losses was the best move. It was literally the worst business choice they could make. They never got their main product to the marketplace, that needed to be the priority. It would have been a better business choice to secure an additional 10-20million in investments to make sure the MMO actually launched. Not only would the launch day sales have recouped a lot of the investment money, but MMOs have multiple revenue streams, both subscriptions and microtransactions.

    No offense, but the state of RI cutting their losses out of fear at the time they did MAXIMIZED their loss. A better business choice would be to make sure the product reached the market place (I’m not saying it would be a great game, it would, like most MMOs, launch in an unfinished and unpolished state) but the fact is, spending all that money and getting nothing to the marketplace is literally the worst case scenario. They cut their losses too soon out of the kind of fear and skepticism that you are displaying. They needed to recognize that there is more money to be made and recouped from sticking with the investment than cutting it off too soon.

    It is sad, because I bet 38 Studios could have secured more investing if Governor Chafee had not been publicly condemning the project during the investment negotiations. We’ll never know if investors would have invested or not without Chafee’s remarks because he chose to run his mouth at the worst possible time.

    But really, even bad MMOs like Age of Conan, War Hammer, LOTRO, SWTOR, have all made back their investments and even made a profit after launch day sales, months/years of subscriptions, F2P/Freemium and microtransactions.

    An MMO has multiple revenue streams and the choices that were made means RI never got to see any of them. It was the wrong choice and they maximized their debt because of it.

    #15 12 months ago
  16. DSB

    @15 I could maybe see why you’d take that chance if you were a big corporation, but this is the state of Rhode Island. It’s not their money, it’s the money of every tax paying citizen, family and business who lives in the state. They worked hard for that, and the very least that they should be able to expect from their state, is that they don’t gamble with it.

    You’re making all these assumptions about profitability, for a studio with no track record, when they’ve already flunked one game. They were 50% away from even breaking even, and obviously even further from making a real profit. So how on earth do you get that confidence? I played Amalur, and I personally have no problem understanding why it failed.

    You’re assuming that they maximized their loss, but that’s only true if Copernicus would’ve been a success. Why would it be? Even EA can’t get away with making mediocre MMOs, even when they slap one of the worlds most popular brands on it.

    And if it was truly set to reap the world wind, then why would anyone care what Chafee said? Fund the damn thing and take the profit. I think the real truth is that things were a bit more complex than that. I’m guessing the companies looking at the investment didn’t see that much value either.

    Another question for the taxpayer is where they’d like their government’s focus to be. Should they really be spending their limited time co-running games developers? To me the whole project just seems completely reckless and unneccessary from the get go.

    I can maybe understand putting up a bank guarantee (although for an untested games developer? Not bright) but at the very least 38 Studios should be able to prove that they can get that funding on their own. Once the state had to subsidize them just to keep them going, alarm bells should’ve gone off in my opinion.

    It’s just too easy to say “Eh, Chafee was against it, let’s blame him” when you’re looking at an unprofitable studio with rookie management, begging for more money on the other end.

    Could Chafee have done more? Yes. Would it have been in the interest of tax payers? I don’t see how you can guarantee that.

    #16 12 months ago
  17. Iwasthere

    @DSB, your entire premise is flawed from the beginning. The taxpayers of Rhode Island never put one penny into 38 Studios. The EDC sold bonds paying a guaranteed 6-7% interest. 38 Studios purchased a $500,000 bond guaranty program. The politicians in Rhode Island decided to not place a claim under the insurance. Why? The taxpayers were under NO OBLIGATION to pay a cent. Once the General Assembly voted to begin payments instead of using the paid for insurance, taxpayers assumed liability. Most of the bondholders were large corporations like USAA insurance, but even after securing a list of investors via Freedom of Information Act, 6-7 million dollars were invested and names of investors still will not be released. 7% guaranteed interest for 7 million dollars gives 7 million reasons why the names won’t be released. Do your own investigation like I did and you’ll see why the politics of Rhode Island killed 38 Studios.

    #17 12 months ago
  18. DSB

    @17 You’re missing a lot of context there. For the second time, feel free to clear things up. It’s an interesting story.

    Are you claiming that USAA and the others managed to convince the state of Rhode Island to put the entire loss on the public? That’s some claim. Might want to tip a journalist on that if you have anything concrete, or do the story yourself and sell it. That’s gold, if you can prove it.

    Every source I can see references it as a taxpayer backed loan. Which they may not be obligated to pay, but if they don’t, then their word no longer holds any value with anyone.

    #18 12 months ago
  19. DSB

    Here’s some interesting reading if you want an overview:

    http://www.bostonmagazine.com/2012/07/38-studios-end-game/

    http://www.nytimes.com/2013/04/21/business/curt-schilling-rhode-island-and-the-fall-of-38-studios.html

    Until I read those I was really just guessing. Now I’m about 90% sure I’m right on the money here.

    If you have a smoking gun Iwasthere, produce it. Because what you’re suggesting really doesn’t jive with what’s out there.

    #19 12 months ago
  20. Iwasthere

    USAA nor any other investor needing convincing, the state of Rhode Island, on their own, decided NOT to put in a claim for a paid up insurance policy that was required when the deal was made. There was a protracted argument in the legislature, but the decision to assume responsibility came from Speaker Fox who controls the 92% Democrat house.
    as to the bondholders released under the FOI : http://www.wpri.com/news/politics/state-politics/docs-reveal-who-bought-38-studios-bonds

    #20 12 months ago
  21. Iwasthere

    Everyone should then read this, about how the other investors names are still being hidden”http://www.politifact.com/rhode-island/statements/2013/apr/08/jim-taricani/jim-taricani-says-38-studios-bond-offer-promised-a/

    #21 12 months ago

Comments are now closed on this article.