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The Rise and Fall of 38 Studios

The NY Times offers an infuriating and detailed article about the recklessly stupid Rhode Island politicians who gave $75 million to baseball player Curt Schilling so he could launch a video game company. Predictably, Schilling’s company, 38 Studios, not only failed to deliver the online role playing game it set out to make, it accrued $150 million in debt in just two years before the company collapsed last spring and left the state’s finances in ruin. With so much discussion about government subsidies and incentives for VFX and film production, there’s a valuable cautionary tale in here somewhere:

And yet, you don’t have to dig very hard into the record to find that there were plenty of serious-minded advisers who tried to warn state officials away from 38 Studios. Among them, apparently, was the corporation’s own financial portfolio manager, Sean Esten.

According to the state’s pending lawsuit, Mr. Esten was alarmed that 38 Studios’ worst-case projection for its business seemed to rely on releasing a successful game every two years — a track record that most gaming companies can only dream of.

“I don’t think I can support a $75 million guarantee to any single company in this industry due to the wide volatility in commercial success of game releases,” Mr. Esten told his bosses in an e-mail. “Perhaps we should develop a toolbox of incentives (including loan guarantees) to attract companies into a cluster and not rely on a single company to build the cluster around.” According to the state’s complaint, Mr. Esten’s bosses decided to bury his analysis.

Another skeptic was Gina Raimondo, a Democrat who was running for state treasurer at the time and now holds the office. Ms. Raimondo spent the previous decade working in venture capital, and after reading about the proposed investment in July 2010, sent an unsolicited and eerily prescient e-mail to Keith Stokes, who was then the corporation’s executive director and the deal’s main architect.

“In general, I would proceed very carefully on this,” Ms. Raimondo wrote. The company “is in the Boston area where there are 200 venture capital firms, and it is in a very hot area of gaming so if it were in fact a compelling investment I would have to think it would be well funded already by venture capitalists; the fact that many have looked at it and passed is a red flag.”

  • trn

    “there’s a valuable cautionary tale in here somewhere” yeah, it’s mismanagement at the government level. they threw an absurd amount of money at a famous guy with no experience and a relatively untested studio. dumb dumb dumb.

  • Karl Hungus

    The most disturbing angle of this ridiculous and reckless debacle is that this kind of exercise – throwing bags of money at companies with no track record – is being done on an exponentially larger scale with solar energy companies. I know I know, we’re all rooting for solar, but the reality is that the equation here is the same as the one there.
    This isn’t a cautionary tale – because no one is paying attention. Its a shockwave of things to come.

    • Solar Energy is something /entirely different/ from an animation or gaming company. Solar Energy still has so many elements undiscovered and unrefined, that you can’t really say there are ‘experienced teams’ to look for. It’s a field of discovery still, and that means experience isn’t the element you need so much as ingenuity. The two just aren’t comparable.

      • Mike Clark

        The difference is we desperatly need to develop solar power more than we need another video game company…

    • Satorical

      Big Oil still dominates on the handout front. Solar’s a footnote compared with it.

      Back to 38 Studios–the portfolio manager nailed it, and the smoking cinders of the company will be sued for hiding his perspective.

  • Luke

    Better to have spent that money on arts and science education in RI. If you have a broad base of talented folks, you’ll do better and enrich your state economy for the long haul. But that takes time.

  • It just goes to show that no matter how skilled a professional is in the industry, a celebrity will always have a better chance of getting the funding they need, even if they have no idea on what they’re doing.

  • Remarkable Kanoodle

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    • Joseph_Hudak

      and that’s important because?

      Besides, the cautionary tale here isn’t so much broad fiscal conservatism rather than staking so much money on a high-risk company with little more than big promises and good faith behind it, especially presently where state governments are in less of a financial position to devoting their budgets on castles in the sky.

      This also seems to be a case of a regional superstar taking advantage of a desperate state government a recent NY Times article stated it best: “Ideas that seem plausible in our darkest moments often seem plainly flawed in hindsight”

  • I was worried we were talking about thirty-eight separate studios.

    • Joshua Copperman

      I mean, I wouldn’t be surprised.

    • I’m frankly dissapointed we weren’t talking about thirty-eight separate studios.

  • Nick Bruel

    Here’s what comes to mind for me… First, Curt Schilling has an estimated net worth of 50 Million dollars.


    Considering how much personal wealth he started with, where was HIS personal investment? And considering how much of a hardcore Republican he is, one who called the election of President Obama a “decent into the Third World”, who is he to cry out about “welfare addiction” while begging for government bailouts in the tens of millions of dollars.


    Or was Mr. Schilling just being sarcastic when he said in 2011… “There can be no question our country is in the worst economic crisis of our lifetimes. I also think there can be no question that it falls on us, the individuals, to find a way out of our own personal crisis.”


  • Toonio

    It will always be be about who you know over what you know.

    Unfair as it is, it is life nonetheless.

  • markLouis

    As irresponsible as this story sounds, it’s worth remembering this happens to very smart individuals, too. Michael Crichton had been involved with computers for many years, and computer scientist David Smith is a very accomplished guy. Crichton and Smith founded Timeline Computer Entertainment to make immersive 3D games, and the company only lasted about two years. Of course, Crichton only lost his own money, but my point is computer game companies can seem very seductive, even to smart people who should know better, I think because people always thing their high tech or their intellectual property/programming techniques will rock everyone’s world.

  • DisqCensors

    Isn’t Curt Schilling the millionaire Boston Red Sox pitcher who hates New York? How’d he get 70+ million from the sate to start a video game company? I could understand if he was starting a sporting goods company but video game company? Do we tar and feather people anymore?