How a Pro Athlete's Video Game Studio Came To Owe Rhode Island Millions

In a week filled with video-game related drama, one of the main stages has starred 38 Studios. The developer, based in Providence, Rhode Island, is evidently out of money, and can't repay their loans. Worse, the loan in question was from the state of Rhode Island, potentially leaving taxpayers footing the bill for incomplete MMO development. So with the situation changing almost hourly, here's everything we know about the saga of 38 Studios.

What's the history of 38 Studios, in a nutshell?

38 Studios, under its original name Green Monster Games, was founded by baseball star Curt Schilling in late 2006. (The name change to 38 Studios, after Schilling's jersey number, came in 2007.) As a pitcher for the Boston Red Sox, Schilling was instrumental in their 2004 World Series victory — and immediately became something of a New England local hero for it. He last pitched in 2007 and officially retired from baseball in 2009.

Meanwhile, Schilling had long been a big fan of MMORPGs, even showing up at the occasional sports press conference wearing an EverQuest hat, or even, in 2006, showing up as an NPC in EverQuest II. That he founded a game studio for his second-wave career was not surprising. Green Monster Games started in Maynard, a Boston suburb. Not long after, writer R. A. Salvatore and artist Todd McFarlane came on board to create a new, original fantasy world for the studio's games. The goal from the start was an MMORPG, codenamed Project Copernicus.

In 2009, 38 Studios acquired Baltimore-based developer Big Huge Games, who took on the development of a single-player game in the same fictional universe, which became this year's Kingdoms of Amalur: Reckoning.

Okay, how does Rhode Island figure in to all this?

Massachusetts is by most metrics doing very well as a state. The Bay State has an enormous number of tech companies, including a huge number of game development companies in the metro Boston area.

Rhode Island, unfortunately, has not been faring as well as their neighbor to the north. In the economic downturn that has lingered since 2008, the Ocean State has had a persistent problem of high unemployment and the other issues that come with. It's quite common for states to target specific industries for growth through use of incentives and other financial policies, and enticing a modern tech business or two to come south seemed like a good idea at the time.

So, in July, 2010, the Rhode Island Economic Development Corporation (RIEDC) voted 8-1 to approve a $75 million incentive package for 38 Studios that would lure the developer to Providence. In exchange, the state expected to see the creation of at least 450 high-wage, high-skill jobs.

Was it all one big $75 million loan? From the state?

Not quite. The RIEDC is a quasi-public agency that operates with funds allocated by the state legislature, governed by a Board of Directors. State governor Lincoln Chafee is the current chairman of the board.

The RIEDC sold bonds to raise the money. 38 Studios received payments from the state in installments, for meeting certain milestones: successfully relocating their office by a certain date resulted in a $9.4 million payment, successfully hiring a staff of 80 resulted in another $17.2 million, and so on.

To date, 38 Studios has received slightly less than $50 million of the guaranteed funds.

Is this how they paid for Kingdoms of Amalur: Reckoning?

No. Amalur was developed mainly by Big Huge Games. The funds from the RIEDC were always aimed at completing Project Copernicus, the primary project of the Providence studio.

So is the deal that 38 Studios can't pay the loan back?

Pretty much. The studio owed the state a "loan payment guarantee" of $1.125 million on May 1, but blew the payment. They spent the following week in talks with governor Chafee, as reported by local CBS affiliate WPRI on Monday, May 14. Governor Chafee told press he was working to help "keep 38 Studios solvent."

On Wednesday, May 16, the RIEDC held an emergency session with 38 Studios, which Curt Schilling attended. Neither the RIEDC nor the studio announced any clear outcomes from the meeting.

On Thursday, May 17, 38 Studios' chief financial officer hand-delivered a check for the $1.125 million to the RI EDC offices. However, within the hour state officials discovered insufficient funds in the account to draw on, and they returned the check.

On Friday, May 18 (today), 38 Studios successfully delivered the $1.125 million to the RIEDC—$1.025 million from the studio's account, and the remaining $100,000 via a personal check. However, in order to make the payment to the state, the company apparently stiffed their staff. 38 Studios failed to make payroll today, which bodes very ill indeed.

Didn't I read something about Schilling being against government interventions in business?

Yes, yes, you did, and local media in New England are particularly angry about that. Just today, Boston Globe columnist Brian McGrory wasted no words in an editorial about the hypocrisy inherent in a "small government," "free markets" millionaire taking $75 million from the state to fund his highly risky pet project.

Is there anything about this that isn't a mess?

Nope. The head of the RIEDC has already resigned, and yesterday Joystiq reported that various executives' profiles kept mysteriously appearing and disappearing from 38 Studios' website. It seems likely that some corporate "reorganization" is in order.

So what happens next?

Well, that's the $75 million question, isn't it?

38 Studios is apparently still hard at work on Project Copernicus. Although until today roughly nothing had ever been seen of the MMO project, studio representatives told Chafee (who then told the press) that launch is slated for June, 2013. 38 Studios released the first footage of the game a few hours later. It is theoretically possible that at this time next year, 38 Studios will be successfully launching their game and will successfully repay the state from the revenue.

Sure, "theoretically." But realistically, what's likely to happen to the RI taxpayers?

MMORPG development is notoriously risky, and it's a pretty crowded market. The signs do not look promising.

Thanks to the way bonds and compound interest work, meanwhile, if 38 Studios ultimately defaults, the state will have to make up for far more than $75 million. WPRI crunched the numbers, and found that the taxpayers of Rhode Island could be on the hook for over $112 million by the year 2020.

38 Studios did put the Kingdoms of Amalur and Project Copernicus intellectual property up to the state as collateral, according to Joystiq, which means that should they default the state might be able to recoup some money by selling the IP to another developer or publisher—if anyone wanted to buy it.

This doesn't sound like it will have a happy ending.

38 Studios may have gotten footage of Project Copernicus out today, but we still know effectively nothing about the game. Either they're keeping everything very tightly under wraps, or they just don't have much to share.

Meanwhile, PR for Boston-area MMORPG developer Turbine (Lord of the Rings Online, Dungeons and Dragons Online) reached out to us earlier today to announce a large recruiting event in Providence this coming Tuesday. It's clear they hope to snap up staff who are currently in the area working on Project Copernicus.

Given that so far, Turbine always pays their programmers, they may well find a few folks willing to jump ship. And sending developers running back to Massachusetts may be the most sadly ironic outcome of all.

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UPDATE: On May 24, 38 Studios shuttered Big Huge Games and laid off the entire staff of 38. In a press conference that took place shortly after the layoffs were announced, governor Chafee told press that the state was unaware the studio would be dismissing staff, and that Amalur would have needed to sell 3 million copies to break even.