Columnist: 38 Studios Loan a “High Stakes Gamble”

“What Government run/funded program in this country’s history has ever been run with an ounce of financial responsibility, prudence, or with the peoples (sic) best interest at the forefront? None, that’s which one.”

Those words were used by ex-Major League Baseball pitcher and current 38 Studios head Curt Schilling earlier this year, and are now being used against him in a searing indictment of the loan agreement between Schilling’s studio and the state of Rhode Island.

Rhode Island’s Economic Development Corporation (EDC) lured 38 Studios to the Ocean State from Massachusetts with the promise of a $75 million loan, which was later paired to around $51 million. In a story entitled Curt Schilling’s Rhode Island Hoodwink, columnist Diane Grassi rips the entire deal.

Noting that Rhode Island’s unemployment rate is almost 12 percent, 4th highest in the U.S., Grassi writes that the original EDC program was to have a total budget of $50 million. When Schilling started to make noise about moving and asked Massachusetts for assistance or a loan to keep 38 Studios in Massachusetts, he also approached Rhode Island with a similar request.

Grassi writes:

Rhode Island, unlike its neighbor, Mass., apparently bought it hook line and sinker, because the program's original authorization was increased from $50 million to $125 million, with 60% of it specifically earmarked for Curt Schilling. Quite a feat for a non-resident with no prior allegiance to the state of Rhode Island, nor a commitment to personally move his home there to date, just his company.

If 38 Studios’ business did go south or it failed to live up to its end of the loan agreement, Grassi wonders how the company would be able to repay the loan:

… with intellectual property start-ups, unlike traditional manufacturing, where hard assets are used as collateral, there is little to liquidate with an IP venture. Its soft assets would include intellectual property, licenses, publishing contracts and software, but could be worth very little in the end.

She also estimated that 38 Studios would need to sell 1.75 million copies of its role-playing game Kingdoms of Amalur: Reckoning in order to break even, though “best estimates” predict that the title would sell in the area of 1 million.

In answer to Schilling’s quote that led off this story, Grazzi wrote:

For now going to one of the most cash-strapped states, not to mention the smallest state, with hand outstretched in search of government subsidized corporate welfare is apparently just fine.