Update: A Boston Globe report indicates that 38 Studios founder and former Red Sox pitcher Curt Schilling has asked Rhode Island officials for more money for his company in the private meeting that was held this morning. The newspaper says that board members of the Rhode Island Economic Development Corporation took no action on Schilling’s request. The amount he asked for was not disclosed. Schilling had very little to say to reporters when he left this morning's meeting, rebuffing reporters and saying that his "priority right now is to get back to my team."
Original Story: Yesterday we reported that state officials in Rhode Island were gravely concerned that they would lose their $75 million investment in 38 Studios because the company was believed to be heading towards insolvency. Today we are learning a little bit more about why the Governor of the state, Lincoln D. Chafee (I), was having meetings with the studio founded by former Red Sox pitcher Curt Schilling. Apparently as part of the deal with the state to secure that massive amount of investment, 38 Studios is required to make a payment of $1.125 million every year on May 1. This year the company was not able to make the payment, according to a report from news station WPRI.
That payment is an Annual Guaranty Fee that the company owes to the state's Economic Development Corporation (EDC) each year under the terms of the 2010 deal. The fee is equal to 1.5 percent of the average amount of outstanding bonds. The EDC gave 38 Studios the $75 million taxpayer-funded loan in 2010 with the strong backing of EDC executive director Keith Stokes and former Governor Donald Carcieri (R). To get the loan, 38 Studios moved its headquarters from Massachusetts to Providence in April of 2011 and promised to employ 450 people in the state.
House Speaker Gordon Fox confirmed all of this information today with news channel WPRI. He also continued to say that the deal was the right one to make, despite pressure from groups within the state and other public officials. Meanwhile, the EDC announced that its board had scheduled an "emergency meeting" this morning to discuss what it called "an unexpected occurrence that requires immediate action to protect the public regarding the 38 Studios, LCC financing." They also said that parts of the meeting may be closed, according to a notice filed with the secretary of state's office.
On Tuesday the Rhode Island Statewide Coalition called on the Governor and the EDC to make all the information about the current plight of 38 Studios and any deals that are being made behind closed doors publicly available.
"There should be no Rhode Island taxpayer bailout of what could be emerging as a colossal financial misadventure," said Rhode Island Statewide Coalition executive director Donna Perry in a statement.
As of March 15, 38 Studios had received $49.8 million in cash from the $75 million loan, according to a disclosure notice the company sent to bondholders. Apparently around $23.4 million from the loan proceeds was put into a Capital Reserve Fund and a Capitalized Interest Account, with the rest used to pay for floating the bonds. According to WPRI, the Annual Guaranty Fee that 38 Studios owes the EDC each May 1 is separate from twice-a-year payments that it has to make to investors who purchased the $75 million in bonds.
Right now those payments are coming out of the Capitalized Interest Account, which was funded with $10.6 million from the $75 million loan, but in 2013 the company is supposed to pay bondholders from its game sales. This is where tax payers in the state might want to be concerned: if 38 Studios can't make those payments, the governor (who did not support this deal) is required to ask state lawmakers to use taxpayer money to pay them back. That could balloon the deal to a maximum of $112.6 million in principal and interest payments if 38 Studios can't pay.
The company is currently working on its MMO Copernicus, but many are concerned that it isn't on track. They base this on its decision not to attend E3 next month, among other things. Personally we think they aren't going to the event because it costs a lot of money to exhibit there.