The Fall Of 38 Studios

The middle of the story goes like this: sometime in 2010, Rhode Island created a $50 million Job Creation Guarantee Program. For entrepreneurs looking to expand their business, state-backed loans would be available. The idea was that this would be an assistance to smaller businesses, keep them afloat and improve the local economy, all the while boosting employment rates, increasing tax revenue. In time, the loan would be repaid.

All of this sounded good on paper because well, things always sound good on paper. And then Curt Schilling and his company 38 Studios came along.

In his own words, 38 Studios was motivated by Schilling’s urge to be “Bill Gates rich”. During his career, Schilling spent a lot of his downtime in between pitching appearances playing video games, specifically World Of Warcraft.

Multi-player online games intrigued Schilling. So he decided to create his own.

There were 20 employees at 38 Studios in 2006, that number would grow slowly. If you worked at 38 Studios, you received healthcare without payroll deductions, top-notch 401(k)s, free gym memberships, a new laptop every Christmas, and two homes that the company rented out to accommodate out of state workers.

Once Schilling retired in 2008, he became more of a presence in the office. But it was clear that not only was running a business going to be a challenge, even understanding how an office works would take some time.

According to the former CEO of the company, Schilling wasn’t sure if employees were suppose to have weekends off. In addition, his wife was put on the board of directors, and her uncle was appointed COO.

The product itself — their first video game titled Kingdoms of Amalur: Reckoning — would take a few years before its release, but the expenses were already building up. On just travel and entertainment expenses alone, $705,000 was spent in the first two years.

As the months passed, Schilling’s personal investment into the company went from thousands to millions. In 2010, he met Rhode Island Governor Donald Carcieri. With an eye towards providing a lift to his state’s high-tech sector, Carcieri convinced Schilling and 38 Studios to relocate to Providence, R.I. with a $75 million loan.

Kingdoms of Amalur: Reckoning was finally released in February 2012, reviews were positive and the game sold over a million copies.

The spending continued as the team worked towards its second release. The company operated as if it was fine, but the business was not sustainable.

Schilling had burned through most of the state’s money, and was now putting up gold coins as collateral for a personal loan. In May, the company missed a loan payment deadline to the state. Soon after, the company failed to make payroll.

Red flags everywhere.

In late May, all of the employees were laid off by e-mail. Bill Mrocheck, the vice president of online services, had a wife who required a bone marrow transplant. Problem was, health care was shut down and those who relocated to Rhode Island found out they’d have to personally fund a second mortgage for their old homes, as the relocation agency that Schilling hired had not sold their former place.

One former employee summed it up: “I’d like to honestly know why I was hired in the first place on January 16th, 2012…when members of the company knew they were behind on bills and not doing well economically? I moved my pregnant wife, sold my house for a loss of 18k, relocated away from all my family and friends for a company I thought was honest and forthright to their employees. What did I get in return? An unpaid relocation package months after it should have been paid, a pregnant wife who found out our insurance had lapsed from our doctor, a ton of bounced checks and payments to bills when we found out our paychecks had not been paid through the media and a large debt to my unemployed father to help us survive.”

Schilling himself lost over $50 million of his own personal funds. The company went under federal and state investigation. In September, it was announced that no federal charges would be brought against 38 Studios.

Meanwhile, Rhode Island is left with the company’s assets — which it will auction off — and an $100 million loss.

As for Schilling, the same bravado that made him one of the best big game pitchers in the league, ended up making him an example of an athlete’s finances gone wrong.

He agrees as much: “I never doubted I was going to do it. My whole life was spent doing things that people didn’t believe were possible, because God blessed me with the ability to throw a baseball. And I carried that same mentality into everything I did here.”

Footnotes:

This article was written based on End Game: Inside The Destruction of Curt Schilling’s 38 Studios by Jason Schwartz, published by Boston Magazine on August 2012.

Posted on 10 October, 2012

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  4. peaceshine3 said: What a fuckin dumbass
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