Fallout from the demise of Curt Schilling's 38 Studios
Curt Schilling in a dugout. The former Red Sox pitcher's video game company, 38 Studios, is in deep financial trouble. What that means for Rhode Island, which gave the company a $75 million loan.
Kai Ryssdal: The sporting news this week has little to do with actual sports. It's more along the lines of what can happen when sports, politics and a bad economy meet in a dark alley. Former Red Sox star Curt Schilling started a video game company in Rhode Island two years ago. It employed about 300 people. And notice I said employed, the past tense. 38 Studios, the company, laid everybody off yesterday. Leaving the people of Rhode Island potentially on the hook for $75 million in loan guarantees. Ted Nesi is a reporter for WPRI television in Providence. Welcome to the program.
Ted Nesi: Thanks for having me.
Ryssdal: So Curt Schilling, long-time baseball player -- remember the Red Sox, World Champion Red Sox I should say -- and also a long-time gamer retires and decides to start up a video game company, and now here we are. What happened?
Nesi: Yeah, Curt had tried for a number of years to get private investors, he went to Wall Street, he went in Boston, and the venture capitalists just weren't biting. So he wound up talking to our former Republican governor in Rhode Island at a fundraiser, and he said, 'Hey, why don't you come down to Rhode Island.' The lawmakers here passed a huge new loan program and gave $75 million out of the loan guarantees directly to Schilling and he brought his company down here and now it appears that it's collapsed less than two years later.
Ryssdal: Yeah and it collapsed in a big hurry. I mean, this is less than two weeks ago we started hearing this company -- 38 Studios -- is in trouble. What exactly happened?
Nesi: On some level I don't think we know yet. We've asked the governor at his press conferences, 'How does a company so rapidly go from seemingly being healthy to completely out of cash, defaulting on a loan payment, unable to make payroll.' The company released its first game a couple months ago and while it sold decently, it clearly didn't sell nearly enough to get the cash flow going that they needed. We've now been told they were more than 13 months away from putting out their big game. That was due out now next June. And if the company was already out of cash now and was spending $4 million a month it's very hard to see how they were going to fund themselves until the game came out.
Ryssdal: The sad irony of this whole thing, of the $75 million -- in addition to the people who've lost their jobs -- is that there are few states hid harder by this recession than Rhode Island. I mean, unemployment there is 11-plus percent, there are cities in bankruptcy.
Nesi: It's absolutely true. We've had double-digit unemployment since '09. Our capitol is on the brink of bankruptcy. The state's just never really found a new economy since its manufacturing sort of base fell apart in the '70s and '80s. This 38 Studios -- that's the name of the game company -- it was sort of a bid by Rhode Island to try to reinvent itself by just making a huge splash and now it's sort of blown up in the state's face. And on top of that, taxpayers will owe maybe up to $90 billion to pay off the bonds.
Ryssdal: Wow. We should say that Schilling himself does not come out of this with much money in his pocket. He put $30-something million of his own into it.
Nesi: Yeah, Schilling -- when he was a Red Sox player here in New England, we couldn't keep him off of the radio and TV. Now we're not hearing a word from him now except occasionally on Facebook. But he's said in past he's sunk more than $30 million of his own money into the company. I have to think that he's tapped out because the check that they defaulted on that set off this crisis was only $1 million and for a ballplayer who made $114 million during his career, you'd think to save his own company he'd put it in. So I'm thinking he might be tapped out at this point.
Ryssdal: Yeah. This is playing out now in Rhode Island politics as well. Members of the Economic Development Corporation are resigning, the new governor, Lincoln Chafee, is involved.
Nesi: That's right. I think we're going to see a lot of fallout for quite a while related to this.
Ryssdal: Ted Nesi at WPRI 12 and WPRI.com in Providence, R.I. Ted, thanks a lot.
Nesi: Thanks for having me, Kai.