38 Studios is Working on a Game, Apparently, Afterall (Kingdoms of Amular)

[kildorn]

"We want you so badly we'll buy your house off you and resell it" used to be a way to really lure top notch talent from far away.

"We want you so badly we'll try and sell your house but who knows if it'll work" is clownshoes. But I question how the deal was arranged if they're just now finding out about it. You don't have a second mortgage suddenly appear again, they'd have never stopped paying it. Unless the deal was idiotic and 38 was paying for them, and has simply stopped doing so while never legally taking ownership of the obligation.

[Venkman]

I can't believe they even offered to sell off potential employees homes to encourage them to move and work for them but only hired an agent instead of buying the property themselves. I get why they didn't do it but just knowing the reasons why should've made them consider not making the alternative offer in the first place.

Usually the hiring company sub contracts relocations to a relo company. Standard operations in the sports business, but not uncommon for big companies either. The level of service the new hire get depends on the position being filled. But long and short, if the relo package includes home buyout, I've seen it work like this:

• You try and sell. If successful, fantastic. Usually the relo company then buys the house from you at that point so you get your check to plunk down on the next place, and then they handle the closing and so on.
• You try and sell and fail. After 90 days or whatever the relo package says, you give up and tell the relo company. They then try to sell it themselves. After some proscribed time (30-60 days I've seen), then it's either back to you or they buy it to sell on their own pace. This is a last resort. You won't get near what your real estate agent thought you could.

I really hope all these relo'd folks didn't just discover a second mortgage in their life. But if it is true, could be that the relo company knows they ain't getting paid by 38S and are raising a red flag, or it's just a computer glitch. Sucks no matter what.
So much fallout still yet to come.

[Numtini]

Well Curt himself is underwater to the tune of 1.5 million (5 million purchase, current assessment 3.5 million). But if you'd like to see how the bankrupt and Republican live: here's the mansion.

[Lantyssa]

Plenty of room to move a few dozen former employees in.

[Sjofn]

They are, after all, like family.

[UnSub]

http://www.polycount.com/forum/showpost.php?p=1593225&postcount=100

Well now that I'm a little more free to talk about this Jesse. The million dollar + payment that went to Rhode Island was in assurance we would receive the tax credits of 8 million. We even had buyers lined up for the credits and the government was sitting there telling us "You give us the million, we give you the tax credits."

We gave them the million. They did not give us the tax credits, which would've not only payed the employees, but saved the studio most likely as we had several publishing deals in the works. The government flat out lied to us (big surprise).

I don't fault upper-managemenet too much, they've actually been pretty open about what's going on and really thought the studio was going to pull through this. They've even been allowing us access to the building to obtain as many assets as we need to build our portfolios back up. I'm sure the full story will eventually come out.
http://viccortis.com - Portfolio

He's have more of a point if:

1) The money being paid wasn't a contractually required loan repayment; and
2) The first cheque hadn't bounced.

And as pointed out, that US$8m is 2 - 3 months of operation at 38 Studios' then-size. Where was the money coming from past then? "Several publishing deals"? For what? And if any of those publishers got a look at 38 Studios financial information, they would have seen multiple red flags and probably held off.

It really looks like 38 Studios management deluded themselves (or key members were kept in the dark) that they could power on through without having to make any difficult decisions and start firing people. Or that they'd sell enough units of KoA:R and / or that RI couldn't possibly let them fail. And it seems like they built an employee culture that everyone loved, which is why right now ex-38 Studios are angry about the government not helping them after it appears to have generally funded the majority of the studio for the last 2 years.

It makes me think of all those studios who fall over / fire lots of people, then blame the publisher. Yes, publishers can and do behave poorly, but they also make a convenient scapegoat over, "We mismanaged this studio into the ground."

Is anyone able to tell me if 38 Studios rented their entire building? If they did, it would have been six floors and about 100k square feet for somewhere between $18 and $25 sq. ft per month (and a news report at the time says $21 sq. ft). That's a big rental cost each month.

[satael]

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2012/05/25/national/a141741D64.DTL#ixzz1vvAJIqko

Sounds like the governor is really going for 38 Studios' throat and not hoping for some way for them to get the funding.
Hopefully someone will pick up the pieces if the Copernicus was anywhere near completion since throwing away many years of people's hard work is such a waste...

[Azazel]

(and you give $5 million to a hack like Salvatore to write GODDAMN LORE any shithead fanfic author on the Internet could write), that's just not enough money.

I recognise the RA Salvatore hate, but for the record that US$5m was if Project Copernicus did well; as I understand it, he got US$1.4m for the launch of KoA:R.

Still too goddamn much money. I'm seriously, writing lore for an MMOG is a daunting, huge task, but it goddamn isn't one that requires that kind of expense. I'd gladly do it for $50k - open offer to anyone that developer that wants me to do it. It's INSANE to pay $1 million for fanfic lore that most players will ignore anyway. You can hire industry-experienced writers in the video game industry for less than $100k a year. You ONLY pay $1 million if you are licensing a HUGE franchise IP that has millions of fans. Salvatore's name, no matter how many hack genre books he's sold, is not worth that money on his name alone. Even Dri'zzt ain't worth that much as an IP. It's throwing money away.

EDIT: And since Salvatore says he would only get paid on the backend (an idiotic deal for him, if you ask me), it's still a bad deal for 38 Studios to make because you can get comparable work for far, far cheaper, whether you are paying on the front end or the back.

While I agree with most of your points, could you please, please stop pimping yourself with the endless "I'll do it!" (if anyone is reading this) The first time, it does come off as sarcasm, but now it's just starting to seem a little desperate.

In other news no-one cares about, I finally played the Demo for Amalur tonight, it's been sitting on my 360 for months. Seems quite decent, so I went to check out prices online. I found that my usual UK game sources has just dropped it from $50 to $30. (So I ordered it) but ouch.

[Azazel]

Paying seven figures to Salvatore might have made sense if he had written a (real) fantasy book set in Amalur in exchange. While his writing might not be great in everyone's opinion, he's still a bestseller and any fantasy he would have written would've gotten readers (and people aware of Amalur).

I thought for sure this was how they would do it. Not like banging out yet another terrible book would have put him out any. Pretty sure Skeletor in Reamde was based on RAS  

I imagine that Salvatore would have been working on a book (or series of books) based on the IP. I doubt they'll see a mention, but in a year or two Salv will have a new fantasy fiction series out set in an amazing new world (that bears somewhat of a similarity to Amalur...)

[Venkman]

And as pointed out, that US$8m is 2 - 3 months of operation at 38 Studios' then-size. Where was the money coming from past then? "Several publishing deals"? For what? And if any of those publishers got a look at 38 Studios financial information, they would have seen multiple red flags and probably held off.

It looks like each loan repayment to RI EDC was a trigger to unlock access to further loans. While they got the $75mm loan guarantee, it looks like only (heh, "only") borrowed about $48mm of it.

Also, while someone was prescient enough to bring in a project monitor from IBM, the (now former) executive director signed a deal late last year basically saying their project and financial reports only needed to be delivered orally. ORALLY. 

Exhibit B in why politicians have no business running businesses. At all.

It makes me think of all those studios who fall over / fire lots of people, then blame the publisher. Yes, publishers can and do behave poorly, but they also make a convenient scapegoat over, "We mismanaged this studio into the ground."

Eh. That's just general antiestablishment sentiment. Almost every young developer I know feels the same. Anything bigger than their immediate organization, be it their department or their company, automatically at fault. Eventually they learn they make as many mistakes as everyone else, and shut up about it.

Usually around the time they have kids 

[UnSub]

RI officials certainly have some questions to answer - apparently 38 Studios told them in] . It will depend a lot on who knew what and when - if 38 Studios was glossing over their financial situation internally, they were probably doing it to RI as well.

I actually believe that government does have a role in business, but it has to understand that business and have proper oversight (especially in this case). After all, if RI had a better understanding of the game industry, they probably wouldn't have acted as guarantor on such a high-risk deal.

[tmp]

It looks like each loan repayment to RI EDC was a trigger to unlock access to further loans. While they got the $75mm loan guarantee, it looks like only (heh, "only") borrowed about $48mm of it.

Subsequent payments were apparently being unlocked based mostly on "employment milestones" of sorts:

Here is a timeline of when 38 Studios is scheduled to get the $71 million in loan proceeds that will be left after bankers' fees and other costs are paid, along with employment targets set by the state. (The dates are estimates that assume the transaction closes next month, and thus subject to change.)
 
- 2010 -

Oct. 1: 38 Studios gets $13 million if the transaction closes and a lease is signed. (Total paid out: $13 million)
 
Nov. 30: 38 Studios gets $9.4 million if it announces the date it will move to Rhode Island. (Total paid out: $22.4 million)
 
- 2011 -

Feb. 28: 38 Studios gets $17.2 million if it relocates and employs 80 full-time workers in Rhode Island. (Total paid out: $39.6 million)
 
Aug. 31: 38 Studios gets $4.2 million if it employs 125 full-time workers here. (Total paid out: $43.8 million)
 
Nov. 30: 38 Studios gets $4.1 million if it signs a distribution agreement for Project Copernicus. (Total paid out: $47.9 million)
 
Dec. 31: 38 Studios gets $3.1 million if it employs 250 full-time workers here. (Total paid out: $51 million) And if all the previous milestones have been met, 38 Studios gets another $13 million from the $20 million reserve fund the EDC is creating to protect taxpayers. (Total paid out: $64 million)
 
- 2012 -

Oct. 1: 38 Studios must employ 300 workers here. (Total paid out: $64 million)
 
- 2013 -

Oct. 1: 38 Studios must employ 450 workers here. (Total paid out: $64 million)
 
- 2020 -

Nov. 1: If 38 Studios finishes paying investors back for the $75 million loan, it gets the $7 million remaining in the EDC's reserve fund. (Total paid out: $71 million)

Ironically enough, those final milestones are on the level of crazy grind straight from Korean MMO.

[Outlawedprod]

http://www.boston.com/business/technology/innoeco/2010/02/a_business_school_grilling_for.html
Article from 2010 about Schilling being a case study for a Harvard business class.

When Schilling made his initial $5 million investment in the start-up in 2006 (38 Studios was initially known as Green Monster Games), he hadn't yet told his wife about his decision.

It was April 2009 and Schilling felt he had taken 38 Studios to the brink, extending himself and his family both financially and personally. ...He admitted [while considering the acquisition of another gaming company, Big Huge Games], "I have put the majority of the money I've earned in my life on the table. If I make another financial investment, I will have crossed the point of no return from a personal investment and company standpoint."

[Venkman]

From Severian's link three pages ago: http://www.riedc.com/files/38studios/Copyright%20Mortgage%20and%20Assignment%20-%2038%20Studios,%20LLC.pdf

Does that mean if 38 does go chapter 7, RI inherits everything? Kinda looks like all of it was out up as collateral.

[Numtini]

I actually believe that government does have a role in business, but it has to understand that business and have proper oversight (especially in this case). After all, if RI had a better understanding of the game industry, they probably wouldn't have acted as guarantor on such a high-risk deal.

There's nothing hard to understand about the game. From wikpedia: Baseball is a bat-and-ball sport played between two teams of nine players each. The aim is to score runs by hitting a thrown ball with a bat and touching a series of four bases arranged at the corners of a ninety-foot diamond.

That was all they needed to understand. That's what makes the whole thing so unseemly. This wasn't really any attempt to create a new hub for gaming. Nobody was out there trying to lure in Trion or talking to EA about opening a local studio or turning over abandoned buildings for a dollar to a flock of tiny indie developers. Heck, nobody was offering Turbine anything to move. It was about Curt Schilling and his bloody sock.

[Merusk]

Yep.  If you want to lure an industry you go after established companies with huge packages like that.  Not unproven startups lead by people with no experience in the industry. That was a huge package for even established companies.  Chiquita bananas - arguably a much larger and more important company - only got $22 mil to move to North Carolina.  Nothing at all justified this package except connections, starfucking and perhaps good ol' robbery. 

And nothing significant will come of it.

[Venkman]

From Severian's link three pages ago: http://www.riedc.com/files/38studios/Copyright%20Mortgage%20and%20Assignment%20-%2038%20Studios,%20LLC.pdf

Does that mean if 38 does go chapter 7, RI inherits everything? Kinda looks like all of it was out up as collateral.

Heh, Joystiq just posited the same thing:
http://i.joystiq.com/2012/05/16/rhode-island-owns-38-studios-intellectual-property/

[Outlawedprod]

Isn't RI politics well known for corruption?   Should be interesting if any of the hardball being played leads anywhere.  Regardless of wrong doing and fiscal responsibilities the governor is clearly on a mission to make use of this incident.

[Severian]

http://www.riedc.com/files/38studios/Copyright%20Mortgage%20and%20Assignment%20-%2038%20Studios,%20LLC.pdf

Does that mean if 38 does go chapter 7, RI inherits everything? Kinda looks like all of it was out up as collateral.

I had noticed that last night; that set of patent (no pre-existing patents actually listed), copyright, and trademark contracts are new to that page. I think Governor Chafee is making the case that 38 Studios has already defaulted on them, which means the EDC would control them. From the SFGate article satael linked:

Edit: "38 Studios has 30 days to fix the default" - source - but I'm not sure how you fix a past failure to provide notification, especially if the other party is not interested.

But now it is in default again, Chafee said. Under federal law, employers who have at least 100 employees and plan to shed at least 50 jobs are required to give a 60-day notice to workers and state unemployment officials.

Chafee said Friday he would seek an audit of how the company used the $50 million it has received in loan funds, all of which is gone, state officials have said. The governor wants "everything documented" because, he predicted, there are going to be "so many lawsuits."

Those copyright etc. agreements apply to 38 Studios, 38 Studios Baltimore (Big Huge Games), Mercury Project LLC (CEO the selfsame Jennifer MacLean, formerly of Comcast), and a redacted company/individual.

[Chimpy]

The thing that is even more annoying to me (and seems to get misreported) is that RI didn't loan the money to 38, they said they would guarantee a private loan from a bank. So the bank that made the loan just got 100million+ of taxpayer money, regardless of how much was actually paid out it seems.

The private bank won big no matter the outcome.

[Severian]

A bank won big? Not according to this article.

In November 2010, the EDC borrowed $75 million from private investors on behalf of 38 Studios. The quasi-public agency agreed to pay back the bondholders with money 38 Studios pledged to provide from sales of its games. The interest rates on the bonds range from 6% to 7.75%

Certainly a healthy return in the current market for the bondholders, but not a windfall. Of course interest does add up over time, and the numbers start large.

Edit

Ah, but these folks made some immediate coin:

A gaggle of lawyers from Cranston to Los Angeles -- including a former R.I. lieutenant governor -- shared close to $545,650 in payments from the state-backed sale of $75 million in taxable revenue bonds.

That article also refers to the redacted company on the copyright contracts as a "Special IP Subsidiary".

[Abagadro]

6-7 percent on a guaranteed bond is actually nuts these days. We are only getting rates in the 3-4 percent range on a AAA rating.

[Severian]

You can see the original PowerPoint pitch to the Rhode Island EDC here:

http://news.providencejournal.com/breaking-news/Presentation%20on%2038%20Studios%20Opportunty.ppt

[Fabricated]

Kingdoms of Amular is $29.99 at Amazon along with a bunch of other stuff right now. :P

[Goumindong]

6-7 percent on a guaranteed bond is actually nuts these days. We are only getting rates in the 3-4 percent range on a AAA rating.

Indeed. You would expect that the interest rate on a bond backstopped by the RI govt would have yields similar to the RI govt, which looks to be about 1-3% depending on the duration. So that is a pretty big windfall for the bank.

[Hawkbit]

Kingdoms of Amular is $29.99 at Amazon along with a bunch of other stuff right now. :P

I'd hold out for the patch.

[Jobu]

Kingdoms of Amular is $29.99 at Amazon along with a bunch of other stuff right now. :P

If someone bought it, where do you think the cut that would normally go to 38/BHG? I was wondering this with a coworker of mine recently. He guessed straight to Rhode Island, but I wonder if EA would just keep it. I'm continually fascinated by the scenarios of what happens next. Like, does Rhode Island try to sell off the IP and the assets and walk away? Do they try to start a studio in the ashes of it and ship *something* with a skeleton crew of ex-employees... but who would pay for it?

[Severian]

Schilling gave an interview to the Providence Journal over the holiday weekend.

He says he's lost 33 pounds in 45 days and he's on the hook for $50M of his own money - $38M invested plus $12M in personal loan guarantees, and he's never taken a penny out of the company.

He says 38 Studios didn't see any money out of Reckoning's sales and hadn't expected to - the money was committed to EA, which had paid $35M up front for it.

He said that on May 12 they learned that the president of "a video-game publishing company" (clearly EA) had approved a $35M deal for the sequel to Reckoning, but it fell apart with Chafee's public comments. Along with discussions with another publisher for $55M for Copernicus, and with a VC for additional financing.

He blames Rhode Island:

state economic-development officials reneged on a deal to approve film tax credits to which 38 Studios is legally entitled, and to allow the company to defer a $1.12-million payment due to the state on May 1 so that 38 Studios could meet its May 15 payroll.

Given 38 Studio’s previous inability to attract private financing, Schilling says the company needed short-term help from the state to stay afloat until private deals came through.

At the April meeting with Chafee, says Schilling, 38 Studios’ executives said they needed to use $8.7 million in 2011 film tax credits to provide that financial bridge and to meet the May 15 payroll.

They also discussed the need to lure private investors by giving them “senior security interests” in 38 Studio’s assets, most notably its intellectual property. That meant Rhode Island taxpayers would take a back seat to any private investor — something that Schilling says always was going to be necessary and had been discussed previously with the Rhode Island Economic Development Corporation, which issued the job-guarantee bonds.

There are more details in the article about how 38 Studios had sold/tried to sell those film-tax credits to two other firms in exchange for money to pay off the $1.12M payment due on their bonds. One of those two actually made that $1.12M payment later, after the first check bounced, that's how the EDC received it, yet the tax credits are in limbo, "raising doubts about how that investor will ultimately be repaid".

Note that 38 Studios had signed off on the IP deal long ago, to get the bonds in the first place, and the $4M/mo burn rate wasn't going away no matter what short-term relief the company received.

[Numtini]

Did we really think he was going to take responsibility or blame someone else other than THE GUBBAMINT?

[kildorn]

I like that demanding the 1.2M payment is somehow the cause of all the problems. When they couldn't make their payroll or health insurance payments either.

"Some people may give us money soon" doesn't solve that your ass is broke NOW. If the governor's public comments stopped your deals, it's because your deals were close to being scams and the companies involved had second thoughts when it came to light that you'd probably never return their investment.

[Stormwaltz]

Isn't RI politics well known for corruption?

Since before there was a United States.

That Ivy League bastion, Brown University? The Brown brothers founded it using their profits from the slave trade. Oh, they didn't sell slaves in New England - that wasn't legal. They merely transported them from Africa to the planters in Virginia and the Carolinas.

[schild]

I think someone was fed too much "You can be anything you want when you grow up" when they were little.

[schild]

Also, after watching and reading a bit more on this:

What kind of Kool-Aid did they have in house? I am flabbergasted by some of the loyalty. Raise your hand if you think business is about more than money. Anyone? Bueller?

[kildorn]

They may have made an awesome place to work, with amazing benefits. But the problem is they couldn't afford said setup and ran out of cash. I can understand being unhappy at losing a sweet deal, but I do find it a bit odd that all the ex employees seem to be blaming the state for the company failing to pay them.

No matter how you slice it, if the company got to the point where they're bouncing paychecks.. management fucked the hell up.

[tazelbain]

Fucking Welfare Queens.