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

[patience]

They attracted the wrong studio. A game dev founded by an ex-baseball player/celebrity makes great headlines, but wasn't a sound investment. If they wanted to create a hub for video game development, they'd have done better attracting one of the major big bucks studios like EA or Activision to locate a studio there. The game might have sucked, but it would have been a safer bet.

A safer bet would have been to use that loan to attract companies from three different industry sectors. Rhode Island shouldn't have bet the farm on a single a company in the first place.

[Numtini]

A safer bet would have been to use that loan to attract companies from three different industry sectors. Rhode Island shouldn't have bet the farm on a single a company in the first place.

The original plan was to spread it widely. There was going to be no more than 10m to any individual company, but that was removed from the bill at the governor's request during the legislative process because he had already decided to give it all to Schilling.

[MisterNoisy]

Shamelessly stolen from the GAF thread on this: 

[Outlawedprod]

http://bostonglobe.com/business/2012/05/30/game-maker-staff-seek-pay/Q2uChBkJDVFjFnyhunbrhN/story.html

But because of the slow housing market, 38 Studios has been unable to sell a few of the homes, according to another former employee. Now it is unclear who is on the hook for those remaining mortgage payments.
The head of MoveTrek Mobility LLC, the relocation firm hired by 38 Studios, declined to say how many homes have not been sold, but said he has not heard any complaints about missing mortgage payments.
“As far as we are concerned, they are current,’’ said MoveTrek chief executive Doug Mohns.

http://m.golocalprov.com/186935/show/a312817038e52a70806196a62b15eb3e&t=1st0q3kf47q00ki0de8vtv2ds4

While House and Senate leadership have remained quiet regarding the Schilling’s company in recent weeks, concern over which connected individuals or companies benefited from the 38 Studios deal has only increased.
In addition to Corso and Nappa’s connections to 38 Studios, several top local law firms made hundreds of thousands of dollars off the deal

And while Chafee has said he still hopes to company can find a way to pull through, he has also acknowledged that he isn’t optimistic.
“This is a business that punishes those who don’t know what they’re doing,” Chafee has repeatedly said.

[Soln]

How deep is the rabbit hole?

R.I. Labor Dept. investigating whether 38 Studios employees worked without pay

R.I. Gov. Chafee: Deloitte to conduct forensic audit of Schilling's company

[UnSub]

I was thinking yesterday that the notable thing here isn't that 38 Studios crumbled, but that they crumbled using public money. If they'd collapsed after being bankrolled by investors / publishers, it wouldn't be nearly as big an event.

[Draegan]

I was thinking yesterday that the notable thing here isn't that 38 Studios crumbled, but that they crumbled using public money. If they'd collapsed after being bankrolled by investors / publishers, it wouldn't be nearly as big an event.

  You think?

[satael]

http://www.gamasutra.com/view/news/169444/38_Studios_Downfall_The_Gamasutra_Report.php contains quite a few "insider" comments though still it's mostly just the same as all the previous articles.

[HaemishM]

OH FFS. The sources in that article which talk about Copernicus weren't even in the Rhode Island studio - they were at Big Huge Games. The stuff they are saying about Copernicus seems more like conjecture and office gossip than quotable fact since the sources WEREN'T at the studio working on it. As for Curt, I'm sure he was a decent boss - right up until he checked out and stopped telling his people what was going on. Letting health insurance premiums drop without telling people? Maybe it was a Veep below him responsible for it, but ultimately, as the face of the company, either you answer for it and take responsibility for it, or you look like an asshole.

I don't get what was going on with this project. They get a $75 million loan, but are continually looking for more investment the whole way through - and NEED that investment to keep the door open. Is there no one budgeting this thing saying "We need $X and no more" where X=dev costs but a little padding? I understand these things are notoriously hard to estimate, but fuck's sake, we aren't talking about cost overruns, we are talking about more investment or the lights go off. That's not good business.

The thing about the governor calling it "taxpayer money" makes me rage. It IS taxpayer money until you push a product out the door and pay the fucking loan off because if you DON'T, the taxpayers are on the hook. It was a bad loan, it apparently was managed very badly and again, if the company has trouble making payroll, I see no problem with the governor saying they are barely solvent because it's fucking true. Your investors SHOULD get scared off by that, because it shows a lack of management. If you can't even manage $75 million correctly, why should someone else give you more without even the guarantee that the state will pay it off?

And to reiterate, Reckoning made money but not enough to trigger the good back end deal for 38 Studios. That means it was a bad deal for 38. I'm sure EA loved the deal.

[Numtini]

The Stockholm syndrome is painful.

My favorite excuse is how Chaffee's incessant negative comments about the game caused investors to back out. At that point, the bank account had run dead dry, some bills (health care) had apparently not been paid in a while, and the time between that and when they closed was what all of a week or 10 days?

[kildorn]

Game devs seem to be leaping to blaming the state, which I don't get. The Gov saying they were broke causing their deals to fall through means that the deals were based on hiding the truth from the investors, not sound deals. The fact that they'd stopped paying employees and benefits without mentioning it to the employees is 100% entire pinned to management. And the sources in that article are trying to paint the 1m payment as some really odd not loan related thing.. when it was a known clause of the loan.

Management failed, HARD. You can complain that the state should have tried to float them another 50M or so to try and finish the game, but the reality of it is that a 1m repayment broke the bank for a studio that was roughly a year from producing another product. That means the repayment wasn't the problem, the problem was that they didn't have enough bank balance to make payroll or likely even rent in the first place and the repayment was just the first bill that came due that month in a loud and public manner. When the repayment was due, they'd already failed to pay their insurance.

[Hawkbit]

I'm sure Curt had a good idea of what was happening long before it hit critical mass.  The real crooks are the COO, CFO and Maclean, who most definitely knew the model wasn't sustainable. 

I mean, just look at the guy:  http://38studios.com/staff/rick-wester

He's got a Ponzi stare.

[Abagadro]

I've seen this kind of stuff happen up close. The projects are questionable to begin with which is why they need government financing (if they are solid they can usually find private money). They get to the bad times and come whining back to the governmental authority that they need more money as they are THIS CLOSE.  A second request for money usually starts setting off alarm bells and they dig into the meat of the project a bit more to find out why it didn't succeed with the first round of public financing when there were a bunch of flowery promises to get the money in the first place. The policymakers wise up (or are different people altogether) and the spigot gets turned off.  Now suddenly its the government that is the asshole for not propping up the teetering shitpile with more money.

The other scenario is they look at it as a sunk cost and throw good money after bad hoping it turns around.

[Numtini]

It's not suprising it went broke, what's really hard to figure out is how it went cash dry instead of having some kind of more reasonable shutdown. I've been in a failing company and we did our share of looting in the form of expensed $50 lunches and such, but we also went through a few rounds of cutting positions and everyone got a layoff notice and a month's pay and COBRA and all that.

[kildorn]

Yeah, it's less that the company is closing. It's more that they're behaving like they had no idea their bank balance was out and were just out waving credit cards around when they suddenly got declined. A reasonable management team would have started layoffs or hiring freezes months ago, and at least a month before broke told everyone and let them find new jobs.

You don't just show up to work one morning and say "Hey, I bet by now you've all figured out that your paychecks bounced. So about that: GTFO."

[Ingmar]

The COBRA situation is particularly egregious.

[HaemishM]

I think they probably COULDN'T do the layoffs, since part of the loan agreement from the state specified milestones for employment numbers. They HAD to have 450 jobs in Rhode Island by next year or else they were in breach of contract. In other words, it was an absolutely SHITTASTIC contract for everyone involved, EXCEPT the private investor who floated the loan. For them, it was absolutely risk-free investment. If the company goes tits up, the whole lump is guaranteed by a state government that cannot legally default on its arrangements.

But for 38, the only way it could be good is if everything works perfectly. Perhaps by the time they negotiated the loan, they'd realized they couldn't make it with the money they had, they couldn't get anymore private investment because the risk of failure was higher than the potential return warranted. Up steps Uncle Sugar, and suddenly a private investor wants to give them a huge chunk of change. Rhode Island cannot have gotten that many jobs out of the bargain (450 isn't really that many no matter how well they pay or for a small ass state like RI) and thus not get that much tax revenue. And the hopes of attracting a booming tech sector to the state was a really forlorn hope.

The only way I can see this having passed is political connections. Or in other words, corruption and influence peddling.

[Numtini]

The COBRA situation is particularly egregious.

In business, moral, and legal terms I agree.

I will admit, on the other hand, as a resident and taxpayer, there is a big part of me that says "tough shit, maybe you should have stayed in Massachusetts where you could have simply switched to a plan from the health connector."

[HaemishM]

SOCIALIST!!!! 

[Numtini]

Ouch. Panelist on Radio Boston, the local NPR's local talk show. "This was a terrible idea, if you know anything about gaming, the last thing anyone needs is another bad copy of World of Warcraft"

And on the insurance, I'm very proud of my state. There are a lot of reasons to live here and do business here and we've been ahead of the country on everything from rebellion to equal marriage rights. There are really good reasons to live here and if the company hadn't moved, these folks would be in a lot better position. Of course, it's so bad that apparently some of them still own property here, except nobody knows who.

[Rokal]

From that Gamasutra article:

It wasn't completely revolutionary in terms of gameplay, but it took existing conventions and refined or improved them across the board, not unlike Blizzard's approach with WoW.

So they actually were trying to re-create WoW...  I guess it's no wonder investors aren't appearing, especially after SWTOR's spectacular failure. Well, that and all the bad press they're getting.

The screenshots looked nice and it really is a shame that all this time, money, and passion went into a project we'll probably never get to play. However, even if they had secured extra funding and we'd never heard any of this, it sounds like the game was destined to fail. If they'd already burned ~100 million+ between the RI loan, Curt, and private investors with another year+ of development to go... what are the chances a brand new IP WoW-clone would succeed when SWTOR didn't?

[murdoc]

You guys just don't know the whole story, yet

To whom it may concern. Obviously there is a massive amount of misinformation regarding 38 Studios in the public arena. When we are able to…

[HaemishM]

WHY ARE YOU ALL SPREADING MISINFORMATION??!!?!? THERE'S A COMPANY AT STEAK!1!!2!!1@

It had to be done.

[Inactiviste]

To whom it may concern. Obviously there is a massive amount of misinformation regarding 38 Studios in the public arena. When we are able to…

I beat he real truth was that they weren't building a MMO but a Facebook game.

[Tannhauser]

If I was his lawyer I'd tell him to shut the fuck up.

[Hawkbit]

Well fuck, if a baseball player can make a video game, why can't he represent himself, too?

[satael]

If I was his lawyer I'd tell him to shut the fuck up.

I'm sure he's already been told that   38 Studios should be pretty good at keeping their mouths shut judging by the pr (ai. the lack of it) they had for their mmo until last month.

[Ingmar]

If I was his lawyer I'd tell him to shut the fuck up.

They stopped paying the lawyer 2 months ago.

[Sjofn]

I'm sure Curt had a good idea of what was happening long before it hit critical mass.  The real crooks are the COO, CFO and Maclean, who most definitely knew the model wasn't sustainable. 

I mean, just look at the guy:  http://38studios.com/staff/rick-wester

He's got a Ponzi stare.

Haha, holy shit, he really does.

[rk47]

that little mascot on the right caught my attention more.

[UnSub]

Game devs seem to be leaping to blaming the state, which I don't get. The Gov saying they were broke causing their deals to fall through means that the deals were based on hiding the truth from the investors, not sound deals.

I find it hard to read that Gama Sutra article and see the evidence laid out that 38 Studios was begging money from one investor to the next (e.g. they came close to not being able to cover payroll twice before failing, but managed to find investors to fund it) and barely surviving, then read the comments where people blame RI's Governor for somehow ruining things. Or that 38 Studios managed to get $35m from EA to publish KoA:R and still keep its IP, then looks to have burned that cash ASAP.

Schilling was the face of 38 Studios, but the management team have some real questions to answer.

The real question about RI's oversight is why they didn't stop things sooner, or if they were misinformed about the state of the studio's finances.

I think they probably COULDN'T do the layoffs, since part of the loan agreement from the state specified milestones for employment numbers.

The information that's publicly available suggests that 38 Studios would have been charged $7500 once a year for each employment position unfilled. I'm not sure what would happen if they had to fire staff.

The thing is it would have been cheaper for them to pay that penalty and not pay for such a large number of staff over the course of a year.

[Severian]

In other words, it was an absolutely SHITTASTIC contract for everyone involved, EXCEPT the private investor who floated the loan. For them, it was absolutely risk-free investment. If the company goes tits up, the whole lump is guaranteed by a state government that cannot legally default on its arrangements.

That's not exactly true in this case, although Rhode Island is very unlikely to let the bonds default. But they can.

Moral obligation bonds are different from the more familiar general obligation bonds because with the former a state only pledges to ask lawmakers to appropriate taxpayer money to pay bondholders, while with the latter the state promises to pay.

If 38 Studios defaults, Chafee will be forced to ask lawmakers for money to pay bondholders during next year’s legislative session, according to Moody’s. The bondholders are supposed to receive interest payments each May 1 and principal-plus-interest payments each Nov. 1 starting next year. The initial payments are interest-only and are being paid for with proceeds from the original bond sale.

“Once the appropriation request is submitted [by the governor] to the legislature, the state’s legal obligation has been met and the legislature may decide not to appropriate the funds,” Van Wagner (of Moody's) explained. Some analysts have suggested the General Assembly should consider defaulting on the bonds altogether.

For example

Generally, states should perform on their moral obligations. But Rhode Island’s government has more moral obligations than it can possibly service. The state still struggles under a huge unfunded public employee pension obligation, even after a major set of pension reforms last year, which will freeze cost of living adjustments for current retirees for as long as 15 years.

Surely, the state had a moral obligation to pay those pension benefits in full. If it couldn’t afford to meet that obligation, how can it afford to appropriate the nearly $100 million that it will take to pay off the 38 Studios bondholders with interest? A default will surely make it difficult for Rhode Island to issue more moral obligation bonds — but if that means no more 38 Studios-style deals, so much the better.

Instead of fixing its economic development program, Rhode Island should get out of venture capital entirely, instead focusing on policies that improve its business climate overall.

[Severian]

By the way, the day after Reckoning was released Schilling deposited 200 pounds of gold as collateral for a personal loan of undisclosed value*. That's about $5M at current prices - it was 3,200 South African Krugerrands, Canadian Maple Leafs, and American Eagles.

source: Boston Globe

* Schilling previously said he'd sunk $12M in personal loans into the company.

Also revealed in the linked story is that the company which is out $1.1M for the interest payment to the EDC replacing 38 Studios' bounced check, on the promise of receiving 38 Studios' currently non-existent film tax credits, is "Row 1 Productions" of Beverly Hills, California, a movie financing company. Another company had backed out of the deal, presumably on learning that 38 Studios didn't actually have the tax credits. But Row 1 went for that sweet deal.

[Bzalthek]

Hah, holy shit.  For 5 fucking years he was going to release more about his fucking MMO or world, or the name of the fucking game "when we are able" and now the company goes down the shitter and it's the same god damn line.  He'll release more info about what happened "when he's able to."  It's not Stockholm syndrome.  It's like an abused spouse, people keep coming back because, well fuck, he's famous and he's talking to the public, (or rather promising he'll talk "when he's able to") and people are sure that's a sign he really loves them, and it's not his fault, it's ours for being faithless bastards!

[HaemishM]

Gold coins as collateral for a personal loan the day after Reckoning released? Fuck me, it's been a goddamn money pit that he's continued to pour money into... his own and other people's money. And the money he got to pay the state was borrowed as well? There's so many loan numbers thrown around about this game, I'm not even sure how much he's borrowed, begged or stolen to throw down the crapper on this pipe dream.