Back in 2013 Reason TV looked into 38 Studio's $75 million
state-backed loan scandal.
"38 Studios: Curt Schilling's Crony Capitalism Debacle" was
originally released on Jan. 3, 2013 and the original text is
The 2012 bankruptcy of Rhode Island-based video-game developer
38 Studios isn't just a sad tale of a start-up tech company falling
victim to the vagaries of a rough economy. It is a completely
predictable story of crony capitalism, featuring star-struck
legislators and the hubris of a larger-than-life athlete completely
unprepared to compete in business.
Former Boston Red Sox pitcher Curt Schilling, an iconic figure
in New England after anchoring
a historic playoff comeback which ended a legendary
86-year title drought, founded 38 Studios near the end of his
baseball career in the hopes of becoming a big shot in the
intensely competitive multi-player gaming
Since 2006, Schilling invested millions of his own fortune into
38 Studios, and with the self-assured bravado he exhibited as a
major league baseball player, set out to find investors to infuse
his company with the roughly $50 million needed to complete 38
Studios' first game. Although Schilling is the kind of local legend
who could get a meeting with every venture capitalist in New
VCs passed on 38 Studios. WPRI-TV's Ted Nesi reported
that one such potential investor said "it would have
taken a lot of babysitting to do a deal with Schilling because he
was inexperienced and the management was inexperienced."
Finding no success raising financing in the private sector,
Schilling turned to Gov. Deval Patrick (D-Mass.), but the Patrick
to get involved when "they couldn't make the numbers work
Enter Gov. Donald Carcieri (R-R.I.), term-limited and searching
for a legacy after presiding over one of the worst state economies
in the U.S., featuring long spells of double-digit unemployment
last-place finishes in rankings of business friendliness.
In a classic spasm of "do something, anything" government
desperation, Carcieri made it his mission to lure 38 Studios
from its headquarters in Maynard, Massachusetts to Rhode
Using his bully pulpit as both governor and chairman of the
Rhode Island Economic Devlopment Corporation (RIEDC), a
quasi-public agency whose mission is to promote business in
the state, Carcieri pushed hard for 38 Studios to receive a $75
million taxpayer-guaranteed loan.
Each loan guarantee must be approved by the Rhode
Island legislature, and when the votes were cast in 2010, only one
lawmaker voted against it. Rep. Bob Watson (R-Greenwich) noted "a
lot of red flags" in a "very risky" deal that was "too fast, too
loose, and frankly, a scandal waiting to happen." Watson added
"more often than not, politicians are very poor when it comes to
making business decisions."
Watson is clearly on to something, at least in the Ocean State.
later admitted that they did not realize that the
loan guarantee meant to stimulate Rhode Island business, was in
fact, only going to stimulate one business, 38 Studios.
In 2011, 38 Studios moved from Massachusetts. After little more
than a year in Rhode Island, with monthly expenses approaching $5
million and their big game release more than a year away, 38
Studios began to unravel with stunning swiftness. In May 2012, 38
Studios defaulted on a $1.1 million loan payment to the RIEDC,
to deliver a bad check. Unable to meet payroll, the company
laid off its employees in a mass email, with one employee learning
of his new unemployment only after his pregnant wife was told at a
doctor's visit that their health insurance had been terminated.
Schilling has been an outspoken "small government Republican"
campaigned with President George W. Bush in 2004, but with his
business in dire straits, he once again turned to the state for a
Unfortunately for him, Donald Carcieri had been succeeded as
governor by Lincoln Chaffee, a Republican-turned- Independent and
vocal opponent of the 38 Studios loan from its inception. Gov.
Chafee sharply declined to to use any more taxpayer dollars on
the foundering company, which Schilling described as a politically
After the company filed for bankruptcy, Gov. Chafee
appointed the non-partisan Rhode Island Public Expenditure
Council (RIPEC) to produce
a study that included an analysis of the collapse of
38 Studios and why the state's development agency, completely
failed to monitor the taxpayer's investment. RIPEC's Executive
Director John Simmons told Reason TV that the RIEDC lacked any
meaningful "guidelines and principles" to effectively monitor the
progress of the loan and report to the governor and the RIEDC's
Schilling, who claims to have invested $50 million of his own
fortune in the company, now says that he is broke, and may have to
sell some of the prized memorabelia from his baseball career,
including the famed "bloody
sock" from the 2004 American League Championship Series. 38
Studios' assests are being liquidated and
the already economically depressed state of Rhode Island, thanks to
the interest on the 38 Studios loan, is now on the hook for more
than $100 million.
In November 2012, Rhode Island filed
suit against Schilling and several former EDC board
members alleging fraud, racketeering, and conspiracy. The
lawsuit claims that Schilling and former EDC Executive Chairman
Keith Stokes (who
now works for the legislative lobbyist firm The Mayforth Group)
knew the company would run out of money by 2012, but concealed that
from the EDC before the loan guarantee was finalized.
Former Gov. Carcieri hoped
38 Studios would be the cornerstone of a new video game
tech hub in Rhode Island. Instead, the fallout from the collapse
and squandered taxpayer dollars will make the state unlikely to cut
any more of what WPRI's Ted Nesi describes as "special, one-off
deals with individual companies...picked by a certain group of
people in state government."
Nesi adds, "You're always going to hear, 'Is this another 38