38 Studios: Curt Schilling's Crony Capitalism Debacle

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 world.

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 England, Massachussets 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."

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 employment and frequent 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 Island.

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."

About 7 minutes.

Written and Produced by Anthony L. Fisher.

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[easfgman]

the curt schilling story sounds exactly like the ones u hear about lotto winners blowing a 50 million jackpot on boats and pet salons.

[JamesBantz]

I don't know if fraud was involved or not but 38 studios did produce a great game averaging around an 80 metacritic score.

[rosskwolfe]

Agreed. I'd say possibly the worst part is how the employees got treated. They worked their tails off to make a pretty good first game by a startup company, and got the shaft in a big way. I was glad to hear they all got hired almost immediately by other companies.

[rockersamurai]

3:12 - probably one of the most honest things I have every heard from a politician. - "...politicians are more often than not, very poor when it comes to make business decision..."

[shrinkthegovt]

Say it ain't so Curt! One of my favorite all time pitchers is a hypocrite in his economic and political philosophy, come on Schill!

[CelticBadBoyPoet]

I Guess Curt Schilling Graduated 1st in His Class From The Lenny Dykstra School of Economics...I'm Not Sure Who Deserves The "Gomer Award" in This Comedy of Errors, CS or The Governor of RI...I Guess CS Can Change The Name From 38 to 86

[GOPsithlord]

This should be a cautionary tale for anyone who thinks the unholy alliance between private and public sector is an answer to a state's long term economic woes.

[kevd]

Who knows? Meetings with lobbyists are closed. What is known is that a company with an extremely poor business model (Fancy offices and manufacturing in California, maybe the most expensive state for industrial production) was struggling and it got a huge chunk of cash. Do you think the government was just looking for sinking ships to loan money to? Lobbyists don't have to always get new laws passed, they can simply benefit from those already in place, if they are clever.

[loszhor]

Good vid, I like hearing more facets of this story. It is very interesting.

[NekoPatty]

I am a Startup Indie Developer, and knowing about this earlier this year... I am worried what people will think about my game especially since I live there

[eirefrance]

As for the issue itself, your making an assumption about Solyndra's business model. Looking at it through the spectrum of 2008, it looks pretty sound.

[eirefrance]

May I suggest reading this book: "Lobbying and Policy Change: Who Wins, Who Loses, and Why" an eight year study of lobbying and what methods were successful. It's a separate but related issue.

[kevd]

The law prohibits competitors for first class mail, so no shit that there are no competitors offering what the USPS does. When Lysander Spooner created the American Letter Mail Company, it was sued out of existence by the Government. And there is a major difference between AMTRAK, whose losses are covered by taxes, and the Interstate which is funded by a "user fee" in the form of Gasoline tax.

[kevd]

No, I said Solyndra's failure was the result of a bad business model. The government loan was a proof of corruption. The former should have been a private matter, the latter is a moral matter.

[joeyclemenza]

and what do you know, the game was actually a lot of it's too bad we'll never have another one like it. oh well....

[eirefrance]

Do you have something on small appliance vs toy safety? Could you point me to it? It sounds interesting. One problem I could foresee is who the user is for both items-a child or an adult. My 6 month old regularly gives me good lessons in how children interact with dangerous items vs how adults do. But, sure, I'd love to read on it.

[an.unarmed.civilian]

and oh how lucky we are to have such benevolent, omniscient, and compassionate 'leaders'. may we all kneel and bow our heads in respect. /

[shadowstorm]

There definitely should have been some red flags raised when they couldn't find private investors, or even a publisher willing to buy the studio. RI had no business playing venture capitalist.

However, I don't think they understood the nature of a video game development cycle. It's essentially like any other form of entertainment: the cost is entirely front-loaded, and profits come after the game is released. They didn't understand that and bungled something that could have worked for them.

[austincosman]

Curt Schilling is the only guy to break a major sports curse and be hated by that fan base

[eirefrance]

Spooner provides a good argument. Maybe we should turn postal service over to private companies. It would have to be seen how responsive a private company is to the needs of the populace as a whole, and not their chosen marketplace. If it's unprofitable to provide mail service to Wyoming, that's reason perhaps to nationalize it for everyone.