Police Interviewing Legislators About $75 Million State-Backed Loan to Curt Schilling's Failed Game Company

Rhode Island state police are seeking interviews with legislators as part of their expanding investigation into former Red Sox pitcher Curt Schilling's failed video game company, 38 Studios. 

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 below.

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."

Finding no success raising financing in the private sector, Schilling turned to Gov. Deval Patrick (D-Mass.), but the Patrick administration declined to get involved when "they couldn't make the numbers work for us."

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 andfrequent 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." 

Watson is clearly on to something, at least in the Ocean State. Some legislators 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, then tried 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" activist, who campaigned with President George W. Bush in 2004, but with his business in dire straits, he once again turned to the state for a bailout.

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 motivated "$100 million I-told-you-so."

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 board.

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 Studios?'"

Comments

[Cdr Lytton]

Economic Development Commisions should replace Military Intelligence as the dictionary definition of an oxymoron.

[Fist of Etiquette]

I'll see this when I believe it.

[Jordan]

According to a recent survey, Rhode Island ranks last in small business friendliness. I found that surprising. I guess their political culture is complete shit.

[Uncle Jay]

Rhode Island is worse than California, New York and Illinois? Wow! Who is Rhode Island's governor? Joseph Stalin?

[Irish]

Rhode Island doesn't get much notice because it's so small. The fuckups of California are noted by the entire country, but the 9% unemployment of Rhode Island doesn't get much press.

[#]

RI is a high tax/hi regulatory burden state. Public sector unions dominate politics, and it was not that long ago that the Mafia ran the statehouse (the reason why such a D state had elected 16 years or GOP governors, was because they were outsiders, as Mafia free and as a counter to the corrupt statehouse). And the schools and roads are generally bad too. RI is a fucked up state.

[Certified Public Asskicker]

The worst sob story ever?

Jake Stevens isn't a typical college student. When the 19-year-old mechanical engineering major isn't in class or working a full-time job at an automotive company, he spends most of his time worrying about where he'll sleep next.

"It's kind of stressful," says Stevens, who grew up in Tampa Bay, Fla. "If I'm working really late at school, I'll just take a nap in one of the computer labs or something. If I can get out early enough, I'll go to a friend's house."

Even after he maxes out his federal student loan allotment, Pell grant, scholarships and the college fund his mother painstakingly built from the time he was in diapers, Stevens is still thousands of dollars short of meeting tuition requirements at his private Flint, Mich., engineering school.

[Jordan]

God, that's even worse than the sob stories people trotted out during the housing bust.

"WE MIGHT HAVE TO RENT AN APARTMENT! THE HORROR!"

[SweatingGin]

Stevens earns $16 an hour (double the national minimum wage) and gets free housing from his employer while working. After each three-month stint on the job, he should be more than capable of affording an apartment back on campus.

Really just has to make it through winter, then. Also, bet you can find some cheap places in Flint (that have their own problems).

I didn't think Kettering was ridiculously expensive, but suppose it may be.

[Certified Public Asskicker]

Certainly more expensive than going to a state school in Florida.

[Christophe]

The real WTF is that a human wants to live in Flint, Michigan.

[Jordan]

A kid in New York demonstrates how to deal with bullies:

Several boys who said they saw the attack said that the victim confronted the boy who had the knife as he was leaving school, punching him and kneeing him in the nose. The suspect pulled out a knife and stabbed Timothy as teachers and school safety officers ran over to stop the fight, they said.

"It was scary," said Muhammed Ceesay, 12.

Investigators said the suspect may have been teased by and, at an earlier date, robbed by the boy who was fatally stabbed. But as of Wednesday evening, what specifically precipitated the stabbing was not known.

Marisol Perez, 43, a neighbor of Noel's, said Timothy was part of a group of boys who had picked on him.

"They used to hit him, bother him, tell him he's a bum, that he didn't have nowhere to live," she said.

This article doesn't go into all the details, but the dead kid had also threatened to kill this kid, routinely beat him up, pissed on his house, etc.

[Christophe]

The first rule of the code is don't get caught.

[Suthenboy]

"more often than not, politicians are very poor when it comes to making business decisions."

People make poor decisions when gambling with other people's money? Really?

[Sevo]

Not so much those who collect the money:
"Elon Musk's plan to build a massive solar panel factory in Buffalo by 2016..."
http://www.sfgate.com/default/.....562842.php

He'll do just fine, thank you.

[Irish]

Scott Walker for the win.

The truth on the widely covered "John Doe" is that two judges, one state and one federal, reviewed the accusations of partisans within a Democrat District Attorney's Office and determined their theories have no merit or basis in law.

Each of these judges explicitly issued judicial orders that these partisan prosecutors must end their investigation immediately.

Still, many in the media proceed as though the opinion of the partisan prosecutors is new information and ignore the truths I have stated above. It is not. It is old news that has already been discounted by two judges. No charges. No case.

Watching the media frenzy it is clear that this is what happens when someone takes on the big government special interests. They push back. No wonder so many politicians are afraid to make tough decisions.

I will not back down. We will continue to fight using the truth to keep the hard working taxpayers of Wisconsin in charge of their state and local governments. We will continue to fight to make life better for the good people of Wisconsin.

[Bo Cara Esq.]

They don't care about the legal merits, they just want to get the charge into the press with the hopes that the charge will stick and any dismissals will not.

[Bo Cara Esq.]

There's a lot wrong with this Slate article about 'family cap' welfare programs, but the most galling to me is the total omission or lack of entertaining the possibility that, other than providing a disincentive (of course, its closer to say simply stopping providing further incentives) to having more children when you're on welfare, people just might feel more outraged to be forced to shell out more of their money for people who keep having children when they can't take care of the ones they already have.

http://www.slate.com/articles/.....s_the.html

[Irish]

They also ignore the fact that these impoverished families whose only income is welfare are bringing children into a life of poverty and welfare dependence.

Why does no one think of the kid in this situation? If a welfare family has 7 kids, that means 7 children are going to be living in abject squalor in a small, government subsidized apartment. They did not choose that, their parents forced it upon them by refusing to take proper precautions.

Why should children be required to suffer for the incompetence and immaturity of their parents?

[Agammamon]

Why should children be required to suffer for the incompetence and immaturity of their parents?

Be warned Irish, that is a dangerous path you're going down.

[Irish]

Not really. It would be dangerous if I were arguing the government should take children away. What I'm arguing is that the government shouldn't actively subsidize bad decisions, particularly insofar as they harm children.

[Agammamon]

My point was that, way back in the cruel days when people were left to starve on the street, someone asked that exact same question.

The current child subsidy system is the answer we got.

[Dances-with-Trolls]

If a welfare family has 7 kids, that means 7 children are going to be living in abject squalor in a small, government subsidized apartment

One of the things that gets overlooked as well is that being poor does not have to equal abject squalor. One can be poor but also neat, hard working, and thrifty. However, poor people with or that develop those habits tend not to stay poor. It is the people who are unwilling or unable* to change their behavior that need the accountability that comes with private charity as opposed to government entitlement. Even the biggest fuck-up in the world will usually find a way to pull their shit together at least somewhat when the other option is starving or homelessness. (Of course, it would help if the government would stop actively pursuing economic policies that hurt the poor, but that is another topic)

One of the worst parts of the welfare state is the way it subsidizes unhealthy and harmful behaviors.

*I used the word unable even though it isn't quite accurate. I chose it to reflect the difficulty of someone conditioned through years of entitlement mentality, dependence, inactivity, etc. can have changing to a different life and world-view.

[Irish]

One of the things that gets overlooked as well is that being poor does not have to equal abject squalor. One can be poor but also neat, hard working, and thrifty. However, poor people with or that develop those habits tend not to stay poor.

The type of people who don't stay poor also tend to be the ones who don't have 4-7 children while they're still on welfare.

[Dances-with-Trolls]

True, but I have seen a few people turn that situation around, at least, to a degree. Usually a woman that was young, foolish, and came from a f-ed up background finally get the message after 3 kids and a decade of poverty while having never made a mistake that led to jail time or a drug problem. It's pretty unusual, but heartening to see it when it does happen. I think that these are also the types that would have lost less time if they were subject to the conditions that come with private charity. Even welfare state "success stories" are being harmed by the institution in that they almost certainly would have broken out of the miasma sooner with some simple incentives.

[Christophe]

Hell, just getting rid of the disincentives to work that welfare creates would be a great start.

Make the base amount smaller, but tapering more slowly as your income increases. Just that reduction in implicit taxation on the poorest would have a huge impact.

[exhuman]

"THE MOST DISCRIMINATORY LAW IN THE LAND"

Wow, I almost didn't make it past the title.

"I do not need to be punished for deciding to have children."

Nope, fuck it, I'm done.

If this Melissa Ortiz gal was receiving cash aid for her son only, that means she is either: a) timed out - meaning she's already received 48 non-exempt months of aid for herself, b) an undocumented non-citizen, or c) a drug felon. Probably not the best time to be having more kids. Just saying.

[Ken Shultz]

"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."

State legislators are so much smarter than venture capitalists. Venture capitalists wouldn't know what to do with their money if it wasn't for the guidance of politicians--many of whom have gone to law school!

"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."

Well, obviously that investor doesn't know much about investing. The skill required to run a business successfully requires nothing more than knowing how to cash checks and knowing how to exploit the working class. I know becasue the progressives told me so.

[cavalier973]

You know what's ironic? The one edition of D&D that most folk claimed was just a tabletop version of an MMO did not actually get a good computer game based on the actual rule set.

[heller]

I played a bit of Schilling's game. It wasn't that bad. Not $75 million good though.

[Bgoptmst]

I thought the game was pretty decent actually. The bigger problem is that gaming has become so expensive you need this type of money to produce one.

[Sansos]

Not really what he should have done was work his way up start with small little indie games, simple things and then made bigger games then finally gone to the VCs and with a record for success and a hat in hand. There are a lot really popular games made on shoestring budget, Terraria, Mine craft, super meat boy and many others.

[RishJoMo]

Sometimes man you jsut have to roll with it.

http://www.WentAnon.tk

[frankania]

What I don't understand, is WHAT IS THE $ FOR? There is no physical building, no physical materials, Just software and ideas. Who got all the money? And why?

[Robert]

Why is this a police matter?