Crony Capitalism

Bondholders Never Bothered to Vet Curt Schilling's 38 Studios' Finances Because They Knew Taxpayers Would Pay

Taxpayer-guaranteed loans (with interest) are always a safe bet for lenders.


38 Studios Fallout
Ted Coli/

The bondholders who backed former Major League Baseball (MLB) pitcher Curt Schilling's video game production company, 38 Studios, never bothered to examine the company's financial health, because they knew they'd be bailed out by Rhode Island taxpayers if the company became insolvent, according to documents released as part of a U.S. Securities and Exchange Commission (SEC) investigation.

WPRI-TV's Ted Nesi, who has been covering the 38 Studios fallout for years and was featured in the Reason TV documentary "38 Studios: Curt Schilling's Crony Capitalism Debacle," reports:

The notes from SEC officials' November 2014 interviews with 38 Studios bondholders show the lenders paid little attention to the underlying financial condition of Curt Schilling's company, instead seeing the bond offering as a routine round of taxpayer-backed borrowing that posed little risk of nonpayment.

Jon Spear, a senior executive at USAA, the largest 38 Studios bondholder, told the SEC his company "only looked at the state's credit" and "did not look at 38 Studios' credit," nor did USAA examine the game company's financials, according to notes from his interview. Spear said 38 Studios' financial condition was not important to USAA "because Rhode Island would be paying us back," the notes say.

Rhode Island's economic-development agency floated $75 million in bonds in 2010 to lure 38 Studios to Rhode Island, only to see the company run out of cash and declare bankruptcy within two years. The political fallout from its demise included a fierce public backlash against paying off the bonds, though the state's Democratic leaders have continued to make the payments.

Nesi also reports that Spear considered the risk of his company's investment "very, very low" because he "never assumed that Rhode Island would ever violate the moral obligation" of repaying its debts. Last September, WPRI came into a trove of documents relating to the company's short life, which include evidence of all kinds of unsavory backroom dealing. 

Curt Schilling claims to have lost his entire personal fortune of about $50 million after investing in 38 Studios. He was recently fired from his job as a commentator at ESPN over posting transphobic memes on Facebook, after having been previously suspended from the sports network over tweeting a meme which compared Muslims to Nazis.

You can watch Reason TV's 2012 doc, detailing how star-struck state politicians threw a fortune in taxpayer dollars at a fledgling start-up with no track record to speak of, only to see it blow up in their faces.

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  1. Can someone explain to me why Shilling is the villain here, and not the, you know, politicians that approved the bond offering?

    1. Because he played for the fucking Red Sox ’04 to ’08.

    2. Because he’s a Republican.

    3. Because our elected representatives speak for us, always act in the public interest, and always have a rational basis for everything they do — even if they do not realize it at the time! They are above reproach!

      It’s not our high-minded public officials’ fault that the evil one-percenter Wall Street capitalists took advantage of the deal that the high-minded public officials offered them.

    4. Because he duped the innocent, helpless kittens running the government.

  2. Sounds like Rhode Island’s credit score needs to be downgraded in response to this. If they don’t pay back the loans like promised they are not a safe bet to loan to in the future.

  3. Sad part about it is Kingdoms of Amalur was a pretty decent game, just a poorly managed company.

    1. Yeah, my thoughts exactly. I also seem to remember that most of his problems were due to trying to make a follow on game that would compare with WoW. He bit off too much to soon, and didn’t do a good job of insulating himself from financial realities.

  4. This post needs to be re-titled.

    I propose: 38 Studios’ Co-signer had solid credit, reveals document.

  5. I’m sure someone in the government has heard the phrase “perverse incentives”. And probably wonders what in hel it means…

  6. When this kind of shit goes away as well as taxpayer purchased stadiums for billionaires as well as eminent domain for private interests and law makers who become millionaires by virtue of their relationships with the various industries they regulate – then I will worry about welfare moms who trade their food stamps for crack.

  7. Rhode Island: home of geniuses.

    1. Needs more single party domination of the legislature for… approaching a century. Team Blue hasn’t had enough time to implement their utopia.

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