Lawyer Claims 38 Studios Masked Financial Shortfall

[Andy Chalk]

Lawyer Claims 38 Studios Masked Financial Shortfall

Court filings claim that executives at 38 Studios knew it didn't have the money to finish Kingdoms of Amalur Online before it even moved to Rhode Island.

Post-catastrophe fault-finding often concentrates on trying to figure out who knew what and when they knew it, because proceeding down a path to ruins in good faith is completely different from charging ahead knowing full well that disaster awaits. That's why the effort to determine exactly what led to the collapse of Curt Schilling's 38 Studios is so important: Is it just another unfortunate example of a business that couldn't make a go of it, or was it high-level malfeasance that left the state of Rhode Island on the hook for 100 million smackers?

"Malfeasance!" cried Rhode Island attorney Max Wistow - figurately, of course. Documents filed on behalf of the state earlier this week claim that 38 Studios actually needed more than the $75 million in loan guarantees that Rhode Island used to bring the studio to the state, and that it was aware the funds it would receive from the state would be insufficient even before it moved to Rhode Island. Wistow claimed the shortfall was "actively masked."

In March, lawyers for Schilling and other former 38 Studios executives sought to have the lawsuit dismissed, claiming that the company's financial needs had been "repeatedly disclosed" to the Rhode Island Economic Development Corporation and that the EDC was well aware that the total cost of making Kingdoms of Amalur Online would exceed $125 million. On April 1, however, Wistow said the suit should be allowed to proceed, claiming that there is "crushing evidence" that Schilling and other former executives concealed the true state of the company's finances.

Source: Providence Journal [http://news.providencejournal.com/business/2013/04/court-filings-38-studios-knew-money-would-run-out-before-coming-to-ri.html]


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[Pebkio]

Okay, I gotta be honest, if Curt Schilling was just conning the State of Rhode Island to make video games, I'd actually have a little more respect for him. Yeah I know, poor Rhode Island is in dire straights now, but... Schilling just really wanted to make video games. Of course, he'd be a criminal and needs to spend time in jail... but that is some dedication: lying to an entire state so he can make some video games.

 

[Therumancer]

Seems like Rhode Island is just QQing about a bad investment, unlike private citizens that lose out and have no recourse, a state on the other hand has a lot of actual power with which to try and vent it's frustrations.

The whole MMO idea was kind of dumb to begin with, but everyone knew that was the plan, and that MMOs, especially in the current market, are risky affairs. As I understand things the basic plan was to get Rhode Island's help to begin financing the project, while they were hoping their other projects like the single player "Kingdoms Of Amalur" would make enough money or attract interest from other investors to complete the project. It's not an uncommon strategy.

The way it seems to me is that Rhode Island didn't deliver the promised monies to begin with which strangled the project and killed the chances of it finding any additional finances. It might just be me, but it seems to me that Rhode Island made the problem by pulling out and then wondering why that brought on an even worse collapse. Given that "Kingdom Of Amalur" wasn't exactly a failure, even if it wasn't a blockbuster, I don't think 38 Studios wouldn't have been in that much trouble if Rhode Island hadn't started thrashing around.

That said, I've still been looking for a mob angle on this, though I suppose if there is one, it wouldn't be that easy to find. Rhode Island is one of the more mobbed up states out there (do searches for things like "Rhode Island" and "Organized Crime" together) and I can't see 100 million in state finances going away like this without one group
or another having their hands in it.

Of course given that the primary cost of producing games is human resources, as opposed to materials, that in of itself could be telling. When your dealing with a budget of 100 million office space and computers are kind of trivial from the budget, the lion's share of that money goes towards paying programmers, graphic artists, etc. We hadn't even really gotten to the point of advertising yet, which is again hiring human resources. In short if you look at the expenses and payroll it should come to the hundred million. With this contreversy I'm wondering if 38 Studios can't account for where the money went, or if it's a case where they might have a few thousand "phantom employees", or maybe just a few mob guys being paid big bucks as "consultants", and the whole thing was a giant scam to re-route state finances into *ahem* private hands under the guise of a bad business deal.

That's entirely speculation on my part, but given that it's Rhode Island I can't help but think that there might be something up here other than the immediatly obvious.

 

[drkchmst]

Do we need to bring up the part where the EDC and state used employees from 38 to be experts in the industry because nobody in the government was? The Rhode island government is at fault for not getting independent expert opinions before making the deal. I'm sorry Rhode island but like most states in the union you are run but idiots.

 

[Vegosiux]

Why do they have to be named "38 studios", when you read the title, you go "Thirty-eight of them? Wow I wonder who they are...oh, wait false alarm, they meant that ONE studio."

Nothing surprising though, sometimes it takes time for the dirty laundry to float up.

 

[FEichinger]

The fact that Rhode Island refused to pay still just makes me side with 38 Studios. Mind you, they may well have done that. But right now the actual evidence is in 38S' favor.

 

[Something Amyss]

creating a mmo is one of the most difficult things to do, moreso if that is your debut/first game.

Good thing then that Kingdoms of Amalur Online wasn't their first game.

he should have come clean with this before it went all "tits up".

Come clean about actively deceiving them?

 

[Aramis Night]

As i understand it Curt was basically caught between 2 governors using his company to score points for thier own opposing views. He made the deal when it was run by governor A who was trying to create jobs for his state invited 38 studios to relocate and would be given favorable loan terms from the state. Unfortunately this happened close to an election where governor A lost to governor B. Governor B in an attempt to cast governor A in an unflattering light during the election period by pointing out how governor A had been irresponsible with tax payer money and used 38 studios as an example of reckless spending.

When governor B took over he was already publicly unsympathetic toward 38 studios and having already deemed the deal as irresponsible during his campaign, chose to pull out of the deal and paint 38 studios as the bad guy. 38 studios fell victim to state politics. They are making it a point to put Curt Schilling as far as they can into the hole because, i suspect they imagine he may attempt to bring up a countersuit alleging some form of contract breach. It is unlikely that Curt would win such a case and any such victory would be pyrrhic at best but perhaps they just want to make sure they wont have deal with that by pushing him further and further towards destitution.

I see the whole thing as incredibly sad. I liked Curt's ideas and he seemed genuine about just wanting to make good games, and i enjoyed KOA:Reckoning a lot. I was looking forward to his mmo in the future. We finally had a developer that clearly wasn't in it for the money and demonstrated it by putting his own fortune entirely on the line. I find that incredibly noble but instead most people merely treat what happened to him as just a cautionary tale. I don't blame him. He was over his head clearly, but i find what they are doing to him just criminal.

 

[rasputin0009]

As i understand it Curt was basically caught between 2 governors using his company to score points for thier own opposing views. He made the deal when it was run by governor A who was trying to create jobs for his state invited 38 studios to relocate and would be given favorable loan terms from the state. Unfortunately this happened close to an election where governor A lost to governor B. Governor B in an attempt to cast governor A in an unflattering light during the election period by pointing out how governor A had been irresponsible with tax payer money and used 38 studios as an example of reckless spending.

When governor B took over he was already publicly unsympathetic toward 38 studios and having already deemed the deal as irresponsible during his campaign, chose to pull out of the deal and paint 38 studios as the bad guy. 38 studios fell victim to state politics. They are making it a point to put Curt Schilling as far as they can into the hole because, i suspect they imagine he may attempt to bring up a countersuit alleging some form of contract breach. It is unlikely that Curt would win such a case and any such victory would be pyrrhic at best but perhaps they just want to make sure they wont have deal with that by pushing him further and further towards destitution.

I see the whole thing as incredibly sad. I liked Curt's ideas and he seemed genuine about just wanting to make good games, and i enjoyed KOA:Reckoning a lot. I was looking forward to his mmo in the future. We finally had a developer that clearly wasn't in it for the money and demonstrated it by putting his own fortune entirely on the line. I find that incredibly noble but instead most people merely treat what happened to him as just a cautionary tale. I don't blame him. He was over his head clearly, but i find what they are doing to him just criminal.

This.

It's all politics. Dirty 'Merican politics. To Schilling, it was a great business deal because he thought he was getting a great investor. And to Governor B, it was a threat to not being re-elected in 4 years time. Simply, Governor B doesn't give a shit as long as it helps him stay in power.

Captcha: good job
I really didn't do much Captcha. I was mostly just agreeing but I'll take the compliment anyhow.

 

[Danceofmasks]

Good thing then that Kingdoms of Amalur Online wasn't their first game.

It was. Or rather, project Copernicus was the thing they started making first, due to MMOs being the type of game Schilling liked to play.
Reckoning was the thing they switched gears into making in order to slow down the financial bleeding, using a whole bunch of assets they already had for the MMO.

And they might have got away with it, if EA's standard operating schedule of paying devs their cut isn't so slow that 38 studios bled out before they got paid for Reckoning.

 

[Maxtro]

Good thing then that Kingdoms of Amalur Online wasn't their first game.

It was. Or rather, project Copernicus was the thing they started making first, due to MMOs being the type of game Schilling liked to play.
Reckoning was the thing they switched gears into making in order to slow down the financial bleeding, using a whole bunch of assets they already had for the MMO.

And they might have got away with it, if EA's standard operating schedule of paying devs their cut isn't so slow that 38 studios bled out before they got paid for Reckoning.

Hmm, interesting stuff. I wasn't aware the Reckoning was made as a stopgap for Copernicus.

Apparently there was a lot of odd things going on.

38 Studious probably would be still around if they didn't try to make the MMO and just made Amalur.

 

[Shocksplicer]

I really hope the next Ace Attorney game lets you shout "MALFEASANCE!"...

 

[Subatomic]

Good thing then that Kingdoms of Amalur Online wasn't their first game.

It was. Or rather, project Copernicus was the thing they started making first, due to MMOs being the type of game Schilling liked to play.
Reckoning was the thing they switched gears into making in order to slow down the financial bleeding, using a whole bunch of assets they already had for the MMO.

And they might have got away with it, if EA's standard operating schedule of paying devs their cut isn't so slow that 38 studios bled out before they got paid for Reckoning.

Hmm, interesting stuff. I wasn't aware the Reckoning was made as a stopgap for Copernicus.

Apparently there was a lot of odd things going on.

38 Studious probably would be still around if they didn't try to make the MMO and just made Amalur.

It was even a bit more complicated than that. 38Studios bought a whole studio, Big Huge Games, who were already working on an unrelated RPG, which then got reworked into Kingdoms of Amalur: Reckoning which was meant as a sort of prequel for Copernicus/KoA Online. They were hoping KoA: Reckoning would be a big enough success to partially finance Copernicus, which obviously didn't happen.
It's hard to say who's really at fault here. On the one hand, it seems Rhose Island withheld funding during a crucial stage which certainly didn't help the survival of the studio. On the other hand, 38Studios apparently spent obscene amounts of money with little to show for it, and lacked planning, direction and experience in game development - you cant't just run a company on Curt Shillings enthusiasm and hope for the best.

 

[Hungry Donner]

I have a very difficult time believing this law suit has any merit. 38 was horribly mismanaged, and I'm certain they weren't terribly forthcoming about their financial status, but then RI should have required that sort of access as part of the loan backing. They did not, and it bit them in the butt.

 

[KingWein22]

Good thing then that Kingdoms of Amalur Online wasn't their first game.

It was. Or rather, project Copernicus was the thing they started making first, due to MMOs being the type of game Schilling liked to play.

As I recall in a ESPN interview (I think), he was a fan of EQ, WoW, and his sons played a couple others..

 

[faefrost]

Rhode Island cut the funding when it became clear that there was little to nothing to actually show for it. No promised jobs, no working product, shady questionable accounting, and tons of money with no clear plans or accounting. Love or Hate the Governor, his job is to be a proper and prudent steward of the taxpayers money. Asking these sorts of questions, and cutting off the money when the answers stink is his job. Yes RI cutting the funds may have been the deathblow to 38 studios, but it doesn't change the calculation that the governor was right. It was a poorly researched waste of taxpayer money.

 

[RicoGrey]

Curt Schilling is a narcissist, plain and simple.

He mismanaged his own company, because he honestly though that if he wanted something bad enough it would happen. Anyone who told him that his business plan/model was not going to work was either fired, or demoted. He knew this wasn't going to work, but because he is mentally ill(Narcissistic Personality Disorder), he was never going to admit that to himself.

A lot of people got hurt, its not just about the waste of tax payer money, one employee's pregnant wife found out that their health insurance was canceled when she went in for a checkup with her obgyn(baby doctor). That is just one fucked up story, there are tons just like it. There is NO FUCKING way that curt schilling did not know that they were not going to have the money to fund the health insurance. He knew, and he decided to NOT warn his employees, because of his ego(narcissism), he believed nothing bad could possibly happen to him and everything would work out.

This is not Rhode Island's fault, this is gross mismanagement.

 

[thebobmaster_v1legacy]

He mismanaged his own company, because he honestly though that if he wanted something bad enough it would happen. Anyone who told him that his business plan/model was not going to work was either fired, or demoted. He knew this wasn't going to work, but because he is [mentally ill(Narcissistic Personality Disorder), he was never going to admit that to himself.

I hate to be "that guy", but how do you know he has Narcissistic Personality Disorder? Has he stated it? Because of not, or unless he has otherwise been revealed as having such, there is no way you can say he has it for sure. I'm not going to disagree with you saying he mismanaged it, as he definitely did. But there is a difference between saying someone is naive, as I believe Curt Schilling was, and saying his is mentally ill. I think it is far more likely that he just honestly believed that passion would get him through anything he wanted, and that everything would work out in the end. That's not him being self-centered, that's him being overly idealistic. Huge difference.