Things went from bad to worse for employees of Curt Schilling’s 38 Studios today – after the company failed to make payroll earlier this month, they were all issued pink slips today. From WPRI:
PROVIDENCE, R.I. (WPRI) – 38 Studios laid off all its employees in Providence and Maryland on Thursday as the struggling video game company collapsed into insolvency less than two years after agreeing to move to Rhode Island in exchange for a $75 million taxpayer-guaranteed loan.
“The Company is experiencing an economic downturn,” 38 Studios management told employees in an email distributed Thursday afternoon and obtained by WPRI.com. “To avoid further losses and possibility of retrenchment, the Company has decided that a companywide lay off is absolutely necessary.”
38 Studios has not responded to requests for comment since its financial crunch burst into public view earlier this month, and Governor Chafee said the state had not been formally informed about the layoffs. The company had 379 full-time employees as of March 15, with 288 of them in Rhode Island, according to bond disclosure notice.
Having recently lost my job as a software engineer, my heart goes out to these people. A twitter hashtag has been set up to inform folks of job opportunities at other gaming companies, if you know of any jobs, please post them here: #38jobs
Rhode Island taxpayers will likely end up on the hook for the loans made to Schilling, whose business plan appears to have some serious flaws – notably, to save a few bucks, they incorporated in Delaware, making them ineligile for further assistance from Rhode Island in the form of film and telivision tax credits. The amount of money they burned through while coming to market with just one game is just unbelievable – for my business, my partner and I had to sign personal guarantees to get $40,000 from the bank, I wonder what Rhode Island’s Economic Development Council got from Curt?
Government has no business in picking winners and losers in the private sector. I’m sure he’s relishing proving us wrong.
…someone should have the good sense to check and see if the company in question wants to cheat on state taxes by incorporating in Delaware or Nevada. This whole thing stinks – if Schilling gets to keep the rest of his money he made while playing ball and leave the RI taxpayers hanging out to dry, it’s a travesty.
will be showing up at any Scott Brown rallies this time.
Schill who?
Memo to all BMG folks…few people incorporate in MA or RI because our corporation laws are antiquated and hostile and administratively expensive. Delaware’s are not.
But if you’re a Delaware corp doing business in MA (I assume RI, too,) you still pay MA corporate taxes and annual fees to register as a “foreign corporation.”
It’s not cheating as much as buying books from Amazon instead of a local bookseller in MA isn’t cheating.
It’s not hostile or administratively expensive to do so, and you’re talking out your ass, as usual.
BMG is a MA LLC. Pretty darn easy.
But many still use Delaware for corporations because of the body of governance law in existence there.
His wasn’t a corp, but an LLC. Once upon a time, one used Delaware because it permitted single member LLC, but that reason no longer exists. I don’t know of any other reason to form an LLC in Delaware. Maybe he used an older lawyer.
That said, it certainly isn’t a way to “Cheat on state taxes” as suggested above. Massachusetts gets all of the fees and taxes it would get if it were a Mass LLC.
But it’s certainly a way to cheat on fees, which are, at the end of the day, taxes by another name. The Secretary of State collects an annual corporate filing fee, and registering the corporation with the state costs money as well.
A Delaware entity operating in Mass registers with the Secretary of State, just as a Mass. entity does. That is how I found 38 Studios, LLC– because of its filings with the Mass sSecretary of State.
This doesn’t save money on fees, it costs money on fees, becasue now they pay to Delaware AND Massachusetts.
Is failing to checking the “higher rate” MA income tax box also cheating? It’s voluntary, just like choosing in which state to incorporate.
is that people incorporate in Delaware, regardless of whether they have any actual business in that tiny state, because it gives them a hook to claim jurisdiction in what are perceived to be favorable state courts. In other words, it’s a variety of forum shopping. Not the worst thing in the world, but also probably not an especially virtuous one.
I say body of governance law in existence there.
Bring on Ella and Louie.
the point is that some businesses think that they will have better luck in a Delaware court than in the courts of their actual home state, should litigation arise sometime down the road. So, like I said, it’s basically forum shopping, though it’s a variety that’s been practiced very widely and without much controversy for a long time.
There are few protections for small shareholders. VCs usually insist that anything they invest in is a DE corp.
But not as advantageous as being incorporated in DE. Perhaps this is immaterial for a 501(c)3 which I assume BMG is.
as I stated elsewhere on this thread, we are an LLC. We couldn’t have BMG funding our absurdly lavish lifestyles as a 501(c)(3) without the AG’s office getting all up in our business.
Delaware corporations are subject to Delaware law which provides the foundation for limited liability, which means Schilling’s personal assets are shielded but he can layoff the entire work force. No, he will not have to personally repay Rhode Island under Delaware law. An accountability deficit.
A company’s state of incorporation will not shield you from liability, personal or otherwise. If I’m a DE corporation but take out a recourse loan in MA, I’m still “accountable.”
In a financial matter like this, the terms and conditions of the loan matter, incorporation state hardly at all. I bet Shilling has little or no personal exposure to repay the State of RI’s loan guaranty because that’s how the deal was negotiated.
what Schilling negotiated. The concept of limited liability was codified in Delaware law and in fact does shield Schilling and other stockholders from personal liability for corporate debt.
I think government can have a roll to play.
For example, Amberpaw used to talk write diaries about how the only state that never had a budget deficit throughout the entire recession was also the only state that had a public bank. That bank was available to the citizen base for things like college loans and small business loans, is managed well and earns money — which goes right back into the state.
There are also other companies that started small and succeeded with at least some government help.
What went wrong here was a tiny state giving a huge amount of money to a company that could never create that many jobs and was almost certain to go out of business. There was a reason why venture capitalists weren’t touching it.
So, in other words, I think states can help… but they ought to spread that help around to small businesses, making sure any kind of small business loan or grant or tax credit is given serious scrutiny before any money (or loss of tax dollars) is exchanged. We should know things like how many jobs it will grow for Massachusetts residents and what kind of taxes they’ll pay toward the general fund — and how, exactly, they’re going to succeed.
Mass would do well to put some serious money to work placing lots of bets on small entrepreneurial companies. That might encourage the bright entrepreneurial locals to stick around and build the next Polaroids, Wangs and DECs rather than moving to California where such things are still funded.
You think public finance from Sacramento keeps high tech flowing to California?
Completely the opposite — it’s the private VC money which attracts talent to CA. Government incompetence and out-of-control taxation and regulation are creating opportunities for high tech in other cities and states, like NYC, Austin, WA, OR, NV, CO and even MA.
Public funding is politically directed, by definition. In Studio 38’s case, RI wanted jobs and so subsidized a start-up without regard to ROI or even return OF capital.
To make up for the lack of private appetite for non-IT early-stage ventures in MA.
Politicians “making up for the lack of private appetite”? This assumes there’s some panel, counsel or state office which will have pure hearts and wisdom superior to the 100 VC firms in the region.
These economic development adventures are often insider deals, and always about “jobs”, not investment. It would be 1,000x more efficient to allow a MA tax write-off for job creation than to dole out funds to the Evergreen Solars of the world.
The world is AWASH in VC for bio-tech. Why does the state need to get involved?
That’s a rhetorical question.
Here’s what Curt Schilling said on the topic to Sean Hannity in March when things were looking rosier for 38 Studios:
that Curt Schilling started the company, right out of the gate, trying to build a major MMO, big and epic enough to compete with the biggest in the biz.
The “biz” really only consists of one (1!) major success (World of Warcraft), and a whole boat load of games skating by, and even more on the brink of being shuttered.
That’s because the industry is incredibly volatile. Major MMOs cost between $50-100 million to produce (and can balloon into the hundreds of millions), and the chances of success aren’t all that high even when significant resources are invested. Indie companies and major studios have both seen major flops, and a single flop can bring down an entire studio. (Or, in Curt’s case, a single game that never even makes it to market.)
But Curt thought he knew better.
Year(s) into the 38’s existence, the writing was on the wall that there wasn’t going to be enough money to push the MMO out in time to avoid bankruptcy, so the company shifted and put out a RPG — Reckoning.
By then, it was way too late. Huge sums of money were wasted before they even started on Reckoning… and Reckoning only had moderate success, despite the fact that it was a significant investment.
All of this is to say that Curt Schilling had absolutely, positively NO business or game development experience. Had he decided to start small, doing an indie game like Reckoning at first, he could have built off that success. Instead, tens of millions was wasted and there was no product in hand. He had as much a chance of delivering a successful MMO as I do pitching for the Sox. [And, hell, with this year’s Sox, I could ‘eat up’ (multi-run) innings with the best of them.]
Because of the volatility of the gaming industry, any studio ought to have enough funds, right up front, to get multiple games off the ground — because even critical hits can be commercial flops.
The entire game industry — console or pc and/or MMO — is one that generally the only ‘hits’ are from known franchises, most every other game fails to make enough to keep game studios going, if they make anything of all. All of this is to say that Rhode Island made a terrible bet going with a company that received absolutely zero dollars in venture capital, betting their bank on the vanity idea of one pitcher.
I’m not sure who deserves the most blame in this — Curt for his selfish greed and gargantuan hypocrisy, or the State of Rhode Island for making what was not only a bad use of money ($75 million for company that was going to employ fewer employees than the typical city school system), but a terrible bet that they’d ever get that money back.
The sad thing is the blame all seems beside the point. Hundreds of people were laid off, the state of Rhode Island is about to get hosed and an entire industry took a major blow that will make it much less likely new studios will be able to emerge with any sort of venture capital.
… I’d say Evercrack was a success while it was around.
EQ was certainly a success, and there’s been other titles out there, too, but what WoW’s managed to do has absolutely dwarfed everyone else. They’ve lost more subscribers in the past two years (about two million) than any other title has subscribed, period, and WoW’s still over 10 million subscribers.
… an accident. WoW came along just as Evercrack was winding down and PC hardware was going through an upgrade cycle. Simultaneously, as I recall, when it launched it didn’t really have much competition. Indeed it had a ready market looking for an improved experience over Evercrack. I guess what I’m saying is that if it wasn’t WoW it would have been something else. The pump was primed. What WoW did particularly well was (is) market in such a way as to expand the market.
WoW came out with a great product, but you’re absolutely right, it greatly benefited from its timing, which allowed it to get so far ahead of anything else out there, that it could add in all the things people pretty much ever wanted in a game*.
That meant every game that came after it was suddenly a ‘disappointment’ to all the players WoW brought to the industry, who suddenly expected MMOs to be perfect on day 1. That’s pretty much never going to happen, which is the biggest reason why WoW has been able to stay so dominant for so long.
*Most of those players weren’t there for when WoW was brand new and had the same flaws any new MMO has, but that doesn’t color their (unrealistic) expectations when they get tired enough of WoW to try the latest title coming out.
I learned a lot. But why didn’t you tell Lincoln Chafee this before RI guaranteed the $75 million note?
It was his Republican predecessor Gov Carcieri who couldn’t see past the stars that got lodged in his eyes when he was approving the thing. Chafee was against it at the time.
Too bad about people losing these jobs, but at least we won’t have to listen to Curts bloviating or speculation he’ll be running for office anymore.
Wasn’t GWB one of his heroes? You know – the guy who managed to completely fail at running his business?
and was glad Massachusetts didn’t fall for it and try to match RI’s dumb offer.
As Zed said, it was the previous RI governor who allowed this. Chafee, to his credit, opposed it.
Chafee deserves a lot of credit here. Another governor may have seen the potential horrors of these job loss headlines and been terrified of being on the hook for the loan after the whole company went under — and decided to double down, giving Curt another sweetheart deal. In RI, it wouldn’t be a first.
Chafee said no way and that took some political courage. He definitely deserves some recognition for what he did.
(( Picker of Winners ))
Happy days.
Schilling for being a job creator.
and all those “externalities.”
Liberals should not rejoice in this failure.
With unemployment where it is, government SHOULD be taking risks supporting businesses – heaven knows the banks aren’t doing it nowadays, even though they’re swimming in cash.
I’m sorry this venture failed (even though its troubles were apparent – a SW company with a bloated burn rate taking 5 years to ship something? – yow!). Liberals shouldn’t tout THIS failure, lest governments will be less willing to support ventures in the future.
My post was more about the workers who got the short end of the stick – believe me, I feel their pain, having recently gone through the same thing, and I don’t see anyone rejoicing. But I do see some thoughtful analysis by some smart people – and I see some posts from bostonshepherd…
which I think miss the point, and are damaging to the “liberal” position of supporting stimulus spending.
I wasn’t accusing you of going there – I think your post highlights the important issues very well.
The best way for Massachusetts to support businesses is with good schools and livable communities where qualified workers prefer to live. Modern transportation systems. Clean air and water.
Build it and they will come.
These re the fundamentals and our track record is mixed. Furthermore tax givaways rob from these priorities, which are not cheap.
There is a role for subsidies but it’s pretty small and often in practice the justification is lacking.
It is possible to separate our feelings toward Schilling and our feelings toward the rest of the company.
We are human beings. It’s possible for us to think about two things about the same thing at once. Of course we’re distraught over the job losses. The entire industry is suffering on the jobs front and no amount of #38jobs tweets will get everyone in that company employed in that field again.
But we can also raise the point that Curt was a hypocrite, making sure people know that all these “Mr. Small Government Conservatives” are only for small government when it comes to YOU, but not for them or any other multimillionaire. That point needs to be raised, over and over again, even if it comes with a little schadenfreude on the side.
.
I’ll be espousing the same sentiment
about Schilling the athlete from our feelings about Schilling the businessman and ideologue. His performance as a baseball player, especially (for us) in 2004, verged on heroic. His efforts in those other areas are much less so.
It’s similar to not deciding that Clinton was a bad President because he couldn’t keep his pants zipped. His lapses of fidelity did not relate to his job performance in any apparent way. Schilling’s business ineptitude and political positions did not affect his performance as a pitcher.
We’ll be on the fool’s side again – soon enough.
How many time have we seen this. Perhaps our party affiliations prevent us from seeing our foolishness.
How many remember the “rebirth of the Quincy Shipyard?” Or, Solyndra? Or any of the many others.
As I remember, the way it is supposed to work is this:
An idea to make a profitable business is born. A plan created and necessary capital is requested from sources willing to risk their money for a chance to make more money with the gained value of the idea.
Since there is risk, the investors demand certain safeguards. Does the idea have viability in the market? Is management proper? What is the history of this type of business? What controls are in place? And so on… They are not fools as they still have money to invest.
Now-a-days it works like this:
“Gotta make some dough.” All we need is some government backing so we can earn big bucks ’til the doors have to close.
Can’t dance to a tune without paying the piper. Cut the political party and appropriate power brokers in and go for broke. Nothing illegal, anyway, politicians control the law enforcement. Only taxpayer money, and nobody owns that. No controls. Sweet.
The product doesn’t matter so long as the basis is the ‘good of the people” or ‘environment’ or something like that. Only a fool would buy into this deal. And the taxpayers have no choice.
Lining the pockets of the wealthy. Crony capitalism. Trickle up. Stimulus!
Turn the page, our turn soon enough. Liberals, Conservatives, only label on the same shirt.
“When you are skinning your customers, you should leave some skin on to heal, so that you can skin them again. –Nikki Giovanni
but I doubt Schilling made any money in this scheme. In fact, he probably lost quite a bit. The problem with it is the state lost quite a bit more.
We don’t need to turn this into something that it’s not — someone using the public to get rich quick — since a star-struck governor giving $75 million to a baseball player to make a video game is already bad enough.
Meanwhile, there’s plenty of circumstances in which it makes sense for the government to get involved. Case in point: GM and Chrysler.
We saved millions of jobs, forced changes on the industry (since we, in effect, owned it) that’s turned them into efficient car companies, instead of inefficient truck companies, and now the industry is doing better than it has in decades.
Mr. Schilling was a popular athlete (I don’t know, I don’t watch baseball) who turned out to be an average Republican with average business skills and below-average technology insight.
He is a Republican. So of course he supported public investment in “innovation” when he sought public funds to bankroll his own company, while simultaneously trumpeting the virtues of small government and the rest of the failed GOP lies. I’m not trying to excuse it, I’m just saying you don’t punish a cat for chasing birds.
I’m not sure why anybody ever thought that outstanding performance in an athletic endeavor had any relationship whatsoever with business acumen. As an entrepreneur, Mr. Schilling was a total amateur. He had about as much chance at succeeding as an executive of ANY company as I would have at pitching in Fenway Park. His choice of direction for his venture — a gaming company — demonstrates his naivete. I suspect his odds would have been better had he used his RI money to buy MA lottery tickets.
I view Mr. Schilling as just another hypocritical GOP loser. He was a loser when he was leveraging his celebrity to influence politics (another field he knows NOTHING about). He is a loser as an entrepreneur.
Massachusetts did the right thing in politely declining an investment in Mr. Schilling’s venture. The best thing Massachusetts can do to improve the business climate in Massachusetts is restore our transportation systems to the point where it’s possible for someone who lives in Arlington to attend a one-hour 9:00a meeting in Harvard Square and arrive on time to a 10:30a meeting in downtown Boston.
The federal government’s investments in GM and Chrysler are success stories that the Democratic Party can use and is using in this campaign. You are spot-on in highlighting it.
Now-a-days it works like this:
“Gotta make some dough.” All we need is some government backing so we can earn big bucks ’til the doors have to close.
We used to have these institutions called “banks” which would lend money to enterprising entrepreneurs. Since the financial crisis, they’re not doing much of that any more – they’re sitting on their cash. And since inflation is so low, there’s really not much incentive for them to lend.
When the financial sector is so broken, the government must be the stimulus of last resort.
if banks were barred from investing in fancy derivatives and other speculative get-rich-quick schemes, would that encourage them to increase old fashioned lending? Or would they still just sit on their pile of cash, terrified of taking the risk of not being paid back?
some legislation out there to that effect.
which is important.
More importantly, though, is the Fed shouldn’t be afraid of a little inflation. For the US Treasury, borrowing is nearly zero-cost now, and deficits are not (now) the enemy – the unemployment rate is.