Rhode Island's Reckoning: A quick history of 38 Studios and their deal with Rhode Island

Kingdoms of Amalur: Reckoning could become the first video game in history to cost a state $75 million. Years after bringing together a dream team of developers, artists and writers to create a fantasy fiction that was meant to be home to countless video games and help power a a billion dollar company, 38 Studios seems poised to collapse under the weight of debt and government scrutiny.

Kingdoms of Amalur: Reckoning could become the first video game in history to cost a state tens of million of dollars.

Years after bringing together a dream team of developers, artists and writers to create a fantasy fiction that was meant to be home to countless video games and help power a billion dollar company, 38 Studios seems poised to collapse under the weight of debt and government scrutiny.

On Monday, the board of directors for the state-funded Rhode Island Economic Development Corporation plans to hold a public meeting to discuss what to do about the studio they backed for a $75 million loan.

Earlier this month, World Series pitcher turned game developer Curt Schilling notified the board that his company couldn't make their annual payment to the state. That set off a series of events that saw the board's director resign and Schilling's company confess they couldn't afford to make payroll.

Numerous emails and phone calls to 38 Studios spokespeople, executives and to Schilling himself seeking comment remain unanswered. The former pitcher did take to Facebook today though to deny media reports that he repaid the out-of-pocket investment he made in the company with state money.

"That's not true," he wrote.

Swinging for the fences

38 Studios was founded in 2006 as Green Monster Games, setting up shop in a quaint brick office complex in Maynard, Massachusetts called Clock Tower Place. The company was conceived as not just a game development studio, but an entertainment and intellectual property development company by former Major League Baseball pitcher Curt Schilling.

In creating the company, Schilling was swinging for the fences, turning his avid hobby into what he hoped would become a billion dollar business centered on making role-playing games for fellow gamers.

The company's key concept was to build an entirely new fantasy mythology and the create a series of games and other "entertainment products" around this new universe.

Schilling brought in artist Todd McFarlane, creator of Spawn, and author R.A. Salvatore, creator of Drizzt. McFarlane would deliver the artistic vision for this new mythology and Salvatore would serve as its steward and the company's creative director.

"Publishing great games has more to do with the people you have on board than it does with the cash and ideas you bring to the table," Schilling said at the time. "With that in mind, I conceived a plan years ago in which I envisioned a 'dream team' of talent. If I was going to create the funnest, coolest, and best game I could, who would I want from a creative standpoint? At the top of my list were Todd McFarlane and R.A. Salvatore, and it's a dream come true that they have agreed to join Green Monster Games in the production of our first title."

Schilling seemed to pull from his experience as a baseball player in building his new company. Its strength, he said, would be built on the talent of its team members, the "smartest, brightest and most creative design people in the world," he said at the time.

His goal wasn't just to build a game, but to change the landscape of online gaming. The company's motto: If you can't do it better than it's ever been done before, work for someone else.

The following spring, Schilling rechristened the company 38 Studios, named after his jersey number.

Company motto: If you can't do it better than it's ever been done before, work for someone else.

"Our vision as a company is to build something revolutionary, to be the leader in the entertainment industry," Schilling said during a press conference following his first Spring Training start of 2007 for the Boston Red Sox. "The executive team I put in place, lead by 38 Studios' President Brett Close, felt this name was a more accurate reflection of what our company is working to achieve."

The company was to deliver not just massively multiplayer online games, he said, but a "broad spectrum of immersive products."

"The name 38 Studios captures the scope of our goals," Brett Close, president and CEO of the company, said at the time. "Our mission is to create ground-breaking intellectual properties that inspire a vast selection of entertainment experiences."

The company continued hiring big-name talent including Travis McGeathy, lead designer on EverQuest for four years at Sony Online Entertainment, famed audio director Aubrey Hodges, and Blizzard Entertainment user interface designer Irena Pereira. In 2008, 38 Studios hired Comcast vet Jennifer MacLean as its vice president of business development.

In May 2009, the company acquired Maryland-based Big Huge Games, the developer behind real-time strategy game Rise of Nations, from publisher THQ.

The purchase was heralded as a critical step in the blooming company's push to deliver a "broad range of entertainment products" built around the company's growing fantasy mythology, Amalur.

The acquisition, Close said at the time, would help them develop and deliver games in multiple genres that are based in this new world. Eventually, these games would help make their still-in-development massively multiplayer online game, codenamed Copernicus, all the more successful.

Later that year Close left the company. MacLean stepped into his role as CEO.

In the spring of 2010, the company penned a deal with Electronic Arts. Under the terms of the agreement, the international publisher used its reach to help get 38 Studios' single-player role-playing game, codenamed Project Mercury, into stores.

Four months later that project was unveiled as Kingdoms of Amalur: Reckoning, an open-world role-playing game built in the mythos created by McFarlane and Salvatore and ushered into existence by Big Huge Games lead designer Ken Rolston. The game, already in development by Big Huge when they were purchased, was retooled to be set within the Amalur universe. It launched to largely positive reviews and projected North American sales that exceeded 400,000.

A bit of luck

On its surface, the company was chugging along, the plan was coming together: An all-star team of big-name, talented creators were building a universe and starting to populate it with new video games.

But behind the scenes, the company was in need of cash. Schilling had invested as much as $35 million of his own money into the company, according to a Reuters report. And he was having trouble finding backers, the Boston Globe reported.

Then he happened into a bit of luck.

Schilling ran into Donald Carcieri, then governor of Rhode Island at a fund-raiser and the two began talking about relocating 38 Studios to Rhode Island, the Boston Globe reported.

The idea was to entice 38 Studios to Rhode Island with a loan guarantee as part of a new state initiative created to help bring new jobs to Rhode Island. The deal would have the state signing on as a guarantor on a $75 million loan. In exchange, 38 Studios would relocate to Rhode Island and over the course of three years create 450 new jobs.

The plan was not without opposition, chiefly because the deal would suck up more than half of the entire budget for the program. The quasi-public Rhode Island Economic Development Corporation didn't enter into the deal blindly. They hired Wells Fargo and Strategy Analytics to evaluate the company, the industry and the plan.

What Rhode Island hoped to do was create a video game cluster, a concentration of video game developers and publishers within their state that could kickstart a new industry for Rhode Island and bring with it a jump in jobs and taxable revenue.

While noting some of the issues of investing so heavily in a fledgling company, Strategy Analytics pointed to successes around the country in the report. Specifically, the report detailed how Boston, Montreal and Austin all managed to create successful video game clusters.

The risks were not small, though. 38 Studios wasn't yet making any money, they pointed out, and they had no brand recognition. Also, the industry's shift away from paid massively multiplayer online games could become an issue and nearby clusters in Massachusetts and New York could be a problem, according to the report.

Ultimately, though, the board, headed up by Governor Carcieri, decided to sign off on the deal.

"This investment in our economic development has the potential to spark the expansion of a new industry in our state and generate additional new business growth," he said at the time. "I welcome 38 Studios and am confident Rhode Island will provide the environment and workforce to make the company a leader in the interactive entertainment and video game industry."

Under the July 2010 plan, the state provided a $75 million loan guarantee, though 38 Studios only receives $51 million of the money, $13 million at closing. The remaining $38 million is set to be disbursed over the next 15 months based on job creation milestones and the company landing a distribution deal for their massively multiplayer online game Copernicus. Eventually, 38 Studios is meant to pay the Economic Development Corporation $15.25 to $18.8 million in "success fees."

The studio also has a laundry list of requirements and payments to make over the course of the plan.

The agreement states that the company has to "provide 125 full-time jobs in Rhode Island" within a year of November 2010. Another 175 jobs need to be provided by November 2012 and the final 150 jobs by 2013. For every job they fail to provide by deadline 38 Studios has to pay $7,500 a year.

38 Studios also had to pay the state-funded corporation a commitment fee of $375,000 and annual "guarantee" fees of 1.5 percent of the outstanding loan on May 1 of each year. The first payment of $554,794, which covered just a partial year, was made by the company in May 2011. But on May 1 of this year, after receiving about $50 million of that money from the state and creating at least 250 jobs, 38 Studios told Rhode Island that they couldn't make their first full payment of $1.125 million.

Kingdom of Rhode Island: Reckoning?

A missed payment quickly turned into a crisis for the studio and, perhaps, the state.

Earlier this month, state officials began meeting with Schilling to try and figure out ways to keep the company solvent.

While the Rhode Island Economic Development Corporation is backed by public money and its board is headed up by the state's governor, executive meetings aren't part of the public record.

In a prepared statement released to Polygon, the board of directors said the closed session meeting was set up so 38 Studios could make a presentation about their current financial status and expectations.

"Members of the Board asked many probing questions of the company," according to the statement. "After representatives from 38 Studios concluded their presentation, the Board then engaged in extended discussion of confidential financial information."

The board didn't take a vote at the time, but they discussed the possibility of paying the $1,125,000 guarantee fee that is past due. The meeting seemed to have spurred a bizarre series of events.

"All of us failed to match our dreams of perfection."

After missing the payment, Schilling told the board that his studio doesn't have the money to pay their employees. On Thursday, the company then hand-delivered a check to the Economic Development Corporation to cover their late payment. Then in an about face, the studio said they couldn't cover the check.

On Wednesday, long-time head of the corporation Keith Stokes abruptly resigned. Sources tell Polygon the resignation was the outcome of a deal between the Governor's office and Stokes.

Stokes declined to comment on the 38 Studios deal or his resignation, instead offering up a quote from William Faulkner to the media: "All of us failed to match our dreams of perfection."

In a Friday afternoon press conference, Gov. Chafee said that the studio had turned in a check and that the check cleared. He also said that the state is working to make sure the studio succeeds.

"We're in deep," he said.

The Economic Development Corporation is set to meet again on Monday, to continue to try and sort through the finances of the struggling company and determine what to do next. Investing further in a failing studio may be distasteful to the state but the alternative is being stuck with the massive debt and ownership of the company's intellectual properties including that fiction world of Amalur and its video game progeny.

While still not taking interviews, Schilling did take a moment to go to Facebook today to address the growing issue briefly.

"To all the prayers and well wishes to the team and families at 38, God Bless and thank you!" the typically outspoken Schilling wrote. "We will find a way, and the strength, to endure."