Rhode Island: 38 Studios relied on speculative financial projections

R.I. Superior Court documents claim management at now-defunct studio knew they didn't have enough money to finish projects before moving to Ocean State.

38 Studios management knew it was in trouble before moving from Massachusetts to Rhode Island in 2010, according to recently filed documents in Rhode Island Superior Court.

Image credit: Steven Senne, AP

Rhode Island Economic Development Corp. lawyer Max Wistow said there is "crushing evidence" that shows founder and former Red Sox pitcher Curt Schilling and other executives intentionally concealed that financial information, according to The Providence Journal.

The state contends that 38 Studios instead relied on "speculative financial projections" to operate its business.

Rhode Island sued Schilling, along with other 38 Studios executives, in November over the controversial $75 million loan that brought the game company to the Ocean State in 2010.

The state continues to argue that the defendants knew or should have known, but failed to inform the EDC Board, that 38 Studios was destined to fail based on 38 Studios' own financial projections.

In total, the complaint includes 17 counts of alleged wrongdoing against 38 Studios. These include counts of fraud, unjust enrichment, civil conspiracy, breach of implied covenant of good faith and fair dealing, negligence, legal malpractice, negligent misrepresentation, fraudulent misrepresentations and omissions, and breach of fiduciary duty.

Separately, the 38 Studios website has returned to operation today. The site at one point today contained a handful of posts--all created today--highlighted the history of Kingdoms of Amalur: Reckoning, Project Copernicus, and Green Monster Games, which would later become 38 Studios.

These posts have all been removed in favor of an update titled "Meh." The original website design included a grayscale 38 Studios logo. This has also been removed.

Schilling had not returned requests for comment at press time.

Written By

Eddie Makuch is a news editor at GameSpot, and would like to see the Whalers return to Hartford.

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Discussion

68 comments
insanem0nk
insanem0nk

hoping a good studio buys the rights from Rhode Island to KoA series, i mean, what is a city going to do with the rights to the game lol its only going to depreciate in value the longer from the first title

gregrout
gregrout

If Rhode Island wanted to play bank, then they should be expected to take the wins with the loses. They pulled the trigger, took the risk, lost and now they're trying to rewrite the past. Nothing they do is going to erase the fact that they screwed up by giving out a really bad loan. The studio is bankrupt, so I don't see how this government thinks it can recoup any of the money they loaned out. They're simply throwing good money after bad by pursuing this. At this point, it's little more than very expensive PR. If I was a tax payer I'd more miffed about this.   

Lorzon
Lorzon

Realistically, this is almost entirely the Government of Rhode Island's fault.  In addition the Governor's shenanigans, the terms of the loan led to an accelerated burn of the existing funds, which was the primary cause of them needing additional funds over the 75 million dollar loan.

asjflask
asjflask

I like KoA, but man am I surprised at Curt Schilling... you'd think such a good athlete would've had better business sense than this.  This is going to get super ugly soon and I imagine some jail time for the MLB player...

Red_Frog
Red_Frog

I wanted to get KoA, it looked cool. However, I refuse to buy any game with an Online Pass, new or used.

Slash_out
Slash_out

This is too bad, if I set aside all the money stuff and who's to blame argument, I greatly enjoyed Amalur.

It was a slap in the face. I just wasn't ready. I just wanted a RPG even just a mediocre one, Skyrim was long finished and The witcher 2 was still a couple of months away so I just checked out recent releases on gamespot, and what do you know... a new RPG was just released... so I bought this unknown game for the heck of it.

And it was a lot of fun, and it lasted me 110 hours. Totally worth my time and money. Now what saddens me the most, is that, this is one sequel that might have been I will miss out on  :(.

Thanatos2k
Thanatos2k

You know who does that?  Every video game developer.  Sorry you don't understand business and threw money at them Rhode Island.  No givesies backsies.

PlatinumPaladin
PlatinumPaladin

Yeah, at the end of the day the blame lies with both parties. 38 Studios for lying, and Rhode Island for not checking their facts.

I still can't get over just how much money they loaned out. There's nothing about this developer that warranted that.

wwlettsome
wwlettsome

So, umm what's up with the "new" 38 Studios? Who are they? Anything to do with gaming? Seems like there might be a story here...

gargungulunk
gargungulunk

I wonder how many more copies they would have had to sell for R:KoA to break even.

The game came out right around the time of Skyrim.  They both took years to make and it shows, yet the release of 2 epic-openworld-fantasy games in the same season is a bit much for any gamer.  The research of timing could have made a difference.

PixelAddict
PixelAddict

"The state contends that 38 Studios instead relied on 'speculative financial projections' to operate its business. "

Good job, Rhode Island. You just described every single company in the gaming industry.

OPermerup
OPermerup

It just keeps getting worse for this guy!

Igal-Ze
Igal-Ze

So the state poorly invested tax payers money without bothering to check all the facts until it was way too late... 
Obviously Curt is the only one to blame here. 

bouff
bouff

I hope someone picks up Kingdoms of Amalur 2. I totally love the first one, Ive played about 160 hours and only 60% completed.... would be amazing if there was more games like this out

Blowing_for_Ps4
Blowing_for_Ps4

Another self serving religious right winger, happens all the time.

terrascythe
terrascythe

Let me tell you something.  Video game developers don't speculate on bonded loans, major league athletes don't speculate on bonded loans...  Bankers speculate on loans!  17 counts of alleged wrong doing just to coverup 1 count of alleged money laundering.  Sorry Schilling, you signed the contract and the buck stops with you. 

fredyellowone
fredyellowone

CURT SHILLING!!!!!!!!

I remember that Arizona's finale a few years ago, with the big unit.  That was priceless!

Neomaniac15
Neomaniac15

While Amalur wasn't the greatest game I ever played, it had potential and didn't deserve to get screwed over like this, and that's really all I care about in all of this. Does anyone know if EA assumed control over the IP? I know that's not exactly cause for celebration but it would mean that it isn't just lost

jmr1986
jmr1986

No shit, which was your first clue? when they, being a really new sutdio, decided to develop a project aimed to one of the hardest markets on video gaming?... Oh wait, i forgot you had no idea what they were doing with your money.

jurk182
jurk182

Too bad about 38 Studios falling to partisan US politics like that. I guess that is the risk you take when you do business with the government. To be honest though, their MMORPG probably would have failed. 

smurf3578
smurf3578

n gen i hate it livin here. im n newport and to b real im deff lookin to go back to florida. everything bout here blows the load so badly. 

Aggie1295
Aggie1295

Sounds like RI is throwing every cause of action at the wall and just trying to see what sticks.

TruthTellers
TruthTellers

I still think that the reason 38 Studios got the loan from RI to move there was a gift to Schilling for winning the Red Sox two World Series. I mean, politicians can't be that stupid... oh wait, yes they can be.

hadlee73
hadlee73

Every time Eddie uses that picture I keep trying to work out whether that hand belongs to Schilling or whether someone is about to grab his tie.

---Cipher---
---Cipher---

I'm glad RI is trying to get their money back, but does anyone else get the feeling RI is spending more money trying to get something back than what they could get back? It's like RI is at 22 in blackjack and are still trying to bet more money on their hand instead of folding like a same person...or anyone using their own money...

TrueGB
TrueGB

What company doesn't?

Ladiesman17
Ladiesman17

well, that's R.I Government fault isn't, 38 Studios is just Company like any other, they will take investment whenever there's an opportunity, that's the whole purpose of the Company.

what puzzling me is that why in the hell Government involved with something like this.

Business is always speculative since the beginning of, well,, business.

if I am an investor, do I need to sue Activision or EA because they losing my money on failed project. No, I can't, Business doesn't works that way.

williebazerka
williebazerka

@Slash_out I thought it was really good for a first game and I also wanted to see what they could do with a sequel.

williebazerka
williebazerka

@PlatinumPaladin They probably gave the loan to Curt Schilling because of who he was.I'm sure if they "checked their facts" they would have seen the company was on shaky ground.All that money wasted.

Xenrathe
Xenrathe

@PlatinumPaladin Agreed.

I find our culture's heavy preference for the investor/loaner to be a little silly. If you make a risky investment or loan with the promise of strong returns, you need to swallow your losses if it doesn't pan out. If you can't handle that, don't make risky loans.

This is especially true of student loans. The fact that they are all but impossible to ever cancel out is silly. Stop giving loans to students who plan to major in something like Interdisciplinary Studies. You wouldn't give money to a business with a terrible business plan, why would you give it to a student with a terrible career plan?

Kiaininja
Kiaininja

@Igal-Ze It wasn't an investment it was a loan, says so in the article. I don't know of any bank that would not blame the person if they can't pay back.

asjflask
asjflask

@bouff Yeah I'd buy the 2nd one too.  EA is thinking of publishing it, but I don't mind so long as they're just PUBLISHING it.  If they MAKE it, I'll pass on it.

asjflask
asjflask

@Blowing_for_Ps4 Oh give me a break.  Your liberal president is spending us into far more debt than anyone could ever imagine.  So the president took a 5% salaray cut, big deal, he has already spent millions on vacations THIS YEAR alone and we're not even half way through it!

dlCHIEF58
dlCHIEF58

@Neomaniac15 

No. EA has only the distribution rights (through the EA Partners program) and the state of Rhode Island owns the IP rights to Amalur after the bankruptcy. 

paulsifer42
paulsifer42

@jurk182 Yeah, I hated their MMORPG idea, but Reckoning was good, and as soon as I hear they got a loan from the government I was like, "Well, shit.  There goes that studio."

williebazerka
williebazerka

@---Cipher--- I think they gave Curt Schilling the loan without checking the books basically taking his word for it without even thinking he wouldn't pay back the loan.Now it's after the fact and they have to do everything in their power to get back what they can.It is 75 million + interest.

RedLegZeff
RedLegZeff

@TrueGB Well states are government. They're used to bragging about debt up front. Someone who hides their debt? Weirdo.

RedLegZeff
RedLegZeff

@Ladiesman17 Yeah, with government involvement it kinda gets weird. The idea to begin with is to lure businesses into your state, be it with tax breaks/loans/land etc. My state has had 2 major manufacturing companies lured to other states where they're given almost tax free status. The states are basically fighting each other in these ways. I haven't really heard of a state totally cutting down the company in this though. I'm guessing the people that wanted the company to come, changed their minds, new people have their jobs, or they have no idea what video games are and think they're for printing money.

asjflask
asjflask

@nights_team2k7 @PixelAddict The real question is why did Rhode Island's government even loan this money out at all?  This is taxpayer money down the drain!  Rhode Island, last time I checked, was a STATE not a BANK!

Thanatos2k
Thanatos2k

@Kiaininja @Igal-Ze Every bank takes into account that people may default on a loan.  It's a risk.  

Rhode Island appears clueless.

Igal-Ze
Igal-Ze

@Kiaininja I have to disagree. A loan is a form of investment and it's the loaning party responsibility to assess risk, especially when loaning someone elses' (tax payers) money.  They acted irresponsibly and now trying to shift the blame solely to game studio. Where were these lawyers before they've signed the papers?

Blowing_for_Ps4
Blowing_for_Ps4

@asjflask @Blowing_for_Ps4 George Bush put us 300 trillion in debt, and is responsible for causing more hatred to the US.  Also I dont think Obama is that great, just wonder why conservatives are always self serving religious freaks who want to oppress minorities other countries and religions.

williebazerka
williebazerka

@Igal-Ze @Kiaininja I'm sure one look at 38 studio's books would have told them it's not a good idea to loan them money.You don't loan 75 million dollars without checking the facts no matter how famous they are.

asjflask
asjflask

@Blowing_for_Ps4 @asjflask 300 trillion? Did you mean 300 billion?  That still pales in comparison to the 6 trllion that Obama did in FOUR years and that 300 billion that Bush did in EIGHT years.  By the end of this guy's second term we'll have over $20 trillion in short-term debt.  I hate to even think of the long-term debt, which is already over $60 trillion.  It'll probably be over $100 trillion in 3 more years!

 Conservatives aren't oppressing any minorities, religions, or countries.  I don't even know what you're talking about.   But you seem to neglect the fact that Democratic policies have, in recent years, made poor minorities poorer than ever.