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Default 38 Studios - Payment bounces, can't make payroll

May 18th, 2012, 02:04
Things look dire at 38 Studios with WPRI.com reporting a payment cheque for their overdue $1.125M payment was hand delivered - but it subsequently bounced due to a lack of funds. According to a spokesperson for the Rhode Island Economic Development Corporation, the company also failed to make payroll:
Curt Schilling's taxpayer-backed video game company was unable to make payroll this week, Judy Chong, a spokeswoman for the R.I. Economic Development Corporation, confirmed Thursday in response to an inquiry from WPRI.com.
Separately, Governor Chafee's office said 38 Studios hand-delivered a check for the overdue $1.125 million payment to the EDC that set off this week's crisis. But shortly thereafter Rick Wester, its chief financial officer, called the agency and said there were insufficient funds to cover the check, so the EDC returned it.
Thanks, cptbarkey.
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May 18th, 2012, 02:05
Wow. I'm pretty stunned by all this. Before yesterday's RPGWatch news update, I would never have thought anything was wrong. Not being able to meet payroll is a pretty major sign this company is sinking in red ink fast.

If I'm right but there is no wife around to acknowledge it, am I still right?
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May 18th, 2012, 02:17
Originally Posted by TheMadGamer View Post
Wow. I'm pretty stunned by all this. Before yesterday's RPGWatch news update, I would never have thought anything was wrong. Not being able to meet payroll is a pretty major sign this company is sinking in red ink fast.
And bouncing an over 1 million dollar check is also pretty bad. They're kind of lucky that RI's laws on check fraud aren't among some of the stricter state laws covering it; in some states passing a check for over $1,000 while you know you do not have the funds to cover it can be a felony worth upwards of 30 years in prison.
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May 18th, 2012, 02:48
I feel bad for all the employees like the designers, artists and programmers who will probably lose their jobs from this debacle, which is probably due to major mistakes in upper management.

I've been hoping for their success even though I didn't like Amalur much. It was just cool to have another major studio doing RPGs, and it being in New England (where I'm originally from). Sad to see it falling apart.
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May 18th, 2012, 02:52
Originally Posted by Myrkrel View Post
I feel bad for all the employees like the designers, artists and programmers who will probably lose their jobs from this debacle, which is probably due to major mistakes in upper management.
Perhaps if they held off paying Curt Schilling back out of the state-gauranteed loan they might have had another month or two before having to hit this sort of situation; so that seems to suggest it was more than just that one morally questionable decision. You're right that there are probably a multitude of bad management and financial decisions that lead to this and I'd be interested in finding out what some of the bigger ones were. Perhaps they rushed to pay out bonuses/royalties to their visionaries and to Curt at the expense of their solvency and paying their general employees? Perhaps the royalty and fee structure for some of the bigger names they brought on board and to Curt were simply infeasible and should have been done differently from the very beginning.
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May 18th, 2012, 02:54
They aimed too high and failed at producing a memorable or quality game. It lacked polish and just wasn't fun. I understand now why they pushed the DLC up before the first patch. The patch that, now, will never come.

It's all too bad though! It'd have been nice for there to be another AAA RPG studio out there, even if it was mediocre. I mean, Amalur could have been great! Who knows where it could have gone.

All this will do in the long run is make publishers even more wary of large investments in the genre. A real shame.
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May 18th, 2012, 02:55
Curt has/had huge aspirations for this franchise too. Comics, toys, movies, the works. He wanted Amalur to be the new "big" thing. It's sad to see it coming to this. I'm hoping they get more money somehow. I don't think it would be a big mistake to give them more money if I were Rhode Island, because you're investing in a business in your own state that has the "potential" to do great things. I think RI is a bit scared to throw more money at this though, naturally, but depending on the financial outlook of 38 Studios, I don't think you can just dismiss giving them more money. If they have a sound plan of how to generate revenue in the future (the MMO, for one), then I think you can still throw a bit more money at this thing and hope that it pans out. You are investing in many talented people, there's worse things a state can spend money on.

I dunno. Maybe I'm a little biased because I really want to see them succeed, or I'm just an optimist, but I think it can work if they just had more time and resources. If not, it will be one of the biggest cases of "what if" that I have seen in my lifetime. Amalur could have been amazing……
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May 18th, 2012, 03:00
Originally Posted by Fluent View Post
I don't think it would be a big mistake to give them more money if I were Rhode Island, because you're investing in a business in your own state that has the "potential" to do great things.
I think the fact that Curt Schilling used the loan to pay himself back for what he had personally invested in the company up to that point makes their hesitance to give him a penny more very much justified. He's already taken a large chunk of his skin out of the game at their expense. They also waited till it was damn well too late to bring up their inability to meet their loan repayment obligations and even pay their own payroll; that speaks towards a level of managerial irresponsibility and immaturity that does not inspire confidence for prospective investors. The results of the independent audit make the idea of Schilling's fiduciary fitness even more questionable.
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May 18th, 2012, 03:08
I don't see what Curt did as a bad thing. For one, we don't have all the details. No way will I rush to judgment to say he did wrong when I barely know what the hell is going on. What I did hear though, is that he did in fact invest quite a bit more than $4million in Amalur, because for 6 years before the loan happened who kept the studios going? Curt did. Probably out of his own pocket. He's not lying when he says he has about $30-35million invested in this company. To get repaid a mere $4million after that is no big deal to me. Besides, Rhode Island went into this knowing where that $4million was going, and still went through with it, so they too must have not thought it was a big deal at the time.

So yeah, if they throw more money at this, I think they will be making the right decision. Not only are they investing in talented people/game studios, they are creating jobs and also going to be paid back with a ton of interest in the long run. They can't chicken out though when the first bad thing happens. They should be all in if they really want to see this thing succeed. Maybe in exchange for more money, they get to oversee some aspect of the finances from here until the MMO. I think that's fair. It just depends how much Curt needs to keep the studio going until the MMO is finished.

It's either invest a little more into 38 studios, or see everything they've built to this point crash and burn and try to recoup (which they won't) in a fire sale. Rhode Island should not panic over this…
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May 18th, 2012, 03:08
As somebody who always seems to find himself on the left side of political arguments, I do admit to having a bit of a smirk on my face whenever I read about a diehard conservative like Curt Schilling turning to the government to help his company, but nevertheless I think the attacks claiming that he lied about his personal investment are over the top. Somebody on the Amalur forums summed it up best when they responded to that newsbit about the $4M loan:

Not for nothing, but I believe that is selective reporting at its finest. 38 Studios, previously Big Monster Games, was in operation since 2006 and had a pretty large staff already up in Maynard, MA. Prior to the 75m loan in 2010, where did they get all of the operating income from? That's right, Curt Schilling's own pockets (as he hasn't even to this date yet diluted ownership of the company). And it was surely more than $4m.

The $4m most likely was a bridge loan to keep the studio going between Maynard and R.I.
Makes sense to me….
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May 18th, 2012, 03:18
Originally Posted by Fluent View Post
It's either invest a little more into 38 studios, or see everything they've built to this point crash and burn and try to recoup (which they won't) in a fire sale. Rhode Island should not panic over this…
They're pretty much insolvent according to the third party auditor. They've also cancelled their plans to demonstrate the MMO at E3 as they are falling behind on development and failed to provide anywhere near the 450 RI jobs they claimed this project would bring. That does not sound like something that investing "a little more into 38 studios" will solve. Throwing more money in at this point might end up being a good textbook example of falling for the sunk-cost fallacy. Considering the decision to more-than-double the scope of the RIEDC to make this loan possible was wildly unpopular (about 70% opposed) expanding the program further sounds like it might not even be feasible.

I don't think Mr. Schilling was out to scam anybody when he did this; I do think he was and is out of his depths and showed pretty poor judgment with regards to the finances, business plans, and estimations that lead to this point. That speaks poorly as to the wisdom of giving him further financing in this business venture. The REIDC did secure the IP and pretty much all assets as collateral for the loan so selling the IP to a better run developer might be the best of a limited selection of bad options going forward.
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May 18th, 2012, 04:19
Originally Posted by Fluent View Post
So yeah, if they throw more money at this, I think they will be making the right decision. Not only are they investing in talented people/game studios, they are creating jobs and also going to be paid back with a ton of interest in the long run.
That's a pretty large assumption, considering 38 Studios hand delivered a $1.125-million rubber check — the first payment, no less. Either the company disingenuously handed over a worthless piece of paper and the CFO was the only one with conscience enough to notify the state there were insufficient funds, or the company is in such a shambles they didn't know what exactly was in their own account. I'm not sure which is worse. Either way, it doesn't inspire a lot of confidence. Rhode Island could easily take a bath on the full $75-million loan. There's no interest, if Schilling and crew default on the loan.
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May 18th, 2012, 04:21
Starting to sound like a potential candidate for the auction block.

Is that EA calling?
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May 18th, 2012, 04:26
Originally Posted by Fluent View Post
I don't see what Curt did as a bad thing. For one, we don't have all the details. No way will I rush to judgment to say he did wrong when I barely know what the hell is going on. What I did hear though, is that he did in fact invest quite a bit more than $4million in Amalur, because for 6 years before the loan happened who kept the studios going? Curt did. Probably out of his own pocket. He's not lying when he says he has about $30-35million invested in this company. To get repaid a mere $4million after that is no big deal to me. Besides, Rhode Island went into this knowing where that $4million was going, and still went through with it, so they too must have not thought it was a big deal at the time.

So yeah, if they throw more money at this, I think they will be making the right decision. Not only are they investing in talented people/game studios, they are creating jobs and also going to be paid back with a ton of interest in the long run. They can't chicken out though when the first bad thing happens. They should be all in if they really want to see this thing succeed. Maybe in exchange for more money, they get to oversee some aspect of the finances from here until the MMO. I think that's fair. It just depends how much Curt needs to keep the studio going until the MMO is finished.

It's either invest a little more into 38 studios, or see everything they've built to this point crash and burn and try to recoup (which they won't) in a fire sale. Rhode Island should not panic over this…
I think you are letting your feelings for the game affect your opinion here.

You won't rush to judgement that he did something wrong because you don't know what's going on but you will rush to defend him and say you know he's not lying about investing 30-35 million even though you don't know whats going on.

They should have never invested 75 mil in to a brand new crpg IP in the first place. That's not even close to a sound risk that's irresponsible at best.

They could have given 1/2 a million to 150 small businesses with a proven track record and a sound product,service and business plan. They would probably already be seeing a return on their investment by now. It's almost always safer to diversify than to put all your eggs in to 1 basket.

As far as curt doing something wrong. I believe he did, even if he put in 35 million you never pay yourself back at the expense of the company and it's employee's. If the company is strong then you don't have to worry about your own finances the money will come back to you in the end.

I own a successful tile company that I open with $7500.00. That was pretty much every dollar I had to my name at the time. I haven't paid myself 1 penny of that back in 10+ years. When the housing market collapsed things got really bad. I could have bleed the company dry not paid my subs or employee's but then I wouldn't have a successful business today. Instead I left every penny I could in the company paid the subs, employee's and vendors and didn't cash several of my own checks.

It got so bad I almost lost my house but finally after about 1 1/2 years things picked up again and we are thriving. I know many other business owners who decided to drain their companies and not pay vendors, employee's or subs. They ended up having an easier road personally but they screwed a lot of people in the process and now most work for someone else making far less money.

Anyway, enough rambling. I don't know what went on first hand but my gut feeling is he knew things were going south so he paid himself back before all the money was gone. Screwing his company and employee's. Then he 's trying to extort more money out of the RI government. Sad thing is they may have to do it. Sometimes your so far in the only way to get out is to see it through at all costs.

I hope it works out for the employee's and the tax payers but not for Curt. He's shown his true colors.
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May 18th, 2012, 08:05
Originally Posted by sakichop View Post
I hope it works out for the employee's and the tax payers but not for Curt. He's shown his true colors.
I do too. Chafee did not support the loan at the time (that was a project which the former Governor who appointed the now resigned head of the RIEDC pushed through) but has said he will be a cheerleader for the company for the sake of the taxpayers and its employees. That and the board's defferring of a final decision regarding the fate of the company is a good sign that they're not going to go straight to seeking to claim the IP and other collateral. They did also say they would be pulling in industry experts to help make a decision regarding the viability of the company and decide whether or not it was salvageable as a venture.

http://bcove.me/8izhaz8o
http://www.bostonherald.com/business…ced_last_june/

Its kind of sad that this might bring down Big Huge Games which Schilling aquired as its hard to blame them directly for the problems of Studio 38 propper; though it may turn out that the costs associated with aquiring BHG are at least in part related to their cash problems today. Still, they also represent their only revenue source currently so its hard to say it would have been better for Studio 38 otherwise.
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May 18th, 2012, 09:04
Originally Posted by CountChocula View Post
Starting to sound like a potential candidate for the auction block.

Is that EA calling?
Well it's a way out of this mess. Hate the thought all you want but EA would allow them to make more games. There are always downsides to that also though.

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Last edited by Couchpotato; May 18th, 2012 at 10:30.
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May 18th, 2012, 16:10
Sakichop, I believe the two words at work in most such debacles is "leverage", too much of it, and "cash flow", too little of it.
'
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May 18th, 2012, 19:48
Having been a QA tester at a game company that can't make payroll, I can tell you that it sucks. And that it is the beginning of the end of a company.

Shame that even a moderately successful game can't make money to pay the bills.
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May 18th, 2012, 19:57
Originally Posted by jwmeep View Post
Having been a QA tester at a game company that can't make payroll, I can tell you that it sucks. And that it is the beginning of the end of a company.
I agreee. Although in this case it's a close tie, not meeting payroll is more of a death sentence than not meeting the first loan payment.

If I'm right but there is no wife around to acknowledge it, am I still right?
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May 18th, 2012, 21:16
Some more updates:

http://www.joystiq.com/2012/05/18/38…-rhode-island/

Check cleared this time.

http://www.joystiq.com/2012/05/18/rh…mmo-a-june-20/

They told the governor they are shooting for June for the MMO. You know the one that just has a code name, and no one has even seen a screenshot for.
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