RI's big bet on Curt Schilling raises questions

Associated Press Modified: May 20, 2012 at 2:15 pm •  Published: May 20, 2012
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PROVIDENCE, R.I. (AP) — In 2010, the man who'd helped Boston win its first World Series in more than 80 years came to Rhode Island promising the job-starved state something even better: hundreds of good jobs, millions of dollars in tax revenue and a foothold in the booming business of video games.

To former Gov. Donald Carcieri and top economic development officials, it was an opportunity too good to miss. The state's Economic Development Corp. offered a $75 million loan guarantee to lure Curt Schilling's 38 Studios to Providence.

Two years later, the company defaulted on a $1.1 million payment to the corporation, Schilling has pleaded for additional state help and Rhode Island faces the possibility of being stuck with the company's debts should it collapse.

Lawmakers who never signed off on the loan guarantee said they now have to answer to constituents demanding to know why Rhode Island backed an untested company helmed by a wealthy former athlete when the state grapples with an 11.2 percent jobless rate and chronic budget deficits.

"We have cities and towns on the brink of bankruptcy," said Senate Minority Leader Dennis Algiere, R-Westerly. "The public is looking at this $75 million and saying, 'What did you do?'"

Schilling's 38 Studios asked the Economic Development Corp. on Wednesday for additional assistance after defaulting on a scheduled $1.1 million payment to the agency on May 1. The company then hand-delivered a check for the amount — but told the corporation the check wouldn't clear. The payment was made Friday, said Gov. Lincoln Chafee.

Himself a vocal critic of the deal with 38 Studios before he took office, Chafee said he doesn't want to give the company any additional taxpayer support.

"This was a very, very challenging investment by the state," Chafee said. "We're just going through the consequences of what we knew right from the beginning."

Industry experts agree that Rhode Island's bet on video games faced long odds from the beginning.

The types of video games 38 Studios creates have upfront development costs in the range of tens of millions of dollars, take years to get to market and their commercial success is not guaranteed, said Doug Creutz, a senior research analyst at San Francisco-based Cowen and Company LLC.

The industry for the moment is concentrated on developing games for social networking sites and mobile devices, while the mainstay gaming consoles — Microsoft's Xbox 360, Sony's PlayStation 3 and Nintendo's Wii — are aging and overall the economy is continuing to struggle, observers said.

"In general, there isn't a lot of money coming into the video game space," said Creutz.

Indeed, the agreement between the state and 38 Studios acknowledged that "the business of producing and distributing proprietary video games is highly speculative and inherently risky. There is no guarantee of the economic success of any video game."

38 Studios is in the process of developing a massively multiplayer online game dubbed "Copernicus." Multiplayer online games can support hundreds or thousands of players simultaneously.

This market is dominated by Blizzard Entertainment's "World of Warcraft," which is estimated to have more than 10 million subscribers, according to figures tracked by the website MMOData.net.

By comparison, "Star Wars: The Old Republic" from Electronic Arts Inc. had 1.7 million subscribers as of February, the company said.

"The bar for success for 38 Studios for their own MMO was always going to be pretty high," Creutz said.

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