PROVIDENCE - Former Red Sox pitcher Curt Schilling scrambled to prop up his ailing video game company, asking Rhode Island officials Wednesday for more public aid while Governor Lincoln Chafee questioned whether the state should cut its losses in the firm, 38 Studios LLC.
“How do we avoid throwing good money after bad?’’ Chafee asked after an emergency meeting of the Rhode Island Economic Development Corp., which provided $75 million in loan guarantees two years ago to woo 38 Studios from Massachusetts to Providence. “The difficulty we face is protecting the taxpayers and looking ahead to the future -whether there’s viability that’s worth any further investment.’’
The board of the Rhode Island agency did not take action Wednesday on Schilling’s request. It will resume discussion at another meeting scheduled for Monday, Chafee said.
Schilling said little after a closed door two-hour meeting with Chafee and other officials. His only comment afterward was, “My priority right now is to get back to my team.’’
Rhode Island officials declined to say how much money Schilling is seeking and in what form. Moreover, neither officials nor 38 Studios would say what precipitated the company’s financial problems.
Some people in the local video gaming community have long been concerned 38 Studios might run out of cash, because it hired so aggressively and took on ambitious projects so early on in its life. Massive multiplayer online games such as 38 Studio’s next product, code name Copernicus, have a reputation for taking heavy investment and lots of testing before they can be released. Many games never ship, ship late, or never catch on with users.
“We’ve all been rooting for 38 Studios,’’ said Dan Scherlis, a consultant and former chief executive of Turbine Inc., the Needham gaming company that developed the Lord of the Rings Online game. But “we’ve all been worried for 38 Studios for quite some time.’’
On May 1, 38 Studios missed a $1.1 million payment it owed the Rhode Island agency, and twice in the last two years 38 Studios’ auditors warned the company was in such shaky condition there was doubt it could remain in business without additional funding. The company also faces an obligation to pay $1.45 million to the author whose science fiction books inspired its games, R. A. Salvatore, in October 2012 under a consulting agreement signed five years ago.
Moreover, loan documents filed with the state revealed that 38 Studios was trying to line up an advance payment from a publisher for Copernicus. 38 Studios also set off concern within the game world that Copernicus could be delayed when the company was not included among the exhibitors scheduled to appear at the video-game industry’s major trade show in Los Angeles next month.
Officials said the company has been current on its other loan payments so far. Under the terms of the Rhode Island deal, 38 Studios must pay $5.3 million in interest this year, and then $12.7 million in interest and principal annually thereafter through 2020. About $23 million of the original subsidy has been set aside to cover interest payments and as a reserves in case 38 Studios encounters trouble.
The public subsidy was controversial when then-Governor Donald Carcieri struck the $75 million deal with 38 Studios in 2010, with political opponents, including Chafee, criticizing it as an excessive investment in an untested company. 38 Studios was located in Maynard at the time, and while Massachusetts sought to keep it in the state, they ultimately elected not to match the rich loan deal Rhode Island offered it to relocate to Providence.
Chafee says his role as governor requires him to help the company work through its problems because “Rhode Islanders’ hard-earned money is at stake.’’
Schilling personally guaranteed a $2.5 million line of credit that 38 Studios took out in 2010, and the company had planned to use portions of the state funds to pay that off. In March 2012, it reported that the credit line was still open.
The company has also been ramping up employment significantly. As of March, it has had 414 full-time employees and contractors in Rhode Island and Maryland, according to state bond documents, and advertised 18 job openings on its website Wednesday. As part of its deal with Rhode Island, 38 Studios had promised to bring 450 jobs to the state, and Rhode Island officials hoped it would anchor a new video game sector there.
38 Studios has not publicly set a release date for Copernicus. Its first product, a role-playing video game called Kingdoms of Amalur: Reckoning, was released earlier this year to favorable reviews and decent, but not blockbuster sales.
Scott Steinberg, chief executive of TechSavvy Global, a consulting and product testing company, said Reckoning sales so far are not enough to support production of an elaborate game like Copernicus. He said the delay in issuing Copernicus is hurting 38 Studios, and the company needs to get more products to market faster and develop a reputation for consistent production.
“They need to be realistic about expectations,’’ Steinberg said. “They need to ask themselves, ‘How do we focus on core features and get this product out there faster, and then how can we build in additional features later?’ ’’
Given the nature of 38 Studio’s business model, Steinberg said Rhode Island’s decision to invest $75 million in the company was a poor one.
“An unproven studio, no matter the star power attached, that’s one hell of a risky gamble,’’ he said. “It’s like giving money to a film studio that hasn’t made any movies.’’