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R.I. races to save Curt Schilling’s company

Default feared in $75m loan deal

Curt Schilling moved his 38 Studios LLC from Maynard to Providence last year after Rhode Island officials offered him $75 million in loan guarantees.Associated Press

Curt Schilling's video game company was the one that got away - and as it turns out, maybe that is OK.

The former Red Sox pitcher, an avid video gamer, moved his 38 Studios LLC from Maynard to Providence last year after Rhode Island officials offered him $75 million in loan guarantees. Massachusetts officials tried to convince him to stay, but wouldn't match an offer that rich - or that risky.

Now Schilling's company appears to be in financial trouble, and Rhode Island officials are scrambling to save their investment. Following reports that 38 Studios recently defaulted on a $1.1 million loan payment, the state's economic development corporation called an emergency meeting for Wednesday morning to "consider an unexpected occurrence that requires immediate action to protect the public regarding the 38 Studios, LLC financing.''


Schilling had promised to bring 450 high-paying jobs to Providence, and help establish the city as a major video game development center. Under the terms of the loan program, 38 Studios must pay $5.3 million in interest this year, and $12.7 million in interest and principal every year from 2013 to 2020.

The deal makes Rhode Island taxpayers liable for repayment of the money if 38 Studios fails. The state is entitled to seize the company's equipment and software as partial payment of the loan.

Governor Lincoln Chafee, who fiercely opposed the loan guarantees during his 2010 campaign, said Tuesday that he is determined to help 38 Studios survive. "The most important thing, going forward, is the viability of the company,'' Chafee said. "We're looking at everything.''

Gary Sasse, former director of administration under Governor Donald Carcieri, Chafee's predecessor and a strong supporter of the loan guarantee, said the 38 Studios deal has proved unwise.

Now director of the Bryant Institute for Public Leadership in Smithfield, R.I., Sasse had left state government before the loan guarantee program was launched. While it's sometimes appropriate for states to offer loan guarantees to businesses, he said, the $75 million for 38 Studios was too much.


"We were putting a lot of our eggs in one basket,'' Sasse said. "If I was there, I would probably have advised the governor against doing the deal.''

Massachusetts economic development officials met with Schilling in 2010 in an effort to keep his company in the state, but ultimately declined to match Rhode Island's offer.

"Was it a risky investment? Absolutely. Massachusetts passed on it, and I wish we had, too,'' said Ken Block, a Rhode Island businessman who opposed the deal during an unsuccessful campaign for governor.

The crisis at 38 Studios follows by three months the release of its first product, a role-playing video game called Kingdoms of Amalur: Reckoning, set in a medieval fantasy world. The game has earned good reviews from industry critics, and has sold about 1 million units at about $60 each, according to market research company VGChartz.

Michael Pachter, a video game industry analyst for Wedbush Securities in Los Angeles, said that 38 Studios would probably get about half the revenue generated by sales of the game, or about $30 million - enough to make its loan payments. "I cannot believe that they are borderline insolvent,'' Pachter said. "That makes no sense to me at all.''


Neither Schilling nor 38 Studios returned calls for comment.

Timothy Loew, executive director of the Massachusetts Digital Games Institute, a state-sponsored game development center at Becker College in Worcester, worried that troubles at Schilling's company could hurt efforts to build the video game sector here. An advocate for tax breaks to encourage video game companies to set up shop in Massachusetts, Loew said it could be difficult to persuade lawmakers if 38 Studios goes under. "It makes it harder to articulate a persuasive argument when you have a high-profile failure,'' he said.

Massachusetts economic development officials declined to comment.

In 2010, Rhode Island set up a $125 million loan guarantee program to attract new businesses to the state. The $75 million loan guarantee to 38 Studios amounted to 60 percent of the total.

The company has received about $50 million in loans. Rhode Island provided another $23 million placed into an account to cover some of the interest on the loan, and into a reserve fund for use in case 38 Studios defaults on the loan. Fees, issuance costs, and insurance make up the rest of the $75 million.

Rhode Island issued bonds to cover the 38 Studios loan. On April 20, the rating agency Standard & Poor's gave those bonds an A rating. It declined to comment on whether a default by 38 Studios would cause a ratings downgrade.

Hiawatha Bray can be reached at bray@globe.com. Material from Globe wire services was used in this report.