So this has been a developing story since yesterday, or should I say two years ago. In short, the fate of 38 Studios; the developer of Kingdoms of Amalur: Reckoning hangs in the balance. Rhode Island governor, Lincoln Chafee has been meeting with 38 Studios, the video game company founded by former Red Sox player Curt Schilling. The developer has been under heavy scrutiny lately regarding its financial stability, yet they have declined to comment on the subject. Governor Chafee told WPRI.com Monday night “We’re concerned and just doing everything possible to ensure that 38 Studios stays part of the Rhode Island community. We’re working on different issues with them.” Chafee was asked whether the studio can be stabilized, and he commented “We’re working on it.”
The Rhode Island Economic Development Corporation gave 38 Studios a $75 million dollar taxpayer loan back in 2010 with strong support from EDC director, Keith Strokes and then governor, Doland Carcieri. As a result, the company moved its headquarters from Massachusetts to Providence in April 2011 and employed 450 people there. And it isn’t the first time that 38 Studios has raised financial concerns.
According to a disclosure notice the company sent to bondholders, Pricewaterhouse Coopers audited the company last June and issued a “growing concern” opinion that expressed “substantial doubt” on whether the company would stay solvent. The disclosure also stated that 38 Studios had 379 full-time employees as of March 15, with 288 in the Providence studio, and the rest at Big Huge Games in Maryland. Big Huge Games developed and released Kingdoms of Amalur: Reckoning back in February this year. The $75 million dollar taxpayer loan did not fund this title, but is actually funding 38 Studios’ other working title “Project Copernicus.” “Copernicus” is an MMO that had a September 2011 projected release date. 38 Studios is not scheduled for E3 next month, has no release date for “Copernicus,” and has declined to comment on all these concerns.
Now the biggest concern for 38 Studios and the state of Rhode Island, is that if 38 Studios cannot pay the $75 million dollar borrowed in bonds, R.I. taxpayers will be sorely responsible for paying it back. Considering the interest rates on the loan are from 6 to 7.5 percent, add that to the principal payments and the debt sums up to $112.6 million through 2020. 38 Studios is contracted to pay it back with the sales of its games. In any case, if the developer cannot pay, the governor will then turn to the General Assembly, who will do what now…?
Anyhow, the future looks dark for both 38 Studios, Rhode Island taxpayers, and the gaming industry as a whole. The industry is jeopardized because it could face repercussions in trying to obtain tax breaks in other states, according to Joystiq’s sources in the industry. I also think this is more than your typical sociopolitical case, simply because it would greatly affect a small population and probably change the course of the gaming industry. We’ll see how the plot thickens from here on out.