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Tuesday, May 15, 2012

Game over?

Carcieri’s folly may cost RI taxpayers $112.6 million. QUICK – let’s cut public worker pensions!
Zap! Take that, Rhode Island taxpayers!
By Will Collette

The media is all abuzz over the apparent crisis former Red Sox pitcher and uber-conservative business dude Curt Schilling is having with his video game company, 38 Studios. It looks like the company is just about ready to crash and burn

One of the last acts of former Governor Donald Carcieri before he left office was to finangle a deal (a con job, actually), where he folded a deal for Rhode Island taxpayers to provide Schilling with a $75 million loan guarantee into a larger bill to provide help to Rhode Island businesses.



The problems with Carcieri’s scheme were manifold: Schilling’s company wasn’t actually a Rhode Island company; Carcieri was using the $75 million as a bribe to get Schilling to move his company from Massachusetts to Providence (and some unknown number of his workers are still Mass taxpayers and residents).

Schilling’s company also didn’t have a product to sell. They had been developing a multi-player internet based game for years, but were nothing more than a black hole for money until they actually brought a product to market.

That $75 million could have been used to help keep lots of genuine Rhode Island small businesses going through some very hard times, instead of this stupid deal.

Almost one year ago, with two Progressive Charlestown articles in June and July, 2012, I noted this was a bad deal for Rhode Island taxpayers. In “Money Can’t Buy Me Love,” 
 I noted that it’s generally a bad idea to get into a spending war with other states to win the hearts of companies hunting for corporate welfare. These companies have no loyalty to whoever bids the most for their temporary presence, and will leave as soon as somebody makes them a better offer.

In my July article, I noted that Schilling was having a very hard time raising additional financing to stay afloat. 

When his company’s first (and only) game was about to come out, I did the math, to the best of my admittedly limited abilities, and noted that the arithmetic for success just wasn’t there.

So now, it seems the Day of Reckoning (what a great name for a video game!) has come. It’s so bad for 38 Studios that, according to the Providence Journal, they even asked the City of Providence for help! 

Ted Nesi at WPRI notes that if 38 Studios fails, not only are Rhode Island taxpayers on the hook for the $75 million loan guarantee, but that the interest and carrying costs on the “moral obligation bonds,” Rhode Island taxpayers could end up shelling out $112.6 million. If this necessitates pension cuts – and in any self-imposed financial crisis, isn’t that where we turn first – I think the first and biggest cut should come from the pension of Governor Donald Carcieri.

When Schilling released Kingdom of Amalur in a February ceremony – in Bellingham, MA, not Rhode Island, BTW – it started off with strong sales. But as is so often the case with video games, it had its one month of hot sales and then dropped off. As I noted in my analysis of the business math behind this deal, counting on video gamers to be steady customers sufficient to keep a high-overhead business afloat was not very likely.

And indeed, as WRNI’s Ian Donnis reported, this kind of slide was entirely predictable 

State Economic Development Corporation Director Keith Stokes was a big promoter of this deal, and it almost prevented then in-coming Governor Lincoln Chafee (a strong opponent of the deal) from retaining Stokes as EDC chief. If 38 Studios circles the drain, and takes RI taxpayers’ money with it, Stokes may be filing for unemployment.

Other politicians who supported the Schilling deal, such as 2010 Republican gubernatorial candidate John Robitaille, are already running for cover. Although Robitaille bitterly attacked Chafee (and Frank Caprio) for not backing Carcieri’s deal with Schilling, Robitaille now tells WPRI’s Nesi that he really and truly wasn’t all that hot for it, after all. 

Right.

Let’s remember that one if Robitaille makes another run for Governor in 2014.

The worst thing, in my opinion, the state can do at this point is throw good money after bad. Governor Chafee was correct to oppose the deal when he was a candidate. Giving Schilling more money would be even dumber than the original deal, because I would think that now we should know better. To paraphrase the Boss, “the highway’s jammed with broken video game heros….”

1 comment:

  1. Even though from most accounts it is a fun game, I think it ultimately had a couple of problems:

    1) It was beaten to the market by Skyrim, the latest in an established series (The Elder Scrolls). Skyrim is a slightly better game, but more importantly, much much bigger - You can get lost in it for months. The audience of Skyrim would probably like Schilling's game as well, but they probably aren't close to exhausting Skyrim yet either.

    2) It came out in a dead period for games usually, meaning after Christmas. Anything released after Christmas is normally hard pressed to find an audience, unless...

    3) ... it's a game in an existing series, or marketed by a company with established roots. Much like the major blockbuster motion picture companies, there are now plenty of video game companies with long catalogs and marketing skills to push games to profitability. If Schilling had lower his sights initially and decided to just become a subsidiary of, say, Electronic Arts, it would be fine to release a really good game that wasn't a blockbuster in sales. As is, there is a good chance all of his good designers / programmers / etc. get hired out from under him once there is a whiff that things aren't going well.

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