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Wednesday, May 16, 2012

Is the state going to lose its $75 million gamble?

38 Studios and the ‘Job Creator’ Logic
Dude, what did you do with all that money?
Word started buzzing around the State House just prior to Gov. Chafee making his historic executive order recognizing same sex marriages from other states – but the rumors weren’t about marriage equality, they were about 38 Studios.
By the end of the day, Bill Rappleye of Channel 10 broke what very well could become the biggest story to date of 2012: the state is working with 38 Studios to help keep it solvent.

38 Studios, former Red Sox Curt Schilling’s company, was given a $75 million guaranteed loan to move from Massachusetts to Rhode Island by former Gov. Don Carcieri. 

The former CEO governor, who always touted his business experience as reason to trust him as a public official, pushed through the highly controversial loan to his friend and political ally as a way to shore up his otherwise poor economic development record while in office.
It worked; whatever happens to 38 Studios, Carcieri owns it.
One needn’t to be a business expert to know that investing in 38 Studios was a risky proposition. In fact, our own Sam Howard detailed why it was in a post earlier this year. 38 Studios has made some money on its new single player game Kingdoms of Amular. But the project Rhode Island is vested in is a huge multiplayer game called Copernicus. Howard points out here why the former is a much safer investment than the latter:

“…one of the things that [Amular] had going for it was that it’s single-player. Single-player games are like novels, in a lot of ways. People are more willing to get into a new one. But [multiplayer games] are in a lot of ways like a bowling league. Once you’re part of one, why join another?”
Indeed, business experts knew this was a risky investment as well. Ted Nesi reports: “Last June, PricewaterhouseCoopers audited 38 Studios and issued a “going concern” opinion that expressed “substantial doubt” about whether the company would be able to stay solvent, the disclosure filing said.”

Why didn’t Carcieri, who was lauded for his business acumen, see this? 

Why didn’t Keith Stokes, Carcieri’s economic development chief who lauded the loan and was then kept on by Chafee, even though the current governor vociferously argued against granting 38 Studios the risky loan? Why didn’t taxpayers? Where was the Tea Party on this one?
Why might not matter now. What matters most is how to protect the state’s investment, and its economy.
In the meantime, as the local media has been looking for the “next Central Falls,” Rappleye might just have stumbled onto it … but this time there will be no way to argue that pensions or union contracts are the problem. This time the issue seems squarely to be that the public servants simply placed too much faith in private sector.
Curt Schilling was supposed to be the state’s ultimate job creator. It’s high time Rhode Island realizes that, whether it’s tax cuts or tax giveaways, such an economic strategy is far too risky keep placing so much blind faith in.
Bob Plain is the editor/publisher of Rhode Island's Future. Previously, he's worked as a reporter for several different news organizations both in Rhode Island and across the country.