World Class Villains

Concluding my previous look at 38 Studios and possibly how all the money got spent is the news that 38 Studios has shut down, laid everyone off (including the Big Huge Games team) and will likely now be carved up and sold in order for Rhode Island to possibly get some money back.

Apparently it wasn’t.

There’s an interesting view from at least one person inside the studio, Victor Cortis, that the closure is actually Rhode Island’s fault, that the US$1.125 million that was paid recently only happened because 38 Studios were assured they’d get US$8m in tax credits that then didn’t come through. Of course, it appears that Cortis forgets that the payment was scheduled as part of a loan agreement and then that the cheque bounced.

That US$8m may have kept the studio open for a few more months, but it was still 9 months until Project Copernicus was scheduled to ship. Where the rest of the money to keep 38 Studios open (and I’m not sure that a publishing deal would have come through on a company who can’t make their loan repayments) was going to come from is now a hypothetical question.

A Dream Team

Curt Schilling is attracting the most attention, and as public face of the company and most well known celebrity involved in the studio that’s not surprising. But where the attention should be is on the rest of 38 Studios management. This was an experienced group – Schilling was aiming to pull together a “dream team” to get the best MMO possible developed – and yet things still came to this point. Worse still is that this failure was made possible through the use of public money, and it will be the people of Rhode Island who will be left holding the bag.

38 Studios’ management team, as they appeared on the 38 Studios’ website.

Of particular interest should be the role of Rick Wester, 38 Studios’ Chief Financial Officer. At some point – and apparently 38 Studios told Rhode Island officials in November 2011 that they’d spent all the money – it had to have been clear that the studio was in financial trouble. Yet hiring of new staff continued at least into March 2012. The CFO should have been aware that things were unsustainable.

Of course, it’s very possible that management convinced itself that if only it could get some extra funds, things would turn around (which seems to be the position that Cortis reveals). But hoping for the best isn’t a particularly good mindset to have in times of a crisis, nor is continuing to hire people that just add to operating costs.

Schilling’s commentary that 38 Studios’ only released title, Kingdoms of Amular: Reckoning, had outpeformed publisher EA’s expectations by selling 1.2m units only makes 38 Studios look worse. The studio closed despite having a very solid sales figure behind them that should have generated  at least several million dollars. For most other studios, this amount of money back into their coffers should have been enough to keep things going until they started another project. For 38 Studios, it was just enough to keep the doors open another 3 months (with 38 Studios staff not having been paid since the start of May).

(It also doesn’t help that some of 38 Studios visionaries such as R.A. Salvatore were scheduled to receive – and may have received part of – millions of dollars in consultant fees for their role in developing 38 Studios materials. Those kind of figures can add up quickly for an organisation already under financial pressure.)

Schilling will get grilled, both on the grounds that he should answer the questions and because he was a potential political player who is now toxic (no-one is going to vote for a small government Republican who burned millions of dollars of taxpayer funds while decrying government intervention in the economy). His blood is in the water, and the sharks are circling. But it’s the management team behind him that should be the focus of what happened and how US$50m of public money can be spent, a successful title launched and yet the studio can still end up broke with large outstanding debts.