38 Studios Is Dead; Fallout Over Company Implosion Takes On Life Of Its Own

Last week, Curt Shilling's 38 Studios fired all of its employees and closed down. The casualties included everyone at Big Huge Games, the developer responsible for Kingdoms of Amalur: Reckoning. Schilling brought his company to Rhode Island in 2010, after the state pledged a total of $75M in loan money to entice him to do so. Reports indicate that 38 Studios borrowed roughly $50M of the $75M it was allotted before failing to make a scheduled payment, failing to make payroll, and shutting down.

Absent any other factors, it'd be a sad story of how good game developers can be hammered by tough conditions. The "other factors," in this case, are considerable. For starters, there's the fact that Kingdoms of Amalur, while not a blockbuster, has sold between 1.1 and 1.2 million copies to date. According to Rhode Island governor Lincoln Chafee, Kingdoms of Amalur "failed," and sold less than half of what it needed to in order to reach the break-even point.

That fact, if true, speaks to serious problems within the company. Selling 3 million copies would've made Reckoning one of the top games of 2012, particularly for an RPG. Fallout 3 sold less than three million copies; Fallout: New Vegas hit around that mark; Oblivion sold 3.75M. Three million sales as a break-even point is terrible. It suggests that 38 Studios cost structure was absolutely hemorrhaging money, and implies there was no way the company could've possibly hoped to sustain continuing operations until its next game, Project Copernicus, would've shipped in 2013.

Now, there's evidence of even shadier behavior. When Schilling relocated his company to Rhode Island, he bought out the homes of at least some employees and moved them down to RI along with the rest of the company. The homes may not have been resold, and at some point, 38 Studios stopped paying the mortgages. At least one employee has now been contacted by the bank, asking what happened to the mortgage payments. The employee in question was told the home had been sold, and is now potentially on the hook for the unpaid mortgage. Depending on where the funds came from, 38 Studios actions may also have violated its loan agreement with Rhode Island.

Heads have already rolled on the Rhode Island side of the equation, but Schilling isn't talking to reporters and Chafee, who opposed the original loan and wasn't governor when it was signed, is still in damage control mode.

The emerging portrait of Schilling is anything but flattering. Reports regarding his actions immediately prior to the shutdown vary; Schilling has claimed to have invested over $30M into 38 Studios, while other statements indicate he yanked out $4M of his own funding that could've met payroll and sustained the company another few weeks. He ended up dealing with Rhode Island in the first place because venture capital firms were unwilling to fund such a risky venture without substantially more control than Schilling was willing to share. Asked just how much money Schilling had sunk into the venture, Chafee responded with: “what we hear is different than what we can document right now.”

38 Studios is a cautionary tale of what happens when a gaming fanatic with a giant ego and no experience in the industry decides he can do it better than anyone else and convinces someone with more money and less sense of the same thing. Schilling's tactic of recruiting big names like RA Salvatore and a well-regarded design studio (Big Huge Games) resulted in what is, by all accounts, a thoroughly decent game. Somewhere along the way, the "Throw money at it" approach went off the rails and resulted in ballooning costs that destroyed the company. All of this should've been clear to Schilling by early March, given Amalur's sales and Project Copernicus' launch date. Regardless, after years of aggressively self-promoting and trash talking about both sports and gaming, Schilling has gone silent, refusing to comment on the situation.

It'll take months for investigators to disentangle the ruins of this mess, but in the meantime, the tax payers of Rhode Island are out as much as $112 million, the 308 former employees of 38 Studios are jobless, and Curt Schilling has guaranteed himself a place in the history books -- as an object example of how not to run a company or go into business.