38 Studios: Thrown for a Curve in Rhode Island
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Within a few weeks, Mr. Schilling, a novice in the gaming field, was wowing other local politicians with his outsize presence and his grand ambitions to build a Microsoft-like behemoth. And soon Rhode Island's lawmakers were rushing to approve a deal to make the state Mr. Schilling's angel investor. The tiny, struggling state issued $75 million in bonds so that Mr. Schilling's company, called 38 Studios, could relocate to Providence and unleash the world's next killer fantasy game.
Ideas that seem plausible in our darkest moments often seem plainly flawed in hindsight, and you can probably see where all this is going. A little more than two years after Mr. Carcieri first talked to Mr. Schilling about 38 Studios so named for his baseball uniform number the company went bankrupt, blowing a sizable hole in the state's already strained finances. And now Mr. Schilling's headquarters on Empire Street, the brick building just a few blocks from the Capitol that was supposed to prompt a high-tech urban renaissance, sits locked and abandoned, like some ugly monument to political folly.
Politicians are debating whether Rhode Island can afford to repay the bondholders, or whether it should simply default. Because the bonds are what's known as moral obligation bonds, the state doesn't technically have to repay them, but its credit rating could take a hit, and Mr. Carcieri's successor as governor, Lincoln D. Chafee, has promised that the bondholders would be repaid. Mr. Chafee is also suing Mr. Schilling and his partners, along with a raft of former state officials, banks and law firms involved in the deal, and a criminal investigation is under way.
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According to an investigation by The Providence Journal, the development corporation's various committees held 63 meetings from September 2010 to May 2012, but not once did anyone discuss the financial health of 38 Studios. The board seemed to be under the impression that a consulting arm of I.B.M. had signed on to police its investment. In fact, I.B.M. was being paid by 38 Studios, not the state, and didn't issue a single report to the board.
Mr. Chafee doesn't dispute the suggestion that he might have done more to monitor the state's investment.
(I had so many reservations about this being a bad deal, that I was reluctant to micromanage, to have it be '˜Chafee screwing this up,' ) he told me recently. (And don't forget, we had our hands full in this state.)
He ticked off a series of challenges he has confronted as governor: a $450 million budget shortfall, a small city in bankruptcy, Hurricane Irene and a battle over reforming the pension system. (We... had... our... hands... full,) he repeated, tapping the table to emphasize each word.
