38 Studios, RIP.

[Dave Weinstein]

Honest question--is there really that much of difference between the two? Wouldn't RI's credit rating suffer either way? As a sidenote, I found it interesting looking at Moody's and S&P's credit ratings for the bond; they basically don't even mention 38 Studios at all because the bonds are backed by RI, and rating is based on the state's ability to pay it.

There is a difference.

Rhode Island *has* to pay a general obligation bond unless the whole state goes bankrupt.

All they have to do for a "moral obligation" bond is ask the legislature for the funds. If the legislature says "no", then there is no legal requirement for the state to pay.

Now, it would mean that the interest charges on any "moral obligation" bonds in the future would be high, but I don't know that it would affect any general obligation bonds.

And there is of course that, "it's a lot of money" issue as well.

[Mark Asher]

I agree that it's hard to assign blame, but I think overall it's pretty easy to look at the whole process and conclude it was taking them too long to develop Copernicus. You just have to get these games done more quickly.

As for Schilling, nice guy and all, he's still a bit two-faced about the whole idea of government and business mixing. Then again it's easy in the abstract and a different matter when reality is your company needs government help to survive.

It's sad that all that work is probably going down the drain.

[Alstein]

Probably true on the business failure being due to a series of circumstances- lets face it, most businesses fail in the beginning, many don't make it long enough to fail in the end. Schilling gets it from me mostly for his political stance and hypocrisy, not for any particular mismanagement. I think he made a good faith effort.

If he loses all his money, at least he still has a MLB pension to fall back on.

[Nesrie]

The buck stops somewhere, and it's usually at the top. Sure, circumstances, bad luck, outside influences play a role but ultimately there is responsibility for these things. Taking responsibility for a failure doesn't automatically make someone a bad person or a fool. It's unfortunate but not blameless.

[Alan Dunkin]

I have no trouble believing he made a good faith effort. Everything I've seen of him in the last 15-20 years has shown that.

--- Alan

[Brad Grenz]

Yeah, the only person in this who actually appears to have been acting in bad faith is the governor who wanted 38 to fail for political reasons.

[triggercut]

Yeah, the only person in this who actually appears to have been acting in bad faith is the governor who wanted 38 to fail for political reasons.

I hope you're being sarcastic and my meter is off.

I've got a friend of a friend who knows something of Rhode Island law who's checking on some questions I have, but it seems like their laws are the same as the laws in most states regarding the investment of public funds in the private sector in the form of financing and loans.

What it boils down to, then, is that when 38 Studios took the loan money from Rhode Island, it made them subject to the same open meeting/"sunshine laws" that apply in many states. Obviously, too, every bit of this transaction is subject to open disclosure through FOIA requests. I know that Governor Chafee makes a very convenient scapegoat for 38 Studios employees and execs (and they found a fairly sympathetic writer over a Gamasutra who apparently didn't ask or get answers to some interesting questions.) The thing of it is, though, the law required 38 Studios to make the loan service payments they were required to. They could not make those payments. At that point the government can't do much but ask some very uncomfortable and very public questions.

That's how government works. If 38 didn't want their loan holder to go public with the company's financial struggles, then don't have that loan holder be a state government. What were they asking here? Discretion? "Hush hush, we have your money, just give us a week or two?" I sympathize with the timing of things, but having your executives telling Gamasutra that the Governor and the commerce committee in the Rhode Island legislature should have this up is silliness. Did they really think that not paying 370 employees over at least two consecutive pay cycles wasn't going to get out and cause just as much of a problem with them securing angel money or signing a new deal with EA for Reckoning II? Are people really that naive?

[Alan Dunkin]

Yeah, the only person in this who actually appears to have been acting in bad faith is the governor who wanted 38 to fail for political reasons.

Probably not nearly as bad as this. 38 had already fallen. The governor simply didn't help it back up.

--- Alan

[Imryll]

The buck stops somewhere, and it's usually at the top. Sure, circumstances, bad luck, outside influences play a role but ultimately there is responsibility for these things. Taking responsibility for a failure doesn't automatically make someone a bad person or a fool. It's unfortunate but not blameless.

I think the urge to assign blame when things go wrong is a strong one, but that more often than not it's more productive to channel one's energy into looking for solutions. I'm not saying that targeting weaknesses isn't part of finding solutions, but in complex situations there are often a number of folks holding a corner of that buck, and the notion that it stops in the hands of a single culprit is a bit simplistic.

[Telefrog]

I think the urge to assign blame when things go wrong is a strong one, but that more often than not it's more productive to channel one's energy into looking for solutions.

Sure. The problem in many cases is that one person's solution is another person's complication. For example, letting 38 Studios go under was the optimum solution for Chafee. Not so much for the employees.

[RickH]

I hope you're being sarcastic and my meter is off.

I, too, think that Chafee was posturing and seeking to dump a problem on a predecessor. His statements during the 38-downfall events were not those of a supportive business partner who (1) understood the nature of the project, or (2) wanted to assist in its continued viability.

I've got a friend of a friend who knows something of Rhode Island law who's checking on some questions I have, but it seems like their laws are the same as the laws in most states regarding the investment of public funds in the private sector in the form of financing and loans.

What it boils down to, then, is that when 38 Studios took the loan money from Rhode Island, it made them subject to the same open meeting/"sunshine laws" that apply in many states. Obviously, too, every bit of this transaction is subject to open disclosure through FOIA requests.

I'd be very interested to read the loan agreement if that's the case. I have not seen it posted online.

The thing of it is, though, the law required 38 Studios to make the loan service payments they were required to. They could not make those payments. At that point the government can't do much but ask some very uncomfortable and very public questions.

The contract, not the law. There's a big difference. Unlike statutes, contracts can be amended at any time with the agreement of the parties. But the parties have to be willing to agree, and if one side determines that the contract should be strictly enforced, then no changes will take place. This leads to me to the belief that RI govt inflexibility was part of the problem. Like we see with coprorate execs in Hollywood, if the deal wasn't yours, then you might as well shitcan it since you wont get any credit.

That's how government works. If 38 didn't want their loan holder to go public with the company's financial struggles, then don't have that loan holder be a state government. What were they asking here? Discretion? "Hush hush, we have your money, just give us a week or two?"

Well, maybe and maybe not. I'm quite sure there is an exception in RI's public disclosure laws for contract negotiations and sensitive business matters. I know from experience that the federal version of the FOIA has plenty of exceptions from disclosure. And invoking them is usually done (or not done) at the discretion of the government entity.

[RickH]

Probably not nearly as bad as this. 38 had already fallen. The governor simply didn't help it back up.

--- Alan

Agreed that the business was failing. As triggercut demonstrates, the MMO landscape changed a hell of a lot during Copernicus' development, and the numbers were not adding up anymore. Combine that with an inability to meet the milestones and release on schedule, and you are pretty screwed. The ONLY way for 38 to survive was by generating revenue with a product they could not finish.

Agreed that under the cirsumstances it was up to RI to do the saving. They werent interested. Would the remainder of the loan committment been enough to get them to release? Hell if I know. RI wasnt willing to commit $25 mil to see if it could save its prior $50 mil.

[triggercut]

The contract, not the law. There's a big difference. Unlike statutes, contracts can be amended at any time with the agreement of the parties. But the parties have to be willing to agree, and if one side determines that the contract should be strictly enforced, then no changes will take place. This leads to me to the belief that RI govt inflexibility was part of the problem. Like we see with coprorate execs in Hollywood, if the deal wasn't yours, then you might as well shitcan it since you wont get any credit.

This I have already discovered is incorrect.

The RIEDC arranged the loan terms, but acted as an agent of the RI General Assembly, the state's legislative branch. In order for the RIEDC to amend the terms of contract would have required committee approval in the Assembly, which would have made it subject to open floor debate--and that would be a 100% surety.

Tell me how the folks of the Rhode Island General Assembly openly discussing the solvency of 38 Studios makes EA and venture capitalists think "Yeah, these guys are a good bet right now."

[Dave Weinstein]

Rhode Island did thing in not putting good money after bad.

Assuming that Project Copernicus was at least 12 months from ship (and based on the fact that the video doesn't show gameplay, that seems optimistic), that would involve doubling down at a minimum; and that is before you get to the build-outs for running an MMO or the necessary advertising push.

Sunk costs are just that, sunk. Following the ante is a bad plan, the decision needs to be "what do we get for what we would need to pay now", and the answer for Rhode Island seems to be "more debt for the taxpayers to shoulder".

Edit to add: Remember that unlike an equity investor, Rhode Island had no direct "upside" for success.

[Alan Dunkin]

Well to be fair I think their updated release date as revealed by the Chafee might have been realistic if a few things were a given: the engine and paucity of artwork is in place, which are the biggest initial milestone goals. Then follows systems, gameplay and questing. If you're in this second part of it (which they seemingly were), it's conceivable that they could produce this by middle of next year. By that time they might have secured some additional investments since they'd be close to release and wouldn't need RI to get them anything additional.

So yeah... it's conceivable.

Considering the risk involved I'd say RI's answer is "no more additional debt for the taxpayers to shoulder." While RI had no direct upside for success, they went into this proposition this way to begin with. That's what these programs are for. Some succeed, some fail.

--- Alan

[Dave Weinstein]

Well to be fair I think their updated release date as revealed by the Chafee might have been realistic if a few things were a given: the engine and paucity of artwork is in place, which are the biggest initial milestone goals. Then follows systems, gameplay and questing. If you're in this second part of it (which they seemingly were), it's conceivable that they could produce this by middle of next year. By that time they might have secured some additional investments since they'd be close to release and wouldn't need RI to get them anything additional.

If you are six years into developing an MMO, and your systems/quests/content are not baked enough to show in a *canned demo*, I have strong doubts that your going to wrap all that up in a calendar year. Especially since they licensed the engine (BigWorld).

[jason]

I think they probably could have shown a demo... but they were drinking too heavily from the "keep it secret, keep it safe" cup. If you are 6 years into developing an MMO and you haven't released the NAME of it yet, you probably need to reconsider your policies. At six years, we should have had a name, screenshots/wallpapers and an animation unveiling the basic plot/world story. You can do all that without having your game play systems in place, and they did none of it.

[RickH]

Tell me how the folks of the Rhode Island General Assembly openly discussing the solvency of 38 Studios makes EA and venture capitalists think "Yeah, these guys are a good bet right now."

Haha, no way would that help on the VC front. But I do think Charfee's refusal to even discuss contract modification is telling.

[RickH]

This I have already discovered is incorrect.

The RIEDC arranged the loan terms, but acted as an agent of the RI General Assembly, the state's legislative branch. In order for the RIEDC to amend the terms of contract would have required committee approval in the Assembly, which would have made it subject to open floor debate--and that would be a 100% surety.

This just means that the state of RI is the proper party to the contract, not that the contract was equivalent to a statute. Even though it may have taken an act of the leguslature to either authorize re-negotiation or ratify any deal made by an agent.

BTW, using agents to negotiate contracts is not uncommon. For example, my understanding is that Walmart uses proxies for almost all of their land acquisitions because people would get cartoon dollar signs in their eyes if they realized who they were actually selling to.

[triggercut]

Uh....yeah.

The point being: having Curt Schilling, 38 Studios Execs, or interested observers saying that Governor Chafee acted in bad faith here by discussing the difficulties of the party to the state's loan misses out on the fact that this was all going to go public and be just as messy no matter what the sitting governor did.

[RickH]

Edit to add: Remember that unlike an equity investor, Rhode Island had no direct "upside" for success.

What about repayment of the loan? Even though RI has the rights to all of 38's IP assets, those are not likely to be sold for anywhere near the $50 mil loaned so far. Whether it knew it was doing so or not, RI made the call to put 38 into recievership and foreclose on the IP as its sole remedy under the contract terms (as I understand them, anyway). The state basically eats the rest of the uncollectable debt, unless there are some personal guarantees I'm not aware of.

What is the Amalur IP worth? I've seen RI estimate in the $20-30 mil range, but I'd be suprised if EA would pay even $5 mil for the right to make a Reckoning sequel, especially now that BHG's talent is a part of Epic.

[RickH]

Uh....yeah.

The point being: having Curt Schilling, 38 Studios Execs, or interested observers saying that Governor Chafee acted in bad faith here by discussing the difficulties of the party to the state's loan misses out on the fact that this was all going to go public and be just as messy no matter what the sitting governor did.

If you're saying that Chafee as the chief executive of RI had no chioces on how to proceed, I can't agree. He made a choice, RI will deal with it, and people will characterize it as they will.

I wouldn't go as far as to say inflexibility on the contract terms was "bad faith," it was his call to make and he made it. But then, I wasn't a party to the conversations as 38 went down. If Chafee or his staff said one thing and did another, or induced 38 management to do things it would not otherwise have done, I suppose that could be evidence of fraud or bad faith. But that's all speculation.

[triggercut]

If you're saying that Chafee as the chief executive of RI had no chioces on how to proceed, I can't agree. He made a choice, RI will deal with it, and people will characterize it as they will.

I wouldn't go as far as to say inflexibility on the contract terms was "bad faith," it was his call to make and he made it. But then, I wasn't a party to the conversations as 38 went down. If Chafee or his staff said one thing and did another, or induced 38 management to do things it would not otherwise have done, I suppose that could be evidence of fraud or bad faith. But that's all speculation.

I'll try again.

1. Rhode Island General Assembly--the legislative branch of the state--created the RIEDC to act as their agent and go-between to entice business development to the state. They have the final say on all matters involving the disbursement and repayment of taxpayer-funded loans, not the Governor. The Governor has some limited oversight only.

2. Governor Carcieri signs the bill that creates the RIEDC which gives both the legislative body and executive branch some oversight on the way they conduct business.

3. RIEDC brokers the deal with 38 and recommends to the Assembly's finance committee that the loan be approved. There is some debate, but approval given with some lobbying by Carcieri.

4. 38 Studios cannot live up to their side of the contract. "Flexibility" doesn't enter the equation here. The choices for Rhode Island are this: either hold 38 Studios to their agreement, or put the terms of the contract over to the commerce committee, who would likely then throw it open to floor debate in the General Assembly.

5. 38 Studios claims that the inflexibility of the Governor and state on the contract killed their studio. Again, not so true. Had the Governor attempted to be flexible, there would have been an audit and debate on the floor of the Assembly as a result, and it is colossally unlikely that anyone would be investing any further capital in 38 Studios in that event, either.

The Governor is the coroner who put the white sheet over the body, but 38 was dead before he did that.

[Dave Weinstein]

What about repayment of the loan? Even though RI has the rights to all of 38's IP assets, those are not likely to be sold for anywhere near the $50 mil loaned so far. Whether it knew it was doing so or not, RI made the call to put 38 into recievership and foreclose on the IP as its sole remedy under the contract terms (as I understand them, anyway). The state basically eats the rest of the uncollectable debt, unless there are some personal guarantees I'm not aware of.

That would basically mean Rhode Island would have to gamble "double or nothing" on money they already couldn't afford, and without any control over success or failure.

Doubling down on a company that has mismanaged itself to the brink of bankruptcy and still hasn't got a product to show for it does not strike me as a wise investment if *you* did have the money to spare. And Rhode Island doesn't.

[Starlight]

be just as messy no matter what the sitting governor did.

So you think if the Governor had limited himself to fair neutral statements it would have had the same effect as him in public, from the start, putting the boot in? Um.
He might have been legally entitled to do so, but that still bluntly screams "asshole" to me. Of course, I'm also not willing to cut Schilling any slack for non-payment of wages, which is even worse afaik.

The only people I'm NOT blaming are the non-management folk who worked for 38, who I hope end up on their feet.

[triggercut]

So you think if the Governor had limited himself to fair neutral statements it would have had the same effect as him in public, from the start, putting the boot in? Um.
He might have been legally entitled to do so, but that still bluntly screams "asshole" to me. Of course, I'm also not willing to cut Schilling any slack for non-payment of wages, which is even worse afaik.

The only people I'm NOT blaming are the non-management folk who worked for 38, who I hope end up on their feet.

I don't think you get it either.

The Governor found the dead body. Whether he laughs or cries over that body is immaterial. His actions standing over the corpse are not the cause of death, and nothing he does or says resuscitates it.

In other words--I don't give a shit whether the Governor was overly harsh in his remarks. That's not part of the discussion we're having. The discussion is: did the Governor's remarks cause 38's final demise, as alleged by Curt Schilling and some 38 Studios execs. The answer is no, 38 Studios was dead no matter what Mr. Chaffee could have, would have, or should have said in the event.

[Dave Weinstein]

So you think if the Governor had limited himself to fair neutral statements it would have had the same effect as him in public, from the start, putting the boot in? Um.

Unless my timeline is hideously confused, by the time the Governor "put the boot in", 38 Studios had already: Cancelled their employees health insurance, Missed a required payment to Rhode Island, and Missed Payroll.

Any and all of that would have come out with any even reasonably credible diligence, so your notion of damage is predicated on potential investors being both fabulously wealthy and really really stupid.

[Starlight]

Unless my timeline is hideously confused, by the time the Governor "put the boot in"

Um? He's used it as a political weapon during his election and since.

[Dave Weinstein]

Um? He's used it as a political weapon during his election and since.

He said it was a bad decision for Rhode Island. He was opposed to it, he ran for office opposing it, and low and behold, he was right. That is your definition of "putting the boot in"?

I'm sorry, you want people to get state money but not have the wisdom of that policy be up for debate when candidates are running for office? That's inane.

[Starlight]

I expect politicians not to sabotage state investments, yes. They're either going to take a major loss on this, or tank their rating for non-compulsory spending.