38 Studios: End Game

Boston Magazine managed to track down Curt Schilling and some of 38 Studios’ other former employees for an extensive nine-page featurette about the company’s short-lived history, the state of Project Copernicus when things went south, the fact that Take-Two was potentially going to fund a Kingdoms of Amalur sequel, and more. In their words, though, the editorial is all about “the chaos, arrogance, and mistakes that led to the destruction of 38 Studios and the loss of $75 million in taxpayer money”, and I’m going to quote from it heavily:

Asked about 38 Studios’ failure, Schilling says his management team suffered from (significant dysfunction) and that his video-game developers worked too slowly. Those problems, he allows, are his fault. (As the chairman and founder,) he says, (who’s above me?)

But he also shovels much of the blame onto Rhode Island Governor Lincoln Chafee, whom he believes had a political agenda when it came to 38 Studios. The day before, Schilling alerted his former employees through a private Facebook message board that he planned to go on WEEI sports radio to talk about Chafee’s role and (tell the untold side of this nightmare.)

Many former 38 Studios employees, including the CEO, responded to that Facebook post with fierce attacks against Schilling himself. As the assaults mounted, Schilling’s wife, Shonda, rose to her husband’s defense. (50 million its [sic] not a fucking joke. It’s gone,) she wrote, adding that, (You have no idea what that last two weeks were like. Hope and hell. We hung on every telephone call. My husband couldn’t function. My kids saw their father cry more in that month then [sic] any child should see.)

Schilling’s harshest critic in the online exchange was Bill Mrochek, the vice president of online services, whose wife required a bone marrow transplant at the time their healthcare disappeared. (Are you going to admit that your stupid hubris, pride, and arrogance would not allow you to accept that we failed and help shut it down with dignity?) he asked Schilling.

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Todd Dagres, a founder and general partner at Boston’s Spark Capital, one of the top tech venture capital firms in the country, trekked out to Maynard for a meeting. He says he was looking to invest in games, but admits that he was also excited to meet the bloody-sock hero.

Schilling gave him an office tour, clicked through PowerPoint slides, and delivered a passionate pitch. But Dagres says Schilling came off as overconfident, as though he didn’t understand what a huge bet he’d made with 38 Studios. Project Copernicus was going to require tons of cash, and if the game flopped, the company would go down with it. 38 Studios didn’t have (the ‘˜A’ team that I thought you’d want to see developing such a difficult game,) Dagres says. It lacked MMO development experience at the top. (Curt was not the CEO,) Dagres says, (but you could see he was quite involved and had a lot of control. I was a little nervous.) He also took note that the COO was Schilling’s relative.

Then there was the issue of equity. Dagres says that Spark Capital likes to get 20 percent of a company it invests in, but that Schilling’s offer was far too small. Schilling denies that he hoarded equity, but multiple sources say that, because he was funding the whole enterprise, he guarded it jealously.

(He was very forthcoming to tell you how much of his own money he put in,) Dagres recalls. Schilling tells me that he considered that kind of disclosure a selling point: (I assumed that they would look at it as, ‘˜If he’s this far in, it’s not going to fail. He’s not going to let this thing fail.’) Instead, Dagres was shocked that Schilling was plunging so much into such a risky venture. The VC left with his checkbook firmly closed.

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Whatever the dysfunction at the executive level, most employees at 38 Studios were unaware of it, and remained happy at the beginning of 2012. There was great excitement in February when the company released Kingdoms of Amalur: Reckoning, a single-player title produced by Big Huge Games. It did well, selling 1.3 million copies.

Schilling, meanwhile, kept up his free-spending ways. This past Christmas, he personally bought every staffer a computer tote bag with the 38 Studios logo. Add in the company’s high staffing levels, frequent gratis lunches and dinners, and big travel budget, and it was easy to forget the whole thing was a startup. (We never had that sense of urgency or panic,) Schilling tells me. (I think there was a sense of invulnerability I don’t want to say invulnerability, but I think we were comfortable.)

Deadlines were frequently missed, something for which staffers say Schilling rarely held anyone accountable. The ex-pitcher had a bigger concern. (The game wasn’t fun,) he says, unprompted, beside the softball field. (It was my biggest gripe for probably the past eight to 12 months.) Visually, Copernicus was stunning, but the actual things you could do in the game weren’t engaging enough. The combat aspects especially lagged. Schilling who never wavered in his belief that the game would be great says the MMO was improving, but after six years, it still wasn’t there. When Schilling walked around during lunch hour, he says, nobody was playing Copernicus’s internal demos. They were all on some other game.

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Hopeless as things seemed, Schilling remained confident that yet another lifesaving deal was imminent. He still owned 82.9 percent of the company, and says he was willing to part with a healthy chunk of it to save the studio. In April, 38 Studios sent eight employees to China to meet with a potential partner. Then there was a South Korean video-game concern called Nexon, whose executives had recently visited the Providence office and appeared interested in a deal. And finally, Schilling felt that 38 Studios was close to a pact with the company Take-Two Interactive to publish a sequel to Kingdoms of Amalur: Reckoning.

But when May 1 arrived, 38 Studios was unable to make its loan payment. That put it into default and set off a series of private meetings with Governor Lincoln Chafee’s office. Still, most staffers had no idea the company was in trouble until two weeks later, when, on May 14, Chafee told the Rhode Island media that he was working to keep 38 Studios solvent.

Schilling says the deal with Take-Two was ready for (final sign-off) the next day, May 15, but fell apart when the publisher got spooked by Chafee’s comments. Take-Two seems to have had a different impression, however. (I am not aware that there were any negotiations,) spokesman Alan Lewis says. (We do not comment on rumors and speculation.) You’d need a microscope to read between the lines of that statement, but it seems clear that nothing was imminent. Both the Chinese investor and Nexon disappeared, too. (Nexon declined comment.) Meanwhile, according to the Associated Press, 38 Studios’ board of directors voted to authorize the company to go into bankruptcy, in case it became necessary.