38 Studios’ Financial Woes, Continued

More revelations have come to light following our earlier (and later updated) report on 38 Studios’ financial problems, and since the potential closure of the company affects the future of Reckoning and Copernicus, I figured some of you might want to hear about them. First up is this report on Joystiq revealing that Curt Schilling is asking the state for additional funds in order to keep the company afloat:

Rhode Island’s Economic Development Corporation will take no immediate action to aid the developer, following a closed-door meeting attended by Governor Lincoln Chafee and Schilling, who asked for additional help to save the company. Schilling refused to answer press inquiries and officials wouldn’t declare how much money the studio is seeking.

“How do we avoid throwing good money after bad?” Chafee is quoted as saying after the three-hour emergency meeting finished.

They also have this report claiming that, should the company shut its doors, Rhode Island taxpayers will have to foot the $112.6 million ($75 million + interest) bill and the state will ultimately end up owning the IP:

According to the documentation, 38 Studios’ intellectual property rights and other collateral were pledged to the RIEDC and assigned to a trustee, which we’ve confirmed by pulling Uniform Commercial Code documentation. Any proceeds made from the sale of the collateral would go back to the bondholders. This covers “all rights, title and interest in any projects, including video game projects,” such as Kingdoms of Amalur: Reckoning and “Project Copernicus” the title currently in development at 38 Studios.

“Based on what information I’ve been able to review on the 38 Studios situation, it appears that the funds they received from the RIEDC were secured by collateral that amounts to all of 38 Studios assets, including all of their intellectual property,” attorney and Law of the Game editor Mark Methenitis told Joystiq this afternoon. “That would include all the rights to Kingdoms of Amalur and any other games they may have in development, even if no information about those titles has ever reached the light of day.”

“What that means, in brief, is if they default on their obligations to the RIEDC, then the RIEDC can turn around and take possession of as much of that as is necessary to pay off the debts owed. It’s kind of like buying a house or a car and then failing to make payments; the lienholder usually the lending institution can repossess that house or car and resell it to offset their losses from your failure to pay.”

Finally, we learn from WPRI that Curt has recouped his original investment in the company, that R.A. Salvatore was paid $1.46 million + up to $5 million in royalties for his involvement with Reckoning, and other interesting tidbits:

38 Studios released its first game (Kingdoms of Amalur: Reckoning) in February to positive reviews and decent sales. But the taxpayer-backed loan is actually funding its other project (Project Copernicus,) a massively multiplayer online game that was first targeted at a September release but has remained under wraps.

The questions about whether (Copernicus) remains on track and whether Rhode Island’s investment is secure grew in recent days after 38 Studios was removed from the list of companies scheduled to present at next month’s Electronic Entertainment Expo in Los Angeles, one of the gaming industry’s biggest events of the year. The EDC hired IBM in 2010 to provide ongoing third-party monitoring of 38 Studios’ progress.

…

In July 2010, the same month the EDC approved the loan guarantee, 38 Studios established a revolving line of credit with Schilling so it could borrow up to $4 million from him, according to the disclosure filing obtained by WPRI.com. Part of the taxpayer-guaranteed loan money was used to pay Schilling back.

R.A. Salvatore, a fantasy writer who helped develop the games, is slated to receive $1.46 million from 38 Studios in October under the terms of a consulting agreement he signed with the company in 2007. He is also eligible to earn up to $5 million in royalties from sales of (Reckoning) and other 38 Studios products.

The General Assembly increased the size of the Job Creation Guaranty Program from $50 million to $125 million in early 2010 after Schilling approached the state. A WPRI 12 poll later that year showed 54% of Rhode Island voters opposed the $75 million loan guarantee to 38 Studios, with just 28% in favor of the deal.

With that kind of money on the line, this could get really ugly.