38 Studios, the videogame company behind the success of Kingdoms of Amalur: Reckoning, is said to have missed payroll earlier this week and recent reports indicate the company’s financial condition has only deteriorated further. It was just announced that the company defaulted on a $1.125 million loan guarantee payment that was due on May 1st to the State of Rhode Island.
Joystiq reported on the terms of the deal, which put a $75 million loan guarantee in the owner’s, former Major League pitcher Curt Schilling’s, hands in exchange for moving the studio to Rhode Island. The goal was to create 450 jobs for the economically battered state. The company put up its existing and in-production intellectual property as collateral. Given the odd terms of the agreement this means that if 38 Studios doesn’t quickly rectify its financial problems Rhode Island will soon be the proud owners of a series of popular role-playing games.
38 Studios’ intellectual property rights and other collateral were pledged to the Rhode Island Economic Development Corporation (RIEDC) and assigned to a trustee. Any proceeds made from the sale of the collateral would go back to the holders of the $75 million in bonds issued by the state. The agreement covers “all rights, title and interest in any projects, including video game projects,” such as Kingdoms of Amalur: Reckoning and “Project Copernicus” – the latest title in development at the studio.
While the state could sell off the intellectual property of 38 Studios to recoup some its investment, it’s unlikely that a sale will cover the $50 million already pumped into the studio. Given Rhode Island’s lack of experience developing successful video games it will likely move for an expedient end, taking a lower than market value payment to close the matter quickly. Practically speaking, assets sold after repossession are usually a fire sale situation and rarely break even.
The unraveling of the deal represents a failure not only for the company but also for the state’s attempt at economic development. Reports indicate that only 288 of the 450 promised jobs were ever created in Providence. The big question on many Rhode Islanders minds is what happened to all the money?
Breaking down the numbers, the studio not only blew through the almost $50 million it’s drawn down from the loan to date, but also any revenues from the sales of Kingdoms of Amalur: Reckoning which has thus far sold some 410,000 units in the U.S. alone. The startup costs, not to mention the ongoing maintenance, server needs and marketing to make a game succeed evidently burned through tons of cash.
The Rhode Island Economic Development Corporation held an emergency meeting yesterday to determine the fate of 38 Studios. At Schilling’s request, the meeting was held in private, a decision which irritated many taxpayers in the state. The loan to the studio was already a hotly contested issue with residents worried about being left on the hook should the company go belly-up, a prescient worry given the current state of affairs. No decision was made at the meeting and no comment has been issued so far by 38 Studios.
Source: “Rhode Island owns Amalur, all other 38 Studios intellectual property if studio defaults,” by Alexander Sliwinski, published at Joystiq.com.
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