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From Hero to Zero? A Schilling for My Thoughts on Job and Wealth Creation

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I got an email the other day asking me not "if", but "when" was going to write about Curt Schilling and his company 38 Studios running out of money. It was a fair question.

For those of you who haven't lived in New England for 30 years, let me give you a brief update. Baseball isn't a way to pass the time, but a way of life... and the Red Sox rule the 6 state region (except for the evil half on Connecticut that is in under the delusion that they are in New York).

For generations, the Red Sox didn't win a championship. They got as close as you can get many times, but it all fell apart in the end. The rival New York Yankees racked up a couple of dozen. In 2004, the Yankees were on their way to thwarting the Red Sox in the most embarrassing way, a four game sweep, when any religious fan will tell, God intervened. Balls started bouncing the Red Sox way in the late innings of the 4th game that would end the series. Not just a few fortunate bounces, but every... single... one.

The Red Sox managed to pull out game 4 and 5 with late heroics, giving Curt Schilling, one of their best pitchers a chance. However, Schilling had an ankle injury, an injury that caused to pitch terribly in game 1 of the series. The doctors thought they found a way to MacGyver it with super glue, some duct tape, and a little chewing gum (or maybe they used real medical techniques). Schilling went out an pitched a tremendous game with his ankle bleeding creating a true Red Sock. He won the game and the Red Sox pulled off a comeback to win the series that was unparalleled in baseball history. They then went on to win the World Series to get that championship that had the team for 86 years. He was a hero in New England.

Schilling, who was getting past his prime as a baseball player, retired and moved on to business. He created a company called 38 Studios with the intention of creating a variety of digital media such as video games and films. When Rhode Island promised $75 million dollars in loan guarantees he moved the company there.

Things were going well until 38 Studios ran out of money recently. The company missed a loan repayment to Rhode Island, which got the state active. It turned political. Schilling claims that Rhode Island politicians weren't keeping some of the promises they made and the governor of Rhode Island released a company secret about them still being a year away from releasing their biggest game. This caused the company hardship as they lost much of the negotiating power they would have had in selling off the company assets. With no money, the company had to lay off all the employees. With an estimated 400 jobs lost, Schilling has come under fire.

I understand the state's point that it has to be honest with the tax payers about the loan that looks like it is going to default. On the other hand, such honesty has a way of being a self-fulfilling prophesy. Just as an unemployed person would have difficulty in getting a loan, a company with financial problems isn't likely to fair much better. No investor wants to throw good money after bad.

Schilling had a quote of:

"I have done whatever I can do to create jobs and create a successful business, with my own income. Fifty million dollars, everything I've ever saved, has been put back into the economy. The $49 million from Rhode Island has been put back in the economy. I've never taken a penny and I've done nothing but create jobs and create economy. And so how does that translate into welfare baby? I've tried to do right by people."

My friend made the point that even people on welfare put money back in the economy. While I agreed that this was true, he did have his own "skin in the game", much like putting down 20% for a mortgage. He also directly created jobs in the local economy and didn't do something like go buy a bunch of Ferraris or Rolexes that helps the economies of companies outside of Rhode Island. It's not like people on welfare are buying Ferraris or products from other economies, but the point was that he was creating something. With more money or better spending, perhaps he could have created the next Electronic Arts, which would bring a lot of jobs and earn the state a lot of tax dollars.

As a home owner in Rhode Island, I'm on the fence on this one. This is why I wasn't sure whether I should write about it. For the most part, I side with Schilling's good intentions. He created jobs with his money (and Rhode Islands') that wouldn't have been in Rhode Island in the first place. If the company can't be salvaged and it is a total business failure, it won't be the first time that it has happened. We can blame Schilling for poorly managing a business, but that's hardly anything new either. I think Rhode Island should have kept its criticism under wraps for at least a couple months while working with 38 Studios on an exit strategy.

Posted on May 30, 2012.

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6 Responses to “From Hero to Zero? A Schilling for My Thoughts on Job and Wealth Creation”

  1. Rhode Island got what it deserved. They elected politicians who were stupid enough to provide a loan guarantee to a company run by … wait for it … a baseball player. In what universe does throwing a ball over a plate – even by a “hero” – translate to business acumen?

  2. Lazy Man says:

    Well Rhode Island, and in particular Providence, has never been known for the smart moves by its elected politicians (See: Buddy Cianci).

    I’m with you on the baseball thing not translating to business. In RI’s defense, Schilling speaks well and has many political ties, so it isn’t like he’s a “dumb jock.”

  3. Tommy Z says:

    In a free market, if his company was on a solid financial footing, a loan guarantee would not be needed and private investors/lenders would be lining up to help finance his venture. Shame on Rhode Island for using taxpayer money to try and pick winners and losers. Likewise, shame on the Obama administration for doing the exact same thing with Solyndra.

    Capitalism is all about taking scarce resources and combining them in such a way to produce value for humanity. The indicator that you are producing value (instead of destroying value) is if your company is producing a profit.

    Schilling’s quote is complete stupidity. Although he may have created some jobs along the way, net-net, the economy lost jobs because he was destroying capital. Thankfully, he could only lose so much money and then had to stop. Unfortunately with the government, they can destroy capital day in and day out and never stop.

  4. My main problem with the quote is that Schilling seems to be using the way he USED the funds to define the SOURCE of the funds.

    Consider this more black and white example:
    It’s not stealing, because I gave the money to orphans.

    Whether the money was used to help the orphans or whether it was used to buy drugs doesn’t change the fact of whether or not it was stolen.

    Likewise, how Schilling used the money shouldn’t define whether it was welfare or not. It’s not quite that black and white, but that was the main thing that annoyed me.

    (No, I’m no suggesting that Schilling stole money. That was just the most cut and dried exaple I could think of.)

  5. Jeff says:

    As a Rhode Island resident, I have to say the blame is shared by many people. The state (under a previous administration) made a bad decision to back this. I was against it at the time and still am.

    But I think most of this debacle goes to Schilling and his executive team at 38 Studios. They had a bad business plan from the start and not enough capital to fund it. They should have known that, RI political leaders should have seen that too but ultimately I think the responsibility lays with the people who ran the company.

  6. Anonymous says:

    I agree with Kosmo^ about one of issues with the quote is that Schilling really does seem to be using the way he USED the funds to define the SOURCE of the funds.

    Great feed though.

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