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.