NEW YORK (CNNMoney) — Rhode Island owns a video game company. That wasn’t supposed to happen.
Taxpayers in the small, financially stricken New England state are on the hook for tens of millions of dollars loaned out to the video game company 38 Studios. Founded by former Boston Red Sox star pitcher Curt Schilling, the company was supposed to bring jobs for skilled professionals to a state struggling to expand its workforce. But on Thursday, 38 Studios laid off its entire staff of roughly 400 employees with no pay. It also cancelled their health insurance.
For a lack of a better description, 38 Studios went out of business. Now Rhode Island is stuck with the tab of roughly $112 million in loan principal, interest and fees. There’s little chance taxpayers will make up even a quarter of their potential losses, according to industry experts.
The story of 38 Studios has everything: sports stars, political incompetence, government bailouts, taxpayer outrage and — the kicker — big-budget video games.
The storm began nearly two years ago, when the Rhode Island Economic Development Corporation, under political pressure from former Republican Governor Donald Carcieri, gave 38 Studios $75 million in loan guarantees as an incentive to relocate from Massachusetts to Rhode Island.
The goal was noble: Rhode Island suffers from the second-highest unemployment rate in the nation — 11.2% — and has struggled to attract companies, which often prefer its northern neighbor Massachusetts. The pitch to politicians and taxpayers was that a big video game venture would help catalyze a local technology hub.
But the deal was flawed from the start, experts say.
38 Studios was barely three years old and hadn’t shipped a single product. Further, 38 Studios’ big project was the development of what’s known as a “massive-multiplayer online role playing game,” better known as a MMORPG. That’s an extremely expensive genre with a very mixed track record of financial success.
“I think Rhode Island was star-struck by Curt Schilling,” says Alexander Sliwinski, news editor for the video game site Joystiq. “You didn’t see Rhode Island give Harmonix, Irrational, Turbine — all companies with established track records — $75 million to move.”
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