Why’d the EDC demand $1.125M from 38 Studios now, anyway?
May 16th, 2012 at 5:00 am by Ted Nesi under Nesi's Notes, On the Main Site
Mayor Taveras at 38 Studios' HQ
It’s pretty clear at this point what happened to 38 Studios over the past two weeks that caused such consternation.
For some reason – likely a shortage of cash, though we don’t know for sure – 38 Studios failed to make a $1.125 million payment to the R.I. Economic Development Corporation that was due on May 1. That put the company in technical default of its bond agreement, sending the company scrambling to find other sources of funds.
As I explained Tuesday, the $1.125 million is an “Annual Guaranty Fee” (based on the percentage of the outstanding loan) that 38 Studios is supposed to pay the EDC annually on May 1. Based on EDC documents, it doesn’t look like the fee is to cover bond payments or anything like that; it’s just money the EDC gets to keep.
That raises the question of why the EDC is charging such a fee at all, and especially how it ever expected 38 Studios to have $1.125 million lying around before the game it’s funding has even been released. Startups are notoriously short of cash, almost by definition - they’re spending money but not making it (yet). Expecting 38 Studios to have more than $1 million available without “Copernicus” on sale was always a recipe for trouble.
Still, if 38 Studios has burned through all of the nearly $50 million it’s gotten from the $75 million loan without “Copernicus” anywhere near ready for release, it raises serious questions about whether the company is undercapitalized. Now the EDC board must decide if Rhode Island doubles down to salvage its original investment.
Update: Just before noon – three hours after the EDC board meeting began – Governor Chafee’s spokeswoman confirmed that the group was “ordering lunch and settling in.” Schilling and 38 Studios executives are at the meeting to brief them about the situation.
(photo: city of Providence)
Tags: 38 studios, curt schilling, riedc
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
The good thing for Schilling is he will only have to pay a $ 25.00 late fee.
This what is needed now! If you people want to grow jobs, lower tax rates for all businesses instead of select businesses. Next elminate zoning, to start the building of a quality housing stock and elminate the triple deckers. Last people who start businesses want an educated and ethical workforce. Rhode Island lacks in both of these areas. Rhode Island public schools sucks and do a pathetic job of educating the kids, except to work in the dumps on Federal Hill waiting tables.
Ed the talking horses a** speaks again! Ed I am NOT in any union for the last time. I live RI, unlike you who lives in Houston( home of the illegal). I’m educated, unlike yopu again! What you do not get is the state will lose in court. The lawyers will be rich and the tax payers on the hook if the state doesn’t act soon. Massive lay-offs are needed. Does that sound like a union member, dope!
Rhode Island is economically dead in the water. No company will establish operations in Rhode Island. No American busines operator in their right mind would set up a business in Rhode Island. The only thing Rhode Island has is a lot of eateries that sell frozen food at very high prices.
[...] Rhode Island is hyperfocused on Curt Schilling. But unlike eight years ago when he heroically hurled us to a World Series victory, this time we have to rely on his business – not athletic – acumen. His video game company, 38 Studios, was given a taxpayer guaranteed $75 million loan to move from Massachusetts to the Ocean State. But already he’s missed a $1.125 payment to the state. [...]
Check with your bud Gina about fees and interest rates charged by venture capital companies like her Point Judith Capital. You could also ask about the percent of new firms they back which fail. It is likely pretty high which is why they charge such high “vig” so they still make a profit. Of course when the government offers venture capital (called loan guarantees or tax breaks) any percent of failure is taken as intolerable. PS: Speaking of Point Judith Capital profits, you could also ask Gina how she forgot to include any of her share in that company on the tax returns she released. Even if her share in now in a trust, that trust files a tax return and she is still the beneficiary. Also since her firm moved to Boston does her trust pay any RI taxes?
If Schilling already took his $4 million dollars out, why should the taxpayers foot any more this abominable deal? Let him “recapitalize” by returning the $4 million he took!!!
Gina will be your next Governor Misses B
Her campaign slogan: “Contracts shmontracts, we welch at will. No one is to blame…”
If Gina runs for Governor will the Judges with $ 200.000 a pensions she left alone, and the RISP pensions she left alone be supporting her ?