Analysis: Brain drain is 38 Studios’ most pressing problem now
May 22nd, 2012 at 5:12 pm by Ted Nesi under Nesi's Notes, On the Main Site
Schilling with R.A. Salvatore and Todd McFarlane
Most of the discussion around 38 Studios up to now has focused on the company’s cash crunch. But the biggest threat to its survival may be a related but different problem: the brain drain.
38 Studios’ roughly 300 Rhode Island employees are surely well aware of their company’s problems by now; even those who’ve somehow missed the headlines couldn’t have missed the fact that they failed to get paid last week. Other developers are starting to circle Providence like vultures, with an eye on snatching away the firm’s top talent.
The fact that other companies are already wooing 38 Studios’ workers is further evidence that they are highly skilled individuals who’ll be in demand across the region, particularly in nearby Boston. And for obvious reasons, it is 38 Studios’ best workers who will be in the most demand.
If too many of those top people bail, 38 Studios could be crippled in its efforts to right the ship and move forward on “Project Copernicus,” even if Curt Schilling somehow finds a deep-pocketed investor to get him through the current storm. That’s not a recipe for success – and without a successful game, there’s no way 38 Studios can pay off the $75 million loan backed by Rhode Islanders.
Governor Chafee’s public comments probably haven’t helped. The governor has revealed 38 Studios’ $4 million monthly costs and its new June 2013 release date, reiterated its problems attracting private funding, and generally failed to inspire much public confidence in its prospects. That’s put taxpayers’ money at even greater risk, albeit indirectly.
However, most of the blame rests squarely on Schilling and his management team.
They should have known once Chafee won office – which happened the same day they sold the $75 million in bonds – that they weren’t going to get more help from Rhode Island. That should have focused them like a laser beam on getting the game done and sticking to the 2010 deal’s stipulations. Their lack of disclosure has made taxpayers – and Chafee – even more wary of supporting the firm.
Before 38 Studios collapses, though, it’s worth discussing whether Chafee – and Rhode Island – are making a mistake by letting the company go under. That might feel good, but it won’t do anything to protect taxpayers from taking a sizable loss or to keep hundreds of high-skilled workers from leaving Providence en masse.
If there’s a reasonable way to throw 38 Studios a lifeline, it might be worth it. But time is running out.
(photo: 38 Studios)
Tags: 38 studios, curt schilling, lincoln chafee
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
This is typical Rhode Island. The elected officals are inept thinking they are going to bring this well known sport figure who started his own company and finance him and it will work out. This is more of Rhode Islanders rube mentality, limited insight, poor judgment and myopic attitude of the world. Many of you have no clue how the world works, since most of you believe FDR is the Messiah and government owes you a living. Too bad for many of you morons you have no clue that there is money available for start ups, you just have to have a product that investors and venture capitalists want. Rhode Island is not the correct enviornment for investors and venture capitalist. Just take a look at the states reputation of being propublic sector union, and antibusiness stance.
Hey Mr. Ed,
Like the horse right? Yeah, you know where horse’s talk from right? Out of their own ass. Just like you are doing right now. Your “statesman” is not letting the developers finish the job. Your “statesman” has frozen the money going into the studio. Which means they don’t make any money to pay the state back which means you are indefinitely paying back a large lump of a loan. If this highly intelligent Governor of Rhode Island had any clue, he’d realize in order for the company to attempt to make any money back for the state, they need to let the team FINISH the game for public consumption. Otherwise, this is like borrowing money to build a company and firing them a year and a half later because they aren’t part of your Political Agenda. Oh wait, that is exactly whats happening.
Joe, you are a typical Rhode Islander, or worse some reject from southern New England! You have no clue how businesses raise money. They go to the venture capitalists, not the government for money. Not many state governments governments are the prime source of financing. Schilling did not put up his own money or go to the venture capitalists. I don’t think you know what they are or where to find them. I think you need to go back to the enviornment you are familiar with, Big Dan’s in 1983! You are pathetic, Joe Sousa.
Frozen the money?? What do you mean? They have all of it. The whole $49 Million. Are you are talking about the film tax credits?
Chafee is killing this company out of an egotistical need to say “I told you so.” FINALLY, someone in RI’s media understands at least part of the issue here — that there are 300 employees (and their families) who will be leaving the state due to Chafee’s actions. That’s 300 families no longer paying taxes in RI, no longer paying rent and mortgages in RI, no longer buying food and supporting local merchants, and so on. To those who think these are all MA residents who work in Providence, you couldn’t be more wrong. Many of them live in Providence, many others elsewhere in RI.
RI will be the big loser if Chafee succeeds in driving 38 Studios under, but that’s apparently just the way he wants it. But I guess RI has such an overload of well-paying high-tech jobs that it can afford to lose 300 of them. Right?
Wow, are you reading the book upside down.
How about if 38 Studios pulls it’s own weight instead of asking the state to do it? Make a product that is profitable. Chafee will be voted out of office if he gives you any more backing.
I have a company in RI and could create plenty of jobs in RI for $75 Million. At the very least, the jobs would be in a meaningul industry and not a time suck like video games.
The video game industry is a multi billion dollar industry. It’s estimated to hit $70 billion by 2015. Guess you and your buddy, Chafee, don’t think RI needs any of that “meaningless industry” money.
It’s not like paying people minimum wage to stamp out washers eight hours a day. RI has enough jobs like that (or it used to, before they all went overseas). The state needs to attract high-tech companies to move it from a backwater of the Industrial Revolution into the Information Age. This was (and still is, unless Chafee sinks it) a chance to do that.
Well the figures here don’t give me a good feeling that the company can be saved. If the game won’t be out for 13 months x $4 million expenses per month, they’ll need $52 million just to get to the release date (if it sticks.)
RI would basically need to double down on the grant money that 38 studios already spent and then hope that the game is a major success. That is one heck of a risk IMO.
Chafee is doing the right thing by refusing to “invest” another dollar in 38 Studios. I hope he is getting advice from Gina Raimondo, who you will remember, created and ran her own venture capital firm Point Judith Ventures prior to becoming general treasurer. Investing VCs are usually on the phone daily with the CEOs in their portfolio companies. Do you think Keith Stokes was in daily touch with Schilling? Probably not.
The state of Rhode Island needs to cut its losses and say goodbye to 38 Studios, just like MA’s governor Deval Patrick did when his $58 million in Evergreen Solar came up as a big loser.
For the first time since he became governor, Chafee is doing the right thing.
If the risk is reasonable and acceptable then a private bank will lend them the money. If they can’t get funding from a bank, that indicates that the bank thinks there is a poor chance of getting the money back. Why does the state of RI think they can beat the banks at their own game?
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And here all of us in Minnesota thought Jesse Ventura moved to mexico….