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)
By Ted Nesi and Sean Daly
PROVIDENCE, R.I. (WPRI) – The R.I. Economic Development Corporation board scheduled an emergency meeting for Wednesday morning after Curt Schilling’s video game company failed to make a required $1.125 million to the state, raising concern about its cash situation.
Update: House Speaker Gordon Fox just confirmed to WPRI 12′s Sean Daly that 38 Studios defaulted on May 1 when it failed to make the $1.125 million payment to the EDC that I discussed below. More to come.
Curt Schilling’s video-game company 38 Studios was supposed to make a major payment to the R.I. Economic Development Corporation on May 1, and now the quasi-public state agency won’t say whether it ever received the money it was owed.
Under the terms of the 2010 deal between 38 Studios and the EDC, the company agreed to pay the agency an “Annual Guaranty Fee” on May 1 each year. Documents obtained by WPRI.com say the fee is equal to 1.5% of the average amount of outstanding bonds, minus any amount in a prepayment account.
Based on that description it’s unclear exactly how much 38 Studios was supposed to pay the EDC at the start of this month. But with $75 million in bonds still outstanding, 1.5% of that total would be $1.125 million. The documents say failing to make the required payment to the EDC would be a technical default by 38 Studios.
Somewhat confusingly, the Annual Guaranty Fee that 38 Studios owes the EDC each May 1 is separate from the twice-a-year payments made to investors who purchased the $75 million in bonds.
It’s unclear right now exactly what’s going on with 38 Studios’ finances and how serious the problems there are. But considering the headlines, it’s worth taking a look at how the original $75 million deal was structured.
In November 2010, the EDC borrowed $75 million from private investors on behalf of 38 Studios. The quasi-public agency agreed to pay back the bondholders with money 38 Studios pledged to provide from sales of its games. The interest rates on the bonds range from 6% to 7.75%.
Because the EDC technically sold “moral obligation bonds,” the governor is required to ask the General Assembly to appropriate money to repay the bondholders if 38 Studios can’t pay up – but the lawmakers are not required to pony up the money. It’s assumed they probably wouldn’t default, however.
So how much money could taxpayers be looking at spending? When you add together principal and interest payments, the total cost of paying off the 38 Studios bonds is projected to be $112.6 million through 2020, according to bond documents reviewed by WPRI.com. Here’s how much the payments are annually:
It’s worth noting that about $23.4 million from the original $75 million loan was set aside as a reserve to pay the bonds back, so there’s some money available in addition to whatever taxpayers fork over.
Standard & Poor’s affirmed its A rating on the 38 Studios bonds, with a stable outlook, on April 20. Asked about this week’s developments, a spokesman for the rating agency told WPRI.com its analysts do not comment on rumors. The bonds are insured by Assured Guaranty Ltd.
Update: Just to clarify, Rhode Islanders are on the hook for $112.6 million in principal and interest payments on the 38 Studios bonds between now and 2020, but not every dime will need to come from taxpayers. As I mentioned above, $23.4 million was set aside in case something went wrong. Subtracting the $23.4 million from the $112.6 million total bill would put Rhode Island taxpayers’ direct tab at around $89.2 million.
More 38 Studios coverage on WPRI.com:
- GOP’s Robitaille: 38 Studios lesson is don’t pick winners and losers (May 15)
- 38 Studios’ finances under scrutiny; RI taxpayers’ $75M at risk (May 14)
- 38 Studios debut ‘Reckoning’ sells 80,000 in March; out of top 10 (April 18)
- Schilling praises ‘pure motives’ of RI pols to Fox News’ Hannity (March 21)
- Schilling game backed by RI taxpayers is high-risk, high-reward (Aug. 3, 2010)
- Rhode Island EDC OK’d $75M Schilling deal without final rules (July 27, 2010)
This post has been updated and expanded.
NORTH KINGSTOWN, R.I. (WPRI) – If the I-195 redevelopment commission wants to make the most of its post-Iway land bonanza, the panel would do well to pay a visit to the Quonset Development Corporation.
To this day, there remains a perception in some parts of the State House that tumbleweeds are the main attraction on the 3,000-plus acres of what used to be the Navy’s adjoining bases at Quonset and Davisville. But that idea is woefully out of date.
These days Quonset is a hotbed of activity and a rare economic bright spot in recession-ravaged Rhode Island, home to 168 companies that employ an estimated 8,800 workers, a third of whom have been hired in the last six years. Touring the enormous quasi-public industrial park is like visiting a well-preserved piece of postwar industrial America.
Steve King, who markets Quonset to businesses and manages its infrasturcture as QDC’s managing director, says things really started to pick up there around 2003. He attributes a big part of its success to a comparatively rapid-fire permitting process, which takes about 90 days, and major investments by the state and federal government in infrastructure. That includes $26 million in stimulus money being used to build roads and upgrade train tracks.
Rhode Island’s entire congressional delegation joined Governor Chafee in Pawtucket on Monday to ballyhoo the awarding of a $13 million stimulus grant to Rhode Island that will expand the EDC’s lending programs for small businesses.
“Small business,” like “seniors” and “education,” is one of those motherhood-and-apple-pie phrases beloved by politicians across the political spectrum. But are the state’s leaders barking up the wrong tree in their efforts to bring down our double-digit jobless rate?
That’s the argument made by Charles Kenny in his article “Rethinking the Boosterism About Small Business,” from the latest edition of Bloomberg Businessweek. Kenny, a fellow at the New America Foundation, says political leaders’ overoptimism about tiny enterprises may be holding back the economy:
[T]he notion that small business is the force behind prosperity is not true. The longer the U.S. and other countries cling to this myth, the harder it will be to carry out the kinds of economic policies that might actually stimulate job growth. …
[T]he vast majority of small enterprises stay small. Eighty percent of U.S. small companies that remained in business from 2000 to 2003 — the most recent period for which Hurst and Pugsley compiled data — didn’t add a single employee. …
If you’re looking for a lot of good-paying, stable jobs, you’d better hope there are some big companies around that want to hire. …
The disparities in job creation between large and small businesses also might mean that blanket animosity toward “corporate welfare” is misplaced. A few subsidies and breaks on the employer payroll tax, for example, would, if clearly linked to job creation, provide incentives for companies to hire.
There’s more in the full article. By Kenny’s reasoning, then, state leaders may be better off giving big incentives to large employers – as Rhode Island has with CVS Caremark, 38 Studios, Hasbro and Fidelity Investments, to name a few – than throwing lots of small amounts at lots of small companies.
Kaplan’s working title is ”The Business Model Innovation Factory: How to Stay Relevant While the World is Changing.” He signed a contract with publisher John Wiley & Sons to write the book after a senior editor there approached him with the idea.
The title will ring a bell for those who’ve followed Kaplan’s career – he’s also founder of the Business Innovation Factory, a seven-year-old Providence-based nonprofit that promotes new approaches in areas like health care, education and energy. It may be best-known for hosting the annual BIF conference.
“I have been speaking and writing about business-model innovation and the need for all leaders to do [research and development] for new business models to stay relevant in the 21st Century for some time,” Kaplan told WPRI.com in an e-mail.
Writing comes naturally to Kaplan – his output includes columns for Harvard Business Review and BusinessWeek, a blog called “It’s Saul Connected” and a steady stream of tweets. He plans to write the book over the next five months, with publication set for the spring of 2012.
“I am excited to tackle the challenge of writing a book, which is one of my bucket list items!” Kaplan added.
For more on Kaplan and BIF, check out this PBN story I wrote about the group back in 2009.
Update: Wiley senior editor Richard Narramore sent along an e-mail explaining why he decided to make Kaplan a published author:
Saul was recommended to me by another bestselling Wiley author, as a leading thinker on the topic of business models. I learned that he is the organizer of a prestigious conference I had heard about – the “Business Innovation Factory” summit, held annually in Rhode Island. Saul started this conference seven years ago, to bring together nationally and internationally known innovators and thought leaders to discuss the cutting edge of business, design, health care, and other interesting topics. I knew Saul’s book would grow out of this dialogue around thought leaders in innovation, so it would likely be fascinating and important.
I bet you’ll be able to buy Saul’s book at next year’s BIF-8 conference, too.
(photo: Saul Kaplan)
This story was a lot of work. But here are the results:
Rhode Island’s quasi-public agencies pay at least 67 of their employees more than $100,000 a year, with 25 of them making more than Gov. Lincoln Chafee, a Target 12 investigation reveals.
The Rhode Island Airport Corporation, the Rhode Island Public Transit Authority and 11 other quasi-public agencies paid 1,910 workers a total of $98 million in 2010, according to records obtained by Target 12.
The agencies’ workers are not listed on the state payroll provided by the Department of Administration. The amount Rhode Island’s government spent on salaries last year increases to $976 million if the 13 agencies are included.
First as a candidate and now as governor, Chafee has called for more oversight of spending and policy decisions at the quasi-public agencies, which are created by the General Assembly but legally separate from state government.
On Wednesday, he asked the executive directors of all quasi-public agencies to conduct a comprehensive review of their spending on outside contracts because of Rhode Island’s “perilous” financial condition. …
Target 12 also discovered the quasi-public agencies’ personnel spending doesn’t end with their payrolls. At least eight of the agencies scrutinized in our investigation acknowledged they pay private communications firms.
Read the full story on WPRI.com – and find out who tops the list of highest-paid quasi-public employees.
The announcement came, appropriately enough, via the company’s Twitter feed:
Today’s @EA financial report announced a @ReckoningGame launch of Q4, Fiscal Year 2012. To clarify, this is Q1 of calendar year 2012.
I reported back in March that EA had delayed the release of “Reckoning” until 2012, from its original release date of this September. Here’s the big story I did last summer about the company’s two games – “Reckoning” and Project Copernicus; the latter is the one being created here in Providence.
38 Studios has collected more than half the cash available from the $75 million taxpayer-guaranteed loan the Rhode Island Economic Development Corporation took out to get the company to move to Providence.
The video game company founded by former Red Sox pitcher Curt Schilling received a $17.2 million payment on April 18, six days after its employees started working out of the company’s new downtown headquarters, EDC spokeswoman Melissa Chambers told WPRI.com.
38 Studios has received a total of $39.6 million, or 53 percent of the loan money, in three installments since last fall. The first payment of $13 million was handed over when the loan transaction closed on Nov. 3, and the second payment of $9.4 million arrived after the company chose its future home in Providence.
This month, 38 Studios moved its local studio from Maynard, Mass., to the six-story, 104,316-square-foot One Empire Plaza building, which has been vacant since Blue Cross & Blue Shield of Rhode Island moved into its new headquarters. The gaming company has a second studio in Maryland for its Big Huge Games subsidiary.
38 Studios’ next payout will be for $4.2 million, which it can obtain once it has 125 full-time employees in Rhode Island, according to bond documents reviewed by WPRI.com. The company has promised to employ 450 people in the state by late 2013.
38 Studios is tentatively scheduled to have all but $11 million of the loan’s proceeds by the end of this year. It cannot receive the last chunk of money until it pays off the rest of the loan, which is supposed to happen by November 2020.
If 38 Studios doesn’t have enough cash to cover its loan payments, the governor is required to ask the General Assembly to provide taxpayer money to make investors whole.
The 38 Studios agreement was strongly backed by former Gov. Don Carcieri and just as staunchly opposed by his successor, Lincoln Chafee. Now that the loan is a done deal, the new governor says he wants 38 Studios to succeed – and hopes to attend its ribbon-cutting ceremony in Providence.
Authorization for the loan was provided by a new $125 million Job Creation Guaranty Program that lawmakers created last year partly to benefit 38 Studios. This week, Chafee got the EDC’s board to change the program’s rules to cap the size of future loans at $10 million – $65 million less than 38 Studios got – and make more money available to small businesses.
38 Studios is developing two games. The first one, “Kingdoms of Amalur: Reckoning,” is being created by its Maryland-based subsidiary. Electronic Arts is scheduled to release the $60 game for Playstation 3, Xbox 360 and PCs sometime next year.
The company’s second one, a massively multiplayer online game called Project Copernicus, is being developed in Providence. At the time the loan transaction closed, Copernicus was slated to be released in September 2012.
Remember the Verrecchia report?
That was the scathing outside review of the R.I. Economic Development Corporation commissioned by Governor Carcieri in late 2008, following the abrupt departure of its then-executive director, Saul Kaplan. The report’s recommendations inspired lawmakers to make a number of changes to the EDC the following year, and Lincoln Chafee cited it all the time as a way to back up his own criticisms of the agency during the campaign.
It’s worth noting, then, that Governor Chafee’s decision to only commit to one more year for Keith Stokes at the EDC’s helm, and Carcieri’s original decision to only give him a one-year contract, both go directly against a key point made by former Hasbro CEO Al Verrecchia and his co-authors.
“There has been far too much turnover at the [EDC] director level, and that, unquestionably, has affected the performance of the organization,” they said in their final report. Carcieri echoed that after the report was released, saying the EDC needed to be guided by someone whom business leaders and agency officials were confident would be around for the long haul.
More from the report:
Given the end of the Governor’s term in 2010, it may be difficult to attract the best candidate possible if the director position is perceived to have a short term. Accordingly, the State should be prepared to offer a 3-5 year employment contract at market-based compensation levels, if required. Naturally, the next Governor would have the flexibility to replace the director, but the guaranteed term of employment (as outlined in an agreement) should afford sufficient protection to candidates so that they consider the position an attractive one.
The General Assembly followed that advice by allowing the executive director to serve a three-year term, regardless of whether someone else takes office in the interim. Carcieri then offered the job to Ioanna Morfessis, who accepted before quickly backing out.
By that time, the EDC had been without a permanent leader for a year, and the state’s unemployment rate had long since hit double-digits. So Carcieri brought in Stokes – but only for a year. Now Chafee is keeping Stokes – but only for a year.
Chafee doesn’t have to get rid of Stokes next January, of course. But if Verrecchia & co. are to be believed, the failure to put someone at the helm of the EDC for the duration is hurting the state’s economic development efforts. Since Verrecchia is now chairman of the EDC board, maybe he’ll make that point to Chafee himself.
Update: Chafee spokesman Christian Vareika argues that focusing on how long Stokes serves in the job misses the report’s larger point, which is that the EDC needs to be given a clear direction.
“Nothing in what Governor Chafee has said about retaining Keith Stokes precludes him from completing his appointed term,” which goes until February 2013, Vareika said in an e-mail. “Further, the policy, strategy, and programmatic focus of the RIEDC is the purview of the governor and the [EDC] Board of Directors, and regardless of whether Stokes serves one year or more, there will be consistency in those areas.”
When Governor Carcieri appointed Stokes to lead the R.I. Economic Development Corporation last winter, Carcieri said he was appointing him to a one-year term so the next governor could decide what to do about the EDC once he took office.
But it turns out the Senate’s vote to confirm Stokes gave him a three-year term, so he can stay in the job until February 2013 without another confirmation vote, spokesman Christian Vareika told me a few minutes ago.
However – and here’s where it gets confusing – Carcieri’s agreement with Stokes only covered one year. So Stokes will now need to negotiate a new contract with the Chafee administration to figure out, among other things, how much he makes. Carcieri paid him $185,000, nearly double what Stokes’ predecessor made but less than the $250,000 offered to Ioanna Morfessis, who backed out after taking the job.
For now Chafee is only committing to keeping Stokes for another year, through next January. “During that time, the governor wants to develop a working relationship [with Stokes], and they’ll revisit the issue in a year’s time,” Vareika said.
Update: Only giving Stokes a one-year commitment also goes against the Verrecchia report that Chafee has praised in the past.
Governor Chafee has decided to retain Keith Stokes as executive director of the R.I. Economic Development Corporation. (Told ya.) Stokes was appointed to lead the agency last February by Governor Carcieri after Ioanna Morfessis decided not to take the gig. He makes $185,000 a year.
Mike Trainor, Chafee’s spokesman, tells me it’s unclear at the moment whether the Senate will need to approve Stokes’ reappointment.
The EDC’s press release from last year said Stokes “will serve in the position for one year, pending advice and consent of the Rhode Island State Senate.” According to Trainor, Stokes has a three-year contract with the EDC but only took a one-year leave of absence from his job as head of the Newport County Chamber of Commerce.
Thus it may be Stokes can continue on through February 2013 without action by the Senate. The administration’s legal team is sorting all that out at the moment, and Trainor says he’ll let us know when they figure things out.
Despite Chafee’s condemnation of the 38 Studios deal, Stokes has had kind words for the new governor since the day after the election.
As I mentioned in December, 38 Studios aside, Chafee and Stokes share similar versions of how Rhode Island should move forward economically – a point Chafee made in his statement today. “Keith Stokes shares my vision of encouraging the success of small business while building on Rhode Island’s economic assets,” he said, “from the soon-to-be-developed Station District in Warwick and the Knowledge District in Providence to our defense industry on Aquidneck Island and our impressive tourism industry.”
Update: Senate spokesman Greg Paré says the Senate is also looking into whether Stokes needs to come before the chamber again. He said it does appear Stokes was only given a one-year term when the vote was taken last February.
Update #2: Just spoke with Paré again, who said that after asking around some more, he’s not sure whether Stokes got one year or not. They’re trying to figure that out this afternoon.
Update #3: The mystery is solved – no vote is needed. See my follow-up post for more.
38 Studios had a good reason to firm up its May 1 target date for relocating to Rhode Island – it was worth nearly $10 million to the company.
The EDC just confirmed to me that the company recently received another hefty infusion of cash from its $75 million loan:
The video game company founded by former Red Sox pitch Curt Schilling got the $9.4 million payment last month after it confirmed plans to move from Maynard, Mass., to Providence by May 1, EDC spokeswoman Melissa Chambers told WPRI.com on Friday.
38 Studios has now received $22.4 million, or 30 percent of the loan money, in two installments. The first payment of $13 million was handed over when the loan transaction closed on Nov. 3.
38 Studios is moving to the six-story, 104,316-square-foot One Empire Plaza building in Providence, which has been vacant since Blue Cross & Blue Shield of Rhode Island relocated to a new facility near Providence Place mall. Renovations are currently under way at the building, owned by Boston-based Berkeley Investments.
38 Studios’ next payout will be for $17.2 million, according to the timeline in the bond documents. It can obtain that money once it relocates to Rhode Island and employs 80 full-time workers here.
The company is tentatively scheduled to have all but $11 million of the total loan money by the end of this year. It cannot receive the remainder of the money until it pays off the rest of the loan, which is supposed to happen by November 2020.
Full story on WPRI.com. Back in September, I did a big story explaining how the loan payouts to 38 Studios are structured, and I included a year-by-year timeline at the bottom of it. That story is here if you want to check it out.
I was curious how much Rhode Island taxpayers wound up spending on our unsuccessful effort to win the 2013 America’s Cup, so I asked the EDC to total up the cost. Here’s what I found out:
The R.I. Economic Development Corporation spent $68,141 on the state’s failed bid to host the 2013 America’s Cup race in Newport, Eyewitness News has learned.
Nearly all of that money – $67,500 – is paying for engineering and design work to prepare Fort Adams State Park for the international sailing competition, EDC spokeswoman Melissa Chambers said.
The contract for that went to The Louis Berger Group, an engineering firm based in Morristown, N.J. The company is still moving ahead with its work because the Cup’s organizers are considering allowing Newport to host some preliminary races.
Read the whole story on WPRI.com. My colleague Kat Sotnik will have more during the 6 p.m. news.
There’s been a bit of discussion today about whether Lincoln Chafee will keep Keith Stokes on as executive director of the much-criticized R.I. Economic Development Corporation following a Projo story that took up the question this morning. Dave Scharfenberg offers some context:
Chafee sharply criticized the EDC during the campaign over the 38 Studios deal, leading to heavy speculation that he would dump Stokes.
But that could be harder to do if Stokes pulls off the grand coup he has been working round the clock on in recent days: poaching an America’s Cup boat race that seemed destined for San Francisco just a few weeks ago.
Also worth mentioning is that Chafee said he was open to keeping Stokes in place during our Oct. 6 TV debate. The two men have known each other for years, and Stokes is widely respected in the business community. Stokes’ emphasis on job growth and infrastructure improvements fits Chafee’s stated goals nicely. And Stokes himself sounded quite conciliatory toward Chafee when I spoke to him the day after the election.
In light of the 38 Studios deal, it still wouldn’t be a surprise if Chafee tapped someone else to lead the EDC. But it shouldn’t be a huge surprise if he keeps Stokes, either. For the record, Stokes’ one-year term expires Feb. 11.
In the wake of yesterday’s two announcements from 38 Studios and the EDC – detailing the company’s new home and the $75 million bond transaction’s two investment-grade ratings – it seemed like a good time to step back and take a look at where things stand with the high-profile deal.
* When will the transaction close? I expect we’ll hear the bonds have been sold sometime in the next two weeks. Although the transaction’s closing date has been pushed back from the original target of Aug. 31, getting the lease and the ratings means it really is likely to close in early October, since those were the main hold-ups.
The draft bond memorandum I obtained said 38 Studios had to deliver the lease to EDC at least 10 days before the transaction closes, which would put the closing around Oct. 4 if that stipulation is still there. Plus, EDC officials always said it would take a week to 10 days to close the deal once the ratings were issued.
* When does 38 Studios start getting the money? The first chunk of loan money – $13 million – is supposed to be handed over to 38 Studios the same day the bond sale is completed.
* Where’s the PPM? That bit of alphabet soup – short for a Private Placement Memorandum – is a boring name for an important document, the one I mentioned earlier. The PPM will provide investors with important details about when and how they will get paid back, and it will include more details about 38 Studios’ business plan. The EDC promised to publicly release the PPM when a final version is mailed to investors, and spokesman Michael Blazek told me today it should be available late next week. Get excited!
* When’s move-in day at One Empire Plaza? We don’t know, but we should know by Nov. 30 – that’s when 38 Studios is supposed to announce a relocation date, and doing so entitles it to collect another $9.4 million in loan money. Then 38 Studios is supposed to have 80 employees there by Feb. 28, and if that happens it can get another $17.2 million.
One thing I’m still curious about is whether 38 Studios is leasing all six floors of One Empire Plaza right away, and if so what it’s going to do with all that space.
The six-story building has 104,316 square feet of space, though that includes 2,235 square feet of retail on the ground floor, which I assume 38 Studios is not leasing. Still, even 102,081 square feet is a lot of space – the company’s current location in Maynard, Mass., only has about half that much room, according to the document I reviewed. Its other studio – the Big Huge Games one in Maryland – is only 19,000 square feet, and 38 Studios plans to leave some people there anyway.
(image credit: Joystiq)
Frank Caprio may have capsized the $75 million deal with Curt Schilling’s 38 Studios, and the governor is not pleased. More in my new story on the main site:
Gov. Donald Carcieri was blindsided and angered by Caprio’s public criticism of the deal, which began in an interview published in this morning’s edition of the elite financial newspaper Bond Buyer and continued in a lengthy press release the treasurer’s gubernatorial campaign released laying out his opposition. …
In addition to the Bond Buyer interview, over the last two days Caprio brought his concerns directly to analysts at Moody’s and Standard & Poor’s, the two credit-rating agencies that are currently evaluating the 38 Studios guarantee. The transaction is expected to close by the end of September, according to EDC officials.
On top of that, the financiers working on the deal will check in with the treasurer’s office to ensure its soundness and the accuracy of the state’s financial disclosures. “They basically look to his office to determine the endorsement of the state, so could it kill the deal? Yes it could,” David Layman, a spokesman for the treasury, told Eyewitness News.
Read the whole thing. And if you have questions about the 38 Studios agreement, leave them in the comments and I will try to answer them.
General Treasurer and gubernatorial candidate Frank Caprio came out against the 38 Studios loan guarantee deal in an interview with Bond Buyer today (subscription required). He had cautiously supported the deal last month.
Caprio joins just about every other candidate for office – including his chief rival, Lincoln Chafee – in opposing the $75 million taxpayer guarantee, which is expected to close by the end of this month.
Update: A number of things jump out to me about this. First off, Caprio’s discussion of the bond prospectus for the deal directly contradicts what the R.I. Economic Development Corporation’s Fred Hashway told me on Friday – namely, that there is no prospectus for the deal. What’s going on here?
Second, Caprio’s opposition will pack more punch than Chafee’s because he is the state’s general treasurer, which gives him a fiduciary responsibility to watch over the state’s finances and bond rating. Investors (and the two ratings agencies) are going to be concerned that one of the state’s constitutional officers – the one responsible for the state’s checkbook, who may be its next chief executive – is against this deal.
Third, this will not do much for Caprio’s relationship with Gov. Donald Carcieri.
I’ve asked both Amy Kempe, Carcieri’s spokeswoman, and the EDC for their response to Caprio’s comments. I’ll update if I hear anything.
Update #2: Just got a statement from EDC brushing off Caprio’s criticism and saying the agency is still going forward with the deal. Here it is: “RIEDC has a legal, business and moral obligation to move forward with this business investment opportunity as voted on by the RIEDC Board of Directors and outlined under the executed terms and conditions of the agreement. We are working toward a closing date.”
Update #3: A bit of a whirlwind day after Caprio’s 38 Studios announcement. Check out my analysis in this new story over on the main site.
Excerpts from Caprio’s press release announcing his opposition after the jump.
Lame duck Gov. Donald Carcieri has had a few less-than-nice things to say about his former-fellow-Republican, Lincoln Chafee, who’s now running for governor. Chafee has gotten Carcieri’s dander up by going after the governor’s support for the $75 million loan guarantee to Curt Schilling’s video game company, 38 Studios.
One interesting wrinkle in all this is Carcieri’s relationship with another gubernatorial candidate, Democrat Frank Caprio. The two men worked together at Cookson America in the 1990s, and are said to have a warm rapport. With Carcieri’s former aide, Republican John Robitaille, trailing Chafee and Caprio in the polls, the man who is likely the governor’s second-favorite candidate – Caprio – could reap the benefits of any damage Carcieri does to Chafee.
(It would make it a lot easier to type blog entries about the three of them if at least one of these men had a last name that didn’t start with “C.” At least Chafee’s “A” doesn’t come until the third letter.)
Meanwhile, officials at the EDC told me today it may take until near the end of September for Wells Fargo and Barclays to close on the 38 Studios loan transaction. Much more in my new story over on the main site.
The Projo’s PolitiFact Rhode Island has an item today calling out EDC Executive Director Keith Stokes for describing video games as “a growth industry,” a statement he made while defending the $75 million loan guarantee the agency has agreed to provide 38 Studios, Curt Schilling’s video game company.
PolitiFact says the statement is “barely true,” since video game sales fell in the U.S. last year (as well as back in 2005). And indeed, the NPD Group, my trusted source on such matters, said U.S. game sales dropped 8 percent in 2009 compared with 2008. The decline was also 8 percent when you add in the other two top game markets, the U.K. and Japan. Here’s the crux of PolitiFact’s beef:
By all accounts, the video gaming industry has grown substantially since the 1990s, topping more than $46 billion worldwide. But the sharp drop in U.S. sales in 2005 and 2009, combined with last year’s minimal increase in global sales — or decline, depending on who’s giving you the numbers — show that, at least for those years, the growth in the industry has not been consistent. Strategy Analytics, in its report to the EDC projecting double-digit growth over the next five years for the type of game 38 Studios plans to develop, noted as much.
Stokes could have said that the overall trend in the video gaming business has been strongly upward despite a downturn or two. But he didn’t. He said growth in the industry was clear and consistent. So we rate his comment as Barely True.
These questions are tough, I think. The U.S. economy was likely in recession for at least half of 2009, and U.S. retail sales were down 6.2 percent across the board last year, so it may have been an outlier. (Considering Rhode Island’s unemployment rate averaged 11.2 percent last year, let’s hope it was an outlier.)
The R.I. Economic Development Corporation is looking to hire three new executives: a Director of Regulatory Reform, a Managing Director of Research, Strategy & Policy, and a Managing Director of Communications.
The agency wants an economist for the policy gig and either a policy wonk or a lawyer for the regulator role. (Ironically, the link to the communications job posting doesn’t work.)
The jobs are part of EDC Executive Director Keith Stokes‘ efforts to shake up the agency and tackle the economic woes that have left Rhode Island with an 11.9 percent unemployment rate.
A search committee made up of Stokes, senior EDC officials and members of the agency’s board will start reviewing applications early next month and then begin interviewing candidates later in the month, EDC spokesman Michael Blazek told me. The agency hopes to fill the positions by the end of the year.
The $64,000 (at least) question: How much will the trio get paid?
As more than one observer has pointed out, in the end the state’s decision to back a $75 million loan to Curt Schilling’s gaming company, 38 Studios, will be judged based on whether the company is successful. And that will depend on whether its two games – one scheduled for next year, and a bigger one with a TBD release date – are hits. I took a look at their prospects in a new story just posted on the main site:
Curt Schilling faces daunting challenges – but not insurmountable ones – in turning his company’s flagship video game into a hit and making good on his promises to Rhode Island.
The retired Red Sox ace’s 38 Studios is aiming to crack the toughest section of the gaming market with its Copernicus project, a so-called massive multiplayer online game, or MMO. …
Creating an MMO “is a big gamble, and it’s very unlikely he’ll be successful” with Copernicus, Mike Hickey, an analyst at Janco Partners in Colorado, told Eyewitness News. Schilling “must be a great marketer, because it’s a pretty difficult market to raise capital in,” he said.
One interesting piece of the whole brouhaha about the Curt Schilling deal is the difference of opinion we’re seeing on it between current officeholders and candidates. The AP’s Michelle Smith found all five candidates for governor questioning the $75 million loan guarantee last weekend, and Red Sox executive Jeremy Kapstein, who is running for lieutenant governor, expressed doubts, too.
By contrast, Gov. Donald L. Carcieri – who chairs the R.I. Economic Development Corporation’s board, and can’t run for re-election because of term limits – backed the deal and helped get eight of the nine board members in attendance Monday to vote for it.
The EDC’s press release heralding the deal included supportive quotes from House Speaker Gordon Fox and Senate President M. Teresa Paiva Weed, as well. (Of course, Fox and Paiva Weed are candidates this fall, too – but their leadership of the House and Senate won’t be on the ballot, just their individual seats.) And Keith Stokes, head of the EDC, told me lawmakers specifically drafted the legislation creating the loan guarantee program to make sure $75 million was available for Schilling.
There are a few ways you could look at this.
One argument – the one made to me yesterday by Stokes – is that candidates running for office have to make these statements because they think it’s good politics. It gets them attention from talk radio, TV stations and the papers, and creates a campaign issue. By contrast, officials like Gov. Carcieri and the EDC board have to make tough decisions because they are actually in charge of running the state right now.
That is certainly plausible. But there are other ways to look at it.
For one thing, these candidates have not spent as much time being briefed by 38 Studios – which means they haven’t seen all of the information that helped sway Carcieri and the board. That means they could be unaware of some crucial positive factors in 38 Studios’ favor – or they could have a clearer perspective on the deal because they weren’t so close to it (and Schilling’s celebrity).
In addition to that, the various candidates who have questioned the deal are all speaking with voters every day and will face them this fall. If they are hearing significant doubts about the 38 Studios deal out on the hustings, that could mean they are expressing what a large number of regular Rhode Islanders think about the deal. (I would love to see a good poll on public opinion about it.) We’ll see.
Update: Well, looks like one current officeholder who is also a candidate is backing the 38 Studios deal: General Treasuer Frank Caprio. The Democratic candidate for governor now tells WRNI he’s “going to be a cheerleader for” the deal. “Let’s do everything in a top-shelf fashion, and let’s put the wind at the back of 38 Studios, and let’s make sure it’s a success,” he said.
Having reported on the Rhode Island economy for a bit more than two years now, I am pretty intimately familiar with the R.I. Economic Development Corporation, aka the EDC. But with the agency’s board now giving high-profile backing to Curt Schilling’s video game company, I’m seeing the agency referenced in some unlikely places – such as Boston Globe sports writer Dan Shaughnessy’s column this morning:
Finally, hats off to the ship of fools known as the Rhode Island Economic Development Corp. The RIEDC yesterday pledged a $75 million loan guarantee to lure Curt Schilling’s game company (the one with no games) to the Ocean State. It’s the best demonstration of sports sycophants gone wild with public money since the yahoos in Connecticut promised to give Bob Kraft the world to move his team to Yo Adriaen’s Landing in Hartford.
Not the sort of coverage the agency wants, of course, though in fairness Shaughnessy’s never been Schilling’s biggest fan to begin with.