The Collapse of 38 Studios

AnimeJ wrote:

It's called speculation. And given that a whole lot of folks got screwed on mortgages, mortgage fraud at a minimum is the thought. So fraud on a massive level, across state lines generally invites a federal inquiry.

Do we have any evidence of this yet? All I've seen is one news story on a gaming website, and no offense to Phil Koller but I just don't trust game journalists as far as I can throw them. That sort of story would have been more widely reported. We don't know very much at all but the good thing is that this stuff will all come out due to the public nature of what happened. I just don't think we should jump the gun.

A lot of it is actually from the info release from RI.

Interesting if true but I would argue that still leaves a lot of questions he's not answering:
- If EA paid them $35 million for Reckoning and they were on the brink of signing a contract for the sequel, then it's even more questionable how they managed to burn through $50 million in loan money over the course of one year.
- This still doesn't explain how they behaved as if they were clueless that the company was broke until two weeks ago at best.

Curt Schilling weighs in on the situation.

Won't bother commenting much as this hasn't really changed my opinion of things thus far but a couple of interesting tidbits:

1. Apparently 38 Studios has seen no money from Reckoning because though EA allowed them to keep the IP, they advanced the company $35MM to complete the game and thus, all of the profits have gone to EA thus far.
2. A new $35MM deal to publish a sequel to Reckoning through another publisher was ready to be signed, sealed and delivered but public comments from RI apparently killed the deal right before 38 Studios was to receive the funds.
3. He says that they are still actively trying to find private funding but the state of RI holding control over the IP and continuing to make damaging public comments is keeping potential suitors at bay. The state claims they are willing to waive this requirement if it means the company can get the funding to keep going. He also says that the state declaring them in default when they did made 38 Studios suddenly ineligible for film tax credits that they could previously get and that's the reason they had to suddenly miss payroll. They scrambled to make the payment in order to get those credits re-instated and that was apparently part of the agreement but the state has refused to do so.
4. He says that between cash he's already put in and loan guarantees he's on the hook for, most of his saved wealth from his baseball career is tied up in the company. He seems to imply that if the company goes down, he will be pretty much ruined financially.
5. This is pretty clearly the beginning of a messy public battle between 38 Studios and RI. Even if 38 Studios can miraculously find someone willing to wade into this with new funding, I think RI is pissed at them for good and will want to make a political example of this.

kuddles wrote:

- If EA paid them $35 million for Reckoning and they were on the brink of signing a contract for the sequel, then it's even more questionable how they managed to burn through $50 million in loan money over the course of one year.

RI claims that 38 Studios was burning $4MM a month on payroll expenses alone with the MMO team.

kuddles wrote:

- This still doesn't explain how they behaved as if they were clueless that the company was broke until two weeks ago at best.

Yeah, this article doesn't really address much on the issue of why employees basically found out from the papers days before being laid off that the company was in trouble or things like the double mortgage gaff.

Parallax Abstraction wrote:
kuddles wrote:

- If EA paid them $35 million for Reckoning and they were on the brink of signing a contract for the sequel, then it's even more questionable how they managed to burn through $50 million in loan money over the course of one year.

RI claims that 38 Studios was burning $4MM a month on payroll expenses alone with the MMO team.

kuddles wrote:

- This still doesn't explain how they behaved as if they were clueless that the company was broke until two weeks ago at best.

Yeah, this article doesn't really address much on the issue of why employees basically found out from the papers days before being laid off that the company was in trouble or things like the double mortgage gaff.

Well, it doesn't surprise me at all that Schilling is going to try to find a way to pin as much as possible on the government. His business acumen and entrepreneurial spirit are obviously beyond reproach, and any evidence to the contrary is actually someone else's fault.

Frankly it's a good thing that the private investment got pulled, instead of keeping a company that was relying entirely on speculative investment to continue on life support another 6 months or a year. I rather doubt we would have seen those funds go to good use either.

It is kind of a shame, though, because if true it means that Big Huge had a new project and funding ready to go on the pipeline but instead are being dragged down by their broke owners for the second time in a row now.

I agree that they probably shouldn't be trusted with any more money, as much as I hate the situation it puts all their employees in. I don't know if the MMO was entirely vaporware, but considering they weren't originally planning on even releasing that teaser trailer and had not even shown a single aspect off to any press yet, I highly doubt it would have been ready for that Holiday 2013 release, let alone moving the release up to Spring.

Scratching my head here...I read my post and nowhere did I blame the employees for the companies failures...I asked a question if employees share some of the blame? When $50M plus the $42M produces a tech demo. I have to ask what people were doing for all these years..and when I say employees I mean all of them. Including the Directors etc...you know the guys that are hired by the executive team to really drive the project(s) forward.

This.

Although I am leaning to believe it is due to an outside-in development of the mmo. I think they got all excited to hire top $$$ talent, Todd McFarlan and R.A. Salvatore to visualize this fantastic world and lore, and that became the dominant (exclusive?) focus. It seems that getting the core game play concepts working and fun was last on the priority list or, from the evidence, never realized in any fashion.

But what other conclusion can you make with the evidence that has been given us in the time frame given? The game was announced and some 2 years later we see landscape concept drawings. Then this big bruhaha of Curt making the rounds at trade shows with all talk and no evidence of further progress on the game.

Then all the press about RI courting 38 Studios to move. And to be honest, I knew 38 Studios would leap at the deal (it was an obvious bail out... the writing was clearly on the wall there) but I was completely amazed that the deal was realized. At some point around this time, the CEO leaves and a new one is hired.

Then 38 buys Big Huge Games and announces the action RPG based on the universe for the mmo and still no concrete progress on the mmo. Funny that as soon as the action RPG is announced, we have tons and tons of interviews with the devs, combat footage, and skill system break downs for the action RPG.

Moderate buzz is generated for the action RPG. A luke warm demo is released. The buzz becomes muddier. But it picks up some steam in the weeks prior to release.

Kingdom of Amalur releases. It isn't an immediate smash. With DLC and news of an expansion or sequel, I don't doubt that KoAR could have sold close to 3 million over its lifetime. I have full confidence that BHG could have worked on the game's strengths and action RPG's tend to have legs, two major factors that would contribute to long term sales potential.

Then all the press about loan payment defaults and the public comments of the RI governor. All the contractors get layed off. A flythrough of the several visually impressive worlds is released.The health insurance expires and the top two development people in the company leave. Some screenshots of the game's race models get leaked. The employees are given pink slips and well we are current.

I shudder to think what a company like Turbine or CCP or perhaps even Cryptic or pre EA Mythic could have done in such time with such money. Hell, there would be quite a bit more done with half the budget and half the time. (and half the staff more than likely as well... especially at the top)

Schilling has a 6 figure contract with the MLB network right now. Whatever happens, he's in much better shape than anyone else that worked for 38 Studios.

mindset.threat wrote:

Schilling has a 6 figure contract with the MLB network right now. Whatever happens, he's in much better shape than anyone else that worked for 38 Studios.

Good for him, he has talents and experience that are valued.

It certainly sounds like he's taking this hard and trying his best to salvage whatever he can for himself as well as everyone else involved.

It's another question whether he will have the skill, luck and resources to salvage anything though.

TrashiDawa wrote:
mindset.threat wrote:

Schilling has a 6 figure contract with the MLB network right now. Whatever happens, he's in much better shape than anyone else that worked for 38 Studios.

Good for him, he has talents and experience that are valued.

I was gonna say, nobody else at 38 lifted the Curse of the Bambino.

mindset.threat wrote:

Schilling has a 6 figure contract with the MLB network right now. Whatever happens, he's in much better shape than anyone else that worked for 38 Studios.

Actually, you're wrong. The developers that worked there will be in better shape and more experienced.

Not that a 6 figure salary is unbearable, but going from 10s of millions of dollars to living off 6 figures is quite a step down, no? But I guess if he has multiple properties he could sell one off to recoup some of his millions.

If I had the money, I'd bail them out just to see what could become of the IP. This is assuming that once I saw the direction they were going with the game play isn't completely counter to ones I favor. (sandbox free for all pvp with meaningful death, woot!)

Now would I let management back in to help run the continued development? Hell no! And I would try to interview as many of the key leads as I can to assess not only talent but ability to finish projects. The staff would have to be drastically cut. There is no way even if I had the money that I would staff 300-400 people on the project. I'd take 30 of the best I could find and assess the progress in 6 months. At that point you can address additional staff needs.

But to be honest, I'd rather just buy Big Huge Games and help them makes a sequel or expansion.

fangblackbone wrote:

Not that a 6 figure salary is unbearable, but going from 10s of millions of dollars to living off 6 figures is quite a step down, no? But I guess if he has multiple properties he could sell one off to recoup some of his millions.

If I had the money, I'd bail them out just to see what could become of the IP. This is assuming that once I saw the direction they were going with the game play isn't completely counter to ones I favor. (sandbox free for all pvp with meaningful death, woot!)

Now would I let management back in to help run the continued development? Hell no! And I would try to interview as many of the key leads as I can to assess not only talent but ability to finish projects. The staff would have to be drastically cut. There is no way even if I had the money that I would staff 300-400 people on the project. I'd take 30 of the best I could find and assess the progress in 6 months. At that point you can address additional staff needs.

But to be honest, I'd rather just buy Big Huge Games and help them makes a sequel or expansion.

The deal with RI had employment requirements. The whole thing was a mess (and moral of the story to stay out of the government funding you trap).

AnimeJ wrote:

A lot of it is actually from the info release from RI.

Can you cite me a source? I have been looking and all i could find was the report from Bryan Crecente who I guess is some gold standard of video game reporting, even though he did a shoddy job on the original story. i would love something more firm.

Unless you can find video of the press conference the Gov up there held, no. A lot of what we're seeing is reporting from that; I don't know that they've actually released documentation. There's also a lot on twitter from various developers who were employed there.

fangblackbone wrote:

If I had the money, I'd bail them out just to see what could become of the IP. This is assuming that once I saw the direction they were going with the game play isn't completely counter to ones I favor. (sandbox free for all pvp with meaningful death, woot!)

That's just it i dont know if they know what they want or have a plan. These guys used the big names involved to get anticipation to a frenzy pace with Curt stating he's wanting to do something different than WoW and we'll love it. Then went on a 2 year countdown to show us a hint of what they've done and instead of showing us that. They pull a bait/switch with Reckoning.

Fang it could've very well been what you described, but for whatever reason they have refused to shed any light on it after saying they would.

AnimeJ wrote:

Unless you can find video of the press conference the Gov up there held, no. A lot of what we're seeing is reporting from that; I don't know that they've actually released documentation. There's also a lot on twitter from various developers who were employed there.

Again, I can find no evidence that the Gov. mentioned this at all.It all comes from Bryan Crecente who has a terrible track record of getting things wrong.

Fang it could've very well been what you described, but for whatever reason they have refused to shed any light on it after saying they would.

I know you know me well enough to know that expressing interest in a free for all pvp sandbox is complete sarcasm ;P

But I agree with everything you said. We have no idea what they planned or had implemented. There are, however, a few most common possibilities when it comes to games/software development:

1. They had something so cool and innovative that they wanted to keep it under wraps so that WoW or SWTOR didn't steal it.

2. They built a solid mmo foundation but couldn't finish it because everytime news of a hot new mmo feature was released, it had to be incorporated into the plan/mmo. Now think back to all of the breakthrough mechanics for mmo's over the last 5 years: WAR scenarios, renown rank and public quests; RIFT's skill system and dynamic events; WoW's numerous talent revamps, heirloom items, archaeology and glyphs; Secret World's skill system and ARG; SWTOR's story focus, space combat and hours of voice over; just about everything from GW2; etc.

3. They started with one direction, scrapped it for another, and then scrapped that for a third direction in a vain attempt to differentiate themselves. The cycle probably went in any combination of completely different directions or revisiting a direction with a significant tangent and then revisiting the 180 or tangent or both.

My speculation is the following: Number 1 is what leadership believed. Number 2 is what they demanded of the team. Number 3 is what the company has to show for it.

In other words: the MMO version of Duke Nukem Forever.

fangblackbone wrote:
Fang it could've very well been what you described, but for whatever reason they have refused to shed any light on it after saying they would.

I know you know me well enough to know that expressing interest in a free for all pvp sandbox is complete sarcasm ;P

But I agree with everything you said. We have no idea what they planned or had implemented. There are, however, a few most common possibilities when it comes to games/software development:

1. They had something so cool and innovative that they wanted to keep it under wraps so that WoW or SWTOR didn't steal it.

2. They built a solid mmo foundation but couldn't finish it because everytime news of a hot new mmo feature was released, it had to be incorporated into the plan/mmo. Now think back to all of the breakthrough mechanics for mmo's over the last 5 years: WAR scenarios, renown rank and public quests; RIFT's skill system and dynamic events; WoW's numerous talent revamps, heirloom items, archaeology and glyphs; Secret World's skill system and ARG; SWTOR's story focus, space combat and hours of voice over; just about everything from GW2; etc.

3. They started with one direction, scrapped it for another, and then scrapped that for a third direction in a vain attempt to differentiate themselves. The cycle probably went in any combination of completely different directions or revisiting a direction with a significant tangent and then revisiting the 180 or tangent or both.

My speculation is the following: Number 1 is what leadership believed. Number 2 is what they demanded of the team. Number 3 is what the company has to show for it.

I think it's a combination of some of those but mostly that these games are very expensive to make and take a whole lot of time. I was apart of a MMO that wasted millions of dollars on nothing before the company hired someone with the sole purpose of getting the thing out the door and that was almost 10 years ago when a game with 100,000 subscribers was considered a wild success.

I think one of the big problems is that they started the company with way too much capital and then got into some deals that required them to maintain a certain level of employment and things are expensive. We know that Blizzard is developing Titan, we have no idea how many people they have working on it but unless they are outsourcing a lot of the asset development it will be a whole heep of people. WoW was in development for something like 4 years before it released.

One of the sad things is that because this is so public everyone can point to specific things as a "waste" and therefore use it as an arrow to hit the management with. I am an accountant, I have done audits both on the financial reporting and forensic side and there is a whole lot of waste with any company. i think what will end up coming out of this is that Curt was a enthusiastic super nerd that had the money to put into his dream MMO and had the best intentions of wanting to do something awesome and wanted to be a good employer. The fact when BHG was going tits up he stood up and purchased the company and we didn't hear about big layoffs right around the time of the amaulr release speaks to a good character and not someone out to screw his employees because "he got his" i think the combination of taking that loan from RI with all the things connected to it are what did in the company. it may have delayed curt to waking up to the fact that he was going to have to give up equity and politicians are by and large completely soulless opportunists that have no interest in actually getting something done but in getting reelected, they will often do anything they can to grandstand. and because they are spending other peoples money (the tax payers) they don't have as much skin in the game as if they are spending their own money (such as VCs and private equity firms). when the sh*t started going down the gov. was out there trying to win the news cycle and curt shilling was out there trying to keep the company in business and release video games. i tend to side on the guy that wants to release games that i enjoy than the guy who is a well known opportunist.

EDIT: I kind of want to drop the "I covered MMOs before they were cool" card. I was a teenager and had to get my parents to sign a permission slip to work at IGN Vault....god I am old now.

Ulairi wrote:

EDIT: I kind of want to drop the "I covered MMOs before they were cool" card. I was a teenager and had to get my parents to sign a permission slip to work at IGN Vault....god I am old now.

back in the EQ/AC/UO days?

ranalin wrote:
Ulairi wrote:

EDIT: I kind of want to drop the "I covered MMOs before they were cool" card. I was a teenager and had to get my parents to sign a permission slip to work at IGN Vault....god I am old now.

back in the EQ/AC/UO days?

yeah.

ClockworkHouse wrote:

In other words: the MMO version of Duke Nukem Forever.

Well, for all of its trouble, DNF did make it to market. I seriously doubt that this ever will.

Curt is preying on the naive gamer to present this situation in as favorable light as possible. Frankly the Gov comments would have little or no impact on any private investors willingness to invest in 38 Studios. Bottom line any half decent private equity shop will do a thorough due dillegence where all the facts and financial situation would come out including all the details on their loan agreement with RI. And given the employment requirements no private investor would have touched this deal with a 10 foot pole unless the game was literally months away and RI would take a back seat to the new money.

The funding for BHG to complete KoA 2 was never gonna happen because of their ties to the RI studio...basically it's too much of a risk to front $35M+ on a studio with a burn rate of $4M a month with no ability to seperate.

I believe Guru does this for a living, so I suspect that may be expertise talking, not just idle speculation.

Malor wrote:

I believe Guru does this for a living, so I suspect that may be expertise talking, not just idle speculation.

Anyone who has taken any finance or accounting classes would know that as well. The whole employment agreement tied to the state funds is a poison pill. This sort of thing is why a lot of people are against these public/private partnerships because the two ends have different desires.

I believe Guru does this for a living, so I suspect that may be expertise talking, not just idle speculation.

Yeah and its pretty apparent that Schilling didn't do his due dilligence or didn't do enough of it before jump starting this project. I get the feeling that he probably looked at a Cryptic or Turbine, or his favored SOE, development budget and expected to make a WoW sized project with WoW sized production values.

TheGameguru wrote:

Curt is preying on the naive gamer to present this situation in as favorable light as possible. Frankly the Gov comments would have little or no impact on any private investors willingness to invest in 38 Studios.

That was only part of what he said though. If the state really was jerking 38 around the way that Curt claims, it seems to me that it would be difficult to make any business plans at all. He made the past couple of months sound like the state was playing some kind of heads-we-win-tails-you-lose game with them.

What I want to know is how did 38 get to the point where they had to ask the state to defer a payment and give them tax credits. Does the trouble go all the way back to 38 studios accepting a pyrrhic bargain with Rhode Island? Or before?

We're never going to know the real story unless some very able investigative reporter gets curious about this whole situation. I think there's a lot more to it than what we're seeing in the Rhode Island populist press.

BadKen wrote:
TheGameguru wrote:

Curt is preying on the naive gamer to present this situation in as favorable light as possible. Frankly the Gov comments would have little or no impact on any private investors willingness to invest in 38 Studios.

That was only part of what he said though. If the state really was jerking 38 around the way that Curt claims, it seems to me that it would be difficult to make any business plans at all. He made the past couple of months sound like the state was playing some kind of heads-we-win-tails-you-lose game with them.

What I want to know is how did 38 get to the point where they had to ask the state to defer a payment and give them tax credits. Does the trouble go all the way back to 38 studios accepting a pyrrhic bargain with Rhode Island? Or before?

We're never going to know the real story unless some very able investigative reporter gets curious about this whole situation. I think there's a lot more to it than what we're seeing in the Rhode Island populist press.

I wasnt referring to those events (and comments).. since as you said its difficult without the inside knowledge of the situation (its basically he said she said). I was specifically referring to Curt's comments on how the Gov's words in the press damaged 38 Studios chances with private investment as well as their Publishing deal for KoA 2.

Perspective from some anonymous insiders.

They paint the situation as Curt Schilling being one of the good guys who was unfortunately very naive and put a lot of trust in politicians and managers in his own company who largely are responsible for screwing the place over. The claim is that the company was relying on constantly securing new investment deals to keep things funded and that while progress was being made, they needed yet more deals to reach the finish line and none materialised, though apparently they were right on the edge of one which is why no one was told about missing payroll until the last minute. If true, I do admire Schilling trying his damndest to keep the ship afloat, though basing your business plan around the hope that you'll keep finding more people willing to pour money into it doesn't sound ideal either.