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Curt Schilling's Hubris and "Rampant Optimism" Were at the Center of His Video Game Company Disaster

Curt Schilling’s company, 38 Studios, went into bankruptcy last month, defaulting on a $75 million loan from the state of Rhode Island. Boston Magazine’s Jason Schwartz has exclusive interviews with Schilling and other employees and key figures detailing the collapse, which will appear in the print version of the magazine on July 31st, and is now available online. If you want to get an understanding of how a former baseball star embarks on a risky venture, and then gets a state government to fund him when no one else would, I highly recommend it.

The story of athlete as business failure is not a new one. Often, though, the stated reason is that the athlete is a money source, gets bad advice, and trusts the wrong people. That is not so much the case here. This failure was driven by Schilling, and a product of his lack of business acumen while relying on many of the same skills that served him well in baseball but poorly in another setting. Video games were Curt Schilling’s passion, and he had a vision to produce a massive multi-user game that could compete with World of Warcraft. The story told by Schwartz is one of hubris by Schilling, rampant optimism, and generosity that bordered on largesse for a start up company that should have taken a more conservative tact.

A major issue was Schilling’s decision to pursue a massive game that would take several years, without developing smaller mobile games first to create a pipeline. “In movie terms, then, Schilling was attempting to start a studio from scratch, but instead of beginning with a low-budget indie flick, he was going straight for the summer blockbuster. His first time behind the camera, he was going to make Avatar,” Schwartz wrote.

Against that background, of a company taking on a great challenge without building experience, Schilling operated like a far more well financed and established operation. He came from a baseball world where the employees get a lot of perks. That was his world. He was generous to a fault, buying laptops with his own money, fully funding health care right away, buying company cars and having a house for use by relocating employees. According to the story, the company spent over $705,000 in travel and entertainment expenses in a fiscal year before the Rhode Island state loan.

A big issue was Schilling’s hesitance in giving up equity in the company, as he had grand visions of making huge profits after investing his own money. But venture capitalists and investors were extremely hesitant to invest their own money in his dream. By 2010, four years after the company started and the year of the original projected game release date in Schilling’s wildly optimistic dreams, the company had no influx of cash. They also had no games on the market.

That’s when he approached the state of Rhode Island and got the massive $75 million dollar jobs creation loan. Of course, in exchange for receiving that loan, the company had to move to Rhode Island and actually meet job creation milestones. Thus, the company continued to bring on employees and add titles. Schilling was described as very hands on after his retirement, though his lack of business background and sense did not always make that a good thing. One anonymous employee said that he would randomly dip into to give direct orders to employees, contrary to what they were told by their superiors, often adding significant work. He was also described as stubborn, and ignored advice if he did not like it.

As the company was in trouble, Schilling did not tell employees. 38 Studios was already missing payments to outside companies, and the loan from Rhode Island was running out. At the end of April, they started missing payroll, about three weeks before they first missed a payment to the state of Rhode Island. The warning signs were there months earlier. One understandably very upset employee who was brought on in January of this year asked on Facebook why he was hired in the first place, when he sold his house for a loss, and ended up with an unpaid relocation package and no health care for his pregnant wife.

This story isn’t over. Schilling’s company is under federal and state investigations. Schilling, who took a leave of absence from work at ESPN last month, claims he doesn’t have the money to pay back wages, and may have to seek personal bankruptcy as he personally guaranteed some of the company’s loans. Whether it was criminal or just wildly irresponsible, Schilling’s failure should stand as a warning. The baseball world isn’t the real world, and things don’t come easily.

[photo via US Presswire]

 

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